NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 4, 2008 the Company
was incorporated as Medical Alarm Concepts Holding, Inc. under the laws of the
State of Nevada. The Company was formed for the sole purpose of acquiring all of the membership units of Medical Alarm
Concepts LLC, a Pennsylvania limited liability company (“Medical LLC”). On May 26, 2016, the Company filed an
Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada to change its name from
“Medical Alarm Concepts, Inc.” to “Wearable Health Solutions Inc.”
The Company utilizes new technology in the
medical alarm industry to provide 24-hour personal response monitoring services and related products to subscribers with medical
or age-related conditions.
|
2.
|
SUMMARY OF ACCOUNTING POLICIES
|
Basis of Presentation and Consolidation
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary. All significant inter-company transactions and balances among the
Company and its subsidiary are eliminated upon consolidation.
Use of Estimates
The preparation of the financial statements
in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates. These estimates and assumptions include the collectability of accounts receivable and deferred taxes and
related valuation allowances. Certain of our estimates, including evaluating the collectability of accounts receivable, could be
affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these
external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate
all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash
The Company considers all highly liquid investments
with maturities of three months or less at the time of purchase to be cash and cash equivalents.
Accounts receivable and allowance for doubtful
accounts receivable
We have a policy of reserving for uncollectible
accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit
to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral
or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance
for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating specific
accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use
assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers
against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated
and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance.
We may also record a general allowance as necessary. Direct write-offs are taken in the period when we have exhausted our efforts
to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.
Inventory
The Company values inventory, consisting of
purchased products, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method.
The Company regularly reviews its inventories on hand and, when necessary, records a provision for excess or obsolete inventories
based primarily on current selling price and spot market prices. The Company recorded inventory markdown of $10,260 and $2,856
for the year ended June 30, 2016 and 2015, respectively.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Software Development Costs
The Company accounts for software development
cost in accordance with ASC 985-20 whereby cost of developing computer software to be sold, leased, or otherwise marketed includes
software that is part of a product or process to be sold to a customer shall be accounted for under ASC 985-20. All cost incurred
to establish technological feasibility of a computer software product to be sold, leased or otherwise marketed are research and
development cost. These cost are charged to expense when incurred. The technological feasibility of a computer software product
is established when the entity has completed all planning, designing, coding, and testing activities that are necessary to establish
that the product can be produced to meet its design specifications including functions, features, and technical performance requirements.
Cost of producing product masters incurred subsequent to establishing technological feasibility shall be capitalized. Those cost
include coding and testing performed subsequent to establishing technological feasibility. Capitalization of computer software
cost shall cease when the product is available for general release to customers.
Once a project reaches the development stage,
the Company allocates a portion of salaries to be capitalized based on estimated hours spent developing the software. During the
year ended June 30, 2016, the Company capitalized $45,900 of such costs. These costs will be amortized over their useful life
of 3 years. Amortization expense on these costs for the year ended June 30, 2016 was $3,975.
Convertible instruments and derivative financial
instruments
The Company evaluates its convertible debt,
options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for in accordance with paragraph 810-10-05-4 of the FASB ASC and paragraph 815-40-25 of the FASB ASC.
The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet
date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded
in the Statement of Operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument,
the instrument is marked to fair value at the conversion date and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion
option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the
convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to
liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected
within 12 months of the balance sheet date.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 1, 2009, the Company adopted Section
815-40-15 of the FASB ASC (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed
to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions. The adoption of Section 815-40-15 has affected the accounting for (i) certain freestanding
warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike
price denominated in a foreign currency.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10
of the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC (“Paragraph
820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for
measuring fair value pursuant to GAAP and expands disclosures about fair value measurements. To increase consistency and comparability
in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 Quoted market prices available in active
markets for identical assets or liabilities as of the reporting date.
Level 2 Pricing inputs other than quoted prices
in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3 Pricing inputs that are generally observable
inputs and not corroborated by market data.
