Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934:

 

For the Quarterly Period ended September 30, 2019

 

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT

 

For the transition period from __________________ to __________________

 

Commission File Number 333-153290

 

WEARABLE HEALTH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 26-3534190
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

2300 Yonge St., Suite 1600, Toronto, Ontario M4P 1E4 Canada

(Address of principal executive offices)

 

855 226 4827

(Registrant’s telephone number, including area code)

  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock WHSI OTC: PK

 

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 [_]     No  [X]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes [_]      No  [X]

 

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

 

Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller Reporting Company [X]
Emerging growth company [_]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]

 

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

 

Number of shares outstanding of each of the issuer’s classes of common equity, as of September 30, 2019: 294,699,177 shares of Common Stock, par value US $0.0001

 

 

 

     
 

 

Table of Contents

 

 

PART I

  ITEM 1. Financial Statements 3
  ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
  ITEM 3. Quantitative And Qualitative Disclosure About Market Risk 22
  ITEM 4. Controls And Procedures 22
       
PART II    
  ITEM 1. Legal Proceedings 24
  ITEM 1A. Risk Factors 24
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
  ITEM 3. Default upon Senior Securities 24
  ITEM 4. Mine Safety Disclosures 24
  ITEM 5. Other Information 24
  ITEM 6. Exhibits 24
       
       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  2  
 

  

PART I

 

Item 1. Financial Statements

 

The following documents are filed as part of or are included in this Report:

 

  1. Financial statements listed in the Index to Financial Statements, filed as part of this Report; and

 

  2. Exhibits listed in the Exhibit Index filed as part of this Report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  3  
 

 

Wearable Healthcare Solutions, Inc.

Unaudited Consolidated Balance Sheets

As at September 30, 2019 and June 30, 2019

               

 

    As at
September 30, 2019
    As at
June 30, 2019
 
    (Unaudited)     (Unaudited)  
    ($)     ($)  
ASSETS                
Current Assets                
Cash and cash equivalents     4,488       3,828  
Accounts receivable, net     12,287       12,287  
Inventory     40,847       5,254  
Prepaid expenses     69,596       91,013  
Total Current Assets     127,219       112,382  
Property, plant and equipment, net     1,376       6,118  
Total Assets     128,595       118,501  
                 
EQUITY & LIABILITIES                
Current Liabilities                
Credit line payable - related party     397,500       397,500  
Accounts payable     251,387       222,924  
Deferred revenue     196,058       196,058  
Due to related party     121,664       113,712  
Notes payable     117,577       145,014  
Notes payable - Other     53,000       53,000  
Derivative liabilities     109,704       109,704  
Convertible notes payable - net of discount     673,750       673,750  
Accrued expenses and other current liabilities     415,817       412,102  
Total Current Liabilities     2,336,458       2,323,765  
Credit line payable - Related party            
Total Liabilities     2,336,458       2,323,765  
                 
SHAREHOLDERS’ EQUITY                
Series A Convertible Preferred Stock: $0.0001 par value; 100,000 shares authorized, 688 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively     1       1  
Series B Convertible Preferred Stock: $0.0001 par value; 62,500 shares authorized, 9,938 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively     1       1  
Series C Preferred Stock: $0.0001 par value; 6,944,445 authorized, 138,886 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively     14       14  
Series D Preferred Stock: $0.0001 par value; 500,000 shares authorized, 425,000 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively     43       43  
Series E Preferred Stock $0.0001 par value, 4,000,000 and -0- shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively     400       400  
Common Stock: $0.0001 par value; 1,200,000,000 shares authorized, 294,699,177 and 94,699,177 shares issued and outstanding as of September 30, 2019 and June 30, 2019, respectively     29,470       9,470  
Additional paid in capital     16,709,964       16,709,964  
Accumulated deficit     (18,947,756 )     (18,925,157 )
Total Shareholders’ Equity     (2,207,863 )     (2,205,264 )
Total Liabilities and Shareholders’ Equity   $ 128,595     $ 118,501  

 

 

 

 

  4  
 

 

Wearable Healthcare Solutions, Inc.

Unaudited Consolidated Statement of Profit and loss

For the three months ended September 30, 2019 and 2018

   

 

    For the
three months ended
September 30, 2019
    For the
three months ended
September 30, 2018
 
    (Amount in $)     (Amount in $)  
                 
Revenue     225,853       224,748  
Cost of sales     (40,981 )     (86,270 )
Gross profit     184,872       138,478  
                 
Operating expenses                
Selling expense     (5,170 )     (5,961 )
General and administrative     (196,564 )     (192,296 )
Research and development            
      (201,734 )     (198,257 )
Income / (Loss) from operations     (16,862 )     (59,779 )
                 
Other Income / (expense)                
Change in fair value of derivative instrument            
Interest expense - related party            
Interest expense     (5,737 )     (79,835 )
Other income            
                 
Net Profit / (loss) before taxes     (22,599 )     (139,614 )
Income tax            
Net Profit / (loss)     (22,599 )     (139,614 )
                 
Net loss per common share - Basic and Diluted     (0.00014 )     (0.00234 )
                 
Weighted average common shares outstanding - Basic & Diluted     163,470,270       59,732,492  

 

 

 

 

 

 

  5  
 

Wearable Healthcare Solutions, Inc.

