P-4
| | | | | | | | | | | | | |
Wellness Center USA, Inc. |
|
Pro Forma Combined Statement of Operations |
For the Fiscal Year Ended September 30, 2011 |
(Unaudited) |
| | | | | | | | | | | | | |
| | | | | Historical | | Pro Forma |
| | | | | Wellness Center USA, Inc. | | CNS Wellness Florida, LLC | | Psoria-Shield Inc. | | | | |
| | | | | For the Fiscal Year | | For the Fiscal Year | | For the Fiscal Year | | | | |
| | | | | Ended | | Ended | | Ended | | | | |
| | | | | September 30, 2011 | | September 30, 2011 | | September 30, 2011 | | Adjustments | | Combined |
| | | | | | | | | | | | | |
NET REVENUES | $ | 312 | $ | 277,670 | $ | - | $ | - | $ | 277,982 |
COST OF SALES | | 314 | | - | | - | | - | | 314 |
GROSS PROFIT | | (2) | | 277,670 | | - | | - | | 277,668 |
OPERATING EXPENSES: | | | | | | | | | | |
| Amortization | | - | | - | | - | (2)(3)(4) | 68,472 | | 293,222 |
| | | | | | | | | - | (6)(7)(8)(9) | 224,750 | | |
| Consulting fees | | 13,913 | | - | | - | | - | | 13,913 |
| Payroll expenses and contract labor | | - | | 198,804 | | 284,646 | | - | | 483,450 |
| Payroll expenses - officers | | - | | - | | 138,120 | | - | | 138,120 |
| Professional fee | | 59,335 | | - | | 687,160 | | - | | 746,495 |
| Rent expenses | | 21,489 | | 114,448 | | 32,772 | | - | | 168,709 |
| Research and development expense | | - | | - | | 237,368 | | - | | 237,368 |
| Selling and marketing expense | | - | | 99,829 | | 176,950 | | - | | 276,779 |
| General and administrative | | 14,447 | | 109,401 | | 315,610 | | - | | 439,458 |
| | | | | | | | | | | | | |
| | Total Operating Expenses | | 109,184 | | 522,482 | | 1,872,626 | | 293,222 | | 2,797,514 |
| | | | | | | | | | | | | |
LOSS FROM OPERATIONS | | (109,186) | | (244,812) | | (1,872,626) | | (293,222) | | (2,519,846) |
OTHER (INCOME) EXPENSE: | | | | | | | | | | |
| Interest expense | | - | | - | | 2,665 | | - | | 2,665 |
| Interest expense - related party | | - | | 1,857 | | - | | - | | 1,857 |
| Other (income) expense | | - | | 7,948 | | - | | - | | 7,948 |
| | Other (income) expense, net | | - | | 9,805 | | 2,665 | | - | | 12,470 |
| | | | | | | | | | | | | |
LOSS BEFORE INCOME TAX PROVISION AND NONCONTROLLING INTEREST | | (109,186) | | (254,617) | | (1,875,291) | | (293,222) | | (2,532,316) |
INCOME TAX PROVISION | | - | | - | | - | | - | | - |
LOSS BEFORE NONCONTROLLING INTEREST | | (109,186) | | (254,617) | | (1,875,291) | | (293,222) | | (2,532,316) |
NONCONTROLLING INTEREST | | - | | - | | - | | | | - |
NET LOSS | $ | (109,186) | $ | (254,617) | $ | (1,875,291) | $ | (293,222) | $ | (2,532,316) |
NET LOSS PER COMMON SHARE - BASIC AND DILUTED: | $ | (0.01) | | | | | $ | (0.02) | $ | (0.09) |
Weighted average common shares outstanding - basic and diluted | | 13,125,860 | | | | | (1) | 7,300,000 | | 20,425,860 |
| | | | | - | | | | | (5) | 7,686,797 | | 7,686,797 |
| | | | | 13,125,860 | | | | | | 14,986,797 | | 28,112,657 |
| | | | | | | | | | | | | |
(1) | To reflect issuance of 7,300,000 shares of WCUI's common stock to the members of CNS for the acquisition of all of the issued and outstanding limited liability company interests in CNS upon acquisition of CNS. |
(2) | To amortize the fair value of trade mark over the estimated useful lives of nine (9) years. |
(3) | To amortize the fair value of purchased technology over the estimated useful lives of 20 years. |
(4) | To amortize the fair value of non-compete agreements over the estimated useful lives of three (3) years. |
| | | | | | | | | | | | | |
