NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
These interim consolidated financial
statements are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) and
disclosures necessary for a fair presentation of these interim consolidated financial statements have been included. The results
reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may
be reported for the entire year or any other periods. (a) The consolidated balance sheet as of June, 2016, which was derived from
audited financial statements, and (b) the unaudited interim consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate
to make the information not misleading. These unaudited consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the
year ended June 30, 2016.
Certificate of Amendment
On May 3, 2016, the Company filed a
Certificate of Amendment (the “Amendment”) to its Articles of Incorporation, as amended, to increase the total number
of shares of authorized capital stock to 410,000,000 shares consisting of (i) 400,000,000 shares of Common Stock and (ii) 10,000,000
shares of Preferred Stock with such rights and preferences as determined by the Company’s Board of Directors. The Amendment
was approved by written consent of the Company’s shareholder holding a majority of the Company’s voting capital stock
on March 15, 2016.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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 net realizable value. 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.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 6 months ended December 31, 2016 was $7,650.
Impairment of long-lived assets
The Company follows section 360-10-05-4
of the FASB Accounting Standards Codification for its long-lived assets. The Company’s reviews it long-lived assets, which
include property and equipment, and patent, for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
The Company assesses the recoverability
of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or
group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if
any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using
the asset’s expected future undiscounted cash flows or market value, if readily determinable. If long-lived assets are determined
to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book
values of the long-lived assets are depreciated or amortized over the newly determined remaining estimated useful lives. The Company
determined that there were no impairment of long-lived assets as of December 31, 2016.
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.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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 Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“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, 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 December 31, 2016.
The derivative liability in connection
with the conversion feature of the convertible debt and warrants is classified as a level 3 liability, and is the only financial
liability measured at fair value on a recurring basis.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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
Accounting Standards Codification 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.
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.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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.
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.
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
(Unaudited)
These consolidated financial statements
are presented on the basis that the Company 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.
As reflected in the accompanying consolidated
financial statements, as of December 31, 2016, the Company has working capital deficit of $1,445,935; did not generate cash from
its operations; had stockholders’ deficit of $1,405,515 and has had operating loss 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.
4.
|
PROPERTY AND EQUIPMENT
|
The following table depicts the property and equipment for
the Company as of December 31, 2016 and June 30 2016, respectively.
|
|
December 31, 2016
|
|
June 30,
2016
|
Costs related to programming expenses
|
|
$
|
45,900
|
|
|
$
|
45,900
|
|
Cost related to web design, logo and brand package and related fees
|
|
$
|
7,725
|
|
|
$
|
7,725
|
|
Accumulated depreciation
|
|
$
|
(13,205
|
)
|
|
$
|
(4,268
|
)
|
Property and equipment, net
|
|
$
|
40,420
|
|
|
$
|
49,357
|
|
Due to related party consist advances
from company’s Chief Executive Officer. The amount is non-interest bearing and due on demand.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 December 31, 2016, the balance due was fully repaid and there was no outstanding balance at the end
of this period.
7.
NOTE PAYABLE, OTHER
On November 8, 2016 the Company received
$50,000 by issuing a promissory note, to an unrelated party. The note bears interest at 5% per annum and is due six months from
the date of issuance. The balance of the note at December 31, 2016 was $50,000.
8.
CONVERTIBLE NOTES PAYABLE
On March 1, 2016 and March 3, 2016,
the Company closed the private placement and received $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 subscription agreement. 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. On August 11, 2016, convertible notes payable of $15,000 were converted into 1,500,000 shares of common stock.
The balance of the convertible notes payable at December 31, 2016 was $658,750.
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.
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the convertible
notes movement:
Balance at December 31, 2015
|
|
$
|
—
|
|
Convertible notes issued
|
|
|
673,750
|
|
Convertible notes converted
|
|
|
15,000
|
|
Total
|
|
|
658,750
|
|
Less: debt discount
|
|
|
(106,379
|
)
|
Balance at December 31, 2016
|
|
$
|
552,371
|
|
9.
|
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%
|
|
382.27%
|
|
0.12%
|
|
As set forth by each convertible note and warrant
|
|
$ 0.01
|
|
0.17
|
Significant assumptions used in calculating
fair value of outstanding warrants and conversion feature at December 31, 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%
|
|
2283%
|
|
0.01%
|
|
As set forth by each convertible note and warrant
|
|
$ 0.01
|
|
0.10
|
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents information
about the Company’s liabilities that are measured at fair value on a recurring basis as of December 31, 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, 2016
|
|
|
|
|
|
|
328,087
|
Change in fair value during period
|
|
|
|
|
|
|
(25,741)
|
Ending balance as of December 31, 2016
|
|
|
|
|
|
|
$302,346
|
On July 29, 2016 the Company issued
35.5 million shares of common stock (valued at $0.10 per share, or $3,550,000 at date of issuance) to related parties and consultants
in exchange for services rendered. The Company president and CEO received approximately 30,000,000 of the shares.
11.
|
RELATED PARTY TRANSACTIONS
|
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 $500,000 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.
Interest expense for credit line was
$12,919 and $12,735 for the six months ended December 31, 2016 and 2015, respectively, and zero amount was paid during the six
months ended December 31, 2016 and 2015. (See Note 9)
WEARABLE HEALTH SOLUTIONS, INC.
(F/K/A MEDICAL ALARM CONCEPTS HOLDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 December 31, 2016, outstanding balance under
the line of credit was $397,500. 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 December 31, 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 $38,770 during the six months ended December 31, 2016.
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. As of December 31, 2016, the Company has approximately
$6,000,000 in net operating loss carryforwards.
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, 2014.
The Company had only one supplier during
the six months ended December 31, 2016 and 2015, respectively.