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, accounts receivable, inventory, prepaid expenses, accounts payable, deferred revenues
and accrued liabilities, approximate their fair values because of the short maturity of these instruments. The Company’s
convertible notes payable approximate the fair value of such instruments based upon management’s best estimate of interest
rates that would be available to the Company for similar financial arrangements at June 30, 2016 and 2015.
The derivative liability which consists of
embedded conversion feature and warrants issued in connection with our convertible debt, classified as a level 3 liability, are
the only financial liability measured at fair value on a recurring basis. (See Note 10)
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company accounts for income taxes under
the provisions of FASB ASC Topic 740, “Income Tax,” which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns.
Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax
bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are
measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. The Company establishes a valuation when it is more likely than not that the assets
will not be recovered.
ASC Topic 740.10.30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Revenue Recognition
The Company’s revenues are derived principally
from utilizing new technology in the medical alarm industry to provide 24-hour personal response monitoring services and related
products to subscribers with medical or age-related conditions. The Company applies paragraph 605-10-S99-1 of the FASB ASC for
revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue
realized or realizable and earned when it has persuasive evidence of an arrangement that the services have been rendered to the
customer, the sales price is fixed or determinable, and collectability is reasonably assured.
All revenues from subscription arrangements
are recognized ratably over the term of such arrangements. The excess of amounts received over the income recognized is recorded
as deferred revenue on the consolidated balance sheet.
Shipping and handling costs
The Company accounts for shipping and handling
fees in accordance with paragraph 605-45-45-19 of the FASB ASC. While amounts charged to customers for shipping products are included
in revenues, the related costs are classified in cost of goods sold as incurred.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and Development
The Company expenses all research and development
costs as incurred. For the years ended June 30, 2016 and 2015, the amounts charged to research and development expenses were $32,400
and $0, respectively.
Stock-based compensation
We recognize compensation expense for stock-based
compensation in accordance with ASC Topic 718. For employee stock-based awards, we calculate the fair value of the award on the
date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestricted shares;
the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, we calculate
the fair value of the award on the date of grant in the same manner as employee awards. However, the awards are revalued at the
end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the nonemployee award
is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated
on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based
awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original
estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when
estimating expected forfeitures, including types of awards, employee class, and historical experience.
The Black-Scholes option valuation model is
used to estimate the fair value of the warrants or options granted. The model includes subjective input assumptions that can materially
affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The
expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the warrants
or options granted.
Net income per common share
Net income per common share is computed pursuant
to section 260-10-45 of the FASB ASC. Basic net income per common share is computed by taking net income divided by the weighted
average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing net income
by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to
reflect the potential dilution that could occur from common shares issuable through stock options, warrants, and convertible debt.
These potential shares of common stock were not included as they were anti-dilutive.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments and contingencies
The Company follows subtopic 450-20 of the
FASB ASC to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation,
fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated.
Cash flows reporting
The Company adopted paragraph 230-10-45-24
of the FASB ASC for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating,
investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect
method”) as defined by paragraph 230-10-45-25 of the FASB ASC to report net cash flow from operating activities by adjusting
net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating
cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are
included in net income that do not affect operating cash receipts and payments.
Subsequent events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company evaluates subsequent
events through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification,
the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through
filing them on EDGAR.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU 2016-01”), which updates certain aspects of recognition, measurement, presentation and disclosure of financial
instruments. ASU 2016-01 will be effective for the Company beginning in its first quarter of 2019. The Company does not believe
the adoption of ASU 2016-01 will have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”),
which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for the
Company beginning in its first quarter of 2021 and early adoption is permitted. The Company does not believe the adoption of ASU
2016-13 will have a material impact on its consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for
revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to
be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter
of 2019 and early adoption is permitted.
Subsequently, the FASB has issued the following
standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(“ASU 2016-08”); ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing (“ASU 2016-10”); and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients (“ASU 2016-12”). The Company must adopt ASU 2016-08, ASU 2016-10 and ASU 2016-12
with ASU 2014-09 (collectively, the “new revenue standards”).