(5) | To reflect issuance of 7,686,797 shares of WCUI's common stock to the stockholders of PSI for the acquisition of all of the issued and outstanding common stock of PSI upon acquisition of PSI. |
(6) | To amortize the fair value of trade mark - Psoria-Shield over the estimated useful life of seven (7) years. |
(7) | To amortize the fair value of trade mark - Psoria-Light over the estimated useful life of seven (7) years. |
(8) | To amortize the fair value of acquired technology over the estimated useful life of 20 years. |
(9) | To amortize the fair value of non-compete agreement over the estimated useful life of four (4) years. |
| | | | | | | | | | | | | |
See accompanying notes to the pro forma combined financial statements. |
P-5
Wellness Center USA, Inc.
CNS Wellness Florida, LLC
and
Psoria-Shield Inc.
As of and for the nine months ended June 30, 2012
and
As of and for the fiscal year ended September 30, 2011
Notes to the Pro Forma Combined Financial Statements
(Unaudited)
Note 1 - Organization and Operations
Wellness Center USA, Inc.
Wellness Center USA, Inc. ("WCUI" or the “Company”) was incorporated on September 30, 2010 under the laws of the State of Nevada. The Company engages in online sports and nutrition supplements marketing and distribution.
Acquisition of CNS Wellness Florida, LLC
On May 30, 2012, Wellness Center USA, Inc. (“WCUI” or the “Company”) entered into an Exchange Agreement (“Exchange Agreement”) to acquire all of the limited liability company interests in CNS-Wellness Florida, LLC (“CNS”), a Tampa, Florida-based cognitive neuroscience company specializing in the treatment of brain-based behavioral health disorders including developmental, emotional and stress-related problems.
On August 2, 2012, the Company consummated the Exchange Agreement and acquired all of the issued and outstanding limited liability company interests in CNS for and in consideration of the issuance of 7.3 million shares of the Company’s common stock pursuant to the Exchange Agreement. The 7.3 million common shares issued in connection with the share exchange represent 32.2% of the 22,704,773 shares of issued and outstanding common stock of the Company as of the closing of the share exchange under the Exchange Agreement. CNS is now operated as a wholly-owned subsidiary of the Company.
CNS Wellness Florida, LLC, the Successor of Cognitive Neuro Sciences, Inc.
Cognitive Neuro Sciences, Inc., (the ''CNS Predecessor") was incorporated on March 14, 2006 under the laws of the State of Florida. The CNS Predecessor specialized in the treatment of brain-based behavioral health disorders including developmental, emotional and stress-related problems. On May 26, 2009, the stockholders of CNS Predecessor decided to dissolve CNS Predecessor and form a Limited Liability Company (“LLC”) to carry-on the business of CNS Predecessor.
CNS Wellness Florida, LLC (“CNS”) was formed on May 26, 2009 under the laws of the State of Florida. The sole purpose of CNS was to carry-on the business of CNS Predecessor in the form of an LLC. The assets and liabilities of CNS Predecessor were carried forward to CNS and recorded at the historical cost on the date of conversion.
Acquisition of Psoria-Shield Inc.
On June 21, 2012, the Company entered into an Exchange Agreement (“Exchange Agreement”) to acquire all of the issued and outstanding shares of capital stock in Psoria-Shield Inc. (“PSI”), a Tampa, Florida-based developer and manufacturer of Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases, for and in consideration of the issuance of 7,686,797 shares of common stock in the Company.
