What matters is what the company says about it's chances of survival:
MEDICAL ALARM CONCEPTS HOLDING, INC.
(Exact name of registrant as specified in its charter)
Nevada 26-1280759
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification
No.)
200 W. Church Road
Suite B
King of Prussia, PA 19406
(Address of principal executive offices)
(877) 639-2929
(Registrant’s telephone number, including area code)
Securities registered pursuant to
Section 12(b) of the Act:
Securities registered pursuant to
Section 12(g) of the Act:
(Title of Each Class)
None Common Stock, $0.0001 par
value
1 A. Risk Factors
We operate in a market environment that is difficult to predict and involves significant risks and uncertainties, many of which are beyond our control. The following risk factors and other information included in this annual report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.
(1) Risks Related to Our Business
The report of the independent registered public accounting firm on our 2011 and 2010 financial statements contains a going concern qualification.
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The report of the independent registered public accounting firm covering our financial statements for the years ended June 30, 2011 and 2010 stated that certain factors, including that we have a working capital and shareholder deficit, raise substantial doubt as to our ability to continue as a going concern. Because our revenue production history is limited, we are dependent upon raising capital to continue our business. If we are unable to raise capital, we may not be able to continue as a going concern.
Weakness in the economy has adversely affected and may continue to adversely affect our customers, which has resulted and may continue to result in decreased usage and advertising levels, customer acquisitions and customer retention rates and, in turn, could lead to a decrease in our revenues or rate of revenue growth.
Certain segments of our customers have been and may continue to be adversely affected by the current weakness in the general economy. To the extent these customers have been adversely affected by the economic downturn and their usage of our services and/or our customer retention rates could fluctuate. This may result in decreased recurring revenues, which may adversely impact our revenues and profitability.
Our level of indebtedness could adversely affect our financial flexibility and our competitive position.
Our total indebtedness as of June 30, 2011 was $3,403,524. Our level of indebtedness could have significant effects on our business. For example, it could:
· Make it more difficult for us to satisfy our obligations with respect to current notes outstanding and any other indebtedness we may occur in the future;
· increase our vulnerability to adverse changes in general economic, industry and competitive conditions;
· require us to dedicate a substantial portion of our cash flow to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital;
· limit our flexibility in planning for, or reacting to, changes in our business and industry in which we compete;
· restrict us from exploiting good business opportunities;
· make it more difficult to satisfy our financial obligations;
· place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
· limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
To service our debt and fund our other capital requirements, including the acquisition of inventory, we will require a significant amount of cash, and our ability to generate cash will depend on many factors beyond our control.
Our ability to meet our debt service obligations and to fund working capital, capital expenditures, acquisitions and other elements of our business strategy and other general corporate purposes, will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. To some extent, this is subject to general and regional economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot ensure that we will generate cash flow from operations, or that future borrowings will be available, in an amount sufficient to enable us to pay our debt, or to fund our other liquidity needs.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional indebtedness or equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our obligations.
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Our inability to generate sufficient cash flows to satisfy our obligations, or to refinance our indebtedness on commercially reasonable terms, or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our debt obligations.
Our growth will depend on our ability to develop our brand, market our current MediPendant® product brands, and launch new products in the future, and these efforts may be costly.
We believe that continuing to strengthen our current brand and effectively launch a new version of the MediPendant® will be critical to achieving widespread acceptance of our services, and will require continued focus on active marketing efforts. The demand for and cost of online and traditional advertising have been increasing and may continue to increase. Accordingly, we may need to spend increasing amounts of money on, and devote greater resources to, advertising, marketing and other efforts to create and maintain loyalty among users. Product promotion activities may not yield increased revenues, and even if they do, any increased revenues may not offset the expenses incurred in building our brands. If we fail to promote and maintain our brands, or if we incur substantial expense in an unsuccessful attempt to promote and maintain our brands, our business could be harmed.
If the security of our customers’ confidential information is breached or otherwise subjected to unauthorized access, our reputation may be harmed, we may be exposed to liability and we may lose the ability to offer our customers a credit card payment option.