There were no other recent accounting pronouncements
that have had a material effect on the Company’s financial position or results of operations.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements are
presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
The Company has working capital deficit of
$771,145, did not generate cash from its operations, had stockholders’ deficit of $1,119,288 and had operating losses since
inception. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going
concern.
While the Company is attempting
to generate sufficient revenues, the Company’s cash position may not be enough to support the Company’s
daily operations. Management intends to raise additional funds by way of a public or private offering but there is no
assurance that it will be successful. Management believes that the actions presently being taken to further implement its business plan
and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company
believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no
assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s
ability to further implement its business plan and generate sufficient revenues.
The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to continue as a going concern.
On December 4, 2014, the Company loaned $30,000
to an employee of the Company. The note was due December 31, 2015 and was non-interest bearing. On June 1, 2016, the Company wrote
off the note receivable and recorded the amount due from the employee as compensation.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
5.
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
The following table presents accrued
expenses and other current liabilities. Accrued expenses are expenses that have been incurred but not yet paid, mainly include
legal fees, audit fees and other professional fees as well as interests accrued in connection with credit line. Other current liabilities
include credit card balance, small amount of tax payable that were being outstanding as of balance sheet date.
|
|
June 30, 2016
|
|
June 30, 2015
|
Accrued expenses
|
|
$
|
125,111
|
|
|
$
|
114,397
|
|
Other current liabilities
|
|
|
27,747
|
|
|
|
12,300
|
|
Total
|
|
$
|
152,858
|
|
|
$
|
126,697
|
|
|
6.
|
PROPERTY AND EQUIPMENT
|
The following table depicts the property and equipment
for the Company as of June 30, 2016 and 2015, respectively.
|
|
June 30, 2016
|
|
June 30, 2015
|
Costs related to programming expenses
|
|
$
|
45,900
|
|
|
$
|
0
|
|
Cost related to web design, logo and brand package and related fees
|
|
$
|
7,725
|
|
|
$
|
0
|
|
Accumulated depreciation
|
|
$
|
(4,268
|
)
|
|
$
|
0
|
|
Property and equipment, net
|
|
$
|
49,357
|
|
|
$
|
0
|
|
In April 2016, the Company advanced six employees
$1,120 each for a total of $6,720. There were no loan agreements signed, therefore, the advances are non-interest bearing and due
on demand. One of these loans was lent to a related party.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
CREDIT LINE – RELATED PARTY
|
On September 30, 2014, the Company entered
into a line of credit with Medi Pendant New York, Inc. (“MNY”), which is partially owned by the Company’s CEO.
Under the line of credit agreement, the Company will be able to borrow up to $300,000 with the rate of interest of 6.5% per annum.
The maturity date of the credit line is September 30, 2017. The Company has the option to extend the maturity date for one year
to September 30, 2018. On January 31, 2015, the limit on the line of credit was increased to $500,000 with same interest rate and
due date. The Company recorded accrued interest on the credit line of $25,653 and $8,436 for the years ended June 30, 2016 and
2015, respectively.
The company agreed to issue 200,000 shares
of common stock to one of the owners of MNY to exchange for the increase of line of credit. These shares were value at $28,000
which was the fair market value at the grant date and were issued on October 19, 2015.
On December 15, 2015, the Company entered into
a purchase agreement with Knight Capital Funding, an unrelated financing company, in the amount of $40,020 less an original discount
of $11,020 for net proceeds of $29,000. Under the terms of the agreement the Company sells, assigns, and transfers to Knight Capital
Funding all of its interests in each of its future receivables due to the Company from its customers and credit card processor,
until the loan is paid off. The Company and Knight Capital Funding have agreed that the payment of the purchase amount will be
repaid by the Company in 154 payments of $260 due each business day beginning on the first day after the loan was disbursed, until
the full amount due under the agreement is paid. The agreement is personally guaranteed by the Chief Executive Officer of the Company.