On August 24, 2012, the Company consummated the share exchange and acquired all of the issued and outstanding shares of stock in PSI for and in consideration of the issuance of 7,686,797 shares of its common stock pursuant to the Exchange Agreement. The 7,686,797 common shares issued in connection with the share exchange represent 25.3% of the 30,354,070 shares of issued and outstanding common stock of the Company as of the closing of the share exchange under the Exchange Agreement. PSI is now operated as a wholly-owned subsidiary of the Company.
P-6
Psoria-Shield Inc.
Psoria-Shield Inc. (“PSI”) was incorporated on June 17, 2009 under the laws of the State of Florida. PSI engages in the business of research and development, manufacturing, and marketing and distribution of Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases.
NOTE 2
- Basis of Pro Forma Presentation
Business Combinations
The Company applies Topic 805“Business Combinations”of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 141 (R)“Business Combinations” (“SFAS No. 141(R)”)) for transactions that represent business combinations to be accounted for under the acquisition method. Pursuant to ASC Paragraph 805-10-25-1 in order for a transaction or other event to be considered as abusiness combination it is required that the assets acquired and liabilities assumed constitute abusiness. Upon determination of transactions representing business combinations the Company then (i) identifies the accounting acquirer; (ii) identifies and estimates the fair value of the identifiable tangible and intangible assets acquired, separately from goodwill; (iii) estimates the business enterprise value of the acquired entities; (iv) allocates the purchase price of acquired entities to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values at the date of acquisition. The excess of the liabilities assumed and the purchase price over the assets acquired was recorded as goodwill and the excess of the assets acquired over the liabilities assumed and the purchase price was recorded as a gain from bargain purchase.
Acquisition of CNS Wellness Florida, LLC
Identification of the Accounting Acquirer
The Company used the existence of a controlling financial interest to identify the acquirer—the entity that obtains control of the acquiree in accordance with ASC paragraph 805-20-25-5 and identifies the acquisition date, which is the date on which it obtains control of the acquiree in accordance with ASC paragraph 805-20-25-6. The management of the Company specifically addressed (i) the ownership interest of each party after the acquisition; (ii) the members of the board of directors from both companies; and (iii) senior management from both companies and determined that Wellness Center USA, Inc. was the accounting acquirer for the merger between Wellness Center USA, Inc. and CNS Wellness Florida, LLC.
The specific control factors considered to determine which entity was the accounting acquirer are as follows:
| | | | | | | | |
(i) The ownership interest of each party after the acquisition | | | | | | | | |
| | | | | | | | |
WCUI's common shares issued and outstanding prior to CNS acquisition | | | 15,367,273 | | | | 67.8 | % |
| | | | | | | | |
WCUI's common shares issued to the members of CNS for the acquisition of all of the issued and outstanding limited liability company interests in CNS upon acquisition of CNS | | | 7,300,000 | | | | 32.2 | % |
| | | | | | | | |
| | | 22,667,273 | | | | 100.0 | % |
| | | | | | | | |
(ii) The members of the board of directors from both companies | | | | | | | | |
| | | | | | | | |
The members of the board of directors from WCUI prior to CNS acquisition | | | 3 | | | | 60.0 | % |
| | | | | | | | |
The members of the board of directors from CNS upon acquisition of CNS | | | 2 | | | | 40.0 | % |
| | | | | | | | |
| | | 5 | | | | 100.0 | % |
| | | | | | | | |