Unaudited Consolidated Statement of Shareholders’ Equity

As at September 30, 2019, June 30, 2019, and September 30, 2018 (Unaudited)

 

    Preferred Stock  
    Series A     Series B     Series C     Series D     Series E  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount  
As at June 30, 2018 (Unaudited)     688     $       9,938     $ 1       138,886     $ 14       425,000     $ 43           $  
Profit/(loss) for the period                                                            
Common stock for services                                                                
Sale of common stock                                                                
As at September 30, 2018 (Unaudited)     688             9,938       1       138,886       14       425,000       43              
                                                                                 
                                                                                 
As at June 30, 2019 (Unaudited)     688       1       9,938       1       138,886       14       425,000       43       4,000,000       400  
Profit/(loss) for the period                                                            
Issuance of preferred stocks                                                            
As at September 30, 2019 (Unaudited)     688     $ 1       9,938     $ 1       138,886     $ 14       425,000     $ 43       4,000,000     $ 400  

 

 

    Common Stock     Additional Paid-in capital     Accumulated Profit/        
    Shares       Amount     Amount     Deficit     Total  
As at June 30, 2018 (Unaudited)     49,878,676     $ 4,988     $ 16,685,314     $ (18,209,695 )   $ (1,519,335 )
Profit/(loss) for the period                       (139,614 )     (139,614 )
Common stock for services     28,000,000       2,800             2,800          
Sale of common stock     3,500,000       350       24,650             25,000  
As at September 30, 2018 (Unaudited)     81,378,676       8,138       16,709,964       (18,349,309 )     (1,631,149 )
                                         
                                         
As at June 30, 2019 (Unaudited)     94,699,177       9,470       16,709,964       (18,925,157 )     (2,205,264 )
Profit/(loss) for the period                       (22,599 )     (22,599 )

Common stock for services

    200,000,000       20,000                   20,000  
As at September 30, 2019 (Unaudited)     294,699,177     $ 29,470     $ 16,709,964     $ (18,947,756 )   $ (2,207,863 )

 

 

 

 

 

 

 

  6  
 

 

Wearable Healthcare Solutions, Inc.

Unaudited Consolidated Statement of Cash Flows

As at September 30, 2019 and 2018 (Unaudited)    

 

    September 30,
2019
    September 30,
2018
 
    (Unaudited)     (Unaudited)  
    ($)     ($)  
Cash flow from operating activities                
(Loss) / profit before income tax   $ (22,599 )   $ (139,614 )
Adjustment for non cash charges and other items:                
Common stock issued for services     20,000       2,800  
Change in fair value of derivative instrument            
Amortization of debt discount and original issue discount     79,250          
Amortization and depreciation     4,742       1,872  
      2,143       (55,692 )
Changes in working capital                
Decrease / (increase) in Notes payable     27,437        
Decrease / (increase) in accounts receivables           (22,659 )
Decrease / (increase) in inventory     (35,593 )     55,605  
Decrease / (increase) in prepaid expenses     21,417        
Decrease / (increase) in advances to suppliers           108,771  
(Decrease) / increase in trade and other payables     (28,463 )     33,777  
(Decrease) / increase in accrued expenses     3,715       24,574  
(Decrease) / increase in deferred revenue           (43,841 )
      (11,487 )     156,227  
Cash flow from operating activities     (9,344 )     100,535  
                 
Cash flow from investing activities                
Additions in intangibles assets            
Additions in property, plant and equipment            
Cash flow from / (used) in investing activities            
                 
Cash flow from financing activities                
Proceeds from issuance of stock           25,000  
Proceeds from advances - related party     7,952       5,496  
Proceeds(repayment) from note payable     2,052       (107,726 )
Cash flow from financing activities     10,004       (77,230 )
                 
Increase/(decrease) in cash and cash equivalents     660       23,305  
Cash and cash equivalents at beginning of the period     3,828       4,517  
Cash and cash equivalents at end of the period   $ 4,488     $ 27,822  

 

 

 

  7  
 

 

WEARABLE HEALTHCARE SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As at September 30, 2019 and June 30, 2019

 

Note 1 – Nature and Continuance of Operations

 

Wearable Healthcare Solutions Inc. (the Company) was incorporated as Medical Alarm Concepts Holding, Inc. on June 4, 2008 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 is primarily engaged in 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.

 

Basis of presentation

 

The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of management of Wearable Healthcare Solutions, Inc. (the Company), contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at September 30, 2019 and the results of operations and cash flows for the three months ended September 30, 2019. The balance sheet as of June 30, 2019 is derived from the Company’s unaudited financial statements.

 

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company’s Annual Amended Report on Form 10-K for the fiscal year ended June 30, 2019

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates.

 

The results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending June 30, 2020.

