UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|
[X] |
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the fiscal year ended September 30, 2020
|
[ ] |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the transition period from ___________ to
___________
WELLNESS
CENTER USA, INC.
(Name
of small business issuer in its charter)
|
NEVADA |
|
333-173216 |
|
27-2980395 |
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
Commission
File
Number
|
|
(IRS
Employee
Identification
No.)
|
145
E. University Boulevard, Tucson, AZ 85705
(Address
of Principal Executive Offices)
(847) 925-1885
(Issuer
Telephone number)
(Former
name or former address, if changed since last report)
Securities
registered under Section 12(b) of the Exchange Act:
|
Title
of each class registered:
|
|
Name
of each exchange on which registered: |
|
None |
|
None |
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $0.001
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its Corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§229.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such files). Yes [X]
No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
| |
Large
accelerated filer |
[ ] |
|
Accelerated
filer |
[ ] |
|
| |
|
|
|
|
|
|
| |
Non-accelerated
filer
(Do
not check if a smaller reporting company)
|
[ ] |
|
Smaller
reporting company |
[X]. |
|
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes [ ]
No [X]
There
is no established public trading market for our common
stock.
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked
prices of such common equity, as of March 31, 2020:
$3,698,561.
As of
September 30, 2020, the registrant had 118,252,077 shares of its
common stock issued and outstanding.
Documents
Incorporated by Reference: See Item 15.
TABLE
OF CONTENTS
PART I
Background.
Wellness
Center USA, Inc. (“WCUI” or the “Company”) was incorporated in June
2010 under the laws of the State of Nevada. We initially engaged in
online sports and nutrition supplements marketing and distribution.
We subsequently expanded into additional businesses within the
healthcare and medical sectors through acquisitions, including
Psoria-Shield Inc. (“PSI”) and StealthCo Inc. (“SCI”), d/b/a
Stealth Mark, Inc.
The
Company currently operates in two business segments: (i)
distribution of targeted Ultra Violet (“UV”) phototherapy devices
for dermatology and sanitation purposes; and (ii) authentication
and encryption products and services. The segments are conducted
through our wholly-owned subsidiaries, PSI and SCI.
PSI
PSI
was incorporated under the laws of the state of Florida on June 17,
2009. We acquired all of the issued and outstanding shares of stock
in PSI on August 24, 2012.
Joint Ventures
During
the period covered by this Report, PSI conducted operations through
joint ventures. During the period ended November 30, 2018,
operations were conducted through Psoria Development Company, LLC
(“PDC”), a joint venture with The Medical Alliance, Inc. (“TMA”).
In November 2018, the PDC joint venture was terminated. The
non-controlling interest’s share of the accumulated losses of the
joint venture through termination totaled to $405,383, representing
the non-controlling interest holder’s proportionate share of the
equity of the Company’s majority-owned subsidiary, PDC, as adjusted
for the non-controlling interest holder’s proportionate share of
the earnings or losses and other comprehensive income (loss), if
any, with attribution of its share of losses even if such
attribution results in a deficit non-controlling interest balance.
During the year ended September 30, 2019, the Company wrote-off the
non-controlling interest’s share of the accumulated losses and
recorded a loss from the deconsolidation of a non-controlling
interest of $405,383.
Since
December 2018, PSI has conducted operations through a joint venture
with GEN2 Funding, Inc. (“Gen2”) to further development, marketing,
licensing and/or sale of PSI technology and products. Pursuant to
the Joint Venture Agreement, the venture is conducted through NEO
Phototherapy, Inc. (“NEO”). PSI and GEN2 were the initial members
of NEO, with 50.5% and 36.0% of the initial Units assigned to PSI
and GEN2, respectively, and an additional 13.5% of such Units
reserved for issuance as incentives for key employees and
consultants. Prior to issuance of reserved Units as incentives, the
Company controlled 68% of the joint venture and GEN2 the remaining
32%. PSI and GEN2 jointly manage NEO’s day-to-day operations. PSI
contributed PSI technology to NEO and GEN2 agreed to contribute
$700,000.
As of
December 31, 2019, NEO’s operations required additional funding
beyond Gen2’s $700,000 commitment. As of September 30, 2019, GEN2
had received and contributed an additional $275,000 to NEO. As of
April 30, 2020, the Company controlled 51% of the joint venture,
GEN2 controlled 39% and another individual controlled the remaining
10% (as a result of the issuance of incentive Units). The Company
recorded its proportionate share of the contributions received of
$497,250 to additional paid-in-capital and $477,750 to
non-controlling interest as of that date.
Effective
April 30, 2020, the joint venture with GEN2 was reorganized. GEN2
shareholders exchanged their common shares in GEN2, and the
individual exchanged his incentive Units in NEO, for common shares
representing 49% ownership in PSI. The Company retained its common
shares in PSI, which provides the Company a 51% economic interest
in the PSI technology and products developed by the joint venture.
During year ended September 30, 2020, the entities recorded a
combined loss of $333,809 relating to its operations, of which
$163,556 was allocated to the non-controlling interest.
Repayment
of the $975,000 investment will begin through and upon the date
which PSI has realized and retained cumulative net
income/distributable cash in the amount of $300,000. PSI ownership
consists of accredited investors, and investment participation of
$750,000 from several WCUI officers and directors, including Calvin
R. O’Harrow and Roy M. Harsch.
In
May 2020, PSI agreed to become a majority shareholder in Protec
Scientific, Inc. (“Protec”), a company formed in April 2020 by John
Yorke for the purpose of designing, developing and marketing
products that use spectral photonic emissions across a variety of
applications including, but not limited to, an anti-viral UV-C
germicidal wand device to be marketed as the ProTec 9. It also
agreed to license certain intellectual property and patented
technology to Protec, on an exclusive basis, to use certain
Licensed Patents, Know-how, Technical Data, and any Improvements to
develop, make, have made, use, sell, offer to sell, distribute,
export, import, and otherwise commercialize the Protec 9 within the
United States and Canada, for a period continuing for so long as
PSI owns the acquired common shares in Protec. The License
Agreement requires Protec to pay a royalty of 4% of gross revenues
arising from or relating to the servicing, selling, distributing,
and other commercialization of Protec 9 products. Pursuant to the
PSA, the Company’s Chairman, Calvin R. O’Harrow, will serve as
member of Protec’s three-member Board of Directors. As of September
30, 2020, PSI had advanced $191,000 to Protec in furtherance of its
agreement to acquire approximately 62% of Protec, with the
Company’s derivative share being approximately 32%, based on its
PSI ownership. The remaining 30% derivative share is to be
attributed to PSI’s minority shareholders, based on their PSI
ownership. During the year ended September 30, 2020, Protec
received an additional $120,000 from non-affiliated investors, of
which $74,400 was recorded to additional paid-in capital and
$45,600 to the non-controlling interests. The additional
investments gave the non-controlling interests a 38% ownership
interest in Protec. During the year ended September 30, 2020,
Protec recorded a loss of $172,174, of which $117,732 was allocated
to the non-controlling interests.
Psoria-Light
PSI
designs, develops and markets a targeted ultraviolet (“UV”)
phototherapy device called the Psoria-Light. The Psoria-Light is
designated for use in targeted PUVA photochemistry and UVB
phototherapy and is designed to treat certain skin conditions
including psoriasis, vitiligo, atopic dermatitis (eczema),
seborrheic dermatitis, and leukoderma.
Psoriasis,
eczema, and vitiligo, are common skin conditions that can be
challenging to treat, and often cause the client significant
psychosocial stress. Clients may undergo a variety of treatments to
address these skin conditions, including routine consumption of
systemic and biologic drug therapies which are highly toxic, reduce
systemic immune system function, and come with a host of
chemotherapy-like side effects. Ultraviolet (UV) phototherapy is a
clinically validated alternate treatment modality for these
disorders.
Traditionally,
“non-targeted” UV phototherapy was administered by lamps that
emitted either UVA or UVB light to both diseased and healthy skin.
While sunblocks or other UV barriers may be used to protect healthy
skin, the UV administered in this manner must be low dosage to
avoid excessive exposure of healthy tissue. Today, “targeted” UV
phototherapy devices administer much higher dosages of light only
to affected tissue, resulting in “clearance” in the case of
psoriasis and eczema, and “repigmentation” in the case of vitiligo,
at much faster rates than non-targeted (low dosage) UV
treatments.
Targeted
UV treatments are typically administered to smaller total body
surface areas, and are therefore used to treat the most intense
parts of a client’s disease. Non-targeted UV treatment is typically
used as a follow-up and for maintenance, capable of treating large
surfaces of the body. Excimer laser devices (UVB at 308nm) are
expensive and consume dangerous chemicals (Xenon and Chlorine).
Mercury lamp devices (UVB and/or UVA) require expensive lamp
replacements regularly and require special disposal (due to mercury
content). Additionally, mercury lamp devices typically deliver
wavelengths of light below 300nm. While within the UVB spectrum, it
has been shown that wavelengths below 300nm produce significantly
more “sunburn” type side effects than do wavelengths between 300
and 320nm without improvement in therapeutic benefit.
The
Psoria-Light is a targeted UV phototherapy device that produces UVB
light between 300 and 320 nm as well as UVA light between 350 and
395nm. It does not require consumption of dangerous chemicals or
require special environmental disposal, and is cost effective for
clinicians, which should result in increased patient access to this
type of treatment. It has several unique and advanced features that
we believe will distinguish it from the non-targeted and targeted
UV phototherapy devices that are currently being used by
dermatologists and other healthcare providers. These features
include the following: the utilization of deep narrow-band UVB
(“NB-UVB”) LEDs as light sources; the ability to produce both UVA
or NB-UVB therapeutic wavelengths; an integrated high resolution
digital camera and client record integration capabilities; the
ability to export to an external USB memory device a PDF file of
treatment information including a patent pending graph that
includes digital images plotted against user tracked metrics which
can be submitted to improve medical reimbursements; an accessory
port and ability to update software; ease of placement and
portability; advanced treatment site detection safety sensor;
international language support; a warranty which includes the UV
lamp(s); and a non-changeable treatment log (that does not include
HIPPA information).
The
Psoria-Light consists of three components: a base console, a color
display with touchscreen control, and a hand-held delivery device
with a conduit (or tether) between the handheld device and the base
console. PSI requires clearance by the United States Food and Drug
Administration (“FDA”) to market and sell the device in the United
States as well as permission from TUV SUD America Inc., PSI’s
Notified Body, to affix the CE mark to the Psoria-Light in order to
market and sell the device in countries of the European
Union.
To
obtain FDA clearance and permission to affix the CE mark, PSI was
required to conduct EMC and electrical safety testing, which it
completed in the second quarter of 2011. PSI received FDA clearance
on February 11, 2011 (no. K103540) and was granted permission to
affix the CE mark on November 10, 2011. In its 510(k) application
with the FDA (application number K103540), PSI asserted that the
Psoria-Light was “substantially equivalent” in intended use and
technology to two predicate devices, the X -Trac Excimer Laser,
which has wide acceptance in the medical billing literature and has
a large installed base in the U.S., and the Dualight, another
competing targeted UV phototherapy device.
PSI
has established an ISO 13485 compliant quality system for the
Psoria-Light, which was first audited in the third quarter of 2011.
This system is intended to ensure PSI devices will be manufactured
in a controlled and reliable environment and that its resources
follow similar practices and is required for sales in countries
requiring a CE mark. PSI has also received Certified Space
Technology designation from the Space Foundation, based on PSI’s
incorporation of established NASA-funded LED technology.
PSI
began Psoria-Light Beta deployment in January 2012. It is currently
operating at a loss, and there is no assurance that its business
development plans and strategies will ever be successful. PSI’s
success depends upon the acceptance by healthcare providers and
clients of Psoria-Light treatment as a preferred method of
treatment for psoriasis and other UV-treatable skin conditions.
Psoria-Light treatment appears to have been beneficial to clients,
without demonstrable harmful side effects or safety issues, as
evidenced by more than 10,000 treatments completed on more than
1,000 clients, domestically and Mexico, since 2012. In order for
the Company to continue PSI operations, it will need additional
capital and it will have to successfully coordinate integration of
PSI operations without materially and adversely affecting
continuation and development of other Company
operations.
SCI
SCI
was incorporated under the laws of the state of Illinois on March
18, 2014. SCI acquired certain Stealth Mark assets on April 4, 2014
and operates as a wholly-owned subsidiary of the Company. It is a
provider of: a) Stealth Mark encryption and authentication
solutions offering advanced technologies within the security and
supply chain management vertical sectors (Intelligent
Microparticles), and b) advanced data intelligence services
offering proprietary, unprecedented, and actionable technology for
industries, companies, and agencies on a global scale
(ActiveDuty™).
Intelligent Microparticles
SCI
provides clients premiere authentication technology for the
protection of a variety of products and brands from illicit
counterfeiting and diversion activities. Its technology is
applicable to a wide range of industries affected by
counterfeiting, diversion and theft including, but not limited to,
pharmaceuticals, defense/aerospace, automotive, electronics,
technology, consumer and personal care goods, designer products,
beverage/spirits, and many others.
SCI
delivers the client a complete, simple to use, easy to implement,
and cost effective turnkey system that is extremely difficult to
compromise. SCI’s technology includes a combination of proprietary
software and intelligent microparticle marks that are
unduplicatable and undetectable to the human eye. These taggants
are created with proprietary materials that create unique numerical
codes that are assigned meaning by the client and are machine
readable without the use of rare earth or chemical tracers. They
have been used in covert and overt operations with easy to
implement technology and do-it-yourself in-the-field forensic
caliber verification.
In
April 2018, the Company’s subsidiary, SCI, concluded licensing of a
patent for technology that is the next generation of Stealth Mark.
Working with researchers at the Oak Ridge National Labs, the patent
signifies development of a new technology that will generate an
invisible marking system with attributes currently unavailable in
the anti-counterfeit marketplace today. The formula and techniques
have been shown through extensive testing to be resilient to
manufacturing processes and can be used on a wide range of
materials from woven and non-woven fabrics, cardboard, metal,
concrete, plastics, leather, wood, and paper. In addition, the
complexity of the information that can be encoded with the system
makes counterfeiting difficult.
ActiveDuty™
SCI’s
ActiveDuty™ data intelligence services offer unique, unprecedented,
actionable technology for industries, companies, and agencies on a
global scale. Comprised of a suite of powerful analytical tools,
including artificial intelligence and social-psychology, the
service provides timely and actionable intelligence to clients.
ActiveDuty™ is adaptable to a broad spectrum of illicit activities
within both private and public sectors such as, but not limited to,
counterfeiting, sex and human trafficking, money laundering, and a
variety of other markets.
The
proprietary algorithmic architecture of ActiveDuty™ creates the
first systemic reporting mechanism to deliver strategic and
tactical results supported by an intense worldwide analysis of
patterns of human behavior. The ActiveDuty™ global framework is
heuristic in nature, capable of comprehending big data across the
digital spectrum and speaks all the major languages. Up until now,
there has not existed a unified system that could actively measure
this lifecycle that is a collection of discreet and seemingly
random behaviors of criminals anywhere within the digital domain.
Criminals change their identities but not their basic
behaviors.
SCI
was managed initially by Ricky Howard, who brought over thirty
years of experience in operations management and executive
positions in a variety of industries ranging from entrepreneurial
startups to Fortune 500 companies. He played an integral role in
bringing the company’s capabilities to its present status including
design and creation of its manufacturing capabilities,
implementation of its ERP inventory controls system, software and
hardware development, marketing and sales materials processes and
day-to-day operational procedures and processes. In November 2018,
Mr. Howard passed away suddenly and Mr. O’Harrow took over
operations of SCI’s business on an interim basis.
An
investment in our securities involves an exceptionally high degree
of risk and is extremely speculative in nature. The risks described
below are the ones we believe are most important for you to
consider. These risks are not the only ones that we face. If events
anticipated by any of the following risks actually occur, our
business, operating results or financial condition could suffer and
the price of our common stock could decline.
WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR AUDITORS AND WE
ARE CURRENTLY OPERATING AT A LOSS, WHICH RAISES SUBSTANTIAL DOUBT
ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
We
have received a “Going Concern” opinion from our auditors. As
reflected in the accompanying consolidated financial statements,
the Company had a shareholders’ deficit at September 30, 2020, and
a net loss and net cash used in operating activities for the fiscal
year then ended. These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
The
Company is attempting to generate sufficient revenue; however, the
Company’s cash position may not be sufficient enough to support the
Company’s daily operations. While the Company believes in the
viability of its strategy to generate sufficient revenue 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.
IT IS MOST LIKELY THAT WE WILL NEED TO SEEK ADDITIONAL FINANCING
THROUGH SUBSEQUENT FUTURE PRIVATE OFFERING OF OUR
SECURITIES.
Because
the Company does not currently have any financing arrangements, and
may not be able to secure favorable terms for future financing, the
Company may need to raise capital through the sale of its common
stock. The sale of additional equity securities will result in
dilution to our shareholders.
UNFAVORABLE PUBLICITY OR CLIENT REJECTION OF OUR PRODUCTS OR
SERVICES GENERALLY COULD REDUCE OUR SALES.
We
will be highly dependent upon client acceptance of the safety,
efficacy and quality of our products and services, as well as
similar products or services offered by other companies. Client
acceptance of products or services can be significantly influenced
by scientific research or findings, national media attention and
other publicity about product use or services. A product or service
may be received favorably, resulting in high sales associated with
that product or service that may not be sustainable as client
preferences change. Future scientific research or publicity could
be unfavorable to our industry or any of our particular products
and services and may not be consistent with earlier favorable
research or publicity. A future research report or publicity that
is perceived by our consumers as less than favorable or that
question earlier favorable research or publicity could have a
material adverse effect on our ability to generate revenue. Adverse
publicity in the form of published scientific research, statements
by regulatory authorities or otherwise, whether or not accurate,
that associates consumption or use of our products or services, or
any other similar products and services, with illness or other
adverse effects, or that questions the benefits of our or similar
products or services, or claims that they are ineffective, could
have a material adverse effect on our business, reputation,
financial condition or results of operations.
COMPLYING WITH NEW AND EXISTING GOVERNMENT REGULATION, BOTH IN THE
U.S. AND ABROAD, COULD SIGNIFICANTLY INCREASE OUR COSTS AND LIMIT
OUR ABILITY TO MARKET OUR PRODUCTS AND SERVICES.