The Company has recorded the amount of the total repayment as a financing debt, with the difference between the proceeds received
and the total repayment amount as a discount, which is being amortized as imputed interest (at an effective rate of 119%) over
the life of the agreement which is the date that the total repayments will be made assuming the Company is timely in all of its
payments. As of June 30, 2016, outstanding balance of note payable is $6,236.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
10.
|
CONVERTIBLE NOTES PAYABLE
|
On March 1, 2016 and March 3, 2016, the Company
closed the private placement and received an aggregate of $612,500 by issuing $660,000 and $13,750 unsecured convertible notes
(“convertible notes”) and warrants to two investors, net of original issue discount of $61,250 per the subscription
agreements. The convertible notes bear no interest and are due one year from the date of issuance. The convertible notes are convertible
into shares of the Company’s common stock at a conversion price equal to $0.01 per share. Warrants were issued to purchase
6,804,172 shares of Series C Convertible Preferred Stock at $0.09 per share. The conversion and warrant exercise prices are subject
to certain price adjustment terms.
The Company is prohibited from effecting a
conversion of convertible notes and the Preferred C Shares to the extent that, as a result of such conversion, such Investor would
beneficially own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance
of shares of Common Stock upon conversion of the Preferred C Shares, which beneficial ownership limitation may be increased by
the holder up to, but not exceeding, 9.99%.
The Company has determined that the conversion
feature embedded in the notes constitutes a derivative and has been bifurcated from the note and recorded as a derivative liability,
with a corresponding discount recorded to the associated debt, on the accompanying balance sheet, and revalued to fair market value
at each reporting period.
The following table summarizes the convertible
notes movement:
Balance at June 30, 2015
|
|
$
|
—
|
|
Convertible notes issued
|
|
|
673,750
|
|
Convertible notes converted
|
|
|
—
|
|
Total
|
|
|
673,750
|
|
Less: debt discount
|
|
|
(219,891
|
)
|
Balance at June 30, 2016
|
|
$
|
453,859
|
|
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
11.
|
WARRANTS AND DERIVATIVE LIABILITIES
|
The Company has evaluated the application of
ASC 815 Derivatives and Hedging and ASC 815-40-25 to the warrants to purchase Series C Convertible Preferred Stock issued with
the Convertible Notes. Based on the guidance in ASC 815 and ASC 815-40-25, the Company concluded these instruments were required
to be accounted for as derivatives due to the down round protection feature on the conversion price and the exercise price. The
Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values of these derivatives
reflected in the statements of operations as “Change in fair value of derivative instrument” These derivative instruments
are not designated as hedging instruments under ASC 815 and are disclosed on the balance sheet under Derivative Liabilities.
The fair value of the warrants underlying the
convertible notes issued at the time of their issuance was calculated pursuant to the Black-Scholes option pricing model. The fair
value was recorded as a reduction to the convertible notes payable and was charged to operations as interest expense in accordance
with effective interest method within the period of the convertible notes.
Significant assumptions used in calculating
fair value of warrants and conversion feature of convertible notes at issuance date are as follows.
Expected
dividend
|
|
Expected
volatility
|
|
Risk-free
Rate of
interest
|
|
Expected
term
(year)
|
|
Exercise
price
|
|
Common stock price per shares
|
0.00%
|
|
400.42%
|
|
0.12%
|
|
As set forth by each convertible note and warrant
|
|
$ 0.01
|
|
0.12
|
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant assumptions used in calculating fair
value of outstanding warrants at June 30, 2016 are as follows.