(iii) Senior management from both companies | | | | | | | | |
| | | | | | | | |
Senior management from WCUI prior to CNS acquisition | | | 1 | | | | 100.0 | % |
| | | | | | | | |
Senior management from CNS upon acquisition of CNS | | | - | | | | - | % |
| | | | | | | | |
| | | 1 | | | | 100.0 | % |
P-7
Intangible Assets Identification, Estimated Fair Value and Useful Lives
With the assistance of the third party valuation firm, the Company identified certain separate recognizable intangible assets that possessed economic value, estimated their fair values and related useful lives of CNS at the date of acquisition as follows:
| | | | | | | | | |
| Estimated Useful Life (Years) | | | | | August 2, 2012 | |
| | | | | | | | | |
Trademark/Trade Name | 9 | | | | | | $ | 110,000 | |
| | | | | | | | | |
Unpatented Technology | 20 | | | | | | | 325,000 | |
| | | | | | | | | |
Non-Competition Agreement | 3 | | | | | | | 120,000 | |
| | | | | | | |
Total Recognized Intangible Assets | | | | | | | $ | 555,000 | |
Business Enterprise Valuation
With the assistance of the third party valuation firm, the Company estimated the indicated value of the total invested operating capital of CNS at the date of acquisition utilizing the income approach – discounted cash flows method, was $3,100,000, as follows:
| | | | | | | | | |
| | | | | | August 2, 2012 | |
| | | | | | | | | |
Present Value of Debt-Free Net Cash Flow - Forecast Period | | | | | | | $ | 807,921 | |
| | | | | | | | | |
Present Value of Debt-Free Net Cash Flow - Residual Period | | | | | | | | 2,287,246 | |
| | | | | | | | | |
Present Value of Debt-Free Net Cash Flow – Total | | | | | | | | 3,095,167 | |
| | | | | | | |
Value Indication Income Approach - Discounted Net Cash Flow Method (Rounded) | | | | | | | $ | 3,100,000 | |
P-8
Allocation of Purchase Price
The purchase price of CNS has been allocated to the tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the CNS based on their estimated fair values at the date of acquisition as follows:
| | | | | | | | | | | | | |
| | | Book Value | | | Fair Value Adjustment | | | Fair Market Value | |
| | | | | | | | | | | | | |
Cash | | | $ | 11,713 | | | $ | - | | | $ | 11,713 | |
| | | | | | | | | | | | | |
Property and equipment | | | | 18,459 | | | | | | | | 18,459 | |
| | | | | | | | | | | | | |
Trade mark | | | | - | | | | 110,000 | | | | 110,000 | |
| | | | | | | | | | | | | |
Unpatented technology | | | | - | | | | 325,000 | | | | 325,000 | |
| | | | | | | | | | | | | |
Non-compete agreements | | | | - | | | | 120,000 | | | | 120,000 | |
| | | | | | | | | | | | | |
Goodwill | | | | 323,045 | | | | 2,545,000 | | | | 2,868,045 | |
| | | | | | | | | | | | | |
Security deposits | | | | 36,939 | | | | | | | | 36,939 | |
| | | | | | | | | | | | | |
Accounts payable | | | | (41,957 | ) | | | | | | | (41,957 | ) |
| | | | | | | | | | | | | |
Accrued interest - related party | | | | (3,516 | ) | | | | | | | (3,516 | ) |
| | | | | | | | | | | | | |
Credit cards payable | | | | (66,008 | ) | | | | | | | (66,008 | ) |
| | | | | | | | | | | | | |
Payroll liability | | | | (2,709 | ) | | | | | | | (2,709 | ) |
| | | | | | | | | | | | | |
Current portion of deferred rent | | | | (11,363 | ) | | | | | | | (11,363 | ) |
| | | | | | | | | | | | | |
Advances from related parties | | | | (196,208 | ) | | | | | | | (196,208 | ) |
| | | | | | | | | | | | | |
Note payable - related party | | | | (37,139 | ) | | | | | | | (37,139 | ) |
| | | | | | | | | | | | | |
Deferred rent, net of current portion | | | | (31,256 | ) | | | | | | | (31,256 | ) |
| | | | | | | | | | | | | |
Total | | | | - | | | | 3,100,000 | | | | 3,100,000 | |
| | | | | | | | | | | | | |
Non-controlling interest | | | | (- | ) | | | - | | | | (- | ) |
| | | | | | | | | | | | | |
Purchase price | | | $ | - | | | $ | 3,100,000 | | | $ | 3,100,000 | |
Acquisition of Psoria-Shield Inc.