The
production, packaging, labeling, advertising, distribution,
licensing and/or sale of our products and services may be subject
to regulation by several U.S. federal agencies, including the FDA,
the Federal Trade Commission, the Consumer Product Safety
Commission, and the Environmental Protection Agency, as well as
various state, local and international laws and agencies of the
localities in which our products and services are offered or are
sold. Government regulations may prevent or delay the introduction
or require design modifications of our products. Regulatory
authorities may not accept the evidence of safety we present for
existing or new products or services that we wish to market, or
they may determine that a particular product or service presents an
unacceptable health risk. If that occurs, we could be required to
cease distribution of and/or recall products or terminate marketing
of services that present such risks. Authorities may also determine
that certain advertising and promotional claims, statements or
activities are not in compliance with applicable laws and
regulations and may determine that a particular statement is
unacceptable as a “health claim.” Failure to comply with any
regulatory requirements could prevent us from marketing particular
existing or new products or services, or subject us to
administrative, civil or criminal penalties.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY, AND OUR FAILURE TO
COMPETE EFFECTIVELY COULD ADVERSELY AFFECT OUR MARKET SHARE,
FINANCIAL CONDITION AND GROWTH PROSPECTS.
The
U.S. healthcare solutions industry is a large and highly fragmented
industry. The principle elements of competition in the industry are
price, selection and distribution channel offerings. We believe the
market is highly sensitive to the introduction of new products and
services, which may rapidly capture a significant share of the
market. We will compete for sales with heavily advertised national
brands offered by large and well-funded companies. In addition, as
certain products or services gain market acceptance, we may
experience increased competition for those products or services as
more participants enter the market. To the extent that we
manufacture or engage third party manufacturers to produce any
product, our manufacturing capabilities may not be adequate or
sufficient to compete with large scale, direct or third-party
manufacturers. Certain of our potential competitors are much larger
than us and have longer operating histories, larger customer bases,
greater brand recognition and greater resources for marketing,
advertising and promotion of their products and services. They may
be able to secure inventory from vendors on more favorable terms,
operate with a lower cost structure or adopt more aggressive
pricing policies. In addition, our potential competitors may be
more effective and efficient in introducing new products or
services. We may not be able to compete effectively, and our
attempt to do so may require us to increase marketing and/or reduce
our prices, which may result in lower margins. Failure to
effectively compete could adversely affect our market share,
financial condition and growth prospects.
OUR DECISIONS TO ACQUIRE PSI AND SCI WERE BASED UPON ASSUMPTIONS
WHICH MAY PROVE TO BE ERRONEOUS.
Our
decisions to acquire PSI and SCI were based upon assumptions
regarding their respective existing and prospective operations,
products and services, the potential market for their respective
products and services, and our ability to integrate their
respective operations in a manner that would enable us to launch
the marketing and sale of their respective products and services.
Our decisions were based upon information available to management,
and assumptions made by management, at the time of each respective
acquisition, regarding the potential viability of such products and
services and our ability to integrate operations.
Our
assumptions may prove to be erroneous. Each company is a small
development stage company with a limited operating history. Each is
currently operating at a loss, and there is no assurance that its
business development plans and strategies will ever be successful,
or that their respective products and services will be favorably
perceived and accepted by our assumed potential customer
populations.
PSI PROVIDES AN ALTERNATIVE APPROACH TO SKIN TREATMENT THAT IS
NOVEL.
Psoriasis,
eczema, and vitiligo, are common skin conditions that can be
challenging to treat, and often cause clients significant
psychosocial stress. Clients may elect a variety of treatments to
address these skin conditions, including routine consumption of
systemic and biologic drug therapies which are highly toxic, reduce
systemic immune system function, and come with a host of
chemotherapylike side effects. Ultraviolet (UV) phototherapy has
been clinically validated as an alternate treatment modality for
these disorders.
“Non-targeted”
UV phototherapy may be administered by lamps that emit either UVA
or UVB light to both diseased and healthy skin, with sun blocks and
other UV barriers used to protect healthy skin. Non-targeted UV
must be low dosage to avoid excessive exposure of healthy tissue.
“Targeted” UV phototherapy may be administered at much higher
dosages of light only to affected tissue, resulting in “clearance”
in the case of psoriasis and eczema, and “repigmentation” in the
case of vitiligo, at much faster rates than non-targeted, low
dosage UV treatments.
Targeted
UV treatments are typically administered to smaller total body
surface areas, and are therefore used to treat the most intense
parts of a client’s disease. Non-targeted UV treatment is typically
used as a follow-up and for maintenance, capable of treating large
surfaces of the body. Excimer laser devices (UVB at 308nm) are
expensive and consume dangerous chemicals (Xenon and Chlorine).
Mercury lamp devices (UVB and/or UVA) require expensive lamp
replacements regularly and require special disposal (due to mercury
content). Additionally, mercury lamp devices typically deliver
wavelengths of light below 300nm. While within the UVB spectrum, it
has been shown that wavelengths below 300nm produce significantly
more “sunburn” type side effects than do wavelengths between 300
and 320nm without improvement in therapeutic benefit.
Psoria-Light
treatment provides a targeted UV phototherapy that produces UVB
light between 300 and 320 nm and UVA light between 350 and 395nm.
It does not require consumption of dangerous chemicals or special
environmental disposal, and is cost effective for clinicians. We
believe these factors will increase client access to this type of
treatment. We also believe that Psoria-Light treatment offers
several unique and advanced features that will distinguish it from
the non-targeted and targeted UV phototherapy devices that are
currently being used by dermatologists and other healthcare
providers. These features include the following: the utilization of
deep narrow-band UVB (“NB-UVB”) LEDs as light sources; the ability
to produce both UVA or NB-UVB therapeutic wavelengths; an
integrated high resolution digital camera and patient record
integration capabilities; the ability to export to an external USB
memory device a PDF file of patient treatment information including
a patent pending graph that includes digital images plotted against
user tracked metrics which can be submitted to improve medical
reimbursements; an accessory port and ability to update software;
ease of placement and portability; advanced treatment site
detection safety sensor; international language support; a warranty
which includes the UV lamp(s); and a non-changeable treatment log
(that does not include HIPPA information).
PSI’s
success depends upon the acceptance by healthcare providers and
clients of Psoria-Light treatment as a preferred method of
treatment for psoriasis and other UV-treatable skin conditions.
While Psoria-Light treatment appears to have been beneficial to
clients, without demonstrable harmful side effects or safety
issues, there can be no assurance that we will be able to achieve
and maintain such market acceptance by healthcare providers or
clients.
WE RELY UPON PSI AND SCI PERSONNEL TO OPERATE THEIR RESPECTIVE
BUSINESSES AND THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIALLY
ADVERSE AFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS.
We
rely upon the current executive management of PSI and SCI to
operate their respective business operations. Employment agreements
with any key management personnel will not guarantee that any such
personnel will remain affiliated with us.
If
any of our key personnel were to cease their affiliation with us,
our operating results could suffer. Further, we do not maintain key
person life insurance on any executive officer. If we lose or are
unable to obtain the services of key personnel, our business,
financial condition or results of operations could be materially
and adversely affected.
PSI AND SCI HAVE LIMITED EXPERIENCE IN MARKETING THEIR RESPECTIVE
PRODUCTS AND SERVICES.
PSI
and SCI each has undertaken initial, limited marketing efforts for
their respective products and services. Their sales and marketing
personnel will compete against the experienced and well-funded
sales organizations of competitors. Their revenues and ability to
achieve profitability will depend largely on the effectiveness of
their respective sales and marketing personnel. Each will face
significant challenges and risks related to marketing its services,
including, but not limited to, the following:
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the
ability to obtain access to or persuade adequate numbers of
healthcare providers or clients to purchase and use their
respective products and services; |
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the
ability to recruit, properly motivate, retain, and train adequate
numbers of qualified sales and marketing personnel; |
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the
costs associated with hiring, training, maintaining, and expanding
an effective sales and marketing team; and |
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assuring
compliance with applicable government regulatory
requirements. |
In
addition, PSI plans to establish a network of distributors in
selected foreign markets to market, sell and distribute the
Psoria-Light device. If PSI fails to select or use appropriate
foreign distributors, or if the sales and marketing strategies of
such distributors prove ineffective in generating sales of the
device, our revenues would be adversely affected and we might never
become profitable.
COMMERCIALIZATION OF PRODUCTS AND SERVICES WILL REQUIRE US TO BUILD
AND MAINTAIN SOPHISTICATED SALES AND MARKETING
TEAMS.
None
of our subsidiaries has any prior experience with commercializing
their respective products and services. To successfully
commercialize their products and services we will need to establish
and maintain sophisticated sales and marketing teams. Experienced
sales representatives may be difficult to locate and retain, and
all new sales representatives will need to undergo extensive
training. There is no assurance that we will be able to recruit and
retain sufficiently skilled sales representatives, or that any new
sales representatives will ultimately become productive. If we are
unable to recruit and retain qualified and productive sales
personnel, our ability to commercialize our products and services,
and to generate revenues, will be impaired, and our business will
be harmed.
WE FACE SIGNIFICANT COMPETITION FROM COMPANIES WITH GREATER
RESOURCES AND WELL-ESTABLISHED SALES CHANNELS, WHICH MAY MAKE IT
DIFFICULT FOR US TO ACHIEVE MARKET PENETRATION.
The
markets for our subsidiaries’ respective products and services are
highly competitive and are significantly affected by new treatment
and product introductions. Direct competitors may enjoy competitive
advantages, including:
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established
service and product lines with proven results; |
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brand
awareness; |
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name
recognition; |
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established
product acceptance by healthcare providers and clients; |
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established
relationships with healthcare providers and clients; |
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integrated
distribution networks; and |
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greater
financial resources for product development, sales and marketing,
and patent litigation. |
Many
competitors may have significantly greater funds to spend on the
research, development, promotion and sale of new and existing
services and products. These resources can enable them to respond
more quickly to new or emerging technologies and changes in the
market.
WE MAY BECOME INVOLVED IN FUTURE LITIGATION OR CLAIMS THAT MAY
NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.
Healthcare
providers and clients that use our subsidiaries’ products or
services may bring product liability or other claims against us. To
limit such exposure, each subsidiary plans to develop a
comprehensive training and education program for persons using
their respective products and services. There can be no assurance
that such training and education programs will help avoid
complications resulting from any provision of products or services.
In addition, although they may provide such training and education,
they may not be able to ensure proper provision of products or
services in each instance and may be unsuccessful at avoiding
significant liability exposure as a result. While we may currently
maintain and plan to continue to maintain liability insurance in
amounts we consider sufficient, such insurance may prove
insufficient to provide coverage against any or all asserted
claims. In addition, experience ratings and general market
conditions may change at any time so as to render us unable to
obtain or maintain insurance on acceptable terms, or at all. In
addition, regardless of merit or eventual outcome, product
liability and other claims may result in:
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the
diversion of management’s time and attention from our business and
operations; |
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the
expenditure of large amounts of cash on legal fees, expenses and
payment of settlements or damages; |
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decreased
demand for our products and services; and |
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negative
publicity and injury to our reputation. |
Each
and every one of the foregoing consequences of claims and
litigation could have a material adverse effect on us, our
subsidiaries, and our business operations and financial
condition.
HEALTHCARE PROVIDERS MAY BE UNABLE TO OBTAIN COVERAGE OR
REIMBURSEMENT FROM THIRD-PARTY PAYORS FOR PSORIA-LIGHT TREATMENTS,
WHICH COULD LIMIT OUR ABILITY TO MARKET PSI PRODUCTS AND
SERVICES.
We
expect that healthcare providers will bill various third-party
payers, such as Medicare, Medicaid, other governmental programs,
and private insurers, for Psoria-Light treatments. We believe that
the cost of Psoria-Light treatments is generally already
reimbursable under governmental programs and most private plans.
Accordingly, we believe that healthcare providers will generally
not require new billing authorizations or codes in order to be
compensated for performing medically necessary procedures using
Psoria-Light treatments. There can be no assurance, however, that
coverage, coding and reimbursement policies of third-party payers
will not change in the future. PSI’s success in selected foreign
markets will also depend upon the eligibility of the Psoria-Light
device for coverage and reimbursement by government-sponsored
healthcare payment systems and third-party payers. In both the
United States and foreign markets, healthcare cost-containment
efforts are prevalent and are expected to continue. Prospective
clients’ failure to obtain sufficient reimbursement could limit our
ability to market PSI products and services and decrease our
ability to generate revenue.
WE PLAN TO RELY ON THIRD PARTY DISTRIBUTORS FOR PSI SALES,
MARKETING AND DISTRIBUTION ACTIVITIES IN FOREIGN
COUNTRIES.
Although
we plan to market and sell our products and services directly
through sales representatives in the domestic market, we plan to
rely on third party distributors to sell, market, and distribute
the Psoria-Light device in selected international markets. Because
we intend to rely on third party distributors for sales, marketing
and distribution activities in international markets, we will be
subject to a number of risks associated with our dependence on
these third party distributors, including:
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lack
of day-to-day control over the activities of third-party
distributors; |
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third-party
distributors may not fulfill their obligations to us or otherwise
meet our expectations; |
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third-party
distributors may terminate their arrangements with us on limited or
no notice or may change the terms of these arrangements in a manner
unfavorable to us for reasons outside of our control;
and |
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disagreements
with our distributors could require or result in costly and
time-consuming litigation or arbitration. |
If we
fail to establish and maintain satisfactory relationships with
third-party distributors, we may be unable to sell, market and
distribute the Psoria-Light device in international markets, our
revenues and market share may not grow as anticipated, and we could
be subject to unexpected costs which would harm our results of
operations and financial condition.
TO THE EXTENT WE ENGAGE IN MARKETING AND SALES ACTIVITIES OUTSIDE
THE UNITED STATES, WE WILL BE EXPOSED TO RISKS ASSOCIATED WITH
EXCHANGE RATE FLUCTUATIONS, TRADE RESTRICTIONS AND POLITICAL,
ECONOMIC AND SOCIAL INSTABILITY.
If we
follow through with our plans to sell the Psoria-Light device in
foreign markets, we will be subject to various risks associated
with conducting business abroad. A foreign government may require
us to obtain export licenses or may impose trade barriers or
tariffs that could limit our ability to build our international
presence. Our operations in some markets also may be adversely
affected by political, economic and social instability in foreign
countries. We may also face difficulties in managing foreign
operations, longer payment cycles, problems with collecting
accounts receivable, and limits on our ability to enforce our
intellectual property rights. In addition, for financial reporting
purposes, our foreign sales will be translated from local currency
into U.S. dollars based on exchange rates and, if we do not hedge
our foreign currency transactions, we will be subject to the risk
of changes in exchange rates. If we are unable to adequately
address the risks of doing business abroad, our business may be
harmed.
THE PSORIA-LIGHT AND ANY FUTURE MEDICAL DEVICE PRODUCTS ARE SUBJECT
TO A LENGTHY AND UNCERTAIN DOMESTIC REGULATORY
PROCESS.
PSI’s
Psoria-Light device and future medical device products, if any, are
subject to extensive regulation in the United States by the FDA.
The FDA regulates the research, testing, manufacturing, safety,
labeling, storage, record keeping, promotion, distribution and
production of medical devices in the United States to ensure that
medical products distributed domestically are safe and effective
for their intended uses. In order for us to market the Psoria-Light
for use in the United States, we were required to first obtain
clearance from the FDA pursuant to Section 510(k) of the Federal
Food, Drug, and Cosmetic Act (the “FFDCA”).
Clearance
under Section 510(k) requires demonstration that a new device is
substantially equivalent to another device with 510(k) clearance or
grandfather status. If the FDA agrees that a device is
substantially equivalent to a predicate device, it will grant
clearance to commercially market the device. The FDA has a
statutory 90-day period to respond to a 510(k) submission. As a
practical matter, clearance often takes longer. The FDA may require
further information, including clinical data, to make a
determination regarding substantial equivalence. If the FDA
determines that a device, or its intended use, is not
“substantially equivalent,” the FDA will place the device, or the
particular use of the device, into Class III, and the device
sponsor must then fulfill much more rigorous pre-marketing
requirements.
If
the FDA does not act favorably or quickly in its review of a 501(k)
submission, the submitting party may encounter significant
difficulties and costs in its efforts to obtain FDA clearance or
approval, all of which could delay or preclude the sale of a
device. The FDA may request additional data or require the
submitting party to conduct further testing or compile more data,
including clinical data and clinical studies, in support of a
510(k) submission. Instead of accepting a 510(k) submission, the
FDA may require the submitting party to submit a pre-market
approval application (“PMA”), which is typically a much more
complex and burdensome application than a 510(k). To support a PMA,
the FDA may require that the submitting party conduct one or more
clinical studies to demonstrate that the device is safe and
effective. In addition, the FDA may place significant limitations
upon the intended use of a device as a condition to a 510(k)
clearance or PMA approval. Product applications can also be denied
or withdrawn due to failure to comply with regulatory requirements
or the occurrence of unforeseen problems following clearance or
approval. Any delays or failure to obtain FDA clearance or
approvals of any future medical device products we develop, any
limitations imposed by the FDA on product use, or the costs of
obtaining FDA clearance or approvals could have a material adverse
effect on our business, financial condition and results of
operations.
PSI
submitted its 510(k) for the Psoria-Light to the FDA and on
December 3, 2010 was assigned application number K103540. The
510(k) application for Psoria-Light was a traditional application
and asserted that the Psoria-Light is “substantially equivalent” in
intended use and technology to two predicate devices, the X-Trac
Excimer Laser and the Dualight, which are competing targeted UV
phototherapy devices. PSI began regulatory testing of the
Psoria-Light in December 2010 for EMC and electrical safety
(required for FDA and CE mark sales), and completed that testing in
the second quarter of 2011. PSI received FDA clearance of the
Psoria-Light on February11, 2011 (no. K103540). If and as the
Psoria-Light is significantly modified subsequent to its FDA
clearance, the FDA may require submission of a separate 510(k) or
PMA for the modified product before it may be marketed in the
United States.
If we
develop any future medical device products we will be required to
seek and obtain FDA approval prior to any marketing or sales in the
United States and in accordance with the 510(k) or PMA
process.
THE PSORIA-LIGHT WILL BE SUBJECT TO VARIOUS INTERNATIONAL
REGULATORY PROCESSES AND APPROVAL REQUIREMENTS. IF WE DO NOT OBTAIN
AND MAINTAIN THE NECESSARY INTERNATIONAL REGULATORY APPROVALS, WE
WILL NOT BE ABLE TO MARKET AND SELL OUR PRODUCTS IN FOREIGN
COUNTRIES.
