UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   FOR THE QUARTERLY PERIOD ENDED  February 29, 2015

 

OR

 

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   FOR THE TRANSITION PERIOD FROM _______ TO ________.

 

COMMISSION FILE NUMBER: 0-52518

 

EVENT CARDIO GROUP INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada		20 - 8051714
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
7694 Colony Palm Drive Boynton Beach, Florida		33436
(Address of principal executive offices)		(Zip code)

 

212-321-0091

 (Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [x]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)		Smaller reporting company [x]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

 

As of February 29, 2016, 119,455,321 shares of Common Stock, $0.001 par value, were outstanding.

EVENT CARDIO GROUP INC.

CONTENTS TO FORM 10-Q

 

PART I -	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets at February 29, 2016 (Unaudited) and August 31, 2015	1
	Consolidated Statements of Comprehensive Loss for the Six and Three Months Ended February 29, 2016  (Unaudited)	2
	Consolidated Statements of Cash Flows for the Six and Three Months Ended February 29, 2016  (Unaudited)	3
	Notes to Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	19
PART II -	OTHER INFORMATION	20
Item 1.	Legal Proceedings	20
Item1A	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Sales of Registered Securities	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
Signatures		22
Exhibit/Index

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

EVENT CARDIO GROUP INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		February 29, 2016				August 31, 2015
ASSETS:
Current Assets
Cash		$	23,135			$	32,427
Prepaid expenses			425,132				568,537
Financing costs, net			101,172				105,999
Total Current Assets			448,267				706,963
Investment in Medpac Asia Pacific Unit Trust			202,882				—
Prepaid expenses - non-current portion			285,715				392,516
Property and equipment, net			593				1,214
Deposit on equipment purchase			250,000				150,000
TOTAL ASSETS		$	1,168,629			$	1,250,693
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current Liabilities
Accounts payable		$	395,602			$	598,835
Due to related parties			40,827				55,864
Notes payable - related parties			—				549,502
Total Current Liabilities			436,429				1,204,201
Convertible Notes Payable - Related Parties			1,235,123				525,000
TOTAL LIABILITIES			1,671,552				1,729,201
Stockholders' Deficit
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 10,000,000 shares issued and outstanding			10,000				10,000
Common stock,190,000,000 shares authorized at $0.001 par value, 119,455,321 shares issued and outstanding at February 29, 2016 and 109,460,321 issued and outstanding at August 31, 2015			119,455				109,460
Additional paid in capital			2,984,387				2,110,237
Equity instruments to be issued			295,144				168,950
Accumulated other comprehensive income			475,219				103,432
Accumulated deficit			(4,267,128	)			(2,980,587	)
TOTAL STOCKHOLDERS' DEFICIT			(502,923	)			(478,508	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	1,168,629			$	1,250,693

 

EVENT CARDIO GROUP INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE SIX MONTHS ENDED FEBRUARY 29, 2016 and FEBRUARY 28, 2015

(Unaudited)

 

		Three Months Ended February 29,								Six Months Ended February 29,
		2016				2015				2016				2015
Revenue		$	—			$	—			$	—			$	—
Operating Expenses
General and administrative			368,020				190,832				755,553				303,471
Research and development - related party			284,176				3,416				284,176				138,229
Research and development - other			23,900				66,870				104,110				76,870
Total Operating Expenses			646,096				261,118				1,143,839				518,570
Loss from Operations			(646,096	)			(261,118	)			(1,143,839	)			(518,570	)
Other Expenses
Interest expense - related parties			16,922				20,480				33,912				40,070
Interest expense - other			7,618				—				18,118				—
Amortization - loan costs			56,090				8,707				90,672				17,414
Loss before Income Taxes			(756,726	)			(290,305	)			(1,286,541	)			(576,054	)
Provision for Income Taxes			—				—				—				—
Net Loss		$	(756,726	)		$	(290,305	)			(1,286,541	)			(576,054	)
Other Comprehensive Income
Foreign currency translation adjustment			313,303				92,677				371,787				76,521
Comprehensive Loss		$	(443,423	)		$	(197,628	)		$	(914,754	)		$	(499,533	)
Loss per Share:
Basic and Diluted loss per share		$	(0.006	)		$	(0.003	)		$	(0.01	)		$	(0.006	)
Weighted Average Number of Shares Outstanding
Basic and Diluted			119,328,947				90,301,774				116,556,366				88,683,381

 

EVENT CARDIO GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED FEBRUARY 29, 2016 and FEBRUARY 28, 2015

(Unaudited)

 

		Six Months Ended
		February 29, 2016				February 28, 2015
Cash Flows from Operating Activities
Net loss		$	(1,286,541	)		$	(576,054	)
Adjustments to reconcile net loss to net cash used in operations:
Amortization of prepaid expenses			606,663				32,250
Equity instruments to be issued cancelled re financing costs			(85,950	)			—
Warrants issued for research and development - related party			78,996				—
Depreciation of property and equipment			594				699
Amortization of financing costs			90,672				15,134
Income from investment in Medpac Asia Pacific Unit Trust			(2,882	)			—
Changes in assets and liabilities:
Prepaid expenses			(33,555	)			(112,500	)
Accounts payable			(108,130	)			176,303
Net cash used in operating activities			(740,133	)			(464,168	)
Cash Flows from Investing Activities
Deposit on equipment purchase			(100,000	)			—
Cash Flows from Financing Activities
Repayments of due to related parties			(14,121	)			—
Advances from related parties			—				11,798
Proceeds from notes payable - related parties			53,956				195,163
Proceeds from issuance of common shares			180,000				197,000
Proceeds received on equity instruments to be issued			255,144				—
Net cash provided by financing activities			474,979				403,961
Effect of exchange rate on cash			355,862				25,974
Decrease in Cash			(9,292	)			(34,233	)
Cash, beginning of period			32,427				86,617
Cash, end of period		$	23,135			$	52,384
Non-Cash Supplemental Cash Flow Information:
Issuance of common shares and common share purchase warrants for services recorded as prepaid expenses		$	340,902			$	—
Issuance of common shares for investment in Medpac Asia Pacific Unit Trust		$	200,000			$	—
Issuance of convertible note payable - related party for notes payable - related parties, accrued interest and financing costs		$	671,351			$	—
Issuance of common share purchase warrants for financing costs		$	59,247			$	—