We have agreements with third-parties related to certain functions of our business operation. These third-parties must protect our customers’ confidential information including credit card information where applicable. Any accidental or willful security breaches or other unauthorized access could expose us to liability for the loss of such information, time-consuming and expensive litigation and other possible liabilities as well as negative publicity. If security measures are breached because of third-party employee error or malfeasance, or if design flaws in its software are exposed and exploited, and, as a result, a hacker obtains unauthorized access to any of our customers’ data, our relationships with our customers will be severely damaged, and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, our third-party support company may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, nearly every state has enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures. Any security breach, whether actual or perceived, would harm our reputation, and we could lose customers.
We rely heavily on the revenue generated for monitoring services and this dependence is expected to continue.
A substantial portion of our revenues are generated via monthly monitoring services. This segment's success is therefore dependent on our ability to maintain a robust group of customers willing to pay for such services and is further dependent on our ability to procure contract monitoring center services at a price that will allow us to produce positive gross margins. If the demand for monitoring services decreases, and we are unable to replace lost revenues from decreasing usage or cancellation of monitoring services, our results and cash flow could be materially and adversely affected.
A system failure or security breach could delay or interrupt service to our customers or harm our reputation or subject us to significant liability.
Our operations are dependent on third-party monitoring centers being free from interruption by damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry, computer viruses, cyber attacks or other events beyond our control. There can be no assurance that our existing and planned precautions will be adequate to prevent significant damage, system failure or loss of customers. Despite the implementation of security measures by our 3rd party vendors, our infrastructure may be vulnerable to system failures, computer viruses, cyber attacks, or other issues beyond our control. Currently a significant number of our customers authorize us to build their credit or debit cards directly for the purchase of MediPendant® and monthly monitoring services. Any system failure or security breaches that causes interruption to our ability to utilize credit or debit card systems, could adversely affect our results and our financial condition. Any of these events could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.
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Our services are dependent on a small number of monitoring centers and our inability to maintain agreements at attractive rates with such monitoring centers may negatively impact our business.
Our services substantially depend on the capacity, affordability, reliability and security of the monitoring centers in which we contract for services. There are a limited number of such monitoring centers. Any or all of our current monitoring centers could discontinue providing us with services at rates acceptable to us, or at all, and we may not be able to obtain adequate replacement, which would materially and adversely affect our business, prospects, financial condition, operating results and cash flows.
The successful operation of our business depends on the supply of critical elements and marketing relationships from other companies.
We depend on 3rd parties for several critical elements of our business including equipment procurement, infrastructure, customer service, and selected marketing components. We rely on 3rd party providers for our Internet and other connections. Any disruption in the services provided by any of these suppliers, or any failure by them to handle current or higher volumes of activity could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows. To obtain customers, we rely on operators of leading search engines and websites. Failure to continue these relationships on terms that are acceptable to us or to continue to create additional relationships could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.
Inadequate intellectual property protections could prevent us from enforcing or defending our proprietary technology and could be costly.
Our success depends in part upon our proprietary technology. We rely on a combination of patents, trademarks, trade secrets, and copyrights to protect our proprietary technology. However, these measures provide only limited protection, and we may not be able to detect unauthorized use or take appropriate steps to enforce our intellectual property rights. We have licensed patents and there can be no assurance that any of these patents will not be challenged, invalidated or circumvented, or that any rights granted under these patents will in fact provide competitive advantages to us.
In addition, effective protection of patents, copyrights, trademarks, trade secrets and other intellectual property may be unavailable or limited in some foreign countries. As a result, we may not be able to effectively prevent competitors in these regions from infringing our intellectual property rights, which could reduce our competitive advantage and ability to compete in those regions and negatively impact our business.
Companies in our segments have experienced litigation regarding intellectual property. Litigation to enforce or defend our intellectual property rights may be expensive and time-consuming, could divert management resources and may not be adequate to protect our business. We may be found to have infringed the intellectual property rights of others, which could expose us to substantial damages or restrict our operations.
We may be subject to claims and legal proceedings that we have infringed the intellectual property rights of others. The ready availability of damages and royalties and the potential for injunctive relief has increased the costs associated with litigation and settlement of patent infringement claims. In addition, we may be required to indemnify our resellers and users for similar claims made against them. Any claims against us, whether or not meritorious, could require us to spend significant time and money in litigation, pay damages, develop new intellectual property or acquire licenses to intellectual property that is the subject of the infringement claims. These licenses, if required, may not be available at all or have acceptable terms. As a result, intellectual property claims against us could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.