 

Note 2 – Summary of Significant Accounting Policies

 

Going Concern - The financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred net losses and negative operating cash flow. To the extent the Company may have negative cash flows in the future it will continue to require additional capital to fund operations. The Company obtained additional capital investments under various debt and common stock issuances. Although management continues to pursue its financing plans, there is no assurance that the Company will be successful in obtaining sufficient revenues to generate positive cash flow. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Use of Estimates - 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents – For purposes of the Statement of Cash Flows, the Company considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

 

 

  8  

 

 

Accounts Receivable - We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific impairment allowance reserve is established based on expected future cash flows and the financial condition of the debtor. We charge off customer balances in part or in full when it is more likely than not that we will not collect that amount of the balance due. We consider any balance unpaid after the contract payment period to be past due. There are $12,287 and $12,287 in Accounts receivables net of allowances of $23,705 and $23,705 at September 30, 2019 and June 30, 2018, respectively.

 

Recognition of Revenues - In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from outside contracts with customers and supersedes most of the existing revenue recognition guidance and notes that lease contracts with customers are a scope exception. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. On August 12, 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09. Public business entities may elect to adopt the amendments as of the original effective date however, adoption is required for annual reporting periods beginning after December 15, 2017. The Company implemented this pronouncement as of July 1,2015.

 

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 recognizes 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. As of September 30, 2019 and 2018, the company recognized $225,853 and $224,748 in revenue and recorded $196,058 and $195,058 in deferred revenue, respectively.

 

Basis of Consolidation - The Consolidated Financial Statements include the accounts of Wearable Healthcare Solutions, Inc. and all of our controlled subsidiary companies. All significant intercompany accounts and transactions have been eliminated. Operating results of acquired businesses are included in the Consolidated Statements of Income from the date of acquisition.

 

Deferred Taxes - The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted rates 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 the statements of operations in the period that includes the enactment date.

 

ASC 740, Income Taxes, requires a company to first determine whether it is more likely than not (which is defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.

 

The Federal and state income tax returns of the Company for 2019, 2018, and 2017 are subject to examination by the Internal Revenue Service and state taxing authorities for three (3) years from the date filed.

 

Related party transactions. The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include:

 

a. Affiliates of the Company;
b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity;
c. Trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management;
d. Principal owners of the Company;
e. Management of the Company;
f. Other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and
g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

 

 

  9  

 

 

The financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements. The disclosures shall include:

 

a. The nature of the relationship involved;
b. A description of the transactions, including transactions to which no amounts or nominal amounts were ascribed for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements;
c. The dollar amount of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and
d. Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement/

 

Commitments and Contingencies. The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

Fair value of financial instruments. The Company measures its financial and non-financial assets and liabilities, as well as makes related disclosures, in accordance with FASB Accounting Standards Codification No. 820, Fair Value Measurement (“ASC 820”), which provides guidance with respect to valuation techniques to be utilized in the determination of fair value of assets and liabilities. Approaches include, (i) the market approach (comparable market prices), (ii) the income approach (present value of future income or cash flow), and (iii) the cost approach (cost to replace the service capacity of an asset or replacement cost). ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one more significant inputs or significant value drivers are unobservable.

 

Our financial instruments include cash, accounts payable and accrued expenses.

 

 

 

  10  

 

 

Software Development Costs. Software development costs include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with product development. Software development costs also include third-party development and programming costs, localization costs incurred to translate software for international markets, and the amortization of purchased software code and services content. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Once technological feasibility is reached, such costs are capitalized and amortized to cost of revenue over the estimated lives of the products.

 

Risk and Uncertainties. The Company is subject to risks common to companies in the service industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.

 

Off Balance Sheet Arrangements. The Company does not have any off balance sheet arrangements.

 

Uncertain Tax Positions. The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the periods ended September 30, 2019 or 2018.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), a new standard on revenue recognition. Further, the FASB issued a number of additional ASUs regarding the new revenue recognition standard. The new standard, as amended, will supersede existing revenue recognition guidance and apply to all entities that enter into contracts to provide goods or services to customers. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, which amends ASU 2014-09 to defer the effective date by one year. For public companies, the new standard is effective for annual reporting periods beginning after December 31, 2017, including interim periods within that reporting period. For all other entities, including emerging growth companies, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the impact on the financial statements and expects to implement the provisions of ASU 2014-09 for the annual financial statements for the year ended June 30, 2016.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities, which requires all investments in equity securities with readily determinable fair value to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). ASU 2016-01 is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and removes the requirement to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. For public companies, the new standard is effective for annual periods beginning after December 15, 2017, including interim periods within the fiscal year. For all other entities, including emerging growth companies, ASU 2016-01 is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company evaluated the impact on the financial statements and implemented the provisions of ASU 2016-01 for the annual financial statements for the year ended June 30, 2019.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, (1) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (2) eliminates most real estate specific lease provisions, and (3) aligns many of the underlying lessor model principles with those in the new revenue standard. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. For public companies, the new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2018. For all other entities, including emerging growth companies, this standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 2020. Earlier application is permitted. The Company evaluated the impact on the financial statements and implemented the provisions of ASU 2016-02 for the annual financial statements for the year ended June 30, 2019.