 

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015
(Unaudited)

 

1. OVERVIEW

 

Description of Business

 

Event Cardio Group Inc. ("the Company") was incorporated under the name Sunrise Holdings Limited on October 26, 2005 under the laws of Nevada and changed its name to Event Cardio Group Inc. on November 7, 2014. The Company is developing a cardiac monitoring device based on a wireless and leadless advanced cardiac monitor. Upon completion of the development the device will collect medical data and transmit it to physicians for diagnostic evaluation. The Company also has a license agreement to distribute a patented product in the use of breast disease detection.

 

On September 8, 2014, the Company entered into a share exchange agreement with 2340960 Ontario Inc.'s shareholders whereby the Company acquired all of the issued and outstanding common shares of 2340960 Ontario Inc. in exchange for 79,500,000 common shares of the Company. Upon completion of this transaction, the shareholders of 2340960 Ontario Inc. held approximately 93.6% of voting control of the Company. This transaction, has been accounted for as a reverse merger with 2340960 Ontario Inc. being the accounting acquirer and the Company being the acquiree. In connection with this transaction, the Company changed its fiscal year end from September 30th to August 31st.

  

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not generated any revenue since inception, has incurred losses, and has an accumulated deficit of $4,267,128 as of February 29, 2016. These factors among others raise substantial doubt about the ability of the Company to continue as a going concern.

 

The continuation of the Company as a going concern is dependent upon financial support from its stockholders, the ability of the Company to obtain necessary equity financing to continue operations, successfully locating and negotiating with other business entities for potential acquisitions and/or acquiring new clients to generate revenues. There is no assurance that the Company will ever be profitable. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

Basis of Presentation

 

These financial statements include the accounts of the Company and its wholly owned subsidiaries 2340960 Ontario Inc. and EFIL Sub of ECG Inc. All inter-company accounts and transactions have been eliminated.

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of  February 29, 2016 and the results of operations and cash flows for the periods presented. The results of operations for the three months and six months ended February 29, 2016 are not necessarily indicative of the operating results for the full fiscal year or any future period. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the form 10-K filed with the SEC on December 14, 2015.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

1. OVERVIEW (continued)

 

The Company has elected to adopt early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements and does not present or disclose inception-to-date information and other remaining disclosure requirements of Topic 915.

  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

In preparing these financial statements in conformity with GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting years. Actual results could differ from those estimates.

 

Fair Value Measurements

 

ASC 820, “Fair Value Measurements”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, inputs other than level one that are either directly or indirectly observable such as quoted prices for identical or similar assets or liabilities on markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company had no assets or liabilities required to be recorded at fair value on a recurring basis as of February 29, 2016 or August 31, 2015.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, and accounts payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features  are comparable to rates of returns for instruments of similar credit risk. 

 

Share Based Compensation

 

The Company applies ASC 718 Share-Based Compensation and ASC 505 Equity to account for service provider share-based payments. In accordance with ASC 718 and ASC 505, the Company determines whether a share based payment should be classified and accounted for as a liability award or equity award. All grants of share-based payments to service providers are classified as equity awards and are recognized in the financial statements over the period in which the services are received based on the fair value determined as of the measurement date. Included in prepaid expenses on the accompanying balance sheet at February 29, 2016 and August 31, 2015 is the unamortized portion of share based payments for services to be rendered of $612,227 and $791,962 respectively.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes

 

Under ASC 740, "Income Taxes", deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, the Company has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.

 

The Company files income tax returns in Canada and the United States with varying statutes of limitations. The Company's policy is to recognize interest expense and penalties related to income tax matters as a component of our provision for income taxes.

 

Foreign Currency Translation

 

The Company's reporting and functional currency is the U.S. dollar. The Company's Canadian operation's functional currency is the Canadian dollar. The Company's U.S. subsidiary's functional currency is the U.S. dollar.

 

Transactions originating in Canadian dollars are translated to the functional currency of the US dollar as follows: using period end rates of exchange for assets and liabilities, average rates of exchange for the period of transactions for revenues and expenses and historical rates for equity.

 

The financial statements of the Company's Canadian operations are translated from the functional currency of the Canadian dollar into the reporting currency of the United States dollar in accordance with ASC 830, Foreign Currency Matters, using period end rates of exchange for assets and liabilities, average rates of exchange for the period for revenues and expenses and historical rates for equity.

 

Translation adjustments resulting from the process of translating the functional currency of Canadian dollar Canadian operation's financial statements into the reporting currency of U.S. dollar financial statements are included in determining comprehensive income. As of February 29, 2016 and August 31, 2015, the cumulative translation adjustment of $475,219 and $103,432 respectively was classified as accumulated other comprehensive income in the stockholders' deficit section of the balance sheet. For the periods ended February 29, 2016 and February 28, 2015, the foreign currency translation adjustment to accumulated other comprehensive income was $371,787 and $92,677 respectively.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Comprehensive Loss

 

Comprehensive loss is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, Accounting Standards Codification (ASC) 200, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For the year presented, the Company's comprehensive loss includes net loss and foreign currency translation adjustments and is presented in the statement of comprehensive loss.