To be
able to market and sell PSI’s Psoria-Light device in other
countries, we must obtain regulatory approvals and comply with the
regulations of those countries. These regulations, including the
requirements for approvals and the time required for regulatory
review, vary from country to country. Obtaining and maintaining
foreign regulatory approvals are expensive, and we cannot be
certain that we will receive regulatory approvals in any foreign
country in which we plan to market our product. If we fail to
obtain or maintain regulatory approval in any foreign country in
which we plan to market our product, our ability to generate
revenue will be harmed.
The
European Union requires that manufacturers of medical products
obtain the right to affix the CE mark to their products before
selling them in member countries of the European Union. The CE mark
is an international symbol of adherence to quality assurance
standards and compliance with applicable European medical device
directives. In order to obtain the right to affix the CE mark to
products, a manufacturer must obtain certification that its
processes meet certain European quality standards.
PSI
began regulatory testing of the Psoria-Light in December 2010 for
EMC and electrical safety (required for FDA and CE mark sales), and
completed that testing in the second quarter of 2011. PSI was
granted permission to affix the CE mark to the Psoria-Light in the
fourth quarter of 2011. If and as we modify the Psoria-Light
product or develop other new products in the future, we would
expect to apply for permission to affix the CE mark to such
products. In addition, we would be subject to annual regulatory
audits in order to maintain any CE mark permissions we may obtain.
We do not know whether PSI will be able to obtain permission to
affix the CE mark to its initial, future or modified products or
that it will continue to meet the quality and safety standards
required to maintain any permission it may receive. If we are
unable to obtain permission to affix the CE mark to any of our
products, we will not be permitted to sell our products in member
countries of the European Union, which will have a material adverse
effect on our business, financial condition and results of
operations. In addition, if after receiving permission to affix the
CE mark to any products, we are unable to maintain such permission,
we will no longer be able to sell such products in member countries
of the European Union.
OUR ABILITY TO ACHIEVE COMMERCIAL SUCCESS WILL DEPEND IN PART ON
OBTAINING AND MAINTAINING PATENT PROTECTION (IF ANY) AND TRADE
SECRET PROTECTION RELATING TO OUR PRODUCTS, THE TECHNOLOGY
ASSOCIATED WITH OUR PRODUCTS, AND ANY OTHER PRODUCTS AND TECHNOLOGY
WE MAY DEVELOP, AS WELL AS SUCCESSFULLY DEFENDING OUR PATENT(S) (IF
ANY) AND LICENSED PATENTS (IF ISSUED) AGAINST THIRD PARTY
CHALLENGES. IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PROTECTION FOR
OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY, THE VALUE OF
OUR PRODUCTS WILL BE ADVERSELY AFFECTED, AND WE WILL NOT BE ABLE TO
PROTECT SUCH TECHNOLOGY FROM UNAUTHORIZED USE BY THIRD
PARTIES.
Our
commercial success will depend largely on our ability to obtain and
maintain patent protection and intellectual property protection
covering certain aspects of the technology that we intend to
utilize in the development and commercialization of PSI’s initial
medical device product, the Psoria-Light, and existing and future
SCI products, to obtain and maintain patent and intellectual
property protection for any other products that we may develop and
seek to market. In order to protect our competitive position for
the Psoria-Light, SCI products, and any other products that we may
develop and seek to market, we, or our executive officers, as the
case may be, will have to:
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prevent
others from successfully challenging the validity or enforceability
of our issued, pending, or licensed patents (if any); |
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prevent
others from infringing upon, our issued, pending, or licensed
patents (if any) and our other proprietary rights; |
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operate
our business, including the production, sale and use of the
Psoria-Light, SCI encryption products, and any other products,
without infringing upon the proprietary rights of
others; |
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successfully
enforce our rights to issued, pending, or licensed patents (if any)
against third parties when necessary and appropriate;
and |
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obtain
and protect commercially valuable patents or the rights to patents
both domestically and abroad. |
PSI
was issued one patent on its Psoria-Light technology on July
9th 2013, US 8,481,982, covering a unique patient safety
feature. No other patents have been issued for PSI products or
methods, or any of the other technology associated with such
products, and we cannot guarantee that any other patents will be
issued for such products or any of the technology associated with
such products.
Stealth
Mark devoted substantial effort and resources to develop and
advance micro-particle security technologies in support of its
business activities. Protection of the acquired Stealth Mark
intellectual property is maintained through, among other things,
six patents issued between November 18, 2003 and July 17, 2012 as
US 6,647,649; 7,720,254; 7,831,042; 7,885,428; 8,033,450 and
8,223,964, and two pending European Applications.
Protection
of intellectual property in the markets in which we compete is
highly uncertain and involves complex legal and scientific
questions. It may be difficult to obtain patents relating to our
products or technology. Furthermore, any changes in, or unexpected
interpretations of, the patent laws may adversely affect our
ability to enforce our patent position.
WE EXPECT TO RELY ON TRADEMARKS, TRADE SECRET PROTECTIONS, KNOW-HOW
AND CONTRACTUAL SAFEGUARDS TO PROTECT OUR NON-PATENTED INTELLECTUAL
PROPERTY AND PROPRIETARY TECHNOLOGY.
We
expect to rely on trademarks, trade secret protections, know-how
and contractual safeguards to protect our non-patented intellectual
property and proprietary technology. Current employees, consultants
and advisors have entered into, and future employees, consultants
and advisors will be required to enter into, confidentiality
agreements that prohibit the disclosure or use of confidential
information. We also intend to enter into confidentiality
agreements to protect our confidential information delivered to
third parties for research and other purposes. There can be no
assurance that we will be able to effectively enforce these
agreements or that the subject confidential information will not be
disclosed, that others will not independently develop substantially
equivalent confidential information and techniques or otherwise
gain access to our confidential information or that we can
meaningfully protect our confidential information.
Costly
and time-consuming litigation could be necessary to enforce and
determine the scope and protect ability of confidential
information, and failure to maintain the confidentiality of
confidential information could adversely affect our business by
causing us to lose any competitive advantage maintained through
such confidential information.
The
protection of proprietary technology through claims of trade secret
status has been the subject of increasing claims and litigation by
various companies, both to protect proprietary rights and for
competitive reasons, even where proprietary claims are
unsubstantiated. The prosecution of proprietary claims or the
defense of such claims is costly and uncertain given the
uncertainty and rapid development of the principles of law
pertaining to this area.
Disputes
may arise in the future with respect to the ownership of rights to
any technology developed with consultants, advisors or
collaborators. These and other possible disagreements could lead to
delays in the collaborative research, development or
commercialization of our products, or could require or result in
costly and time-consuming litigation that may not be decided in our
favor. Any such event could have a material adverse effect on our
business, financial condition and results of operations by delaying
or preventing our commercialization of innovations or by diverting
our resources away from revenue-generating projects.
OUR ABILITY TO MARKET PRODUCTS IN FOREIGN COUNTRIES MAY BE IMPAIRED
BY THE ACTIVITIES AND INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES.
We
may elect to market and sell products in select international
markets. Except for certain pending Stealth Mark European
Applications, neither the Company nor any of our officers or
directors has filed (nor does the Company or any of our officers or
directors currently have an intention to file) for any
international patent protection for any of our products or any of
the technology associated with our products. However, to
successfully enter into these international markets and achieve
desired revenues internationally, we may need to enforce our patent
and trademark rights (if any) against third parties that we believe
may be infringing on our rights. The laws of some foreign countries
do not protect intellectual property, including patents, to as
great an extent as do the laws of the United States. Policing
unauthorized use of our intellectual property is difficult, and
there is a risk that despite the expenditure of significant
financial resources and the diversion of management attention, any
measures that we take to protect our intellectual property may
prove inadequate in these countries. Our competitors in these
countries may independently develop similar technology or duplicate
our products, thus likely reducing our potential sales in these
countries. Furthermore, our future patent rights (if any) may be
limited in enforceability to the United States or certain other
select countries, which may limit our intellectual property rights
abroad.
NO MARKET CURRENTLY EXISTS FOR OUR SECURITIES AND WE CANNOT ASSURE
YOU THAT SUCH A MARKET WILL EVER DEVELOP, OR IF DEVELOPED, WILL BE
SUSTAINED.
Our
common stock is not currently eligible for trading on any stock
exchange and there can be no assurance that our common stock will
be listed on any stock exchange in the future. We presently are
listed on the NASD OTCQB Bulletin Board trading system pursuant to
Rule 15c2-11 of the Securities Exchange Act of 1934, but there can
be no assurance we will maintain such a listing. The bulletin board
tends to be highly illiquid, in part because there is no national
quotation system by which potential investors can track the market
price of shares except through information received or generated by
a limited number of broker-dealers that make a market in particular
stocks. There is a greater chance of market volatility for
securities that trade on the bulletin board as opposed to a
national exchange or quotation system. This volatility may be
caused by a variety of factors, including: the lack of readily
available price quotations; the absence of consistent
administrative supervision of “bid” and “ask” quotations; lower
trading volume; and general market conditions. If no market for our
shares materializes, you may not be able to sell your shares or may
have to sell your shares at a significantly reduced
price.
IF OUR SHARES OF COMMON STOCK ARE ACTIVELY TRADED ON A PUBLIC
MARKET, THEY WILL IN ALL LIKELIHOOD BE PENNY
STOCKS.
Broker-dealer
practices in connection with transactions in “penny stocks” are
regulated by certain penny stock rules adopted by the SEC. Penny
stocks generally are equity securities with a price per share of
less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ Stock Market,
provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules,
to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock
market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market
value of each penny stock held in the customer’s account. In
addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer make a special
written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser’s written agreement to
the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market
for a stock that becomes subject to the penny stock
rules.
WE WILL INCUR ONGOING COSTS AND EXPENSES FOR SEC REPORTING AND
COMPLIANCE, AND WITHOUT REVENUE WE MAY NOT BE ABLE TO REMAIN IN
COMPLIANCE, MAKING IT DIFFICULT FOR INVESTORS TO SELL THEIR SHARES,
IF AT ALL.
We
have a very limited number of market makers and are quoted on the
OTC Electronic Bulletin Board. To be eligible for quotation,
issuers must remain current in their filings with the SEC. In order
for us to remain in compliance we will require future revenues to
cover the cost of these filings, which could comprise a substantial
portion of our available cash resources. If we are unable to
generate sufficient revenues to remain in compliance it may be
difficult for you to resell any shares you may purchase, if at
all.
FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN
ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND STOCK
PRICE.
Section
404 of the Sarbanes-Oxley Act of 2002 (“the Sarbanes-Oxley Act”)
requires that we establish and maintain an adequate internal
control structure and procedures for financial reporting and
include a report of management on our internal control over
financial reporting in our annual report on Form 10-K. That report
must contain an assessment by management of the effectiveness of
our internal control over financial reporting and must include
disclosure of any material weaknesses in internal control over
financial reporting that we have identified. During the period
covered by this Report, the Company had three or fewer directors,
with only one that was independent; accordingly, during such
period, we could not establish board committees with independent
members to oversee certain functions such as compensation or audit
issues for internal control and reporting purposes. Until a
majority of our board is comprised of independent members, if ever,
there will be limited oversight of our management’s decisions and
activities and little ability of shareholders to challenge or
reverse those activities and decisions, even if they are not in the
best interests of our shareholders.
THE MARKET PRICE FOR OUR COMMON SHARES IS PARTICULARLY VOLATILE
GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND
THINLY TRADED PUBLIC FLOAT, LIMITED OPERATING HISTORY AND LACK OF
PROFITS WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE PRICE.
YOU MAY BE UNABLE TO SELL YOUR COMMON SHARES AT OR ABOVE YOUR
PURCHASE PRICE, WHICH MAY RESULT IN SUBSTANTIAL LOSSES TO
YOU.
The
market for our common shares is characterized by significant price
volatility when compared to seasoned issuers, and we expect that
our share price will continue to be more volatile than a seasoned
issuer for the indefinite future. The volatility in our share price
is attributable to a number of factors. First, as noted above, our
common shares are sporadically and thinly traded. As a consequence
of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. The price
for our shares could, for example, decline precipitously in the
event that a large number of our common shares are sold on the
market without commensurate demand, as compared to a seasoned
issuer which could better absorb those sales without adverse impact
on its share price. Secondly, we are a speculative or “risky”
investment due to our limited operating history and lack of profits
to date, and uncertainty of future market acceptance for our
potential products and services. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all
or most of their investment in the event of negative news or lack
of progress, be more inclined to sell their shares on the market
more quickly and at greater discounts than would be the case with
the stock of a seasoned issuer. Many of these factors are beyond
our control and may decrease the market price of our common shares,
regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price
for our common shares will be at any time, including as to whether
our common shares will sustain their current market prices, or as
to what effect that the sale of shares or the availability of
common shares for sale at any time will have on the prevailing
market price.
WE DO NOT PAY DIVIDENDS ON OUR COMMON STOCK.
We
have not paid any dividends on our common stock and do not
anticipate paying dividends in the foreseeable future. We plan to
retain earnings, if any, to finance the development and expansion
of our business.
The
Company leased its corporate office facility in Hoffman Estates,
Illinois pursuant to a non-cancellable lease initiated in July 2016
and expiring February 28, 2024. The lease terms require a monthly
payment of approximately $11,000. The Company vacated the facility
in April 2019, in favor of its present facilities in Tucson AZ,
which are provided by a shareholder on a rent-free basis. The
Company is in negotiations with the owners regarding the settlement
of its lease obligations and expects that the property will be
subleased or a settlement with the landlord will be reached at an
amount significantly less than the remaining payment obligations.
At the date of abandonment, the Company had a remaining lease
obligation of $631,587. During the year ended September 30, 2019,
the Company recorded an accrual for its estimate for the potential
settlement of this matter and wrote-off its $15,000 security
deposit relating to the lease.
On or
about June 29, 2020, we received notice that Hanover Hoffman
Estates, LLC (“HHE”), filed case number 2020L006092 in the Circuit
Court of Cook County alleging our failure to pay Base Rent and
abandonment of certain office space in Hoffman Estates, Illinois
subject to a Commercial Lease dated May 26, 2016. HHE seeks at
least $672,878 in base rent and other amounts under the lease, as
well as treble damages from our ex-CEO and two past Directors who
were serving on our Board as of the date of the lease. We are
currently evaluating the allegations, defenses and alternate
actions.
Through
January 2019, PSI’s offices were located at 6408 West Linebaugh
Avenue, Suite 103, Tampa, Florida, 33625. PSI’s telephone number is
(866) 725-0969. In February 2019, PSI entered into a
non-cancellable lease agreement to lease its office facilities
located at 409 Mandeville Street, Utica, New York, 13502. The term
of the lease is for two years and expires February 8, 2021, with
monthly base rent of $1,800.
Through
December 31, 2019, SCI offices were located at 273 Midway Lane, Oak
Ridge, Tennessee 37830. On January 6, 2020, the Company entered
into an agreement with the owners to terminate the agreement
effective January 1, 2020. Under the agreement, the Company agreed
to pay $11,000 and abandon certain Company property to the owners
as documented in the agreement.
| ITEM
3. |
LEGAL PROCEEDINGS |
The
Company is periodically engaged in legal proceedings arising from
and relating to its business operations. Except as otherwise
described herein, we currently are not involved in any litigation
that we believe could have a material adverse effect on our
financial condition or results of operations. There is no action,
suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the executive officers of our
Company or any of our subsidiaries, threatened against or affecting
our Company, our common stock, any of our subsidiaries or of our
Company’s or our subsidiaries’ officers or directors in their
capacities as such, in which an adverse decision could have a
material adverse effect on our financial condition or results of
operations.
We
continue efforts to preserve revenue and reduce operating expenses
through actions including, but not limited to, facilities
consolidation and staff reductions, which we hope to implement
through negotiated transactions with lessors, employees and other
third parties. Such actions may result in disputes with and claims
by such parties which, if not resolved through negotiations, may
impact negatively the Company’s ability to continue as a going
concern. To date, the Company has negotiated settlement of all
ex-employee wage and benefits claims except for two. The first
regards unpaid wages claimed due together with interest at the rate
of 4% per annum on such amount as the Company originally agreed
upon in settlement negotiations. The ex-employee claims additional
amounts due for certain statutory damages under the Illinois Wage
Payment and Collection which currently could exceed $21,600.00 and
would increase at the rate of 2% of the wages due per month plus
attorneys’ fees if the employee elects to file suit for a violation
of the Act and is successful in obtaining a judgment on his
claim.
The
second claim was filed with the Illinois Department of Labor
asserting a violation of the Illinois Wage Payment and Collection
Act by the Company’s former CEO. That claim alleges unpaid wages in
the amount of $158,714.60 and unpaid vacation pay in the amount of
$20,833.33 for a total amount of $179,547.90, as well as certain
statutory damages including, but not limited to, 2% of the wages
due per month plus attorneys’ fees if the ex-CEO elects to file
suit for a violation of the Act and is successful in obtaining a
judgment on his claim. The Company has filed its response to such
claim with the Department denying the substantive allegations
therein and asserting certain factual and legal defenses, including
breach of fiduciary duty, as a bar to all claimed compensation. The
claim remains pending, but as the date hereof, no suit has been
filed against the Company asserting a violation of the Act based on
said claim.
In
periodic reports on Forms 10K and 10Q for the periods ending
September 30, 2017 and December 31, 2017, respectively, the Company
disclosed that on May 25, 2017, the SEC’s Chicago Regional Office
informed it that it had made a preliminary determination to
recommend filing of an enforcement action against the Company and
its former CEO based on possible violations of Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder, and Section 17(a) of the
Securities Act, and Section 15(a) of the Exchange Act. Subsequent
discussions resulted in the submission of an Offer of Settlement
(“Settlement”) through an administrative cease and desist action on
November 17, 2017, which was accepted by the SEC on April 12, 2018,
as disclosed on Form 8K filed April 18, 2018. Pursuant to the
Settlement, the Company neither admitted nor denied any of the
allegations, but was enjoined from violating the above-referenced
Sections and Rule. The Settlement imposed no financial penalties or
sanctions against the Company.
The
former CEO was the subject of a separate SEC complaint in the U.S.
District Court for the Northern District of Illinois, asserting the
allegations noted above, as well as allegations that he manipulated
the price of company shares through undisclosed trading, realizing
more than $130,000 from such trading. On the date of filing, the
CEO voluntarily resigned as an officer and director of the Company.
Without admitting or denying the allegations, the CEO consented to
the entry of the judgment, which was entered on September 26, 2018
by the U.S. District Court for the Northern District of Illinois.