 

 

 

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better formulate their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This update will be effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. The Company is evaluating the impact on the financial statements and expects to implement the provisions of ASU 2016-13 for the annual financial statements for the interim periods beginning January 1,2022.

 

In January 2017, the FASB issued ASU 2017-01, which changes the definition of a business. The new guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of assets and activities is not a business. If it’s not met, the entity evaluates whether the set meets the definition of a business. The new definition requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenue recognition guidance. The new guidance is effective for public business entities for fiscal years beginning after 15 December 2017, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. The ASU will be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods for which the financial statements have not been issued or made available for issuance. The Company implemented this for the year ended June 30, 2019.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements and expects to implement the provisions of ASU 2018-13 as of January1, 2020.

 

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

 

The Company reviewed all recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC, and they did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

 

Subsequent Events. The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.

 

Note 3 – Going Concern

 

The accompanying financial statements for the three months ended September 30, 2019 and 2018 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As at September 30, 2019, the Company has shown losses for the last 2 years and has an accumulated deficit of ($18,947,756). Management believes that the Company’s capital requirements will depend on many factors including the success of the Company’s development efforts and its efforts to raise capital. Management also believes the Company needs to raise additional capital for working capital purposes. There can be no assurance that the Company will be able to obtain the additional capital resources necessary to implement its business plan or that any assumptions relating to its business plan will prove accurate.

 

 

 

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These factors raise substantial doubt about our ability to continue as a going concern. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 4 – Inventory and prepaid expenses

 

The Company maintains some inventories in house and purchases some of its inventory overseas. Inventories, except for stock in transit, are stated at lower of cost and net realizable value. Stock in transit is valued at cost comprising invoice value plus other charges thereon. Net realizable value is the estimated selling price in ordinary course of business less estimated costs of completion and selling expenses. The quantity of inventory may vary from time to time depending on the delivery schedule of overseas shipments.

 

As of September 30, 2019 and June 30, 2019, the Company had $40,847 and $5,254 in inventory in-house, respectively, as well as $69,596 and $91,013 in prepaid inventories in transit, respectively.

 

Note 5 – Property, Plant, and Equipment

 

The Company has $20,000 in furnishings which are fully depreciated, $19,689 in office computers and equipment which are fully depreciated, and capitalized software development costs of $45,900 which are partially depreciated.

 

As of September 30, 2019 and June 30, 2019, the Company recorded $1,376 and $6,118 in net Property, Plant, and Equipment, respectively:

 

    September 2019     June 2019  
Furniture   $ 20,000     $ 20,000  
Office computers, equipment, software     19,689       19,689  
Software development costs     45,900       45,900  
Property, plant, and equipment     85,589       85,589  
Less accumulated depreciation     (84,213 )     (79,471 )
Net property, plant, and equipment   $ 1,376     $ 6,118  

 

Note 6 – Accounts payable and accrued expenses and liabilities

 

The Company recorded Accounts Payable of $251,387 and $222,924, directly related to operating costs, as of September 30, 2019 and June 30, 2019, respectively.

 

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. The Company recorded $415,817 and $412,102 in accrued expenses and other current liabilities as of September 30, 2019 and June 30, 2019, respectively.

 

Note 7 – Notes Payable and Note payable-other

 

Notes payable:

 

In 2019, the Company negotiated a fixed repayment settlement of some of its debt of $70,875, non-interest bearing. The company has various loans and credit lines outstanding. The credit line carries an interest rate of 16.24%. The bank loans carry interest rates varying between 9.24%-10.90%.

 

    September 30, 2019     June 30, 2019  
Kabbage   $ 11,842     $ 11,842  
Wells Fargo     33,970       33,970  
Prosper     28,327       28,327  
Debt settlement     43,418       70,875  
Total Notes Payable   $ 117,557     $ 145,014  

 

 

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As of September 30, 2019 and June 30, 2019, the Company has outstanding $117,557 and $145,014 in bank loans and credit lines payable, respectively.

 

Note payable – other

 

In June 2018, the company secured a $50,000 line of credit from EMRY CAPITAL bearing interest at 8% Per annum secured by company stock (convertible note) convertible as per default provisions with a cost of $3,000, which was fully amortized. Originally the Company earmarked these funds exclusively towards the successful VR product line development and integration.

 

The note has been sold several times, and in November 2019, the note was acquired by Mr. Mittler and Mr. Pizzino, who forgave the loan.

 

As of September 30, 2019 and June 30, 2019, the Company recorded Notes payable – other of $53,000.

 

Note 8 – 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. As of June 30, 2019, the remaining debt discount balance of $76,250 has been amortized and the Company recognized the full loan balance due of $673,750.

  

Note 9 – Warrants

 

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.

 

No warrants were exercised during the period, and as of September 30, 2019 and June 30, 2019, all outstanding warrants have expired.

 

 

 

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Note 10 – Stockholders’ Equity (Deficit)

 

Capital Stock:

 

The Company is currently authorized to issue 1,200,000,000 shares of common stock, par value of $0.0001 per share, and 14,000,000 shares of preferred stock, par value of $0.0001.