 

Investments in non-consolidated subsidiaries

 

Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

 

Research and Development Expenses

 

All research and development costs are expensed as incurred.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The Company accounts for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: To record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

 

New Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. generally accepted accounting principles (GAAP). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers Deferral of the Effective Date, which defers the effective date of the new revenue recognition standard by one year, as a result, public entities would apply the new revenue standard to annual reporting periods beginning after December 15, 2017 and interim periods therein, which is the Company's first quarter of fiscal 2019. Early adoption is permitted for all entities only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The guidance allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in this guidance using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of ASU 2015-02 in the first quarter of fiscal 2017 is not expected to have a material impact on the Company’s financial condition or results of operations.

 

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12), which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-12 in the first quarter of fiscal 2017 is not expected to have a material impact on the Company's financial condition or results of operations.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In August 2014, the FASB issued Accounting Standards Update 2014–15 (“ASU 2014-15), “Presentation of Financial Statements – Going Concern (Subtopic 205 – 40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Since this guidance is primarily around certain disclosures to the financial statements, we anticipate no impact on our financial position or results of operations from adopting this standard. We are currently assessing the additional disclosure requirements, if any, of ASU 2014-15. ASU 2014-15 is effective for the annual period ended December 31, 2016 and for annual periods and interim periods thereafter with early adoption permitted.

  

3. INVESTMENT IN MEDPAC ASIA PACIFIC UNIT TRUST

 

The Company, in exchange for 4,000,000 common shares, valued at $200,000, acquired, on December 16, 2015, 200,000 trust units of Medpac Asia Pacific Unit Trust representing approximately 32.86% of the entity's voting units and thus has significant influence over the entity. As such, it is accounted for using the equity method. The company's proportionate share of the entity's income is adjusted for any inter-entity transactions between the company and the entity, which in this case would be interest on the convertible note payable described in Note 5.

 

4. DUE TO RELATED PARTIES

 

The amounts due to related parties are non-interest bearing, with no fixed terms of repayment, are payable on demand and are unsecured. As of February 29, 2016 and August 31, 2015, the amounts of due to related parties are $40,827 and $55,864 respectively. 

 

5. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

 

The company offered, pursuant to a Regulation S Subscription Agreement and Investment Representation dated February 3, 2015, up to $2,000,000 of 8% convertible notes with interest payable annually on January 31st. The holder upon written notice to the company may elect to have accrued but unpaid interest added to the principal amount of the note in lieu of payment of interest. The principal amount of the note is payable on January 31, 2018. The note, or any part thereof and any unpaid interest is convertible into common shares of the company at any time at the option of the holder at a conversion price of $0.15 per common share. The note may be prepaid at any time in full by the company upon ten days notice to the holder. As at February 29, 2016, $525,000 of the convertible notes payable have been issued as follows.

 

Medpac Asia Pacific Unit Trust ("Medpac") for $500,000. In addition to the terms of the convertible note payable described above, if the note is prepaid by the company at any time prior to the maturity date, if the volume weighted average price of the common shares of the company for the ten trading days preceding the early repayment date is less than $0.15 per common share, then Medpac shall receive a number of common share purchase warrants sufficient to purchase up to 1% of the then outstanding number of common shares of the Company. Such common share purchase warrants once issued would be exercisable for a period of three years at an exercise price of $0.15 per common share, but may be exercised on a cashless basis in accordance with a specified formula.

 

Medpac also received, for its services as part of the transaction noted above, a convertible note payable of $25,000 having terms and conditions identical to Medpac's other convertible note payable described above, except that the number of common share purchase warrants potentially issuable upon early payment of the note would be sufficient to only purchase up to 0.0005% of the then outstanding common shares of the company.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

5. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES (continued)

 

At the time of Medpac's investment noted above, the Company agreed to enter into an exclusive Distribution Agreement with Medpac for the Company's BreastCare DTS™ and Now Cardio devices in Australia, New Zealand, Singapore, Thailand, Malaysia, Indonesia, Philippines, Vietnam, Laos, Cambodia, Myanmar and Bangladesh. The Distribution Agreement will have an initial term of five years and can be renewed for an additional five years provided that agreed upon sales targets are met. If the company does not establish a manufacturing facility for its BreastCare DTS™ device in Southeast Asia within eighteen months of this agreement, Medpac and the company will form a joint venture to establish such a facility in the Philippines.

 

As at February 29, 2016 and August 31, 2015, the Company has a convertible promissory note outstanding to 2399371 Ontario Inc., a company owned by an affiliate, for $960,300 Canadian ($710,123 US$) and $nil Canadian ($nil US$), respectively. The note bears interest at 12% per annum with principal and interest both payable on the maturity date of January 31, 2018. The principal amount of the note together with any accrued interest is convertible into shares of the common stock of the Company at a conversion price of $0.0873 Canadian. The note is secured by the common shares of 2340960 Ontario Inc. and a lien on all of the company's assets.