Identification of the Accounting Acquirer
The Company used the existence of a controlling financial interest to identify the acquirer—the entity that obtains control of the acquiree in accordance with ASC paragraph 805-20-25-5 and identifies the acquisition date, which is the date on which it obtains control of the acquiree in accordance with ASC paragraph 805-20-25-6. The management of the Company specifically addressed (i) the ownership interest of each party after the acquisition; (ii) the members of the board of directors from both companies; and (iii) senior management from both companies and determined that Wellness Center USA, Inc. was the accounting acquirer for the merger between Wellness Center USA, Inc. and Psoria-Shield Inc.
P-9
The specific control factors considered to determine which entity was the accounting acquirer are as follows:
| | | | | | | | |
(i) The ownership interest of each party after the acquisition | | | | | | | | |
| | | | | | | | |
WCUI's common shares issued and outstanding prior to PSI acquisition | | | 22,667,273 | | | | 74.7 | % |
| | | | | | | | |
WCUI's common shares issued to the stockholders of PSI for the acquisition of all of the issued and outstanding common stock of PSI upon acquisition of PSI | | | 7,686,797 | | | | 25.3 | % |
| | | | | | | | |
| | | 22,667,273 | | | | 100.0 | % |
| | | | | | | | |
(ii) The members of the board of directors from both companies | | | | | | | | |
| | | | | | | | |
The members of the board of directors from WCUI prior to PSI acquisition | | | 5 | | | | 83.3 | % |
| | | | | | | | |
The members of the board of directors from PSI upon acquisition of PSI | | | 1 | | | | 16.7 | % |
| | | | | | | | |
| | | 6 | | | | 100.0 | % |
| | | | | | | | |
(iii) Senior management from both companies | | | | | | | | |
| | | | | | | | |
Senior management from WCUI prior to CNS acquisition | | | 1 | | | | 100.0 | % |
| | | | | | | | |
Senior management from CNS upon acquisition of CNS | | | - | | | | - | % |
| | | | | | | | |
| | | 1 | | | | 100.0 | % |
| | | | | | | | |
Intangible Assets Identification, Estimated Fair Value and Useful Lives
With the assistance of the third party valuation firm, the Company identified certain separate recognizable intangible assets that possessed economic value, estimated their fair values and related useful lives of PSI at the date of acquisition as follows:
| | | | | | | | | |
| Estimated Useful Life (Years) | | | | | August 24, 2012 | |
| | | | | | | | | |
Trademark - Psoria-Shield | 7 | | | | | | $ | 210,000 | |
| | | | | | | | | |
Trademark - Psoria-Light | 6 | | | | | | $ | 420,000 | |
| | | | | | | | | |
Unpatented Technology | 20 | | | | | | | 2,095,000 | |
| | | | | | | | | |
Non-Competition Agreement | 4 | | | | | | | 120,000 | |
| | | | | | | |
Total Recognized Intangible Assets | | | | | | | $ | 2,845,000 | |
P-10
Business Enterprise Valuation
With the assistance of the third party valuation firm, the Company estimated the indicated value of the total invested operating capital of PSI at the date of acquisition utilizing the income approach – discounted cash flows method, was $4,105,000, as follows:
| | | | | | | | | |
| | | | | | August 24, 2012 | |
| | | | | | | | | |
Present Value of Debt-Free Net Cash Flow - Forecast Period | | | | | | | $ | 2,205,360 | |
| | | | | | | | | |
Present Value of Debt-Free Net Cash Flow - Residual Period | | | | | | | | 1,899,261 | |
| | | | | | | | | |
Present Value of Debt-Free Net Cash Flow – Total | | | | | | | | 4,104,622 | |