The judgment permanently enjoined him from violating the anti-fraud
provisions of Section 17(a) of the Securities Act of 1933, Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder, and the broker registration provisions of Section 15(a)
of the Exchange Act. It also barred him from serving as an officer
or director of a public company and from participating in penny
stock offerings, and ordered disgorgement and interest and
penalties to be determined by the court.
On or
about June 29, 2020, the Company received notice that Hanover
Hoffman Estates, LLC (“HHE”), filed case number 2020L006092 in the
Circuit Court of Cook County alleging failure to pay Base Rent and
abandonment of certain office space in Hoffman Estates, Illinois
subject to a Commercial Lease dated May 26, 2016. HHE seeks at
least $672,888 in base rent and other amounts under the lease, as
well as treble damages from our ex-CEO and two past Directors who
were serving on our Board as of the date of the lease. The Company
has continued evaluation of the allegations, defenses and alternate
actions, and it is engaged settlement negotiations which are
on-going.
|
ITEM4. |
MINE SAFETY
DISCLOSURES. |
Not
applicable.
PART II
|
ITEM
5. |
MARKET FOR REGISTRANTS COMMON EQUITY,
RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES |
No
Public Market for Our Common Stock
The
market price of our common stock is subject to significant
fluctuations in response to variations in our quarterly operating
results, general trends in the market, and other factors, over many
of which we have little or no control. In addition, broad market
fluctuations, as well as general economic, business and political
conditions, may adversely affect the market for our common stock,
regardless of our actual or projected performance.
Common
Stock
On
September 3, 2019, the Company’s Board of Directors unanimously
approved the amendment of its Articles of Incorporation to increase
the total authorized capital stock from 185,000,000 common shares
to 200,000,000 common shares. As of September 18, 2019, holders of
a majority of the outstanding shares of voting capital stock
executed written stockholder consents approving this action and the
Company amended its Articles of Incorporation through a filing of a
Certificate of Amendment on October 11, 2019. Holders of shares of
common stock have full voting rights, one vote for each share held
of record. Shareholders are entitled to receive dividends as may be
declared by the Board out of funds legally available therefore and
share pro rata in any distributions to shareholders upon
liquidation. Shareholders have no conversion, pre-emptive or
subscription rights. All outstanding shares of common stock are
fully paid and non-assessable. As of September 30, 2020 and 2019,
there were 118,252,077 and 107,497,077 shares of common stock
issued and outstanding, respectively.
Preferred
Stock
The
Company does not have any Preferred Stock authorized.
Dividends
We
have not paid any cash dividends to our shareholders. The
declaration of any future cash dividends is at the discretion of
our board of directors and depends upon our earnings, if any, our
capital requirements and financial position, and other pertinent
conditions. It is our present intention not to pay any cash
dividends in the foreseeable future, but rather to reinvest
earnings, if any, in our business operations.
Options
2010 Non-Qualified Stock Option Plan (“2010 Option
Plan”)
On
December 22, 2010, the Company’s Board of Directors approved the
adoption of the “2010 Non-Qualified Stock Option Plan” (“2010
Option Plan”) by unanimous consent. The 2010 Option Plan was
initiated to encourage and enable officers, directors, consultants,
advisors and key employees of the Company to acquire and retain a
proprietary interest in the Company by ownership of its common
stock. A total of 7,500,000 of the authorized shares of the
Company’s common stock may be subject to, or issued pursuant to,
the terms of the plan. Effective January 1, 2018, the Board of
Directors approved to increase the number of authorized shares of
the Company’s common stock that may be subject to, or issued
pursuant to, the terms of the plan from 7,500,000 to
30,000,000.
As of
September 30, 2020 and 2019, 14,127,738 and 15,237,738 shares,
respectively, were outstanding under the 2010 Option
Plan.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Action Stock
Transfer Corp., having an office situated at 2469 E. Fort Union
Blvd, Suite 214, Salt Lake City, UT 84121 and its telephone number
is (801) 274-1088.
|
ITEM
7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS. |
Forward
Looking Statements
Except
for historical information, the following Plan of Operation
contains forward-looking statements based upon current expectations
that involve certain risks and uncertainties. Such forward-looking
statements include statements regarding, among other things, (a)
our projected sales and profitability, (b) our growth strategies,
(c) anticipated trends in our industry, (d) our future financing
plans, (e) our anticipated needs for working capital, (f) our lack
of operational experience and (g) the benefits related to ownership
of our common stock. Forward-looking statements, which involve
assumptions and describe our future plans, strategies, and
expectations, are generally identifiable by use of the words “may,”
“will,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“intend,” or “project” or the negative of these words or other
variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, performance, or
achievements to be materially different from the future results,
performance, or achievements expressed or implied by any
forward-looking statements. These statements may be found under
“Management’s Discussion and Analysis or Plan of Operations” and
“Description of Business,” as well as in this Report generally.
Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under “Risk
Factors” and matters described in this Report generally. In light
of these risks and uncertainties, there can be no assurance that
the forward-looking statements contained in this Report will in
fact occur as projected.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of our results of operations and financial condition. The
discussion should be read along with our financial statements and
notes thereto. This section includes a number of forward-looking
statements that reflect our current views with respect to future
events and financial performance. Forward-looking statements are
often identified by words like believe, expect, estimate,
anticipate, intend, project and similar expressions, or words
which, by their nature, refer to future events. You should not
place undue certainty on these forward-looking statements. These
forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from our predictions.
Background
Wellness
Center USA, Inc. (“WCUI” or the “Company”) was incorporated in June
2010 under the laws of the State of Nevada. We initially engaged in
online sports and nutrition supplements marketing and distribution.
We subsequently expanded into additional businesses within the
healthcare and medical sectors through acquisitions, including
Psoria-Shield Inc. (“PSI”) and StealthCo Inc. (“SCI”), d/b/a
Stealth Mark, Inc.
The
Company currently operates in two business segments: (i)
distribution of targeted Ultra Violet (“UV”) phototherapy devices
for dermatology and sanitation purposes; and (ii) authentication
and encryption products and services. The segments are conducted
through our wholly-owned subsidiaries, PSI and SCI.
Results of Operations for the year ended September 30, 2020
compared to the year ended September 30, 2019
Revenue
and Cost of Goods Sold
Revenue
for the years ended September 30, 2020 and 2019 was $5,000 and
$33,375, respectively. The decrease in 2020 was due to the decrease
in sales at the Authentication and Encryption segment, as there
were no sales at the Medical Device segment for either
year.
Cost
of sales for the year ended September 30, 2019 was $20,025. There
was no cost of sales for the year ended September 30, 2020. Gross
profit for the years ended September 30, 2020 and 2019, was $5,000
and $13,350, respectively. The gross profit decrease in 2020 was
primarily due to the decrease in sales.
Operating
Expenses
Operating
expenses for the years ended September 30, 2020 and 2019 was
$1,926,594 and $1,779,934, respectively. The increase in operating
expenses in 2020 was due to the increase in operating expenses at
the Medical Device segment and at the corporate segment, offset by
the decrease in operating expenses at SCI. The increase in expenses
at the corporate segment primarily related to the increase in stock
compensation expenses and the fair value of common stock issued for
services, and lease settlement expenses. Stock compensation
expenses and the fair value of common stock issued for services
totaled to $583,064 and $379,954 during the years ended September
30, 2020 and 2019, respectively. The increase in expenses at the
Medical Device segment primarily related to the increase in
employee and contract labor related costs.
Other
Expenses
Other
income during the year ended September 30, 2020 consisted of $4,000
from a U.S. government grant relating to COVID-19 and $56,840 from
the write-off of long outstanding accounts payable. Other expenses
during the year ended September 30, 2020 consisted of $507,265
relating to the cost of the modification of terms of stock
warrants, $22,680 relating to the cost of the modification of terms
of stock options, $43,815 of financing costs and $67,861 of
interest expense, totaling to a net expense of $580,781. Other
expenses during the year ended September 30, 2019 consisted of
$72,078 of amortization of debt discount, $182,064 of financing
costs and $25,298 of interest expense, totaling to
$279,440.
Net
Loss
Our
net loss for the years ended September 30, 2020 and 2019 was
$2,502,375 and $2,046,024, respectively. The increase in the net
loss in 2020 was due to the increase in operating expenses and
total other expenses.
Segment Information
Reportable
segments are components of an enterprise about which separate
financial information is available and that is evaluated regularly
by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. The Company’s reportable
segments are based on products and services, geography, legal
structure, management structure, or any other manner in which
management disaggregates a company.
The
Company operates in the following business segments:
(i)
Medical Devices: which stems from PSI, its wholly-owned subsidiary
acquired on August 24, 2012, a developer, manufacturer, marketer
and distributer of targeted Ultra Violet (“UV”) phototherapy
devices for the treatment of skin diseases and for sanitation
purposes.
(ii)
Authentication and Encryption Products and Services: which stems
from StealthCo, its wholly-owned subsidiary formed on March 18,
2014, which has engaged in the business of selling, licensing or
otherwise providing certain authentication and encryption products
and services since acquisition of certain assets from SMI on April
4, 2014.
The
detailed segment information of the Company is as
follows:
|
Operations by Segment |
| |
|
|
|
| |
|
For
the Year Ended |
|
| |
|
September 30, 2020 |
|
| |
|
Corporate |
|
|
Medical
Devices |
|
|
Authentication and Encryption |
|
|
Total |
|
| Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
| Trade |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,000 |
|
|
$ |
5,000 |
|
|
Consulting services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Total Sales |
|
|
- |
|
|
|
- |
|
|
|
5,000 |
|
|
|
5,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of goods
sold |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
|
- |
|
|
|
- |
|
|
|
5,000 |
|
|
|
5,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses |
|
|
1,004,477 |
|
|
|
852,542 |
|
|
|
69,575 |
|
|
|
1,926,594 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from
operations |
|
$ |
(1,004,477 |
) |
|
$ |
(852,542 |
) |
|
$ |
(64,575 |
) |
|
$ |
(1,921,594 |
) |
|
Operations by Segment |
| |
|
|
|
| |
|
For
the Year Ended |
|
| |
|
September 30, 2019 |
|
| |
|
Corporate |
|
|
Medical
Devices |
|
|
Authentication and Encryption |
|
|
Total |
|
| Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
| Trade |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
19,508 |
|
|
$ |
19,508 |
|
|
Consulting services |
|
|
- |
|
|
|
- |
|
|
|
13,867 |
|
|
|
13,867 |
|
| Total Sales |
|
|
- |
|
|
|
- |
|
|
|
33,375 |
|
|
|
33,375 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of goods
sold |
|
|
- |
|
|
|
- |
|
|
|
20,025 |
|
|
|
20,025 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
|
- |
|
|
|
- |
|
|
|
13,350 |
|
|
|
13,350 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses |
|
|
782,961 |
|
|
|
641,236 |
|
|
|
355,737 |
|
|
|
1,779,934 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from
operations |
|
$ |
(782,961 |
) |
|
$ |
(641,236 |
) |
|
$ |
(342,387 |
) |
|
$ |
(1,766,584 |
) |
There
was no revenue or cost of sales for the Medical Devices segment for
the years ended September 30, 2020 and 2019. Operating expenses for
the years ended September 30, 2020 and 2019 was $852,542 and
$641,236, respectively. The increase in operating expenses in 2020
was primarily due to the increase in employee and contract labor
related costs. The loss from operations for the years ended
September 30, 2020 and 2019 was $852,542 and $641,236,
respectively.
Revenue for
the Authentication and Encryption segment for the years ended
September 30, 2020 and 2019 was $5,000 and $33,375, respectively.
The decrease in sales in 2020 was due to the decrease in trade
sales and consulting services. Cost of goods sold for the year
ended September 30, 2019 was $20,025. There was no cost of goods
sold for the year ended September 30, 2020. Gross profit for the
years ended September 30, 2020 and 2019 was $5,000 and $13,350,
respectively. The decrease in gross profit in 2020 was primarily
due to the decrease in sales. Operating expenses for the years
ended September 30, 2020 and 2019 was $69,575 and $355,737,
respectively. The decrease in operating expenses in 2020 was
primarily due to the decrease in labor costs, consulting costs and
professional fees in 2020. The loss from operations for the years
ended September 30, 2020 and 2019 was $64,575 and $342,387,
respectively.
The
Corporate segment primarily provides executive management services
for the Company. Operating expenses for the years ended September
30, 2020 and 2019 was $1,004,477 and $782,961, respectively. The
increase in operating expenses in 2020 was primarily due to the
increase in stock compensation expenses and the fair value of
common stock issued for services, and lease settlement costs. The
loss from operations for the years ended September 30, 2020 and
2019 was $1,004,477 and $782,961, respectively.
Liquidity and Capital Resources
Going Concern
The
accompanying consolidated financial statements 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 reflected in the accompanying
consolidated financial statements, the Company has not yet
generated significant revenues and has incurred recurring net
losses. During the year ended September 30, 2020, the Company
incurred a net loss of $2,502,375 and used cash in operations of
$1,004,993, and had a shareholders’ deficit of $2,229,545 as of
September 30, 2020. In addition, $396,250 of notes payable to
officers and shareholders and $92,334 of payroll taxes are past
due. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company
to continue as a going concern is dependent upon the Company’s
ability to raise additional funds and implement its strategies. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
In
addition, the Company’s independent registered public accounting
firm, in its report on the Company’s September 30, 2020 financial
statements, has raised substantial doubt about the Company’s
ability to continue as a going concern.
At
September 30, 2020, the Company had cash on hand in the amount of
$51,320. The ability to continue as a going concern is dependent on
the Company attaining and maintaining profitable operations in the
future and raising additional capital soon to meet its obligations
and repay its liabilities arising from normal business operations
when they come due. Since inception, we have funded our operations
primarily through equity and debt financings and we expect to
continue to rely on these sources of capital in the future. During
the year ended September 30, 2020, the Company received $1,003,166
through short-term loans and contributions of capital by a joint
venture partner.
No
assurance can be given that any future financing will be available
or, if available, that it will be on terms that are satisfactory to
the Company. Even if the Company is able to obtain additional
financing, it may contain undue restrictions on our operations, in
the case of debt financing or cause substantial dilution for our
stock holders, in case of equity financing.
Comparison of years ended September 30, 2020 and
2019
As of
September 30, 2020, we had $51,320 in cash, negative working
capital of $2,199,340 and an accumulated deficit of
$27,603,611.
As of
September 30, 2019, we had $53,147 in cash, negative working
capital of $1,085,556 and an accumulated deficit of
$25,362,287.
Cash flows used in operating activities
During
the year ended September 30, 2020, we used cash from operating
activities of $1,004,993, compared to $1,219,313 used in the year
ended September 30, 2019. During the year ended September 30, 2020,
we incurred a net loss of $2,502,375 and had non-cash expenses of
$1,560,722, compared to a net loss of $2,046,024 and non-cash
expenses of $700,153 during the year ended September 30,
2019.
Cash flows used in investing activities
During
the years ended September 30, 2020 and 2019, we had no cash flows
from investing activities.
Cash flows provided by financing activities
During
the year ended September 30, 2020, we had proceeds of $796,000 from
loans payable from officers and shareholders, $37,166 from a U.S.
SBA loan and $170,000 from contributions of capital by its joint
venture partners. During year ended September 30, 2019, we had
proceeds from loans payable from officers and shareholders of
$358,250, $10,000 from the sale of common stock and $925,000 from
contributions of capital by its joint venture partners. We used
cash of $25,000 for the repayment of loans payable from officers
and shareholders.
Off-Balance Sheet
Arrangements
We have no
off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital
resources.
Patents,
Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
Contracts
PSI received
FDA clearance for the Psoria-Light on February 11, 2011 (no.
K103540) and was granted permission to affix the CE mark for the
Psoria-Light in the fourth quarter of 2011.
PSI’s
founder and past president filed a provisional patent application
covering certain aspects of the technology that we intend to
utilize in the development and commercialization of the
Psoria-Light, including handheld ergonomics, emitter platform and
LED arrangements, methods for treatment site detection, cooling
methods, useful information displays, collection of digital images
and graphical correlation to quantitative metrics, and base console
designs. Two non-provisional patent applications were submitted
claiming the prior filing date of the initial provisional
application.
The
first non-provisional application describes a unique distance
sensor located at the tip of the Psoria-Light hand-piece, which
detects the treatment site based on a projected field. The sensor
can detect electrolytic/conductive surfaces, such as human skin,
without requiring any physical or direct electrical contact.
Further, the unique sensor can sense the treatment site at any
point about the tip of the hand-piece and without causing any
attenuation of the therapeutic UV light output.
The
second non-provisional application describes the integration and
use of a digital camera in the Psoria-Light, including the location
of the digital camera and how and when it is used to conveniently
correspond to real-life treatment routines, how images are
displayed and captured to memory, and how the images are arranged
in patient records are illustrated. Additionally, the second
non-provisional application describes the inclusion of clinician
defined variables, such as health-related quality of life scores,
and their placement into a graphical arrangement relative to
treatment site images.
Both
the initial provisional patent application and the two
non-provisional patent applications are owned by PSI’s past
president, who has granted PSI the sole and exclusive, worldwide,
paid-up, royalty-free, perpetual license under the initial
provisional patent application, any non-provisional patent
applications filed by him covering the technology described in the
initial provisional patent application, and associated know-how,
technical data, and improvements to develop and commercialize the
Psoria-Light.
PSI’s
past president filed a second provisional patent application
containing concepts for the improvement of microelectronics
packages and thermal management solutions, the improvement of
handheld phototherapy devices in general (either used on humans,
animals, or plants, or used on inanimate objects), and replacement
of laser therapy devices with LED devices. PSI was granted the sole
and exclusive, worldwide, paid-up, royalty-free, perpetual license
under this second provisional patent application, any
non-provisional patent applications covering the technology
described in the second provisional patent application, and
associated know-how, technical data, and improvements to develop
and commercialize the Psoria-Light.
In
addition to the foregoing, Stealth Mark devoted substantial effort
and resources to develop and advance micro-particle security
technologies in support of its business activities. Protection of
the acquired Stealth Mark intellectual property is maintained
through a combination of Patents, Trademarks, and Trade Secrets
consisting of the following:
|
U.S.
Patent |
|
Issued |
|
“Title”
– Summary |
|
|
|
|
|
|
|
No.
6,647,649 |
|
November
18, 2003 |
|
“Micro-particle
Taggant Systems”
-
Generation of Micro-particle codes from marks containing encrypted
Micro-particles.
|
|
|
|
|
|
|
|
No.