Expected
dividend
|
|
Expected
volatility
|
|
Risk-free
Rate of
interest
|
|
Expected
term
(year)
|
|
Exercise
price
|
|
Common stock price per shares
|
0.00%
|
|
400.42%
|
|
0.12%
|
|
As set forth by each convertible note and warrant
|
|
$ 0.01
|
|
0.12
|
The following table presents information about
the Company’s liabilities that are measured at fair value on a recurring basis as of June 30, 2016 and indicates the fair
value hierarchy of the valuation inputs the Company utilized to determine such fair value. In general, fair values determined by
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical liabilities. Fair values determined by Level
2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined
by Level 3 inputs are unobservable data points for the liability, and includes situations where there is little, if any, market
activity for the liability:
Description
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured using fair significant unobservable inputs (Level 3):
|
Beginning balance as of June 30, 2015
|
|
|
|
|
|
|
-
|
Issuance of convertible notes and warrants on March 3, 2016
|
|
|
|
|
|
|
265,678
|
Warrants exercised
|
|
|
|
|
|
|
(66,785)
|
Issuance of series D preferred shares and warrants on April 21, 2016
|
|
|
|
|
|
|
58,484
|
Issuance of series D preferred shares and warrants on June 14, 2016
|
|
|
|
|
|
|
89,870
|
Change in fair value during period
|
|
|
|
|
|
|
(19,160)
|
Ending balance as of June 30, 2016
|
|
|
|
|
|
|
$328,087
|
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 19, 2015, the Company issued 400,000
shares to two consultants for services performed per consulting agreements and 200,000 shares to one of the owners of MNY for compensation
of increasing the line of credit to $500,000. These shares were valued at $120,000 and $28,000, respectively, based on the quoted
market price at the date of grant.
On January 13, 2015, the Company issued 280,000
shares of common stock to an unrelated individual for $20,000 for professional services provided.
On March 1, 2016 and March 3, 2016, pursuant
to two subscription agreements, the Company issued warrants to two investors to purchase 6,805,561 shares of Series C Convertible
Preferred Stock at $0.09 per share. On March 1, 2016, one investor paid $12,500 to exercise warrants and purchased 138,889 shares
of Series C Convertible Preferred Stock at $0.09 per share.
On April 21, 2016, the Company closed the sale
of one unit (the “Unit”) for $400,000, pursuant to subscription agreements with an accredited investor entered into
on April 21, 2016 at a purchase price of $400,000 per Unit. The Unit consisted of (i) 400,000 shares of Series D Preferred Stock,
par value $0.0001 per share. Each of the Preferred D Shares are convertible into 100 shares of the Company’s common stock,
par value $0.0001 per share and (ii) one warrant to purchase 40,000,000 shares of Common Stock, $0.001 par value per share, at
an exercise price of $0.01 per share.
On June 14, 2016, Wearable Health Solutions,
Inc. closed the sale of one unit for $25,000 (the “Unit”), pursuant to a subscription agreement with an accredited
investor entered into on June 14, 2016 at a purchase price of $25,000 per Unit with a single accredited investor. The Unit consisted
of (i) 25,000 shares of Series D Preferred Stock, par value $0.0001 per share which are convertible into 100 shares of Common Stock
per Preferred Share and (ii) one warrant to purchase 25,000 shares of Common Stock, $.0001 par value per share, at an exercise
price of $0.01 per share.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
13.
|
RELATED PARTY TRANSACTIONS
|
Interest expenses for credit line were $25,653
and $8,436 for the years ended June 30, 2016 and 2015, respectively, zero amount was paid during the years ended June 30, 2016
and 2015. (See Note 6)
On September 30, 2014, the Company entered
into a line of credit with Medi Pendant of New York, Inc. (“MNY”), which is partially owned by the Company’s
CEO. Under the line of credit agreement, the Company will be able to borrow up to $300,000 with the rate of interest of 6.5% per
annum. The maturity date of the credit line is September 30, 2017. The Company has the option to extend the maturity date for one
year to September 30, 2018.
On November 2, 2014, the holder of convertible
note informed the Company that it will no longer be seeking repayment of $25,908. Since the holder of convertible note was a related
party, the Company recorded the forgiveness of the debt and related derivative liability as additional paid-in capital.