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We may be engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a significant amount of our management's time and attention.
From time to time we may be subject to litigation or claims, including in the areas of patent infringement that could negatively affect our business operations and financial condition. Such disputes could cause us to incur unforeseen expenses, occupy a significant amount of our management's time and attention and negatively affect our business operations and financial condition.
The markets in which we operate are highly competitive and our competitors may have greater resources to commit to growth, superior technologies, cheaper pricing or more effective marketing strategies.
For information regarding our competition, see the section entitled Competition contained in this Annual Report on Form 10-K. In addition, some of our competitors include major companies with much greater resources and significantly larger subscriber bases than we have. Some of these competitors may offer their services at lower prices than we do. These companies may be able to develop and expand their network infrastructures and capabilities more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily and devote greater resources to the marketing and sale of their products and services than we can. There can be no assurance that additional competitors will not enter markets that we are currently serving and plan to serve or that we will be able to compete effectively. Competitive pressures may reduce our revenue, operating profits or both. If our competitors are more successful than we are in developing and deploying compelling products or in attracting and retaining users, our revenue and growth rates could decline.
If we cannot manage our growth effectively and expand our technology, we may not become profitable.
Businesses which grow rapidly often have difficulty managing their growth. If Medical Alarm Concepts is successful, we may incur rapid and substantial growth. Because of this rapid growth, we will need to expand our technology, add management by recruiting and employing experienced executives and key employees capable of providing the necessary support. We cannot assure you that our management will be able to manage our growth effectively or successfully and expand our technology and capacity as needed. Our failure to meet these challenges could cause us to lose money.
Our business is highly dependent on our billing systems.
A significant part of our revenues depends on prompt and accurate billing processes. Customer billing is a highly complex process, and our billing systems must efficiently interface with third-party systems, such as those of credit card processing companies. Our ability to accurately and efficiently bill our customers is dependent on the successful operation of our billing systems and the third-party systems upon which we rely, such as our credit card processor, and our ability to provide these third parties the information required to process transactions. Any failures or errors in our billing systems or procedures could impair our ability to properly bill our current customers or attract and service new customers, and thereby could materially and adversely affect our business and financial results.
Future acquisitions could result in dilution, operating difficulties and other harmful consequences, and may require us to incur additional indebtedness.
We may acquire or invest in additional businesses, products, services and technologies that complement or augment our service offerings and customer base. We cannot assure that we will successfully identify suitable acquisition candidates, integrate or manage disparate technologies, lines of business, personnel and corporate cultures, realize our business strategy or the expected return on our investment, or manage a geographically dispersed company. Acquisitions could divert attention from management and from other business concerns and could expose us to unforeseen liabilities or unfavorable accounting treatment. In addition, we may lose key employees while integrating any new companies, and we may have difficulties entering new markets where we have no or limited prior experience.
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We may pay for some acquisitions by issuing additional common stock, which would dilute current stockholders, or incur debt, which may cause us to incur additional interest expense, leverage and debt service requirements. We may also use cash to make acquisitions, which may limit our availability of cash for other uses, such as interest payments, stock repurchases or dividends. We will be required to review goodwill and other intangible assets for impairment in connection with past and future acquisitions, which may materially increase operating expenses if an impairment issue is identified.
Our success depends on our retention of our executive officers, senior management and our ability to hire and retain key personnel.
Our success depends on the skills, experience and performance of executive officers, senior management and other key personnel. The loss of the services of one or more of our executive officers, senior managers or other key employees could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows. Our future success also depends on our continuing ability to attract, integrate and retain highly qualified technical, sales and managerial personnel. Competition for these people is intense, and there can be no assurance that we can retain our key employees or that we can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future.
We are exposed to risk if we cannot maintain or adhere to our internal controls and procedures.
We have established and continue to maintain, assess and update our internal controls and procedures regarding our business operations and financial reporting. Our internal controls and procedures are designed to provide reasonable assurances regarding our business operations and financial reporting. However, because of the inherent limitations in this process, internal controls and procedures may not prevent or detect all errors as or misstatements. To the extent our internal controls are inadequate or not adhered to by our employees, our business, financial condition and operating results could be materially adversely affected.