7,720,254 |
|
May
18, 2010 |
|
“Automatic
Micro-particle Mark Reader”
-
Automatic readers for interrogating Micro-particle
marks.
|
|
|
|
|
|
|
|
No.
7,831.042 |
|
November
9, 2010 |
|
“Three-Dimensional
Authentication Of Micro-particle Mark
-
Validation of 3D nature of micro-particle mark to protect against
counterfeiting of mark.
|
|
|
|
|
|
|
|
No.
7,885,428 |
|
February
8, 2011 |
|
“Automatic
Micro-particle Mark Reader”
-
Automatic readers for interrogating micro-particle marks (broadened
protection).
|
|
|
|
|
|
|
|
No.
8,033,450 |
|
October
11, 2011 |
|
“Expression
Codes For Micro-particle Marks Based On Signature
Strings”
-
Generation of expression codes (“fingerprints”) unique to each
micro-particle mark to protect against counterfeiting of
marks.
|
|
|
|
|
|
|
|
No.
8,223,964 |
|
July
17, 2012 |
|
“Three-Dimensional
Authentication Of Micro-particle Mark
-
Validation of 3D nature of micro-particle mark to protect against
counterfeiting of marks (broadened protection).
|
|
Europe
WO/EP
Patent
|
|
Issued |
|
“Title”
– Summary |
|
|
|
|
|
|
|
Appl.
No. 07753043.4 |
|
Pending |
|
“Expression
Codes For Micro-particle Marks Based On Signature
Strings”
-
Generation of expression codes (“fingerprints”) unique to each
micro-particle mark to protect against counterfeiting of
marks.
|
|
|
|
|
|
|
|
Appl.
No. 07753034.3 |
|
Pending |
|
“Three-Dimensional
Authentication Of Micro-particle Mark
-
Validation of 3D nature of Micro-particle mark to protect against
counterfeiting of mark.
|
|
|
|
|
|
|
|
Trademarks |
|
Type |
|
Countries |
|
|
|
|
|
|
|
Stealth
Mark® |
|
Registered |
|
United
States
European
Community
Australia
|
|
|
|
|
|
|
|
StealthFire |
|
Not
Registered |
|
United
States
European
Community
|
|
|
|
|
|
|
|
ActiveDuty™ |
|
Not
Registered |
|
United
States |
Trade
Secrets
Stealth
Mark proprietary technologies and capabilities being maintained as
Trade Secrets include, but are not limited to:
|
|
● |
Micro-particle
Manufacturing |
| |
● |
Micro-particle
Color Systems |
| |
● |
Technology
advancements providing improvements in Automatic Reader
performance |
| |
● |
Software
solutions supporting Micro-particle security solutions |
| |
● |
Algorithms,
artificial intelligence, and technologies related to Data
Intelligence |
We
will assess the need for any additional patent, trademark or
copyright applications, franchises, concessions royalty agreements
or labor contracts on an ongoing basis.
Employees
We
currently employ our executive officers and as of September 30,
2020, PSI had eight employees and had several independent
contractors.
Summary
of Significant Accounting Policies.
The
Company’s significant accounting policies are presented in the
Notes to the Consolidated Financial Statements (see Note 2 of the
audited consolidated financial statements included
herein).
|
ITEM
7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not
applicable to a smaller reporting company.
|
ITEM
8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA |
Our
consolidated financial statements are contained in pages F-1
through F-22 which appear at the end of this annual
report.
|
ITEM
9. |
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
ITEM
9A. |
CONTROLS AND PROCEDURES |
Evaluation
of Disclosure Controls and Procedures
Regulations
under the Securities Exchange Act of 1934 (the “Exchange Act”)
require public companies to maintain “disclosure controls and
procedures,” which are defined as controls and other procedures
that are designed to ensure that information required to be
disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the issuer’s management,
including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. A material weakness
is a control deficiency (within the meaning of the Public Company
Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
combination of control deficiencies that result in more than a
remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or
detected.
The
Company carried out an evaluation, with the participation of the
Company’s management, including the Company’s Chief Executive
Officer (“CEO”), of the effectiveness of the Company’s disclosure
controls and procedures (as defined under Rule 13a-15(e) under the
Exchange Act) as of September 30, 2020, the end of the period
covered by this report. Based upon that evaluation, the Company’s
CEO concluded that the Company’s disclosure controls and procedures
are not effective at the reasonable assurance level due to the
material weaknesses described below:
1.
The lack of an independent audit committee and the lack of internal
personnel necessary to provide accurate and timely regulatory
filings.
2.
The Company does not have written documentation of its internal
control policies and procedures. Written documentation of key
internal controls over financial reporting is a requirement of
Section 404 of the Sarbanes-Oxley Act which is applicable to the
Company. Management evaluated the impact of its failure to have
written documentation of its internal controls and procedures on
its assessment of its disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a
material weakness.
3.
The Company does not have sufficient segregation of duties within
its accounting functions, which is a basic internal control. Due to
its size and nature, segregation of all conflicting duties may not
always be possible and may not be economically feasible. However,
to the extent possible, the initiation of transactions, the custody
of assets and the recording of transactions should be performed by
separate individuals. Management evaluated the impact of its
failure to have segregation of duties on its assessment of its
disclosure controls and procedures and has concluded that the
control deficiency that resulted represented a material
weakness.
4.
The Company does not have sufficient segregation of duties so that
one person can initiate, authorize and execute
transactions.
5. The Company has insufficient full time personnel with an
appropriate level of technical accounting knowledge to SEC
reporting requirements to timely meet the filing requirements.
In
light of the material weaknesses, the management of the Company
performed additional analysis and other post-closing procedures to
ensure our consolidated financial statements were prepared in
accordance with the accounting principles generally accepted in the
United States of America. Accordingly, we believe that our
consolidated financial statements included herein fairly present,
in all material respects, our consolidated financial condition,
consolidated results of operations and cash flows as of and for the
reporting periods then ended.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act as a process designed by, or
under the supervision of, the issuer’s principal executive and
principal financial officer and effected by the issuer’s board of
directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures
that:
●
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of
the assets of the issuer;
●
Only in accordance with authorizations of management and directors
of the issuer; and provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America and that receipts and
expenditures of the Company are being made;
● Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the issuer’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material
misstatements may not be prevented or detected on a timely basis by
internal control over financial reporting. However, these inherent
limitations are known features of the financial reporting process.
Therefore, it is possible to design into the process safeguards to
reduce, though not eliminate, this risk.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation. Because of the inherent limitations of internal
control, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though
not eliminate, this risk.
As of
the end of our most recent fiscal year, management assessed the
effectiveness of our internal control over financial reporting
based on the criteria for effective internal control over financial
reporting established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and SEC guidance on conducting such
assessments. Based on that evaluation, they concluded that, as of
September 30, 2019, such internal control over financial reporting
was not effective. This was due to deficiencies that existed in the
design or operation of our internal control over financial
reporting that adversely affected our internal controls and that
may be considered to be material weaknesses.
The
matters involving internal control over financial reporting that
our management considered to be material weaknesses under the
standards of the Public Company Accounting Oversight Board were:
(1) lack of a functioning audit committee due to a lack of a
majority of independent members and a lack of a majority of outside
directors on our board of directors, resulting in ineffective
oversight in the establishment and monitoring of required internal
controls and procedures; and (2) inadequate segregation of duties
consistent with control objectives of having segregation of the
initiation of transactions, the recording of transactions and the
custody of assets. The aforementioned material weaknesses were
identified by our Chief Executive Officer in connection with the
review of our financial statements as of September 30,
2020.
To
address the material weaknesses set forth in items (1) and (2)
discussed above, management performed additional analyses and other
procedures to ensure that the financial statements included herein
fairly present, in all material respects, our financial position,
results of operations and cash flows for the periods
presented.
This
Report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by the Company’s independent registered
public accounting firm pursuant to the rules of the SEC that permit
the Company to provide only the management’s report in this
Report.
Management’s
Remediation Initiatives
In
response to the above identified weaknesses in our internal control
over financial reporting, we plan to work on documenting in writing
our internal control policies and procedures and implement
sufficient segregation of duties within our accounting functions,
so that one person cannot initiate, authorize and execute
transactions, and so that one person cannot record transactions in
the accounting records without sufficient review by a separate
person. We do not have a specific timeline within which we expect
to conclude these remediation initiatives but do expect it to be an
on-going process for the foreseeable future. We continue to
evaluate testing of our internal control policies and procedures,
including assessing internal and external resources that may be
available to complete these tasks, but do not know when these tasks
will be completed.
Our
CEO and CFO, along with other Board members, are and will be active
participants in these remediation processes. We believe the steps
taken to date have improved the effectiveness of our internal
control over financial reporting.
Changes in internal control over financial
reporting.
There have
been no changes in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15 (f) under
the Exchange Act) during the nine months ended June 30, 2020 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART III
|
ITEM
10. |
DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE |
Directors,
Executive Officer and Control Persons
The
following table sets forth the names and ages of our directors and
executive officers during the period covered by this Report. Also
the principal offices and positions with us held by each person and
the date such person became a director or executive officer. Each
executive officer was appointed by our Board of Directors. Our
directors serve until the earlier occurrence of the election of his
or her successor at the next meeting of shareholders, death,
resignation or removal by the Board of Directors. There are no
family relationships among our directors, and executive
officers.
|
Name |
|
Age |
|
Position |
|
Date |
| |
|
|
|
|
|
|
| Calvin
R. O’Harrow |
|
71 |
|
Chief
Executive Officer, Chief Operating Officer, Director |
|
May
2018 |
| |
|
|
|
|
|
|
| Douglas
W. Samuelson |
|
61 |
|
Chief
Financial Officer |
|
Feb
2018 |
| |
|
|
|
|
|
|
| Paul
D. Jones |
|
76 |
|
Director,
President |
|
Dec
2017 |
| |
|
|
|
|
|
|
| Thomas
E. Scott |
|
63 |
|
Director,
Secretary |
|
Dec
2017 |
| |
|
|
|
|
|
|
| William
E. Kingsford |
|
77 |
|
Director |
|
Dec
2017 |
| |
|
|
|
|
|
|
| Roy
M. Harsch |
|
74 |
|
Director,
Chairman |
|
Dec
2017 |
Audit
Committee
During
the period covered by this Report, the Board of Directors
determined not to establish an audit committee because our limited
resources and limited operating activities do not warrant the
formation of an audit committee or the expense of doing so. We do
not have a financial expert serving on the Board of Directors who
meets the criteria for a financial expert under Item 401(e) of
Regulation S-B due to our limited financial resources.
Compliance
with Section 16(A) Of the Exchange Act.
Section
16(a) of the Exchange Act requires the Company’s officers and
directors, and persons who beneficially own more than 10% of a
registered class of the Company’s equity securities, to file
reports of ownership and changes in ownership with the Securities
and Exchange Commission and are required to furnish copies to the
Company.
|
ITEM
11. |
EXECUTIVE COMPENSATION |
Executive
Compensation
Summary
Compensation Table
|
Name
and Position |
|
Year
($)
|
|
|
Salary
($)
|
|
|
Other
Annual
Compensation
Bonus
($)
|
|
|
Restricted
Stock
($)
|
|
|
Options
Awards
($)
|
|
|
LTIP
SARs
($)
|
|
|
Payouts
($)
|
|
|
All
Other
Compensation
($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Calvin
R. O’Harrow |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
127,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Chief
Executive Officer, Director |
|
|
2019 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Douglas
W. Samuelson |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
112,800 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Chief
Financial Officer |
|
|
2019 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Paul
D. Jones |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
60,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Director,
President |
|
|
2019 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thomas
E. Scott |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
135,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Director,
Secretary |
|
|
2019 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| William
E. Kingsford |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
60,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Director |
|
|
2019 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Roy M.
Harsch |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
82,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Director,
Chairman |
|
|
2019 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rick
Howard, President, |
|
|
2020 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| former
CEO of StealthCo (1) |
|
|
2019 |
|
|
|
35,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
(1) Ricky
Howard passed away suddenly in November 2018.
There
are no annuity, pension or retirement benefits proposed to be paid
to officers, directors or employees in the event of retirement at
normal retirement date pursuant to any presently existing plan
provided or contributed to by the Company or any of its
subsidiaries, if any.
Management
On
February 5, 2018, the Board of Directors appointed Calvin R.
O’Harrow as Chief Operating Officer and a member of the Board. It
accepted the resignation of Andrew J. Kandalepas, as Chief
Financial Officer (CFO) and Chief Accounting Officer (CAO), and
appointed Douglas Samuelson as CFO and CAO. In April 2018, Mr.
Kandalepas resigned as Chief Executive Officer (CEO) and in May
2018, the Board approved the permanent appointment of Calvin
O’Harrow as CEO.
Calvin
O’Harrow started his career as a successful entrepreneur and moved
on to a 34-year tenure as financial advisor at a prominent national
wirehouse and wealth management firm, where he established unique
team concepts designed to reward team members for their continued
relationships with longstanding clients. Beyond this success, he
has also been involved in several non-profit organizations and held
a variety of positions in finance, sales and management. Mr.
O’Harrow has a B.S. from the University of Wisconsin,
Madison.
Doug
Samuelson, CPA, brings over ten years of experience in public
accounting, and over 20 years of experience in the private sector,
including serving as CFO, Director and Controller in both private
and publicly traded companies. In the past, he provided contract
CFO services and assisted public companies with their
Sarbanes-Oxley (SOX) compliance. He has worked for major accounting
firms, including Arthur Andersen LLP and Cohn Reznick LLP. Mr.
Samuelson received his B.S. degree in Accounting from the
University of Utah and his M.S. degree in Computer Science from
California State University, Northridge.
Stock
Option Plan
On
December 22, 2010, the Company’s Board of Directors approved the
adoption of the “2010 Non-Qualified Stock Option Plan” (“2010
Option Plan”) by unanimous consent. The 2010 Option Plan was
initiated to encourage and enable officers, directors, consultants,
advisors and key employees of the Company to acquire and retain a
proprietary interest in the Company by ownership of its common
stock. A total of 7,500,000 of the authorized shares of the
Company’s common stock may be subject to, or issued pursuant to,
the terms of the plan. Effective January 1, 2018, the Board of
Directors approved to increase the number of authorized shares of
the Company’s common stock that may be subject to, or issued
pursuant to, the terms of the plan from 7,500,000 to
30,000,000.
The
Company’s policy is to recognize compensation cost for awards with
only service conditions and a graded vesting schedule on a
straight-line basis over the requisite service period for the
entire award. Additionally, the Company’s policy is to issue new
shares of common stock to satisfy stock option exercises. The
Company applied fair value accounting for all share based payments
awards. The fair value of each option granted is estimated on the
date of grant using the Black-Scholes option-pricing
model.
|
ITEM
12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT |
Principal
Shareholders
The
following table presents certain information regarding the
beneficial ownership of all shares of common stock at the date of
this Report, for each executive officer and director of our Company
and for each person known to us who owns beneficially more than
five percent (5%) of the issued and outstanding shares of our
common stock, during the period covered by this Report.
|
Name and Address of Beneficial Owner (1) |
|
Number
of
Shares (2)
|
|
|
Options
to Acquire Number of
Shares (2)
|
|
|
Warrants
to Acquire Number of
Shares (2)
|
|
|
Number
of
Shares
Inclusive of Options and Warrants
|
|
|
Percentage
(%)
of Security Ownership
|
|
| Calvin R. O’Harrow, CEO,
COO and Director |
|
|
9,183,000 |
|
|
|
3,525,000 |
|
|
|
11,791,112 |
|
|
|
24,499,112 |
|
|
|
12.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Douglas W. Samuelson, CFO |
|
|
3,020,000 |
|
|
|
- |
|
|
|
400,000 |
|
|
|
3,420,000 |
|
|
|
1.7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Paul D. Jones, President,
Director |
|
|
2,888,305 |
|
|
|
- |
|
|
|
1,111,111 |
|
|
|
3,999,416 |
|
|
|
2.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thomas E. Scott, Secretary,
Director |
|
|
3,599,710 |
|
|
|
- |
|
|
|
463,333 |
|
|
|
4,063,043 |
|
|
|
2.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| William E. Kingsford, Director |
|
|
3,183,778 |
|
|
|
- |
|
|
|
2,338,731 |
|
|
|
5,522,509 |
|
|
|
2.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Roy M. Harsch, Director, Chairman |
|
|
3,053,254 |
|
|
|
- |
|
|
|
1,605,397 |
|
|
|
4,658,651 |
|
|
|
2.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Officers and Directors as a group |
|
|
24,928,047 |
|
|
|
3,525,000 |
|
|
|
17,709,684 |
|
|
|
46,162,731 |
|
|
|
23.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total issued and outstanding |
|
|
118,252,077 |
|
|
|
12,012,738 |
|
|
|
67,634,049 |
|
|
|
196,251,364 |
|
|
|
100.00 |
% |
| |
(1) |
Except
as otherwise noted below, the address of each of the persons shown
in the above table is c/o Wellness Center USA, Inc., 145 E.
University Boulevard, Tucson, AZ 85705. |
| |
(2) |
Includes,
where applicable, shares of common stock issuable upon the exercise
of options or warrants to acquire common stock held by such person
that may be exercised within sixty (60) days after September 30,
2020. Also includes unvested shares of restricted stock as to which
such person has voting power but no dispositive power and in which
they are issuable within sixty (60) days after September 30, 2020.
Unless otherwise indicated, we believe that all persons named in
the table above have sole voting power and/or investment power with
respect to all shares of common stock beneficially owned by
them. |
|
ITEM
13. |
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Related
Party Transactions
During
the period covered by this Report, related parties with whom the
Company had transactions were:
Loans from Officers and Shareholders
As of
September 30, 2018, loans payable from officers and shareholders of
$66,000 were outstanding. During the year ended September 30, 2019,
the Company borrowed $358,250 from its officers and shareholders
and repaid $25,000. All of the loans are unsecured, have an
interest rate of eight percent per annum and are due one year from
the date of issuance. As of September 30, 2019, loans payable to
officers and shareholders of $399,250 were outstanding.
During
the year ended September 30, 2020, the Company and its subsidiary,
PSI, borrowed $796,000 from its officers and shareholders. The
loans have an interest rate of eight percent and are due one year
from the date of issuance. As of September 30, 2020, loans payable
to officers and shareholders of $1,165,250 were outstanding. All of
the loans are unsecured, have an interest rate of eight percent and
are due one year from the date of issuance. As of September 30,
2020, the Company’s officers and directors had the following loans
outstanding: Calvin O;Harrow - $590,250; Roy Harsch - $205,000;
William Kingsford - $201,000; Paul Jones - $100,000; Douglas
Samuelson - $40,000; Tom Scott - $20,000.