 

During the three months ended September 30, 2019, the Company issued 200,000,000 shares to its new owner, valued at $20,000 or $0.0001 per share, for consulting services.

 

As of September 30, 2019 and June 30, 2019, the Company has 294,699,177 and 94,699,177 shares of common stock issued and outstanding.

 

Preferred Stock.

 

Series A Convertible Preferred Stock: The Company is currently authorized to issue 100,000 shares of Series A Convertible Preferred Stock, par value $0.0001, convertible at 1 share of Series A preferred stock for 2 shares of common stock. These shares have no voting rights.

 

Series B Convertible Preferred Stock: The Company is currently authorized to issue 62,500 shares of Series B Convertible Preferred Stock, par value $0.0001, convertible at 1 share of Series B preferred stock for 2 shares of common stock. These shares have no voting rights.

 

Series C Convertible Preferred Stock: The Company is currently authorized to issue 6,944,445 shares of Series C Convertible Preferred Stock, par value $0.0001, convertible at 1 share of Series C Convertible Preferred Stock for 10 shares common stock. These shares have no voting rights.

 

Series D Convertible Preferred Stock: The Company is currently authorized to issue, 500,000 shares of Series D Convertible Preferred Stock, par value $0.0001, convertible at 1 share of Series D Convertible Preferred stock for 10 shares of common stock. These shares have no voting rights.

 

Series E Convertible Preferred Stock: The Company is currently authorized to issue 5,000,000 shares of Series E Convertible Preferred Stock, par value $0.0001, convertible at 1 share of Series E Convertible Preferred Stock for 100 shares of common stock. In addition, Series E Convertible Preferred Stock carry voting rights of 10,000 votes per share of Series E Convertible Preferred Stock.

 

In August 2018, the Company authorized and sold 4,000,000 shares of Series E Convertible Preferred Stock to an unrelated party for $400, or $0.0001 per share. Since these shares carry voting rights of 40,000,000,000 shares, this sale constituted a change of control in the company. These shares were sold in a private transaction on August 27, 2018, and sold again on October 26, 2018. In November 2019, these shares were acquired by Mr. Mittler and Mr. Pizzino, together with 200,000,000 shares of common stock and assumption of $53,000 of convertible debt, to obtain control of the company. As of November 2019, all shares were returned to treasury for cancellation, and the debt was forgiven.

 

As of September 30, 2019 and June 30,2019, the Company had 688 shares of Series A Convertible Preferred Stock, 9,938 shares of Series B Convertible Preferred Stock, 138,886 shares of Series C Convertible Preferred Stock, 425,000 shares of Series D Convertible Preferred Stock, and 4,000,000 shares of Series E Convertible Preferred Stock issued and outstanding, respectively.

 

Note 11 – Related Party Transactions

 

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 a principal of its subsidiary. 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 with a one year extension 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 issued 200,000 shares of common stock to one of the owners of MNY as consideration for the increase of line of credit. These shares were issued on October 19, 2015 and value at $28,000 which was the fair market value at the grant date.

 

 

 

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As of September 30, 2019 and June 30, 2019, the Company recorded $397,500 and $397,500 in outstanding line of credit – related party, respectively.

 

Related party loans

 

In 2019 and 2018, from time to time, related parties loaned the company working capital for day-to-day operations, respectively. These are short-term loans which bear no interest, and the Company expects to repay these loans within the coming year. As of September 30, 2019 and June 30, 2019, the Company owes $121,664 and $113,712 in related party loans, respectively.

 

Note 12 – Net Income(Loss) Per Share

 

Income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations.

 

    Basis of conversion   Dilution   September 30, 2019     September 30, 2018  
Convertible Notes   $673,7530   Share price of $0.01     67,375,300       67,375,300  
Series A Convertible Preferred   688 shares outstanding   1 share A: 2 shares common     1,288       1,288  
Series B Convertible Preferred   9,938 shares outstanding   1 share B: 2 shares common     19,876       19,876  
Series C Convertible Preferred   138,886 share outstanding   1 share C: 10 shares common     1,388,860       1,388,860  
Series D Convertible Preferred   425,000 share outstanding   1 share D: 10 shares common     4,250,000       4,250,000  
Series E Convertible Preferred   4,000,000 share outstanding   1 share E: 100 shares common     400,000,000        
              473,035,024       73,035,024  

 

Because the company posted losses for the past two years, the basic and diluted share bases will be presented as the same. For the three months ended September 30, 2019 and 2018, the Company posted losses of ($.00014) and ($.00234) per share, respectively, per basic and diluted share.

 

Note 13 – Segment reporting

 

The Company’s wholly owned subsidiary generated the following revenues and incurred the following expenses for the three months ended September 30, 2019, and 2018, respectively.