 

This note was issued on February 10, 2016, in satisfaction of the following other notes payable - related parties, accrued interest and financing fees: a promissory note to 2399371 Ontario Inc., a company owned by an affiliate, for $583,000 Canadian ($419,424 US$) plus accrued interest on such note of $110,770 Canadian ($79,691 US$); a promissory note to 2399371 Ontario Inc., a company owned by an affiliate, for $64,500 Canadian ($48,496 US$) plus accrued interest on such note of $4,515 Canadian ($3,339 US$); a promissory note to 2399371 Ontario Inc., a company owned by an affiliate, for $91,499 Canadian ($65,827 US$), which was issued December 18, 2015 in satisfaction of a promissory note to 9058583 Canada Inc., a company owned by an affiliate, plus accrued interest on such note of $2,346 Canadian ($1,735 US$); a promissory note to 2399371 Ontario Inc., a company owned by an affiliate, for $75,000 Canadian issued December 18, 2015 ($54,030 US$) plus accrued interest on such note of $1,923 Canadian ($1,422 US$); plus financing fees of $26,746 Canadian (19,242 US$). Commitments to issue 600,000 common shares valued at $43,200 and 600,000 common share purchase warrants valued at $42,750 related to the above extinguished notes payable - related parties have been cancelled.

 

Accrued interest on convertible notes payable - related parties as at February 29, 2016 and August 31, 2015 was $35,000 and $14,000 respectively and is included in accounts payable. 

  

6. STOCKHOLDERS' DEFICIT

 

Common Shares and Common Share Purchase Warrant Issuance

 

On September 28, 2015, the Company issued 4,100,000 common shares for proceeds of $205,000. In conjunction with this common share offering the company also issued 520,000 common shares in respect of finders fees.

 

On September 28, 2015, the Company issued 1,250,000 common shares in exchange for a service agreement for a fair value of $137,500.

 

On November 3, 2015, the Company issued 750,000 common shares in exchange for a service agreement for a fair value of $75,000.

 

On November 3, 2015, the Company issued 125,000 common shares in exchange for a service agreement for a fair value of $12,500.

 

On January 16, 2016, the Company issued 4,000,000 common shares in exchange for the investment in Medpac Asia Pacific Unit Trust for a fair value of $200,000.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

6. STOCKHOLDERS' DEFICIT(continued)

 

On February 8, 2016, the Company cancelled 750,000 common shares with a par value of $750 and additional paid in capital amount of $16,280, that were issued on September 28, 2015 due to default under the service agreement.

 

Common Share Purchase Warrants

 

On February 12, 2016, the Company issued 13,750,000 common share purchase warrants for research and development, compensation and consulting services with a fair value of $271,176.

 

As of February 29, 2016 there are 20,050,000 common share purchase warrants issued and outstanding. 2,200,000 common share purchase warrants allow the holder to purchase 1 common share of the company at an exercise price of $0.10 per warrant up to the expiration date of August 27, 2019. 4,100,000 common share purchase warrants allow the holder to purchase 1 common share of the company at an exercise price of $0.10 per warrant up to the expiration date of September 28, 2019. 2,000,000 common share purchase warrants allow the holder to purchase 1 share of the company at an exercise price of $0.03 per warrant up to the expiration date of February 28, 2019. 11,750,000 common share purchase warrants allow the holder to purchase 1 share of the company at an exercise price of $0.01 per warrant up to the expiration date of February 28, 2019.

 

Equity Instruments to be Issued

 

The company has received $56,451 related to subscriptions for 1,050,000 common shares to be issued in the future.

 

The company has received $335,000 Canadian ($238,693 US) related to subscriptions on the commitment to issue common shares and common share purchase warrants noted below.

 

Commitment to Issue Common Shares and Common Share Purchase Warrants

 

On February 17, 2016, the company entered into subscription agreements with ten individuals for an aggregate proceeds of $1,500,000 Canadian ($1,082,251 US) to issue an aggregate of 16,901,400 common shares and 10,000,000 common share purchase warrants, exerciseable at $0.15 per common share up to February 28, 2019. It is anticipated that issuances under the subscription agreements will be as follows:

 

Date		Amount (Cdn $)				Number of Common Shares to be issued				Number of Common Share Purchase Warrants to be issued
Upon acceptance of subscription		$	335,000				3,774,810				2,233,000
March 1, 2016			325,000				3,661,570				2,166,000
April 1, 2016			230,000				2,591,710				1,533,000
May 1, 2016			160,000				1,802,410				1,066,000
June 1, 2016			165,000				1,859,880				1,100,000
July 1, 2016			155,000				1,746,640				1,033,000
August 1, 2016			130,000				1,464,380				869,000
		$	1,500,000				16,901,400				10,000,000

 

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

6. STOCKHOLDERS' DEFICIT(continued)

 

Equity Incentive Plan

 

The Company has created the Event Cardio Group Inc. 2015 Equity Incentive Plan ("equity incentive plan") which allows for the granting of incentive stock options to employees of the company, a parent or a subsidiary and the granting of awards other than incentive stock options to employees, directors and consultants. The maximum number of common shares which may be issued pursuant to the equity incentive plan at February 29, 2016 is 10,000,000. No incentive stock options have been granted as of February 29, 2016. A total of 2,750,000 common shares have been issued as of February 29, 2016 under this plan to a consultant.

 

7. RELATED PARTY

 

The Company is related to Contex International Technologies (Canada) Inc. ("Contex") through the fact that affiliates of the Company hold a 34% interest in 2419596 Ontario Inc, which owns Contex.

 

The Company has entered into a service agreement with Contex, whereby Contex will provide services related to the design and development of a wireless and leadless ECG cardiac monitor. The agreement runs for a term of one year to May 22, 2016 and will automatically renew for subsequent terms of one year unless notice of termination is given by either party in writing.

 

For the six months ended February 29, 2016 and February 28, 2015 $284,176 and $138,229 respectively, have been incurred related to this agreement and have been expensed in research and development expense.

 

See Note 4 regarding convertible notes payable - related parties.