In
December 2018, the Company and PSI entered into a Joint Venture
Agreement with PSI GEN2 Funding, Inc. (“GEN2”), to further develop,
market, license and/or sell PSI technology and products. GEN2
consists of accredited investors, and investment participation from
several WCUI officers and directors, including Calvin R. O’Harrow
and Roy M. Harsch. The Joint Venture Agreement provided for the
venture to be conducted through NEO Phototherapy, LLC, an Illinois
limited liability company (“NEO”). As of September 30, 2019, PSI
controlled 51% of the joint venture, and the operations of the
venture were consolidated with the Company for reporting purposes.
Effective April 30, 2020, the joint venture with GEN2 was
reorganized. GEN2 shareholders exchanged their common shares in
GEN2, and the individual exchanged his membership interests in NEO,
for common shares representing 49% ownership in PSI. As of
September 30, 2020, Wellness controls 51% of the outstanding stock
of PSI, and as such is consolidated for reporting purposes, and the
remaining 49% is owned by the former owners of GEN2.
Compensation of Former Chairman and Chief Executive
Officer
During
the year ended September 30, 2019, the Company’s former Chairman
and Chief Executive Officer, Andrew J. Kandalepas, was paid
compensation of $133,333. Mr. Kandalepas resigned as an officer and
director in April 2018. As of September 30, 2019, $33,964 of
accrued compensation was owed to Mr. Kandalepas.
Director
Independence
Currently,
the Company does not have a policy that its directors or a majority
of its directors be independent of management. The Company intends
to implement a policy that a majority of the Board members be
independent of the Company’s management as the members of the board
of director’s increases.
|
ITEM
14. |
PRINCIPAL ACCOUNTING FEES AND
SERVICES |
Audit Fees
The
following table sets forth the fees billed to the Company for
professional services rendered by the Company’s independent
registered public accounting firm, for the years ended September
30, 2018 and 2017:
|
Fees |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| Audit
fees |
|
$ |
90,000 |
|
|
$ |
90,000 |
|
| Audit Related
Fees |
|
$ |
- |
|
|
$ |
- |
|
| Tax fees |
|
$ |
- |
|
|
$ |
- |
|
| All
other fees |
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
| Total
Fees |
|
$ |
90,000 |
|
|
$ |
90,000 |
|
Audit
Fees. Consist of fees billed for professional services rendered
for the audits of our financial statements and reviews of our
interim consolidated financial statements included in quarterly
reports.
Tax
Fees. Our auditors did not provide us with professional
services for tax compliance, tax advice and tax planning. These
services include assistance regarding federal, state and local tax
compliance and consultation in connection with various transactions
and acquisitions.
Pre-approval
of All Services from the Independent Auditors
Effective
May 6, 2003, the Securities and Exchange Commission adopted rules
that require that before our auditor is engaged by us or our
subsidiaries to render any auditing or permitted non-audit related
service, the engagement be:
|
|
● |
approved
by our audit committee; or |
| |
|
|
| |
● |
entered
into pursuant to pre-approval policies and procedures established
by the audit committee, provided the policies and procedures are
detailed as to the particular service, the audit committee is
informed of each service, and such policies and procedures do not
include delegation of the audit committee’s responsibilities to
management. |
We do
not have an audit committee, however our board of directors acts as
the audit committee, established pre-approval policies and
procedures as to the particular service which do not include
delegation of the audit committee’s responsibilities to management.
Our board of directors pre-approves all services provided by our
independent auditors and is informed of each service.
PART IV
|
ITEM
15. |
EXHIBITS, FINANCIAL STATEMENT
SCHEDULES. |
a)
Documents filed as part of this Annual Report
1.
Financial Statements
2.
Financial Statement Schedules
3.
Exhibits
|
Exhibit
Number
|
|
Description
of Document |
|
Filed
Herewith
|
|
Incorporated
by Reference To: |
| |
|
|
|
|
|
|
| 2.2 |
|
Exchange
Agreement dated June 21, 2012 by and between Psoria-Shield Inc. and
Wellness Center USA, Inc. |
|
|
|
Exhibit
2.2 to the Registrant’s Amended Current Report on Form 8-KA3 filed
on January 22, 2013. |
| |
|
|
|
|
|
|
| 2.4 |
|
Exchange
Agreement dated February 28, 2014 by and between National Pain
Centers, Inc. and Wellness Center USA, Inc. |
|
|
|
Exhibit
2.4 to the Registrant’s Current Report on Form 8-K filed on January
28, 2014. |
| |
|
|
|
|
|
|
| 2.5 |
|
Purchase
Agreement dated March 31, 2014 by and between SMI Holdings, Inc.
d/b/a Stealth Mark, Inc. and Stealthco, Inc., a wholly-owned
subsidiary of Wellness Center USA, Inc. |
|
|
|
Exhibit
2.5 to the Registrant’s Current Report on Form 8-K filed on April
9, 2014. |
| |
|
|
|
|
|
|
| 3.1 |
|
Articles
of Incorporation of the Registrant as filed with the Secretary of
State of Nevada. |
|
|
|
Exhibits
3.2 to the Registrant’s Amended Registration Statement on Form
S-1A1 filed on July 7, 2011. |
| |
|
|
|
|
|
|
| 3.2 |
|
Bylaws
of the registrant. |
|
|
|
Exhibits
3.2 to the Registrant’s Amended Registration Statement on Form
S-1A1 filed on July 7, 2011. |
| |
|
|
|
|
|
|
| 3.3 |
|
Certificate
of Amendment as filed with the Secretary of State of Nevada on
January 12, 2017. |
|
|
|
|
| |
|
|
|
|
|
|
| 4.1 |
|
Subscription
Agreement |
|
|
|
Exhibits
99.1 to the Registrant’s Amended Registration Statement on Form
S-1A1 filed on July 7, 2011. |
| |
|
|
|
|
|
|
| 4.2 |
|
Form
of warrant |
|
|
|
Exhibits
99.2 to the Registrant’s Amended Registration Statement on Form
S-1A1 filed on July 7, 2011. |
| |
|
|
|
|
|
|
| 4.3 |
|
2010
Non-Qualified Stock Compensation Plan |
|
|
|
Exhibits
99.3 to the Registrant’s Amended Registration Statement on Form
S-1A1 filed on July 7, 2011. |
| |
|
|
|
|
|
|
| 5.4 |
|
Employment
Agreement dated as of February 28, 2014 by and between Jay Joshi,
M.D. and Wellness Center USA, Inc. |
|
|
|
Exhibit
2.1 to the Registrant’s Current Report on Form 8-K filed on April
10, 2014. |
| |
|
|
|
|
|
|
|
5.5 |
|
Employment
Agreement dated as of July 1, 2014 by and between Rick Howard and
Wellness Center USA, Inc.
|
|
|
|
Exhibit
5.5 to the Registrant’s Annual Report on Form 10-K filed on January
15, 2015.
|
|
|
|
|
|
|
|
|
|
5.6 |
|
Employment
Agreement dated as of January 1, 2018 by and between Rick Howard
and Wellness Center USA, Inc. |
|
|
|
Exhibit
5.6 to the Registrant’s Annual Report on Form 10-K filed on
February 20, 2018. |
|
|
|
|
|
|
|
|
|
5.7
|
|
Employment
Agreement dated as of January 1, 2018 by and between Lee Anne
Patterson and Wellness Center USA, Inc.
|
|
|
|
Exhibit
5.7 to the Registrant’s Annual Report on Form 10-K filed on
February 20, 2018. |
|
|
|
|
|
|
|
|
|
5.8 |
|
Employment
Agreement dated as of January 1, 2018 by and between Richard Neal
and Wellness Center USA, Inc.
|
|
|
|
Exhibit
5.8 to the Registrant’s Annual Report on Form 10-K filed on
February 20, 2018. |
|
10.4 |
|
License
Agreement dated as of August 25, 2009 by and between Psoria-Shield
Inc. and Scot L. Johnson. |
|
|
|
Exhibit
10.4 to the Registrant’s Amended Current Report on Form 8-KA3 filed
on January 22, 2013. |
| |
|
|
|
|
|
|
| 10.5 |
|
License
Agreement dated as of December 11, 2010 by and between
Psoria-Shield Inc. and Scot L. Johnson. |
|
|
|
Exhibit
10.5 to the Registrant’s Amended Current Report on Form 8-KA3 filed
on January 22, 2013. |
| |
|
|
|
|
|
|
| 10.6 |
|
Management
Service Agreement dated as of February 28, 2014 by and between
National Pain Centers, Inc. and National Pain Centers,
LLC |
|
|
|
Exhibit
10.6 to the Registrant’s Annual Report on Form 10-K filed on
January 15, 2015 |
| |
|
|
|
|
|
|
| 10.7 |
|
Agency
Agreement dated as of October 24, 2014 by and between The Medical
Alliance, Inc., Psoria-Shield, Inc. and Wellness Center USA,
Inc. |
|
|
|
Exhibit
10.7 to the Registrant’s Annual Report on Form 10-K filed on
January 15, 2015 |
| |
|
|
|
|
|
|
| 10.8 |
|
Joint
Venture Agreement dated as of January12, 2015 by and between The
Medical Alliance, Inc., Psoria-Shield, Inc. and Wellness Center
USA, Inc. |
|
|
|
Exhibit
10.8 to the Registrant’s Annual Report on Form 10-K filed on
January 15, 2015 |
|
10.9
|
|
Joint
Venture Agreement dated as of November 15, 2018 by and between PSI
Gen 2 Funding, Inc., Psoria-Shield, Inc. and Wellness Center USA,
Inc.
|
|
|
|
Exhibit
10.9 to the Registrant’s Form 8-K filed on November 15,
2018
|
| |
|
|
|
|
|
|
|
21.1
|
|
List
of subsidiaries of the Registrant
|
|
|
|
Exhibit
21.1 to the Registrant’s Annual Report on Form 10-K filed on
January 15, 2015
|
| |
|
|
|
|
|
|
| 31.1 |
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (*) |
|
X |
|
|
| |
|
|
|
|
|
|
| 31.2 |
|
Certification
of Principal Accounting Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (**) |
|
X |
|
|
| |
|
|
|
|
|
|
| 32.1 |
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (*) |
|
X |
|
|
| |
|
|
|
|
|
|
| 32.2 |
|
Certification
of Principal Accounting Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (***) |
|
X |
|
|
| |
|
|
|
|
|
|
| 101.INS |
|
XBRL
Instance Document **** |
|
X |
|
|
| |
|
|
|
|
|
|
| 101.
SCH |
|
XBRL
Taxonomy Extension Schema Linkbase Document **** |
|
X |
|
|
| |
|
|
|
|
|
|
| 101.CAL |
|
XBRL
Taxonomy Extension Calculation Linkbase Document **** |
|
X |
|
|
| |
|
|
|
|
|
|
| 101.DEF |
|
XBRL
Taxonomy Extension Definition Linkbase Document **** |
|
X |
|
|
| |
|
|
|
|
|
|
| 101.LAB |
|
XBRL
Taxonomy Extension Label Linkbase Document **** |
|
X |
|
|
| |
|
|
|
|
|
|
| 101.PRE |
|
XBRL
Taxonomy Extension Presentation Linkbase Document **** |
|
X |
|
|
(*) Filed
herewith.
(**) Included
in Exhibit 32.1
(***) Included
in Exhibit 32.2
(****) Pursuant
to Rule 406T of Regulation S-T, these interactive data files are
deemed not filed or part of a registration statement or prospectus
for purposes of Sections 11 or 12 of the Securities Act of 1933 or
Section 18 of the Securities Exchange Act of 1934 and otherwise are
not subject to liability.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, there unto duly
authorized.
| |
WELLNESS CENTER USA,
INC. |
| |
|
|
Date:
February 8, 2021 |
By: |
/s/
Paul D. Jones |
| |
|
Paul
D. Jones |
| |
|
President
(Duly
Authorized Principal Executive Officer)
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, there unto duly
authorized.
| |
WELLNESS CENTER USA,
INC. |
| |
|
|
Date:
February 8, 2021 |
By: |
/s/
Douglas W. Samuelson |
| |
|
Douglas
W. Samuelson |
| |
|
Chief
Financial Officer and Chief Accounting Officer
(Duly
Authorized Principal Accounting Officer)
|
POWER
OF ATTORNEY
Each
person whose signature appears below hereby constitutes and
appoints severally Paul D. Jones, his true and lawful
attorney-in-fact and agent, with full power of substitution and
re-substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such
attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
SIGNATURE |
|
TITLE |
|
DATE |
| |
|
|
|
|
|
/s/
Calvin R. O’Harrow |
|
Chief
Executive Officer, Chief Operating Officer, Director |
|
February
8, 2021 |
| Calvin
R. O’Harrow |
|
|
|
|
| |
|
|
|
|
|
/s/
Douglas W. Samuelson |
|
Chief
Financial Officer, Chief Accounting Officer |
|
February
8, 2021 |
| Douglas
W. Samuelson |
|
|
|
|
| |
|
|
|
|
|
/s/
Paul D. Jones |
|
Director,
President |
|
February
8, 2021 |
| Paul
D. Jones |
|
|
|
|
| |
|
|
|
|
|
/s/
Thomas E. Scott |
|
Director,
Secretary |
|
February
8, 2021 |
| Thomas
E. Scott |
|
|
|
|
| |
|
|
|
|
|
/s/
William E. Kingsford |
|
Director |
|
February
8, 2021 |
| William
E. Kingsford |
|
|
|
|
| |
|
|
|
|
|
/s/
Roy M. Harsch |
|
Director |
|
February
8, 2021 |
|
Roy
M. Harsch
|
|
|
|
|
|
ITEM
8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA |
Wellness
Center USA, Inc.
September
30, 2020 and 2019
Index
to the Consolidated Financial Statements
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
Wellness
Center USA, Inc.
Chicago,
Illinois
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of
Wellness Center USA, Inc. (the “Company”) as of September 30, 2020
and 2019, the related consolidated statements of operations,
shareholders’ deficit, and cash flows for the years then ended, and
the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Company as of September 30,
2020 and 2019, and the consolidated results of their operations and
their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Going
Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company had a shareholders’ deficit at September 30, 2020, and
incurred a net loss and utilized cash in operating activities
during the year ended September 30, 2020. In addition, as of
September 30, 2020, certain notes payable to officers and
shareholders and payroll taxes were past due. These factors raise
substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in regard to these matters are
also described in Note 1 to the financial statements. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a
reasonable basis for our opinion.
We
have served as the Company’s auditor since 2016.
Weinberg
& Company, P.A.
Los
Angeles, California
February
8, 2021
Wellness
Center USA, Inc.
Consolidated Balance
Sheets
| |
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
51,320 |
|
|
$ |
53,147 |
|
| Inventories |
|
|
94,560 |
|
|
|
- |
|
| Prepaid
expenses and other current assets |
|
|
500 |
|
|
|
55,000 |
|
| Total
Current Assets |
|
|
146,380 |
|
|
|
108,147 |
|
| |
|
|
|
|
|
|
|
|
| Property and equipment, net |
|
|
- |
|
|
|
1,562 |
|
| Right of use
asset |
|
|
6,961 |
|
|
|
- |
|
| Total
Other Assets |
|
|
6,961 |
|
|
|
1,562 |
|
| |
|
|
|
|
|
|
|
|
| TOTAL
ASSETS |
|
$ |
153,341 |
|
|
$ |
109,709 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
SHAREHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| Current
Liabilities |
|
|
|
|
|
|
|
|
| Accounts payable and accrued
expenses |
|
$ |
408,297 |
|
|
$ |
457,037 |
|
| Payroll taxes payable |
|
|
92,334 |
|
|
|
102,834 |
|
| Lease liability |
|
|
6,961 |
|
|
|
- |
|
| Lease abandonment liability |
|
|
672,878 |
|
|
|
234,582 |
|
| Loans payable from officers and
shareholders, including $369,250 past due at September 30,
2020 |
|
|
1,165,250 |
|
|
|
399,250 |
|
| Total
Current Liabilities |
|
|
2,345,720 |
|
|
|
1,193,703 |
|
| |
|
|
|
|
|
|
|
|
| Long-term
Liabilities |
|
|
|
|
|
|
|
|
| U.S. Small
Businessss Administration PPP loan payable |
|
|
37,166 |
|
|
|
- |
|
| Total
Liabilities |
|
|
2,382,886 |
|
|
|
1,193,703 |
|
| |
|
|
|
|
|
|
|
|
| Shareholders’
Deficit |
|
|
|
|
|
|
|
|
| Common stock, par value $0.001,
200,000,000 shares authorized; 118,252,077 and 107,497,077 shares
issued and outstanding, respectively |
|
|
118,252 |
|
|
|
107,497 |
|
| Additional paid-in capital |
|
|
25,053,616 |
|
|
|
23,777,647 |
|
| Accumulated
deficit |
|
|
(27,583,363 |
) |
|
|
(25,362,287 |
) |
| Total Wellness
Center USA shareholders’ deficit |
|
|
(2,411,495 |
) |
|
|
(1,477,143 |
) |
| |
|
|
|
|
|
|
|
|
| Non-controlling
interest |
|
|
181,950 |
|
|
|
393,149 |
|
| Total
Shareholder’s deficit |
|
|
(2,229,545 |
) |
|
|
(1,083,994 |
) |
| |
|
|
|
|
|
|
|
|
| TOTAL
LIABILITIES AND SHAREHOLDERS’ DEFICIT |
|
$ |
153,341 |
|
|
$ |
109,709 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Wellness
Center USA, Inc.