 

REVENUES   2019     2018  
Service labor   $ 0     $ 50  
Med01 kit     0       54,958  
Replacement parts     0       210  
Accessory sales     0       57,898  
Monitoring     225,853       111,633  
      225,853       224,748  
LESS:  COST OF GOODS SOLD     40,981       86,270  
GROSS PROFIT   $ 184,872     $ 138,478  

 

 

 

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EXPENSES   2019     2018  
Selling expenses   $ 5,170     $ 5,961  
Consulting     24,950       7,538  
Payroll     70,137       83,460  
Payroll taxes     28,965       31,466  
Professional services     3,971       10,062  
Software     4,400       15,177  
Other general & administrative     40,426       26,297  
      178,019       189,961  
Interest expense     5,737       585  
TOTAL EXPENSES     183,756       190,546  
NET PROFIT (LOSS)   $ 1,116     $ (52,068 )

 

Note 14 – Income Taxes

 

Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

 

The effective tax rate on the net loss before income taxes differs from the U.S. statutory rate as follows:

 

    September 30, 2019   June 30, 2019
U.S. statutory rate   21%   21%
Less valuation allowance   (21%)   (21%)
Effective tax rate   0%   0%

 

The significant components of deferred tax assets and liabilities approximate the follows, expiring in 2024 and 2023, on net operating losses of $18,947,756 and $18,349,309 for three months ended September 30, 2019 and 2018, respectively:

 

    September 30, 2019   September 30, 2018
Net deferred tax assets   3,979,029   3,853,355
Less valuation allowance   (3,979,029)   (3,853,355)
Deferred tax asset - net valuation allowance   0%   0%

 

Note 15 – Subsequent Events

 

Convertible notes payable:

 

The Company has negotiated a debt settlement agreement with the note holders of $673,750 in convertible debt which consists of stock and cash payments. The stock is to be issued in Q1 2021, and partial cash payments can be made up to December 31, 2020.

 

 

 

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Employee/Contractor compensation:

 

On June 6, 2020, the Board of Directors, in a unanimous written consent to take action, approved the employee/consulting agreements for Harrysen Mittler, Chairman of the Board of Directors, CEO, and CFO, and Peter Pizzino, President, Secretary, and Director, effective December 20, 2019, which provide for $17,000 per month compensation for each consultant, a $60,000 bonus at the 12 month anniversary of each year, and one-time grants of 200,000,000 shares of common stock for each director, 3,400,000 Series C Convertible Preferred Stock, par value $0.0001, convertible at 1 share of Series C Convertible Preferred Stock for 10 shares of common stock, and 500,000 shares Series E Convertible Preferred Stock, par value $0.0001, convertible at 1 share of Series E Convertible Preferred Stock for 100 shares of common stock. The Series E Convertible Preferred Stock carries voting rights of 1 share of Series E Convertible Preferred Stock for 10,000 shares of common stock

 

Series E Convertible Preferred Stock:

 

On August 19, 2018, the Company issued 4,000,000 shares of Series E Convertible Preferred Stock to Mina Mar Group Corporation for $400, or $.0001 per share. Each of these shares carries a voting right equivalent to 10,000 shares of common stock, which issuance constituted a change of control of the Company.

 

In October 2019, Mina Mar Group Corporation sold the 4,000,000 shares of Series E Convertible Preferred Stock to IMASK, which sale constituted a change in control. After that change in control, the Company issued 200,000,000 shares of its common stock, par value $0.0001, to IMASK for services rendered, valued at $20,000. In November, IMASK then sold the shares Series E Convertible Preferred Stock and 200,000,000 shares of common stock to Mr. Mittler and Mr. Pizzino for $135,000 and assigned to Mr. Mittler and Mr. Pizzino the $53,000 Emry Note. Mr. Mittler and Mr. Pizzino subsequently returned all of the Series E Convertible Preferred Stock and the common stock to the Company for cancelation and forgave the $53,000 Emry Note. Leonite Capital LLC funded the Series E Convertible Preferred Stock, the common stock, and Emry Note transaction, encumbering the Company, as well as its co-maker Hypersoft Ventures, with $150,000 convertible note, convertible to common stock of the Company at the lower of $0.02 per share or 50% of the lowest bid price during the twenty-one (21) consecutive trading-day period immediate preceding the trading day on which the Company receives the notice of conversion or the discount to market based on subsequent financing. Leonite also received 2,500,000 shares of common stock in connection with the funding.

 

Convertible Note: Leonite Capital, LLC:

 

On November 19, 2019, the Company, together with Hypersoft Ventures (collectively, the “Borrower”), received $135,000 on issuing the first tranche of $150,000 (prorated original issue discount of $15,000) of a $250,000 unsecured convertible note (“Leonite Convertible Note”) to Leonite Capital, LLC, a Delaware limited liability company (“Leonite”), net of an aggregate original issue discount of up to $77,778. The Leonite Convertible Note bears annual interest at the Prime Rate plus eight percent (8%), not to exceed twelve percent (12%) per annum, computed on a 365/360 basis, and is due nine months from the date of issuance. The Leonite Convertible Note is convertible into shares of the Company’s common stock at a conversion price equal to $0.02 per share with anti-dilution features. In connection with its purchase of the Leonite Convertible Note, the Company issued to Leonite 2,500,000 shares of common stock, prorated for the initial tranche.

 

The Company has determined that the conversion feature embedded in the Leonite Convertible Note constitutes a derivative and has been bifurcated from the Leonite Convertible 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 initial issuance yielded a derivative liability of $94,225, with a discount of $150,000 to be amortized over the 9-month life of the Leonite Convertible Note.