 

The company is party to an employment agreement running from February 1, 2016 to January 31, 2018 with the CEO for $100,000 per year up to January 31, 2017, at which time the board will determine the annual salary for the second year. In addition, the CEO will be entitled to receive a bonus of $225,000 when the company achieves profitable operations. If the company is sold before the bonus has been paid in full, the CEO will be paid such amount out of the proceeds of the sale or cash on hand in the event of a stock sale. This employment agreement supercedes and replaces all obligations of the company under a previous employment agreement, dated August 27, 2015, with the CEO, whereby the CEO was to have earned a salary of $225,000 per year up to August 31, 2018 and was to have been paid $125,000 for past services.

  

The Company is related to the Chief Executive Officer ("CEO"), who is also the company's president and sole board member. For the six months ended February 29, 2016 and February 28, 2015, $8,333 and $nil respectively, have been expensed related to compensation to the CEO and included in general and administrative expense. Included in accounts payable at February 29, 2016 and August 31, 2015 is $nil and $nil respectively related to this employment agreement.

 

8. COMMITMENTS

 

On October 24, 2014, the Company entered into a License Agreement with Life Medical Technologies, Inc. ('Life Medical") with respect to Life Medical’s “BreastCare DTS™” product and certain other technologies. The License Agreement grants the Company the exclusive right to distribute the BreastCare DTS™ in the United States, Canada and certain countries in Asia, including China. The Agreement calls for royalties of 5% on net sales, as defined in the License Agreement, and requires minimum annual royalties of $100,000 in 2015 and $200,000 each year thereafter.

EVENT CARDIO GROUP INC.

NOTES TO FINANCIAL STATEMENTS

February 29, 2016 and August 31, 2015

(Unaudited)

 

8. COMMITMENTS(continued)

 

As part of entering into the License Agreement, the Company has made prepayments of the royalties commitment noted above and such are included in prepaid expenses on the accompanying balance sheet at February 29, 2016. For the six months ended February 29, 2016, and February 28, 2016 $25,000 and $nil respectively of the above noted prepayment has been expensed. The recipients of 526,315 shares related to prepaid royalties were also to be paid in cash or shares of common stock, at the company's option, an amount equal to the excess, if any, of $70,000 over the value of such shares as of December 12, 2015. This amount has not yet been paid given the disagreement as disclosed in Note 8.

 

The Company is party to a Sublicense agreement with 9508583 Canada Inc. with respect to the exclusive rights to distribute the BreastCare DTS™ product in Canada with royalties payable at the rate of 5.5% of net sales, as to be defined in the Sublicense Agreement, to the Company.

  

9. CONTINGENCIES

 

On November 30, 2015, the company's subsidiary EFIL Sub of ECG Inc. received a breach of contract notice related to its license agreement with Life Medical as described in Note 7. Life Medical contends that the company has defaulted under the provisions of this agreement and have thus triggered penalty clauses in the agreement. Life Medical is now demanding payment of these penalties. As per the breach of contract notice details, it is estimated that the total penalty could be as high as $770,000 based on the formula: $1 per every 100 people in each designated country, up to a maximum of $150,000 per designated country, with a total of seven countries identified in the notice. In addition due to this breach, Life Medical also contends that the license rights to the seven countries identified now belongs exclusively to Life Medical. It is management's contention that the company has not defaulted under the provisions of the agreement and thus is not required to pay any such penalties, nor have the licensing rights reverted back to Life Medical in the seven countries identified. The outcome of this contingency is not determinable at this time.

  

10. SUBSEQUENT EVENTS

 

On March 15, 2016, the Company entered into an IT service agreement, that expires November 15, 2016, in exchange for 250,000 common shares of the company, valued at $7,250.

 

On March 25, 2016 the Company announced that it was amending its articles of incorporation for authorization to issue 300,000,000 common shares and 10,000,000 blank check preferred shares undesignated as to series.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “continue” and other similar expressions are intended to identify forward-looking statements. We have based these forward looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC, particularly those contained in the Section entitled “Risk Factors” in our Form 10-K filed with the SEC on December 14, 2015. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Our fiscal year ends on August 31 each year.

  

OVERVIEW

 

Event Cardio Group Inc. (collectively with its subsidiaries, “ECGI”, “we”, “our” or the “Company”) was organized in October 26, 2005 and has had no operations since December, 2008, when we discontinued our previous business of mineral exploration. Prior to the consummation in October 2014 of the Exchange Agreement referred to below, of our activities since January, 2009 were centered on the acquisition of a new business.

 

On June 9, 2014 we experienced a change of control as a result of a transaction (the “Transaction”) in which 1,412,619 shares of our common stock, par value $0.001 and 10,000,000 shares of our preferred stock, par value $0.001, constituting approximately 97% of the cumulative voting power of our capital stock on that date, was acquired by Mr. John Bentivoglio, who is now our sole director and chief executive officer, as nominee for 2340960 Ontario Inc., a private company organized in Ontario, Canada, which we hereinafter refer to as “ECG”. On November 14, 2014, we consummated a share exchange agreement (the “Exchange Agreement”), pursuant to which we acquired all of the issued and outstanding capital stock of ECG from ECG’s stockholders, The Nick Bozza Family Trust, The John Bentivoglio Family Trust and The Sgro (2010) Family Trust. In exchange for all of the outstanding capital stock of ECG, we issued to ECG’s stockholders an aggregate of 79,500,000 shares of our Common Stock (the “Share Exchange”). As a result of the consummation of the Share Exchange, (i) ECG became our wholly owned subsidiary and (ii) the ECG’s former stockholders own an aggregate of 79,500,000 shares which constituted approximately 92.8% of the cumulative voting power of our common stock on the date the share exchange was consummated.