Consolidated Statements of
Operations
| |
|
Years
Ended |
|
| |
|
September 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Sales: |
|
|
|
|
|
|
|
|
| Trade |
|
|
5,000 |
|
|
$ |
19,508 |
|
|
Consulting services |
|
|
- |
|
|
|
13,867 |
|
| Total Sales |
|
|
5,000 |
|
|
|
33,375 |
|
| |
|
|
|
|
|
|
|
|
| Cost of goods
sold |
|
|
- |
|
|
|
20,025 |
|
| |
|
|
|
|
|
|
|
|
| Gross profit |
|
|
5,000 |
|
|
|
13,350 |
|
| |
|
|
|
|
|
|
|
|
| Operating
expenses |
|
|
1,926,594 |
|
|
|
1,779,934 |
|
| |
|
|
|
|
|
|
|
|
| Loss from
operations |
|
|
(1,921,594 |
) |
|
|
(1,766,584 |
) |
| |
|
|
|
|
|
|
|
|
| Other
income (expense) |
|
|
|
|
|
|
|
|
| U.S. federal government COVID-19
grant |
|
|
4,000 |
|
|
|
- |
|
| Amortization of debt discount |
|
|
- |
|
|
|
(72,078 |
) |
| Financing costs |
|
|
(43,815 |
) |
|
|
(182,064 |
) |
| Cost of stock option
modifications |
|
|
(22,680 |
) |
|
|
- |
|
| Cost of stock warrant
modification |
|
|
(507,265 |
) |
|
|
- |
|
| Interest expense |
|
|
(67,861 |
) |
|
|
(25,298 |
) |
| Gain on debt
forgiveness |
|
|
56,840 |
|
|
|
- |
|
|
Total other income (expense) |
|
|
(580,781 |
) |
|
|
(279,440 |
) |
| |
|
|
|
|
|
|
|
|
| NET LOSS |
|
|
(2,502,375 |
) |
|
|
(2,046,024 |
) |
| |
|
|
|
|
|
|
|
|
| Net loss attributable to
non-controlling interest |
|
|
281,299 |
|
|
|
63,860 |
|
| Loss from
deconsolidation of non-controlling interest |
|
|
- |
|
|
|
(405,383 |
) |
| |
|
|
|
|
|
|
|
|
| NET LOSS
ATTRIBUTABLE TO WELLNESS CENTER USA, INC. |
|
|
(2,221,076 |
) |
|
|
(2,387,547 |
) |
| |
|
|
|
|
|
|
|
|
| BASIC AND
DILUTED LOSS PER SHARE |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
| |
|
|
|
|
|
|
|
|
| WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING |
|
|
|
|
|
|
|
|
| BASIC
AND DILUTED |
|
|
110,486,481 |
|
|
|
105,421,218 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Wellness
Center USA, Inc.
Consolidated Statements of Shareholders’
Deficit
| |
|
Common
Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total
WCUI |
|
|
Non-controlling |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
|
Interest |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2018 |
|
|
100,952,569 |
|
|
$ |
100,952 |
|
|
$ |
22,450,252 |
|
|
$ |
(22,974,740 |
) |
|
$ |
(423,536 |
) |
|
$ |
(401,624 |
) |
|
$ |
(825,160 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued for cash |
|
|
142,857 |
|
|
|
143 |
|
|
|
9,857 |
|
|
|
- |
|
|
|
10,000 |
|
|
|
- |
|
|
|
10,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued upon conversions of note payable |
|
|
4,810,222 |
|
|
|
4,811 |
|
|
|
285,361 |
|
|
|
- |
|
|
|
290,172 |
|
|
|
- |
|
|
|
290,172 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of common stock issued with convertible note
payable |
|
|
314,286 |
|
|
|
314 |
|
|
|
21,686 |
|
|
|
- |
|
|
|
22,000 |
|
|
|
- |
|
|
|
22,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of additional shares issued upon conversions of note
payable |
|
|
- |
|
|
|
- |
|
|
|
160,064 |
|
|
|
- |
|
|
|
160,064 |
|
|
|
- |
|
|
|
160,064 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of vested stock options |
|
|
- |
|
|
|
- |
|
|
|
300,925 |
|
|
|
- |
|
|
|
300,925 |
|
|
|
- |
|
|
|
300,925 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of common stock issued for services |
|
|
1,277,143 |
|
|
|
1,277 |
|
|
|
77,752 |
|
|
|
- |
|
|
|
79,029 |
|
|
|
- |
|
|
|
79,029 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
of non-controlling interest agreement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(405,383 |
) |
|
|
(405,383 |
) |
|
|
405,383 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of capital by joint venture partner |
|
|
- |
|
|
|
- |
|
|
|
471,750 |
|
|
|
- |
|
|
|
471,750 |
|
|
|
453,250 |
|
|
|
925,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended September 30, 2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,982,164 |
) |
|
|
(1,982,164 |
) |
|
|
(63,860 |
) |
|
|
(2,046,024 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2019 |
|
|
107,497,077 |
|
|
$ |
107,497 |
|
|
$ |
23,777,647 |
|
|
$ |
(25,362,287 |
) |
|
$ |
(1,477,143 |
) |
|
$ |
393,149 |
|
|
$ |
(1,083,994 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of vested stock options |
|
|
- |
|
|
|
- |
|
|
|
263,414 |
|
|
|
- |
|
|
|
263,414 |
|
|
|
- |
|
|
|
263,414 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of common stock issued for services to Officers and
Directors |
|
|
9,895,000 |
|
|
|
9,895 |
|
|
|
286,955 |
|
|
|
- |
|
|
|
296,850 |
|
|
|
- |
|
|
|
296,850 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of common stock issued for services to
consultants |
|
|
285,000 |
|
|
|
285 |
|
|
|
22,515 |
|
|
|
- |
|
|
|
22,800 |
|
|
|
- |
|
|
|
22,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrants issued upon conversion of loan payable from
shareholder |
|
|
- |
|
|
|
- |
|
|
|
43,815 |
|
|
|
- |
|
|
|
43,815 |
|
|
|
- |
|
|
|
43,815 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of stock option modifications |
|
|
- |
|
|
|
- |
|
|
|
22,680 |
|
|
|
- |
|
|
|
22,680 |
|
|
|
- |
|
|
|
22,680 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of stock warrant modification |
|
|
- |
|
|
|
- |
|
|
|
507,265 |
|
|
|
- |
|
|
|
507,265 |
|
|
|
- |
|
|
|
507,265 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of loan payable from shareholder into common shares |
|
|
575,000 |
|
|
|
575 |
|
|
|
29,425 |
|
|
|
- |
|
|
|
30,000 |
|
|
|
- |
|
|
|
30,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of capital by joint venture partners |
|
|
- |
|
|
|
- |
|
|
|
99,900 |
|
|
|
- |
|
|
|
99,900 |
|
|
|
70,100 |
|
|
|
170,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended September 30, 2020 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,221,076 |
) |
|
|
(2,221,076 |
) |
|
|
(281,299 |
) |
|
|
(2,502,375 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2020 |
|
|
118,252,077 |
|
|
$ |
118,252 |
|
|
$ |
25,053,616 |
|
|
$ |
(27,583,363 |
) |
|
$ |
(2,411,495 |
) |
|
$ |
181,950 |
|
|
$ |
(2,229,545 |
) |
The
accompanying notes are an integral part of these consolidated
financial statements.
Wellness Center USA, Inc.
Consolidated
Statements of Cash Flows
| |
|
Years
Ended |
|
| |
|
September
30, |
|
| |
|
2020 |
|
|
2019 |
|
|
Cash
Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(2,502,375 |
) |
|
$ |
(2,046,024 |
) |
| |
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
Depreciation
expense |
|
|
1,562 |
|
|
|
1,057 |
|
|
Gain
on debt forgiveness |
|
|
(56,840 |
) |
|
|
- |
|
|
Amortization
of right-of-use asset |
|
|
20,880 |
|
|
|
- |
|
|
Amortization
of debt discount |
|
|
- |
|
|
|
72,078 |
|
|
Fair
value of common shares issued for services |
|
|
319,650 |
|
|
|
79,029 |
|
|
Fair
value of stock options issued for services |
|
|
263,414 |
|
|
|
300,925 |
|
|
Fair
value of additional shares issued upon conversions of note
payable |
|
|
- |
|
|
|
160,064 |
|
|
Fair
value of warrants issued upon conversion of loan payable from
shareholder |
|
|
43,815 |
|
|
|
22,000 |
|
|
Loss
on abandonment of lease |
|
|
438,296 |
|
|
|
65,000 |
|
|
Cost
of stock option modifications |
|
|
22,680 |
|
|
|
- |
|
|
Cost
of warrant modification |
|
|
507,265 |
|
|
|
- |
|
|
Changes
in Assets and Liabilities |
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in: |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
(39,560 |
) |
|
|
- |
|
|
Prepaid
expenses and other assets |
|
|
(500 |
) |
|
|
(36,690 |
) |
|
(Decrease)
Increase in: |
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
|
8,100 |
|
|
|
171,872 |
|
|
Payroll
taxes payable |
|
|
(10,500 |
) |
|
|
- |
|
|
Lease
liability |
|
|
(20,880 |
) |
|
|
- |
|
|
Deferred
revenue |
|
|
- |
|
|
|
(8,624 |
) |
|
Net
cash used in operating activities |
|
|
(1,004,993 |
) |
|
|
(1,219,313 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
Proceeds
from loans payable from officers and shareholders |
|
|
796,000 |
|
|
|
358,250 |
|
|
Repayment
of loans payable from officers and shareholders |
|
|
- |
|
|
|
(25,000 |
) |
|
Proceeds
from U.S. Small Business Administration PPP loan
payable |
|
|
37,166 |
|
|
|
- |
|
|
Common
stock and warrants issued for cash |
|
|
- |
|
|
|
10,000 |
|
|
Contribution
of capital by joint venture partner |
|
|
170,000 |
|
|
|
925,000 |
|
|
Net
cash provided by financing activities |
|
|
1,003,166 |
|
|
|
1,268,250 |
|
| |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash |
|
|
(1,827 |
) |
|
|
48,937 |
|
| |
|
|
|
|
|
|
|
|
|
Cash
beginning of year |
|
|
53,147 |
|
|
|
4,210 |
|
|
Cash
end of year |
|
$ |
51,320 |
|
|
$ |
53,147 |
|
| |
|
|
|
|
|
|
|
|
|
Supplemental
cash flows disclosures: |
|
|
|
|
|
|
|
|
|
Interest
paid |
|
$ |
- |
|
|
$ |
- |
|
|
Taxes
paid |
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
Supplemental
non-cash financing disclosures: |
|
|
|
|
|
|
|
|
|
Initial
recognition of right-of-use assets and operating lease |
|
|
|
|
|
|
|
|
|
liabilities
upon adoption of ASC Topic 842 |
|
$ |
27,841 |
|
|
$ |
- |
|
|
Reclassification
of prepaid expenses to inventories |
|
$ |
55,000 |
|
|
$ |
- |
|
|
Conversion
of loan payable from shareholder into common shares |
|
$ |
30,000 |
|
|
$ |
- |
|
|
Conversion
of convertible note payable into common shares |
|
$ |
- |
|
|
$ |
290,172 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
WELLNESS
CENTER USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE YEARS ENDED SEPTEMBER 30, 2020 and 2019
NOTE
1 – BASIS OF PRESENTATION
Organization
and Operations
Wellness
Center USA, Inc. (“WCUI” or the “Company”) was incorporated in June
2010 under the laws of the State of Nevada. The Company initially
engaged in online sports and nutrition supplements marketing and
distribution. The Company subsequently expanded into additional
businesses within the healthcare and medical sectors through
acquisitions, including Psoria-Shield Inc. (“PSI”) and StealthCo
Inc. (“SCI”), d/b/a Stealth Mark, Inc.
The
Company currently operates in the following business segments: (i)
distribution of targeted Ultra Violet (“UV”) phototherapy devices
for dermatology and sanitation purposes; and (ii) authentication
and encryption products and services. The segments are operated,
respectively, through PSI and SCI.
Going
Concern
The
accompanying consolidated financial statements 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 reflected in the accompanying
consolidated financial statements, the Company has not yet
generated significant revenues and has incurred recurring net
losses. During the year ended September 30, 2020, the Company
incurred a net loss of $2,502,375 and used cash in operations of
$1,004,993, and had a shareholders’ deficit of $2,229,545 as of
September 30, 2020. In addition, $369,250 of notes payable to
officers and shareholders and $92,334 of payroll taxes are past
due. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company
to continue as a going concern is dependent upon the Company’s
ability to raise additional funds and implement its strategies. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
In
addition, the Company’s independent registered public accounting
firm, in its report on the Company’s September 30, 2020 financial
statements, has raised substantial doubt about the Company’s
ability to continue as a going concern.
At
September 30, 2020, the Company had cash on hand in the amount of
$51,320. The ability to continue as a going concern is dependent on
the Company attaining and maintaining profitable operations in the
future and raising additional capital soon to meet its obligations
and repay its liabilities arising from normal business operations
when they come due. Since inception, we have funded our operations
primarily through equity and debt financings and we expect to
continue to rely on these sources of capital in the future. During
the year ended September 30, 2020, the Company received $1,003,166
through short-term loans and contributions of capital by a joint
venture partner.
No
assurance can be given that any future financing will be available
or, if available, that it will be on terms that are satisfactory to
the Company. Even if the Company is able to obtain additional
financing, it may contain undue restrictions on our operations, in
the case of debt financing or cause substantial dilution for our
stock holders, in case of equity financing.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis
of Consolidation
The
consolidated financial statements include the Company’s wholly
owned subsidiaries and the accounts of its subsidiaries for which
it was determined that Company has operational and management
control. The Company’s consolidated subsidiaries and/or entities
are as follows:
|
Name
of consolidated subsidiary or entity |
|
State
or other jurisdiction of incorporation or organization |
|
Date
of incorporation or formation (date of acquisition/disposition, if
applicable) |
|
Attributable
interest at September 30,
2019 |
|
|
Attributable
interest at September 30,
2020 |
|
|
Psoria-Shield
Inc. (“PSI”) |
|
The
State of Florida |
|
June
2009
(August 2012)
|
|
|
100 |
% |
|
|
51 |
% (1) |
|
StealthCo,
Inc. (“StealthCo”) |
|
The
State of Illinois |
|
March
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Psoria
Development Company LLC. (“PDC”) |
|
The
State of Illinois |
|
January
2015/November 2018 |
|
|
0 |
% |
|
|
0 |
% |
|
NEO
Phototherapy LLC (“NEO”) |
|
The
State of Illinois |
|
December
2018 |
|
|
51 |
% (1) |
|
|
0 |
% |
|
Protec
Scientific, Inc (“Protec”) |
|
The
State of New York |
|
April
2020 |
|
|
0 |
% |
|
|
38 |
% |
(1) -
Effective April 30, 2020, the Company's 51% interest in NEO was
converted into a 51% interest in PSI.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the U.S requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the financial statement date,
and reported amounts of revenue and expenses during the reporting
period. Significant estimates are used in the valuation of accounts
receivable and allowance for uncollectible amounts, inventory and
obsolescence reserves, accruals for potential liabilities,
valuations of stock-based compensation, and realization of deferred
tax assets, among others. Actual results could differ from these
estimates.
Income
(Loss) Per Share
Basic
loss per share is computed by dividing net loss applicable to
common stockholders by the weighted average number of outstanding
common shares during the period. Diluted loss per share is computed
by dividing the net loss applicable to common stockholders by the
weighted average number of common shares outstanding plus the
number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued. For the
years ended September 30, 2020 and 2019, the basic and diluted
shares outstanding were the same, as potentially dilutive shares
were considered anti-dilutive. At September 30, 2020 and 2019, the
dilutive impact of outstanding stock options of 14,127,738 and
15,237,738 shares, respectively, and outstanding warrants for
67,634,049 and 66,484,049 shares, respectively, have been excluded
because their impact on the loss per share is
anti-dilutive.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenue
Recognition
In
May 2014, the FASB issued Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers (Topic 606).
This ASU is a comprehensive new revenue recognition model that
requires a company to recognize revenue to depict the transfer of
goods or services to a customer at an amount that reflects the
consideration it expects to receive in exchange for those goods or
services. The Company adopted this ASU on October 1, 2018
retrospectively, the cumulative effect of the initial application
on our accumulated deficit on that date was immaterial.
For
trade sales, the Company generates its revenue from sales contracts
with customers with revenues being generated upon the shipment of
merchandise, or for consulting services, revenue is
recognized in the period services are rendered and earned under
service arrangements with clients.
We
sell our products through two main sales channels: 1) directly to
customers who use our products (the “Direct Channel”) and 2) to
distribution partners who resell our products (the “Indirect
Channel”).
Under
the Direct Channel, we sell our products to and we receive payment
directly from customers who purchase our products. Under our
Indirect Channel, we have entered into distribution agreements that
allow the distributors to sell our products and fulfill performance
obligations under the agreements.
We
determine revenue recognition through the following
steps:
|
|
● |
Identification
of the contract, or contracts, with a customer |
|
|
● |
Identification
of the performance obligations in the contract |
|
|
● |
Determination
of the transaction price |
|
|
● |
Allocation
of the transaction price to the performance obligations in the
contract |
|
|
● |
Recognition
of revenue when, or as, we satisfy a performance
obligation.
|
Revenue
is generally recognized upon shipment or when a service has been
completed, unless we have significant performance obligations for
services still to be completed. We recognize revenue when a
material reversal is no longer probable. Payments received before
the relevant criteria for revenue recognition are satisfied are
recorded as deferred revenue. There was no deferred revenue at
September 30, 2020 and 2019.
Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost is
computed on a first-in, first-out basis. At September 30, 2020,
primarily all of the inventories totaling to $94,560 consisted of
raw materials or work-in-progress. The Company provides inventory
reserves based on excess and obsolete inventories determined
primarily by future demand forecasts. The write down amount, if
any, is measured as the difference between the cost of the
inventory and market based upon assumptions about future demand and
charged to the provision for inventory, which is a component of
cost of sales. At the point of the loss recognition, a new, lower
cost basis for that inventory is established, and subsequent
changes in facts and circumstances do not result in the restoration
or increase in that newly established cost basis. At September 30,
2020, no reserve was recorded for slow moving and obsolete
inventory.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Property
and Equipment
Property
and equipment are carried at cost less accumulated depreciation and
amortization. The total cost of property and equipment at September
30, 2020 and 2019 was $106,720, and total accumulated depreciation
at September 30, 2020 and 2019 was $106,720 and $105,158,
respectively. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. The Company
has determined the estimated useful lives of its property and
equipment, as follows:
|
Computer
equipment |
5
years |
| Medical
equipment |
5
years |
| Furniture
and fixtures |
7
years |
| Vehicles |
3
years |
| Software |
3
years |
Depreciation
expense for the years ended September 30, 2020 and 2019 was $1,562
and $1,057, respectively.
Maintenance
and repairs are charged to expense as incurred. The cost and
accumulated depreciation of assets sold or otherwise disposed of
are removed from the related accounts and the resulting gain or
loss is reflected in the statements of operations.