On January 31, 2015, the limit on the line
of credit was increased to $500,000 with same interest rate and due date. As of June 30, 2015, outstanding balance under the line
of credit was $388,000. The company also agreed to issue 200,000 shares of common stock to one of the owner of MNY to exchange
for the increase of line of credit. These shares were valued at the market value of $28,000 which was the fair market value at
the grant date and recorded as shares to be issued since those share were issued in the subsequent period.
During the year ended June 30, 2015, the Company’s
CEO advanced $20,740 to the Company. The amount is non-interest bearing and due on demand. During fiscal year ended 2016 the company
made partial payment to the Company’s CEO, as of June 30, 2016, amount due to related party was $500.
The Company’s Chief Technology
Officer, who is also a related party, was compensated with a salary of $72,000 during 2016 and the granting of 100,000 shares
of common stock in October 2014.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of income tax benefit at
the U.S. statutory rate of 34% for the twelve months ended June 30, 2016 and 2015 to the Company’s effective tax rate is
as follows:
|
|
2016
|
|
2015
|
U.S. federal statutory rate
|
|
|
(34.00
|
)%
|
|
|
(34.00
|
)%
|
State income tax, net of federal benefit
|
|
|
(9.99
|
)%
|
|
|
(9.99
|
)%
|
Change in valuation allowance
|
|
|
43.99
|
%
|
|
|
43.99
|
%
|
Income tax provision (benefit)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The benefit for income tax is summarized as follows:
|
|
2016
|
|
2015
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
(271,838
|
)
|
|
|
(284,932
|
)
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
—
|
|
Deferred
|
|
|
(79,872
|
)
|
|
|
(83,720
|
)
|
Change in valuation allowance
|
|
|
351,710
|
|
|
|
368,652
|
|
Income tax provision (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
The tax effects of temporary differences that
give rise to the Company’s net deferred tax liability as of June 30, 2016 and 2015 are as follows:
|
|
2016
|
|
2015
|
Net operating losses carried forward
|
|
$
|
4,767,791
|
|
|
$
|
4,416,080
|
|
Less: valuation allowance
|
|
|
(4,767,791
|
)
|
|
|
(4,416,080
|
)
|
Deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
As of June 30, 2016, the Company had approximately
$ 11 million of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2028. Utilization
of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership
change as determined under regulations.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, management has established
a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than
not that all of the deferred tax asset will not be realized.
The Company files U.S. federal and
states of Pennsylvania tax returns. These returns remain subject to examination by taxing authorities for all years after
June 30, 2013.
|
15.
|
CONCENTRATION AND CREDIT RISK
|
Sales in 2016 to
one customer accounted for $250,829 or approximately 19% of total sales. This compares with the same concentration of sales of
19% of the Company’s revenue for the year ended June 30, 2015. Accounts Receivable had a concentration of 94.4% and 0% for
the year ended 2016 and 2015 respectively.
The Company had only two and one supplier during
the years ended June 30, 2016 and 2015, respectively.
In May 2016, the Board of Directors approved
to issue total amount of 50,000,000 shares of common stocks to Ronnie Adams, President and CEO, and employees, directors and consultants
for future services to be rendered and in order to make sure that Company’s officers and directors maintain a vested interest
in light of the potential exercise of certain convertible instruments that have been issued for financing purposes.
Pursuant to this board resolution, on July
29, 2016 the Company issued 35.5 million shares of common stocks to related parties and consultants. The following table illustrates
the individuals to whom the shares have been issued to and the number of shares issued.
Holder
|
Date
|
Number of shares issued
|
Ronald Adams
|
July 29, 2016
|
30,000,000
|
Allen Polsky
|
July 29, 2016
|
2,500,000
|
Anthony Chetta
|
July 29, 2016
|
1,000,000
|
New Venture Group, Inc.
|
July 29, 2016
|
1,000,000
|
Jennifer Loria
|
July 29, 2016
|
1,000,000
|
Total
|
|
35,500,000
|