 

Mr. John Bentivoglio, our sole director and chief executive officer is one of three trustees of The John Bentivoglio Family Trust, the beneficiaries of which are members of his family.

 

On October 24, 2014, through a wholly owned subsidiary, we entered into a license agreement (the “License Agreement”) with Life Medical Technologies, Inc. (“Life Medical”) under which we were granted the exclusive right to distribute Life Medical’s “BreastCare DTS™” in the United States and certain other territories. The BreastCare DTS™ product is a patented, non-invasive and FDA-cleared as an adjunct to mammography and other established procedures for the detection of breast disease, including breast cancer.

GENERAL

 

The Exchange Agreement is accounted for as a reverse merger, in which ECG is deemed to be the acquiring entity for accounting purposes. The discussion and analysis of our financial condition and results of operations is based upon the financial statements of ECG which have been prepared in accordance with accounting principles generally accepted in the United States.

 

The Company’s primary sources of funding to date have been capital contributions by its stockholders and cash provided by borrowings from affiliates. The Company’s primary uses of funds have been for capital expenditures, general and administrative expenses and research and development expenditures.

  

BASIS OF PRESENTATION

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of February 29, 2016 and the results of operations and cash flows for the periods presented. The results of operations for the six months and three months ended February 29, 2016 are not necessarily indicative of the operating results for the full fiscal year or any future period.

 

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the form 10-K filed with the SEC on December 14, 2015. The preparation of the consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, the Company estimates on historical experience and on various other assumptions that, it believes to be reasonable under the circumstances, the results of which form the Company’s basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

These financial statements contain the accounts of the Company and the accounts of the Company’s subsidiaries 2340960 Ontario Inc. and EFIL Sub of ECG Inc. as at February 29, 2016 and August 31, 2015. Any inter-company accounts and transactions are eliminated.

 

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and are presented in United States Dollars.

 

RESULTS OF OPERATIONS

 

We have been in the developmental stage since inception. Since inception, our efforts have been principally devoted to designing and developing a wireless cordless cardio monitor. From inception to February 29, 2016, the Company has sustained losses and has an accumulated deficit of $4,267,128.

 

Our loss from operations for the six months ended February 29, 2016 was $1,143,839 compared to a loss from operations of $518,570 for the six months ended February 28, 2015. General and administrative expenses were $755,553 for the six months ended February 29, 2016, compared to $303,471 for the six months ended February 29, 2015, an increase of $452,082. This increase is predominately due to increased expenses related to efforts to commence our operations, including the accrual of salary due our President, expenditures related to our efforts to raise funds and introduce our products to prospective distributors and licensees, and obtain regulatory approval from Health Canada, and expenses incurred in connection with our dispute with Life Medical Technologies, Inc.

 

Also, we incurred research and development expenses of $388,286 during the six months ended February 29, 2016, compared to $215,099 of research and development expenses incurred during the six months ended February 28, 2015. All research and development expenses incurred during the six months ended February 29, 2016, related to the continued development of our cardiac monitoring device which should be submitted to Health Canada for approval no later than June 2016. The expenses incurred in the six months ended February 28, 2015, were a mix of costs on the cardiac device and the BreastCare device. We have suspended devoting significant amounts to the development of the BreastCare device as we focus our efforts on bringing the heart monitoring device to market.

 

Total comprehensive loss for the six months ended February 29, 2016 was $914,754 as compared to $499,533 for the six months ended February 28, 2015. The increase in our loss primarily resulted from the increase in general and administrative expenses and research and development expenses described above.

 

Our loss from operations for the three months ended February 29, 2016, was $676,096. This represents nearly 59% of the loss incurred during the six months ended February 29, 2016, reflecting the fact that although we were able to reduce our general and administrative expenses quarter over quarter, $308,076 of the $388,286 of the research and development expenses incurred in the six months ended February 29, 2016, were incurred in the latter three months of the period. Our loss from operations in the three months ended February 29, 2016, exceeded that of the same period in 2015 by $414,978, primarily as a result of the substantial increase in our research and development expenses year over year, which grew by nearly $228,000 and the increase in our general and administrative expenses which grew by slightly in excess of $177,000. We anticipate that we will continue to incur significant losses for the immediate future as we seek to obtain the necessary approvals and bring Now Cardio to the market, and raise additional capital while not generating any revenues.

 

Total comprehensive loss for the three months ended February 29, 2016 was $443,423 as compared to $197,628 for three months ended February 28, 2015. The increase in our comprehensive loss year over year reflects the increase in our expenditures as we seek to finish the development of Now Cardio and obtain the necessary approvals and bring Now Cardio to the market in the absence of any revenues. Our comprehensive loss in the three months ended February 29, 2016 benefitted from a foreign currency translation adjustment of $313,303, as compared to an adjustment of $92,677 in the year earlier period.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Period ended February 29, 2016 and August 31, 2015.

 

As of February 29, 2016, our total assets were $1,168,629, total liabilities were $1,253,123 and stockholders’ equity was a deficit of $502,923 compared to a deficit of $478,508 as of August 31, 2015. Current assets at February 29, 2016 were $448,267 consisting of cash of $23,135 and prepaid expenses of $425,132. In comparison, current assets at August 31, 2015 was $706,963. The increase in our stockholders deficit reflects our loss during the first half of our current fiscal year, partially offset by sales of stock and warrants during such period for an aggregate of $205,000, the issuance of shares valued at an aggregate of $1,250,000 for services rendered or to be rendered by various consultants, shares issued at a valuation of $80,000 for interests in the Medpac Unit Trust, and warrants issued in respect of services valued at $271,176.