Management
assesses the carrying value of property and equipment whenever
events or changes in circumstances indicate that the carrying value
may not be recoverable. If there is indication of impairment,
management prepares an estimate of future cash flows expected to
result from the use of the asset and its eventual disposition. If
these cash flows are less than the carrying amount of the asset, an
impairment loss is recognized to write down the asset to its
estimated fair value.
Income
Taxes
Income
tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts. Valuation
allowances are recorded to reduce deferred tax assets to the amount
that will more likely than not be realized. The Company recorded a
valuation allowance against its deferred tax assets as of September
30, 2020 and 2019.
The
Company accounts for uncertainty in income taxes using a two-step
approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it
is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as
the largest amount that is more than 50 percent likely of being
realized upon settlement. The Company classifies the liability for
unrecognized tax benefits as current to the extent that the Company
anticipates payment (or receipt) of cash within one year. Interest
and penalties related to uncertain tax positions are recognized in
the provision for income taxes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Fair
Value measurements
The
Company determines the fair value of its assets and liabilities
based on the exchange price in U.S. dollars that would be received
for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
maximize the use of observable inputs and minimize the use of
unobservable inputs. The Company uses a fair value hierarchy with
three levels of inputs, of which the first two are considered
observable and the last unobservable, to measure fair
value:
|
|
● |
Level
1 — Quoted prices in active markets for identical assets or
liabilities. |
| |
● |
Level
2 — Inputs, other than Level 1, that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities. |
| |
● |
Level
3 — Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities. |
The
carrying amounts of financial instruments such as cash, and
accounts payable and accrued liabilities, approximate the related
fair values due to the short-term maturities of these instruments.
The carrying value of the loans payable from officers and
shareholders approximate their fair value based on the fair market
interest rates of these obligations.
Non-controlling
Interests
PDC
Through
November 2018, non-controlling interest represented the
non-controlling interest holder’s proportionate share of the equity
of the Company’s majority-owned subsidiary, PDC. Non-controlling
interest is adjusted for the non-controlling interest holder’s
proportionate share of the earnings or losses and other
comprehensive income (loss), if any, and the non-controlling
interest continues to be attributed its share of losses even if
that attribution results in a deficit non-controlling interest
balance.
On
November 15, 2018, PSI and TMA entered into a Withdraw and Mutual
Release Agreement to terminate their joint venture agreement. On
the date of termination, the non-controlling interest’s share of
the accumulated losses of the joint venture totaled to $405,383.
Upon termination, during the year ended September 30, 2019, the
Company wrote-off the non-controlling interest’s share of the
accumulated losses and recorded a loss from the deconsolidation of
a non-controlling interest of $405,383.
PSI
In
December 2018, PSI entered into a Joint Venture Agreement with GEN2
to further development, marketing, licensing and/or sale of PSI
technology and products. Pursuant to the Joint Venture Agreement,
the venture will be conducted through NEO Phototherapy, Inc.
(“NEO”). PSI and GEN2 will be the members of NEO, owning 50.5% and
36.0%, respectively, of the Units issued in connection with the
organization of NEO. An additional 13.5% of such Units will be
reserved for issuance as incentives for key employees and
consultants. Until such shares are distributed, the Company
controls 68% of the joint venture and GEN2 the remaining 32%. PSI
and GEN2 will manage NEO’s day-to-day operations. PSI will
contribute PSI technology to NEO and GEN2 will contribute $700,000.
As of December 31, 2019, NEO’s operations required additional
funding above the $700,000 documented in the agreement, and as of
September 30, 2019, GEN2 had received $925,000 of investments to
contribute to NEO. During the year ended September 30, 2020, an
additional $50,000 was contributed by GEN2 to NEO. As of September
30, 2020, GEN2 had received $975,000 of investments to contribute
to NEO. As of April 30, 2020, the Company controlled 51% of the
joint venture, GEN2 controlled 39% and another individual
controlled the remaining 10%. The Company recorded its
proportionate share of the contributions received of $497,250 to
additional paid-in-capital and $477,750 to non-controlling interest
as of September 30, 2019.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Non-controlling
Interests (continued)
Effective
April 30, 2020, the joint venture with GEN2 was reorganized. GEN2
shareholders exchanged their common shares in GEN2, and the
individual exchanged his membership interests in NEO, for common
shares representing 49% ownership in PSI. The Company retained its
common shares in PSI, which provides the Company a 51% economic
interest in the PSI technology and products developed by the joint
venture. During year ended September 30, 2020, the entities
recorded a combined loss of $333,809 relating to its operations, of
which $163,556 was allocated to the non-controlling
interest.
Repayment
of the $975,000 investment will begin through and upon the date
which PSI has realized and retained cumulative net
income/distributable cash in the amount of $300,000. The minority
interest of PSI ownership consists of accredited investors, and
investment participation of $750,000 from several WCUI officers and
directors, including Calvin R. O’Harrow and Roy M.
Harsch.
In
May 2020, the Company’s subsidiary, PSI, agreed to become a
majority shareholder in Protec Scientific, Inc. (“Protec”), a
company formed in April 2020 by John Yorke for the purpose of
designing, developing and marketing products that use spectral
photonic emissions across a variety of applications. As of
September 30, 2020, PSI had advanced $191,000 to Protec in
furtherance of its agreement to acquire approximately 62% of
Protec, with the Company’s share being approximately 32%, based on
its PSI ownership. The remaining 30% share is to be attributed to
PSI’s minority shareholders, based on their PSI ownership. During
the year ended September 30, 2020, Protec received an additional
$120,000 from non-affiliated investors, of which $74,400 was
recorded to additional paid-in capital and $45,600 to the
non-controlling interests. The additional investments gave the
non-controlling interests a 38% ownership interest in Protec.
During the year ended September 30, 2020, Protec recorded a loss of
$172,174, of which $117,732 was allocated to the non-controlling
interests.
Stock-Based
Compensation
The
Company periodically issues stock-based compensation to officers,
directors, and consultants for services rendered, and as part of
financing transactions. Such issuances vest and expire according to
terms established at the issuance date. Stock-based payments to
officers, directors, employees, and for acquiring goods and
services from non-employees, which include grants of employee stock
options, are recognized in the financial statements based on their
fair values in accordance with Topic 718. Stock option grants,
which are generally time vested, will be measured at the grant date
fair value and charged to operations on a straight-line basis over
the vesting period.
The
fair value of the Company’s common stock option and warrant grants
are estimated using a Black-Scholes Merton option pricing model,
which uses certain assumptions related to risk-free interest rates,
expected volatility, expected life of the common stock options,
estimated forfeitures and future dividends. Compensation expense is
recorded based upon the value derived from the Black-Scholes option
pricing model, and based on actual experience. The assumptions used
in the Black-Scholes Merton option pricing model could materially
affect compensation expense recorded in future periods.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Leases
In
February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02
requires a lessee to record a right of use asset and a
corresponding lease liability on the balance sheet for all leases
with terms longer than twelve months. ASU 2016-02 is effective for
all interim and annual reporting periods beginning after December
15, 2018. Early adoption is permitted. A modified retrospective
transition approach is required for lessees for leases existing at,
or entered into after, the beginning of the earliest period
presented in the financial statements.
The
Company adopted ASU 2016-02 effective October 1, 2019. As a result,
we recorded a right-of-use asset of $27,841, and a lease liability
of the same amount, as of that date. In accordance with ASU
2016-02, the right-of-use asset is being amortized over the life of
the underlying lease, and monthly lease payments are being recorded
as reductions to the lease liability and imputed interest expense.
See Note 6 for additional information.
Recently
Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses -
Measurement of Credit Losses on Financial Instruments (“ASC 326”).
The standard significantly changes how entities will measure credit
losses for most financial assets, including accounts and notes
receivables. The standard will replace today’s “incurred loss”
approach with an “expected loss” model, under which companies will
recognize allowances based on expected rather than incurred losses.
Entities will apply the standard’s provisions as a
cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is
effective. The standard is effective for interim and annual
reporting periods beginning after December 15, 2019. The adoption
of ASU 2016-13 is not expected to have a material impact on the
Company’s financial position, results of operations, and cash
flows.
Other
recent accounting pronouncements issued by the FASB, including its
Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did
not or are not believed by management to have a material impact on
the Company’s present or future consolidated financial
statements.
NOTE
3 – LOANS PAYABLE FROM OFFICERS AND SHAREHOLDERS
As of
September 30, 2018, loans payable from officers and shareholders of
$66,000 were outstanding. During the year ended September 30, 2019,
the Company borrowed $358,250 from its officers and shareholders
and repaid $25,000. All of the loans are unsecured, have an
interest rate of eight percent per annum and are due one year from
the date of issuance. As of September 30, 2019, loans payable to
officers and shareholders of $399,250 were outstanding.
During
the year ended September 30, 2020, the Company and its subsidiary,
PSI, borrowed $796,000 from its officers and shareholders. The
loans have an interest rate of eight percent per annum and are due
one year from the date of issuance. During the year ended September
30, 2020, one of the loan holders who is not an officer or
director, converted his loan in the amount of $30,000 into 575,000
shares of the Company’s common stock. In connection with the
conversion of the loan payable, the Company issued the loan holder
a warrant to purchase 1,150,000 shares of common stock as an
inducement to convert. The warrants have an exercise price of $0.07
per share and expire five years from the date of grant. The fair
value of the warrants of $43,815 was recorded as a financing cost
during the year ended September 30, 2020 and was based on a
probability affected Black-Scholes Merton pricing model with a
stock price of $0.04, volatility of 187.0% and a risk-free rate of
0.20%.
As of
September 30, 2020, loans payable to officers and shareholders of
$1,165,250 were outstanding. All of the loans are unsecured, have
an interest rate of eight percent per annum and are due one year
from the date of issuance. As of September 30, 2020, the Company’s
officers and directors had the following loans outstanding: Calvin
O;Harrow - $590,250; Roy Harsch - $205,000; William Kingsford -
$201,000; Paul Jones - $100,000; Douglas Samuelson - $40,000; Tom
Scott - $20,000. As of September 30, 2020, $369,250 of these loans
were past due.
NOTE
4 – U.S. SMALL BUSINESS ADMINISTRATION LOAN PAYABLE
During
the year ended September 30, 2020, the Company’s subsidiary, PSI,
entered into a loan agreement with the United States Small Business
Administration (SBA) under which the Company borrowed $37,166. The
loan is unsecured, accrues interest at 1.0% and is due on April 23,
2022. Beginning in October 2020, PSI is required to make monthly
interest payments and all principal and unpaid interest is due in
April 2022. If PSI meets certain criteria as defined in the
agreement, the loan may be forgiven at which time the Company would
recognize a gain on debt forgiveness. As of the date of this
filing, the Company had not yet applied for forgiveness of the
loan.
NOTE
5 – CONVERTIBLE NOTE AGREEMENTS
In
March 2018, the Company entered into a Convertible Note Payable
Agreement with an individual under which the Company borrowed
$165,000. The agreement had an initial maturity date of October
2018. Relating to the agreement, the Company recognized a debt
discount of $165,000 at the date of issuance. The balance of the
unamortized discount at September 30, 2018 was $3,837. During the
year ended September 30, 2019, the Company amended the terms of the
agreement by extending the maturity date to January 2019 and
reducing the conversion price from $0.10 per share to $0.07 per
share. The reduction of the conversion price caused the Company to
issue an additional 744,732 shares, which on the dates of amendment
had a combined total fair value of $51,434, which was recorded a
financing cost during the year ended September 30, 2019. During the
year ended September 30, 2019, the individual converted $165,000 of
the convertible note payable and $8,783 of accrued interest into
2,482,441 shares of the Company’s common stock (including the
744,732 shares discussed above). During the year ended September
30, 2019, the Company amortized the remaining $3,837 of debt
discount, leaving no unamortized balance at September 30, 2019. No
amounts were outstanding under the agreement as of September 30,
2019.
In
July 2018, the Company entered into another Convertible Note
Payable Agreement with the same individual under which the Company
borrowed an additional $110,000. The agreement had an initial
maturity date of February 2019. Relating to the agreement, the
Company recognized a debt discount of $110,000 at the date of
issuance. The balance of the unamortized discount at September 30,
2018 was $68,241. .During the year ended September 30, 2019, the
Company amended the terms of the agreement by reducing the
conversion price from $0.15 per share to $0.05 per share. The
reduction of the conversion price caused the Company to issue an
additional 1,551,854 shares, which on the date of amendment had a
fair value of $108,630, which was recorded a financing cost during
the year ended September 30, 2019. During the year ended September
30, 2019, the Company amortized $68,241 of debt discount, leaving
no unamortized balance at September 30, 2019. During the year ended
September 30, 2019, the individual converted the note payable of
$110,000 and $6,389 of accrued interest into 2,327,781 shares of
the Company’s common stock (including the 1,551,854 shares
discussed above). No amounts were outstanding under the agreement
as of September 30, 2019.
NOTE
6 – LEASE LIABILITIES
Operating
Lease
In February 2019, the Company’s PSI subsidiary entered into
a 24-month
non-cancellable lease for its office facilities that requires
monthly payments of $1,800 through January 2021. The Company
adopted ASU 2016-02, Leases, effective October 1, 2019, which requires a lessee to record a right-of-use
asset and a corresponding lease liability at the inception of the
lease initially measured at the present value of the lease
payments. The Company classified the lease as an operating
lease and determined that the value of the lease assets and
liability at the adoption date was $27,841 using a discount rate of
4.00%. During the year ended September 30, 2020, the Company made
payments of $20,880 towards the lease liability. As of September
30, 2020, the lease liability amounted to $6,961.
ASU
2016-02 requires recognition in the statement of operations of a
single lease cost, calculated so that the cost of the lease is
allocated over the lease term, generally on a straight-line basis.
Rent expense for the year ended September 30, 2020 was $21,600.
During the year ended September 30, 2020, the Company reflected
amortization of the right of use asset of $20,880, related to this
lease, resulting in a net asset balance of $6,961 as of September
30, 2020.
NOTE
6 – LEASE LIABILITIES (CONTINUED)
Other
Leases
The
Company leased its corporate office facility in Hoffman Estates,
Illinois pursuant to a non-cancellable lease initiated in July 2016
and expiring February 28, 2024. The lease terms require a monthly
payment of approximately $11,000. The Company vacated the facility
in April 2019, in favor of its present facilities in Tucson AZ,
which are provided by a shareholder on a rent-free basis. The
Company is in negotiations with the owners regarding the settlement
of its lease obligations and expects that the property will be
subleased or a settlement with the landlord will be reached at an
amount significantly less than the remaining payment obligations.
At the date of abandonment, the Company had a remaining lease
obligation of $631,587. During the year ended September 30, 2019,
the Company recorded an accrual for its estimate for the potential
settlement of this matter and wrote-off its $15,000 security
deposit relating to the lease.
On or
about June 29, 2020, we received notice that Hanover Hoffman
Estates, LLC (“HHE”), filed case number 2020L006092 in the Circuit
Court of Cook County alleging our failure to pay Base Rent and
abandonment of certain office space in Hoffman Estates, Illinois
subject to a Commercial Lease dated May 26, 2016. HHE seeks at
least $672,878 in base rent and other amounts under the lease, as
well as treble damages from our ex-CEO and two past Directors who
were serving on our Board as of the date of the lease. We are
currently evaluating the allegations, defenses and alternate
actions.
During
the year ended September 30, 2020, the Company recorded an
additional expense of $438,296 relating to the lease obligation,
and recorded the full amount of the judgement due as of September
30, 2020.
Commencing
on October 1, 2016, the Company’s wholly-owned subsidiary,
StealthCo, entered into a non-cancellable lease agreement to lease
its office facilities in Oak Ridge, Tennessee. The term of the
lease is five years and expires September 30, 2021. On January 6,
2020, the Company entered into an agreement with the owners to
terminate the agreement effective January 1, 2020. Under the
agreement, the Company agreed to pay $11,000 and abandon certain
Company property as documented in the agreement. During the year
ended September 30, 2020, the $11,000 was paid by the
Company.
NOTE
7 – SHAREHOLDERS’ EQUITY
Authorized shares
On
September 3, 2019, the Company’s Board of Directors unanimously
approved the amendment of its Articles of Incorporation to increase
the total authorized capital stock from 185,000,000 common shares
to 200,000,000 common shares. As of September 18, 2019, holders of
a majority of the outstanding shares of voting capital stock
executed written stockholder consents approving this action and the
Company amended its Articles of Incorporation through a filing of a
Certificate of Amendment on October 11, 2019. Holders of shares of
common stock have full voting rights, one vote for each share held
of record. Shareholders are entitled to receive dividends as may be
declared by the Board out of funds legally available therefore and
share pro rata in any distributions to shareholders upon
liquidation. Shareholders have no conversion, pre-emptive or
subscription rights. All outstanding shares of common stock are
fully paid and non-assessable. As of September 30, 2020 and 2019,
there were 118,252,077 and 107,497,077 shares of common stock
issued and outstanding, respectively.
Common Shares Issued for Cash
During
the year ended September 30, 2019, the Company received $10,000
from the sale of 142,857 shares of its common stock. In connection
with the sale, the Company issued a warrant to the shareholder to
purchase 284,714 shares of the Company’s common stock. The warrant
expires five years from the date of grant and has an exercise price
of $0.15 per share.
Common Shares Issued for Services
During
the year ended September 30, 2019, the Company issued 1,277,143
shares of its common stock valued at $79,029 for services provided
by WCUI consultants. The shares were valued at the trading price of
the common stock at the date of issuance and were recorded as
compensation expense during the year ended September 30,
2019.
During
the year ended September 30, 2020, the Company issued 285,000
shares of its common stock valued at $22,800 for services provided
by PSI consultants. The shares were valued at the trading price of
the common stock at the date of issuance and were recorded as
compensation expense during the year ended September 30,
2020.
NOTE
7 – SHAREHOLDERS’ EQUITY (CONTINUED)
Restricted Stock Grants to Officers and
Directors
In
April 2020, the Company’s Board of Directors approved the issuance
of a combined total of 20,170,000 restricted shares of the
Company’s common stock to its Officers and Directors. A total of
7,120,000 shares vested in April 2020, and a total of 1,800,000
will vest monthly from April 2020 through March 2021, and a total
of 11,250,000 will vest monthly from April 2020 through March 2023.
Of the 13,050,000 shares that vest over time, a total of 2,775,000
shares vested during the year ended September 30, 2020.
The following table summarizes restricted common stock
activity:
|
|
|
Number
of Restricted Shares |
|
|
Fair
Value |
|
|
Weighted
Average Grant Date Fair Value |
|
| |