If we are not able to maintain internal controls and procedures in a timely manner, or without adequate compliance, we may be unable to accurately report our financial results or prevent fraud and may be subject to sanctions or investigations by regulatory authorities such as the SEC. Any such action or restatement of prior-period financial results could harm our business or investors' confidence in the company, and could cause our stock price to fall.
We may be subject to legal liability associated with providing monitoring services.
We host and provide a variety of services and technology products in support of our MediPendant® product. As a result, we may be subject to certain associated liabilities. Defense of any such actions could be costly and involve significant time and attention of our management and other resources, may result in monetary liabilities or penalties, and may require us to change our business in an adverse manner.
(2) Risks Related to our Industry
The industry in which we operate is undergoing rapid technological changes and we may not be able to keep up.
The industry in which we operate is subject to rapid and significant technological change. We cannot predict the effect of technological changes on our business. We expect that new services and technologies will emerge in the markets in which we compete. These new services and technologies may be superior to the services and technologies that we use or these new services may render our services and technologies obsolete. Our future success will depend, in part, on our ability to anticipate and adapt to technological changes and evolving industry standards. We may be unable to obtain access to new technologies on acceptable terms or at all, and may therefore be unable to offer services in a competitive manner. Any of the foregoing risks could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.
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We are subject to a variety of new and existing laws and regulations, which could subject us to claims, judgments, monetary liabilities and other remedies, and to limitations on our business practices.
The application of existing domestic and international laws and regulations to us relating to issues such as user privacy and data protection, security, defamation, pricing, advertising, taxation, promotions, billing, consumer protection, accessibility, and intellectual property ownership and infringement in many instances is unclear or unsettled. In addition, we will also be subject to any new laws and regulations directly applicable to our domestic and international activities. Internationally, we may also be subject to laws regulating our activities in foreign countries and to foreign laws and regulations that are inconsistent from country to country. We may incur substantial liabilities for expenses necessary to defend such litigation or to comply with these laws and regulations, as well as potential substantial penalties for any failure to comply. Compliance with these laws and regulations may also cause us to change or limit our business practices in a manner adverse to our business.
(3) Risk Related to Our Common Stock
Our stock price may be volatile or may decline.
Our stock price and trading volumes have been volatile and we expect that this volatility will continue in the future due to factors, such as:
• Assessments of the size of our subscriber base and our average revenue per subscriber, and comparisons of our results areas versus prior performance and that of our competitors;
• Variations between our actual results and investor expectations;
• Regulatory or competitive developments affecting our markets;
• Investor perceptions of us and comparable public companies;
• Conditions and trends in the communications, messaging and Internet-related industries;
• Announcements of technological innovations and acquisitions;
• Introduction of new services by us or our competitors;
• Developments with respect to intellectual property rights;
• Conditions and trends in the Internet and other technology industries;
• Rumors, gossip or speculation published on public chat or bulletin boards;
• General market conditions; and
• Geopolitical events such as war, threat of war or terrorist actions.
In addition, the stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stocks of technology and other companies, particularly communications and Internet companies. These broad market fluctuations have previously resulted in a material decline in the market price of our common stock. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management's attention and resources, which could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.
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Future sales of our common stock may negatively affect our stock price.
Sales of a substantial number of shares of common stock in the public market or the perception of such sales could cause the market price of our common stock to decline. These sales also might make it more difficult for us to sell equity securities in the future at a price that we think is appropriate, or at all.
Anti-takeover provisions could negatively impact our stockholders.
Provisions of Nevada law and of our certificate of incorporation and bylaws could make it more difficult for a third-party to acquire control of us. These provisions could make it more difficult for a third-party to acquire us even if an acquisition might be in the best interest of our stockholders.
Because the market for our common stock is limited, persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid by them.
Our common stock trades on the OTC Markets, which is not a liquid market. There is currently only a limited public market for our common stock. We cannot assure you that an active public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may continue to decline.
Because we are subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock which adversely affects its liquidity and market price.
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a mark willet price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the Bulletin Board has been substantially less than $5.00 per share and therefore we are currently considered a “penny stock” according to SEC rules. This designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Our business office is located at 200 West Church Road Suite B, King of Prussia, PA 19406. This office is leased.
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