 

As of February 29, 2016, our total liabilities of $1,671,552 principally consisted of convertible notes in the amount of $1,253,123 due to related parties, including Medpac, and accounts payable of $395,602, and debts to related parties of $40,827, all of which were current liabilities other than the convertible notes. In comparison, our liabilities as of August 31, 2015 were $1,729,201, principally consisting of loans from related parties in the amount of $549,502, a convertible note held by a third party in the amount of $525,000 and accounts payable of $598,835, and debts to related parties of $55,864 all of which were current liabilities other than the convertible note.

 

The net cash used in our operating activities in the six months ended February 29, 2016 was $740,133, an increase from the amount of cash used in the first half of the prior year. The increase in our use of cash reflects the expenditure of the amounts received during the period for common stock and warrants as we continued our efforts to develop our business. 

 

Net cash used in investment activities in the six months ended February 29, 2016 was $100,000. No investments were made in the first half of the prior year. The investment made in the six months ended February 29, 2016, was $100,000 deposited towards the construction of the manufacturing line to produce the BreastCare™ device. This project has been suspended pending the resolution of the dispute with Life Medical. Net cash from financing activities in the three months ended February 29, 2016 was $474,979, representing net proceeds of $435,144 from the issuance and agreement to issue equity securities and $53,956 loaned by a related party partially offset by a payment to a related party in the amount of $14,121.

 

ECG has been in the developmental stage since inception. Since inception, ECG’s efforts have been principally devoted to designing and developing a wireless cordless cardio monitor. From inception to February 29, 2016, the Company has sustained losses and has an accumulated deficit of $4,267,128. The Company has funded its activities to date primarily through contributions from its stockholders, loans from affiliates and the issuance of a convertible promissory note to a group in Australia.

 

The Company’s cash was effectively exhausted as of February 29, 2016. On February 17, 2016, the company entered into subscription agreements with ten individuals for aggregate proceeds of $1,082,251 in exchange for 16,901,400 shares of common stock and warrants exercisable at $0.15 per share to purchase 10,000,000 shares of common stock. The subscription amounts are to be paid in installments beginning upon acceptance of the Subscription Agreements and on the first day of each calendar month thereafter to August 1, 2016. To date the Company has received an aggregate of CDN$890,000 (approximately US$642,000) from the subscribers leaving a balance of US$440,000 to be paid over the next four months. The amounts to be received pursuant to these subscription agreements are not sufficient to enable the Company to begin to market its product and achieve positive cash flow.   In January 2016 we issued 4,000,000 shares in consideration of units in Medpac aggregating to approximately 32% of the Units outstanding. It is not likely that Medpac will generate cash prior to such time as we complete the development of the Now Cardio monitor and the product is cleared for distribution in Australia.

 

On April 27, 2015, ECG issued its 8% convertible notes due January 31, 2018 in the total principal amount of $525,000 to Medpac Asia Pacific Pty Ltd. (“Medpac”). The notes are convertible into shares of ECG common stock at an initial conversion price of $0.15 per share. ECG may prepay the notes at any time; however, if the volume weighted average price of ECG’s common stock for the ten trading days preceding the prepayment date is less than $0.15 per share, then Medpac is entitled to receive a number of warrants sufficient to purchase up to 1% of the then outstanding number of shares of ECG common stock as to $500,000 principal amount of the notes and as to 0.0005% of the outstanding shares as to the remaining $25,000 principal amount of the notes. The warrants, when issued, would be exercisable for a period of three years at an exercise price of $0.15 per share, but may be exercised on a cashless basis. At the time of the issuance of such notes we entered into an agreement with Medpac wherein we agreed to enter into license agreements for the distribution of our cardiac monitoring device and BreastCare™.

 

In May 2014, ECG entered into a loan agreement (the “May Loan Agreement”) with an affiliated company, pursuant to which the lender loaned the Company CAD $583,000. On August 19, 2015, the Company and the party which loaned it the CAD $583,000 referred to above, confirmed their agreement to extend the maturity date of the CAD $583,000 Note to June 1, 2016 and the Company borrowed from the lender an additional CAD $64,500. In December 2015, the same lender loaned the Company an additional CAD $75,000 which was evidenced by a note dated December 18, 2016. On February 10, 2016, the CAD $583,000 Note, the CAD $64,500 Note and the CAD $75,000 Note, together with all interest and fees accrued thereon, were satisfied by the issuance of the Company’s convertible promissory in the amount of CAD $960,300 (US$710,123). The convertible note bears interest at the rate of 12% per annum and is due on January 31, 2018. The principal amount of the convertible note and accrued interest are convertible into shares of common stock at the rate of CAD $0.0873 per share. The notes is secured by a lien on the shares of 2340960 Ontario, Inc. and a lien on all of the Company’s assets.