 

Significant assumptions used in calculating fair value of conversion feature of Leonite Convertible Note at issuance date are as follows.

 

Expected
Dividends
  Expected
volatility
  Risk-free rate
of interest
  Expected term
(year)
  Exercise
(Conversion)
price
  Common stock
price per share
0.00%   809.71%   0.0154%   0.75   $0.02   $0.01300

 

 

 

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Revaluation at December 31, 2019 yielded a gain of $25,222 on change in fair value of derivative liability, amortization of discounts of $23,889, and interest expense of $2,256.

 

Balance at September 30, 2019   $  
Leonite Convertible Note issued     150,000  
Leonite Convertible Note converted      
Total     150,000  
Less: debt discount     (126,111 )
Balance at December 31, 2019   $ 23,889  

 

Significant assumptions used in calculating fair value of conversion feature of Leonite Convertible Note as of March 31, 2020 are as follows.

 

Expected
Dividends
  Expected
volatility
  Risk-free rate
of interest
  Expected
term (year)
  Exercise
(Conversion) price
  Common stock
price per share
0.00%   826.28%   0.0159%   0.667   $0.02   $0.00950

 

Revaluation at March 31, 2020 yielded a loss of $230,349 on change in fair value of derivative liability, primarily due to default on the Leonite Convertible Note and change in conversion price, amortization of $50,556, and interest and late fees expense of $4,778.

 

Balance at March 31, 2020   $  
Leonite Convertible Note issued     150,000  
Leonite Convertible Note converted      
Total     150,000  
Less: debt discount     (75,555 )
Balance at March 31, 2020   $ 74,445  

 

Significant assumptions used in calculating fair value of warrants and conversion feature of convertible notes as of March 31, 2020 are as follows.

 

Expected
Dividends
  Expected
volatility
  Risk-free rate
of interest
  Expected
term (year)
  Exercise
(Conversion)
price
  Common stock
price per share
0.00%   845.05%   0.0170%   0.458   $0.00250   $0.0050

 

 

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

 

Cautionary Note

 

This Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited financial statements and related notes. The discussion and analysis of our financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions. The following discussion should be read in conjunction with our unaudited interim financial statements and the related notes that appear elsewhere in this quarterly report.

 

This Quarterly Report on Form 10-Q for the current period ended contains "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including statements that include the words "believes," "expects," "anticipates," or similar expressions. These forward-looking statements include, among others, statements concerning our expectations regarding our working capital requirements, financing requirements, business, growth prospects, competition and results of operations, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements contained herein.

 

GENERAL OVERVIEW

 

We were incorporated as Medical Alarm Concepts Holding, Inc. on June 4, 2008 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 is primarily engaged in 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.

 

Critical Accounting Policies

 

The accounting policies of the Company are in accordance with generally accepted accounting principles of the United States of America, and their basis of application is consistent. Outlined below are those policies considered particularly significant.

 

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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Research and Development

 

Research and development costs are charged to operations when incurred and are included in operating expenses.

 

Revenue Recognition

 

Sales will be recorded when users of the developed product subscribe to the service and payment is processed. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. We have made provision for discounts or rebates to customers, estimated returns and allowances or other adjustments have been recognized as of September 30, 2019.

 

 

 

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Results of Operations

 

Three Months Ended September 30, 2019 compared to the three months ended September 30, 2018.

 

Our company recorded revenues of $225,853 with a cost of sales of $40,981, generating a Gross Profit of $184,872 as of September 30, 2019, compared to revenues of $224,748 with a cost of sales of $86,270, generating a Gross Profit of $138,478 as of September 30, 2018.

 

Other selling expenses of $5,170 and general and administrative expenses of $196,564, with interest expense of $5,737 generated a net loss of $22,599 as of September 30, 2019. Selling expenses of $5,961 and general and administrative expenses of $192,296 with interest expense of $79,835, which included $79,250 in amortized discounts for debentures, generated a net loss of $139,314 for the three months ending September 30, 2018.

 

 

Liquidity and Capital Resources

 

The Company’s financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, the company has net accumulated losses since inception, and an accumulated deficit of $18,947,756.

 

As at September 30, 2019  the Company had $4,488 in cash. We had a working capital deficit of $2,209,239.

 

These factors raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the company’s ability to raise additional funds and implement its business plan. There can be no assurance that the Company will be able to obtain the additional capital resources necessary to implement its business plan or that any assumptions relating to its business plan will prove accurate. The financial statements of the Company do not include any adjustments that might be necessary if the company is unable to continue as a going concern.

 

Since inception, the Company has financed its activities principally from shareholder equity investments. The Company intends on financing its future development activities and its working capital needs largely from the sale of equity securities, debt financing and loans from private individuals, until such time that funds provided by operations are sufficient to fund working capital requirements. There can be no assurance that the Company will be successful in achieving its financing goals at reasonably commercial terms, if at all.

 

Unpredictability of Future Revenues

 

As a result of our limited operating history, the continued development of our software, and whether the general public will accept that software, we are unable to accurately forecast future revenues. Our current and future expense levels are based largely on software development and professional fees. Such costs are to a significant extent fixed and expected to increase.