 

We are required to pay Life Medical royalties of 5% on net sales, as defined in the License Agreement related to BreastCare™, and minimum annual royalties of $100,000 in 2015 and $200,000 each year thereafter. In addition, we entered into release agreements (the “Releases”) with certain creditors (the “Life Medical Creditors”) of Life Medical which held judgments against Life Medical in the aggregate amount of approximately $501,000. Pursuant to the Release Agreements, we paid the Life Medical Creditors an aggregate of $501,000, of which $125,000 was paid in cash and the balance was satisfied by the issuance of shares of our common stock valued at $376,064, with the number of shares of common stock to be determined by dividing 376,064 by the volume weighted average price (“VWAP”) of our common stock for the five (5) consecutive trading days ending on the day before the 15th calendar day after consummation of the Share Exchange. We are currently in the process of reaching an agreement with this party as to the number of additional shares to be issued and anticipate that we will issue it approximately 700,000 shares. The License Agreement recognizes that in order to protect our interests, we may have to spend monies dealing with creditors of and other claimants against Life Medical. Although we have no obligation to consummate arrangements with such creditors, we may reduce any amounts we pay to Life Medical’s creditors from future amounts payable to Life Medical. We are currently in dispute with Life Medical as to our obligations to make certain payments aggregating approximately $770,000 as a result of the alleged failure to make sufficient payments in connection with the sale of BreastCare™ in certain territories where we had engaged a sub-licensee. Pending the resolution of this dispute and commercialization of our Now Cardio device, it is not likely that we will utilize any significant funds to complete the manufacturing line necessary to manufacture BreastCare™. If the funds to complete the manufacturing line were available, we would nevertheless seek to resolve our differences with Life Medical before moving forward with the manufacturing line.

 

In connection with the License Agreement with Life Medical, in October 2014 we borrowed CAD $79,106 (the “October Loan”) from an Ontario corporation owned in equal thirds by John Bentivoglio, Nicholas Bozza and Frank Sgro (the “Lender”), all of whom are affiliates of the Company. This loan bears interest at the rate of 12% per annum, compounded monthly and matures on June 1, 2016. This loan was satisfied with the proceeds of the CAD $75,000 loan referred to above which was itself satisfied in February 2016.

 

We do not have substantial commitments for capital expenditures. We have made significant progress towards receiving clearance from HealthCare Canada with respect to our Now Cardio device. Nevertheless, we may require financing to complete final testing of the device before commencing manufacture and distribution. We also will need significant funds to arrange for the development of facilities to manufacture our Now Cardio device or arrangements for both of our products and the working capital to support distribution efforts when our products are ready for sale. If we fail to arrange for such financing in the future, we will not be able to complete the development of our cardiac monitor or execute our business plan, which we may not be successful in accomplishing. We may not be able to obtain financing in sufficient amounts or on acceptable terms when needed, which will adversely affect our prospects. We will need to raise the financing necessary to meet our anticipated cash requirements for the foreseeable future.

 

OFF BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements, financings, or other relationships with consolidated entities or other persons, also known as “special purpose entities”.

 

CRITICAL ACCOUNTING POLICIES

 

Our significant accounting policies are more fully described in Note 2 to the Financial Statements provided in Part I, Item 1 of this report. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a smaller reporting company, this item is not applicable to us.

 

ITEM 4. CONTROLS AND PROCEDURES

 

a) Disclosure Controls and Procedures

 

We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

At the end of the period covered by this report we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, John Bentivoglio, of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation included an evaluation of our financial controls. Since our Chief Executive Officer also serves as our Chief Financial Officer and we do not have financial and accounting personnel thoroughly familiar with U.S. GAAP and U.S. securities laws and regulations, we have a deficiency in our financial controls. This deficiency in our financial controls and procedures constitutes a deficiency in our disclosure controls and procedures in that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. This deficiency will not be considered remediated until we hire accounting personnel with the requisite knowledge and experience concerning U.S. GAAP and the U.S. securities laws.

 

b) Changes in Internal Control over Financial Reporting

 

There were no changes in the Company's internal control over financial reporting that occurred during the last fiscal quarter ended February 29, 2016, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be involved in various legal proceedings in the ordinary course of business. We do not believe that any settlement or judgment regarding current or potential future legal proceedings will have a material effect on our financial position.

 

ITEM 1A. RISK FACTORS

 

Our business is subject to numerous risks and uncertainties including but not limited to those discussed in "Risk Factors" in our Annual Report on Form 10-K for fiscal year ended August 31 2015 filed on December 14, 2015, which are incorporated by reference into this report.

   

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES

 

During the quarter ended February 29, 2016, we issued the following unregistered equity securities not previously disclosed in our reports filed under the Exchange Act:

 

On January 16, 2016, we issued an aggregate of 4,000,000 common shares to two individuals located in Australia in exchange for their interests in MedPac Asia Pacific Unit Trust, our licensee in Australia. The Units received represent approximately 32% of the outstanding Units in Medpac.

 

On February 12, 2016, we issued 13,750,000 warrants to purchase common shares to 6 individuals. The warrants were issued to individuals already affiliated with the Company, including its President, counsel, and engineers at Contex, for services rendered or to be rendered to the Company. None of such individuals paid any consideration for the issuance of the warrants and the only individual in the United States who received warrants is an accredited investor. The other recipients who are not officers of the Company are all citizens of Canada.

 

The securities issued in the foregoing transactions were exempt from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder as transactions by an issuer not involving a public offering. The Company placed legends on the certificates stating that the securities were not registered under the Securities Act and set forth the restrictions on their transferability and sale. No general advertising or solicitation was used in selling the securities. No commissions or underwriting fees were paid to any placement agents in connection with the sale or issuances of the securities.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

  

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

ITEM 6. EXHIBITS

  

Exhibits			Description
31.1			Certification pursuant to Rule 13a-14(A) under the Exchange Act
32.1			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS				XBRL Instance Document
101.SCH				XBRL Taxonomy Extension Schema Document
101.CAL				XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB				XBRL Taxonomy Extension  Definition Linkbase Document
101.PRE				XBRL Taxonomy Extension  Labels Linkbase Document
101.DEF				XBRL Taxonomy Extension  Presentation Linkbase Document

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	Event Cardio Group Inc.
Dated: April 14 , 2016	By:	/s/ John Bentivoglio
	Name: Title:	John Bentivoglio Chief Executive Officer acting Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer) Director