 

Sales and operating results generally depend on a number of factors, which are difficult to forecast. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall in the future, nor may we be able to anticipate significant obstacles to software development in a timely manner. Accordingly, any significant shortfall in future sales or unforeseen software development costs would have an immediate adverse effect on our business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing decisions which could have a material adverse effect on our business, prospects, financial condition and results of operations.

 

We expect to experience fluctuations in our future quarterly operating results due to a variety of factors, some of which are outside of our control.

 

 

 

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Off-Balance Sheet Arrangements

 

The Company is not currently engaged in any off-balance sheet arrangements, as defined by Item 303(a)(4)(ii) of Regulation S-B. The Company has not engaged in any off-balance sheet arrangements during the last fiscal year, and is not reasonably likely to engage in any off-balance sheet arrangements in the near future.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The information to be reported under this item is not required of smaller reporting companies.

 

Item 4. Controls and Procedures

 

a) Evaluation of Disclosure Controls and Procedures

 

Harrysen Mittler, the Company’s Executive Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of our 2019 fiscal year pursuant to Rules 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended (the ͞“Exchange Act”).   Disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to its management, as appropriate, to allow timely decisions regarding required disclosure. Based on his evaluation, Mr. Mittler concluded that the disclosure controls and procedures of the Company were ineffective as at the period end to ensure that information required to be disclosed by the Company in the reports that it file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

 

In order to rectify its ineffective disclosure controls and procedures, the Company is developing  a plan to ensure that all information will be recorded, processed, summarized and reported accurately, and as of the date of this report, it has taken the following steps to address its ineffective disclosure controls and procedures:

 

  · The Company will continue to educate its management personnel to comply with the disclosure requirements of the Exchange Act and Regulation S-K; and

 

  · The Company will increase management oversight of accounting and reporting functions in the future.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

(b) Management’s Annual Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control system over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

 

Under the supervision and with the participation of management, including the Company’s Chief Executive Officer/Chief Financial Officer , the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this evaluation, our Chief Executive Officer/Chief Financial Officer concluded, as of the current period ended, that our internal controls over financial reporting were ineffective due to the material weakness identified.

 

 

 

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A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified the following material weakness in our internal control over financial reporting:

 

  The Company is lacking qualified resources to perform the internal audit functions properly. In addition, the scope and effectiveness of the Company’s internal audit function are yet to be developed.
  The Company is relatively inexperienced with certain complexities within US GAAP and SEC reporting.

 

Remediation Initiative

 

  The Company is committed to establishing the disclosure controls and procedures but due to limited qualified resources in the region, the Company was not able to hire sufficient internal audit resources by the period end. However, internally it has established a central management center to recruit more senior qualified people in order to improve its internal control procedures. Externally, the Company is looking forward to engaging an accounting firm to assist the Company in improving the Company’s internal control system based on the COSO Framework. The Company will also increase its efforts to hire the qualified resources.
  The Company intends to establish an audit committee of the board of directors as soon as practicable. It envisions that the audit committee will be primarily responsible for reviewing the services performed by the Company’s independent auditors, evaluating its accounting policies and its system of internal controls.

 

Conclusion

 

The Company did not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of generally accepted accounting principles accepted in the United States of America commensurate with the Company’s disclosure controls and procedures requirements, which resulted in a number of deficiencies in disclosure controls and procedures that were identified as being significant. The Company’s management believes that the number and nature of these significant deficiencies, when aggregated, was determined to be a material weakness.

 

Despite of the material weaknesses and deficiencies reported above, the Company’s management believes that its consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 

 

 

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PART II

 

Item 1. Legal Proceedings

 

The Company is not presently a party to any litigation nor, to our knowledge, is any litigation threatened against it, which may materially affect its business or its assets.

 

Item 1A. Risk Factors

 

The information to be reported under this Item is not required of smaller reporting companies. However, there have been no material changes from the risk factors previously disclosed in our Report on Form 8-K for the fiscal year ended immediately prior to the current reporting, filed with the SEC.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Other than as noted above and previously reported on the Company’s Current Reports on Form 8-K, there have been no unregistered sales of equity securities for the current reporting period.

 

Item 3. Defaults upon Senior Securities

 

There has been no default in payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

Item 6. Exhibits

 

 

INDEX TO EXHIBITS

 

Exhibit No.   Description
     
31.1   Certification of Director and Chief Executive Officer  
       
31.2   Certification of Chief Financial Officer  
       
32.1   Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002  
       
101   The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language); (i) Balance Sheets at March 31, 2019, (ii) Statement of Operations for the three months ended March 31, 2019, (iii) Statement of Cash Flows for the three months ended March 31, 2019, and (iv) Notes to Financial Statements  

 

 

 

101.INS XBRL Instances Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

  

 

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  WEARABLE HEALTHCARE SOLUTIONS, INC.
     
  By: /s/ Harrysen Mittler
    Harrysen Mittler
    President, Chief Executive Officer and Director
Date: July 13, 2020   (Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

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