| | | | | | | |
Value Indication Income Approach - Discounted Net Cash Flow Method (Rounded) | | | | | | | $ | 4,105,000 | |
P-11
Allocation of Purchase Price
The purchase price of PSI has been allocated to the tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the PSI based on their estimated fair values at the date of acquisition as follows:
| | | | | | | | | | | | | |
| | | Book Value | | | Fair Value Adjustment | | | Fair Market Value | |
| | | | | | | | | | | | | |
Cash | | | $ | 11,413 | | | $ | - | | | $ | 11,413 | |
| | | | | | | | | | | | | |
Inventories | | | | 12,694 | | | | | | | | 12,694 | |
| | | | | | | | | | | | | |
Property and equipment | | | | 80,956 | | | | | | | | 80,956 | |
| | | | | | | | | | | | | |
Exclusive licenses | | | | 4,562 | | | | | | | | 4,562 | |
| | | | | | | | | | | | | |
Trade mark - Psoria-Shield | | | | - | | | | 210,000 | | | | 210,000 | |
| | | | | | | | | | | | | |
Trade mark - Psoria-light | | | | - | | | | 420,000 | | | | 420,000 | |
| | | | | | | | | | | | | |
Unpatented technology | | | | - | | | | 2,095,000 | | | | 2,095,000 | |
| | | | | | | | | | | | | |
Non-compete agreements | | | | - | | | | 120,000 | | | | 120,000 | |
| | | | | | | | | | | | | |
Goodwill | | | | 453,270 | | | | 1,260,000 | | | | 1,713,260 | |
| | | | | | | | | | | | | |
Security deposits | | | | 1,760 | | | | | | | | 1,760 | |
| | | | | | | | | | | | | |
Accounts payable | | | | (161,821 | ) | | | | | | | (161,821 | ) |
| | | | | | | | | | | | | |
Credit cards payable | | | | (42,198 | ) | | | | | | | (42,198 | ) |
| | | | | | | | | | | | | |
Customer deposits | | | | (25,000 | ) | | | | | | | (25,000 | ) |
| | | | | | | | | | | | | |
Accrued warranty | | | | (9,600 | ) | | | | | | | (9,600 | ) |
| | | | | | | | | | | | | |
Current portion of long-term payable | | | | (72,653 | ) | | | | | | | (72,653 | ) |
| | | | | | | | | | | | | |
Loan payable | | | | (20,000 | ) | | | | | | | (20,000 | ) |
| | | | | | | | | | | | | |
Advances from stockholders | | | | (233,994 | ) | | | | | | | (233,994 | ) |
| | | | | | | | | | | | | |
Total | | | | - | | | | 4,105,000 | | | | 4,105,000 | |
| | | | | | | | | | | | | |
Non-controlling interest | | | | (- | ) | | | - | | | | (- | ) |
| | | | | | | | | | | | | |
Purchase price | | | $ | - | | | $ | 4,105,000 | | | $ | 4,105,000 | |
P-12
Assumptions of Pro Forma Combined Financial Statements
The accompanying pro forma combined balance sheet as of June 30, 2012 and the pro forma combined statements of operations for the nine months ended June 30, 2012 and for the fiscal year ended September 30, 2011 are based on the historical financial statements of the Company and CNS and PSI after giving effect to WCUI’s acquisition of CNS and PSI using the acquisition method of accounting and applying the assumptions and adjustments described in the accompanying notes to the pro forma combined financial statements as if such acquisition had occurred as of September 30, 2011 for the balance sheet, and October 1, 2010 for statements of operations for pro forma financial statements purposes.
The pro forma combined financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the combined financial position or combined results of operations in future periods or the results that actually would have been realized had the Company, CNS and PSI been a combined company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document and assumptions that management believes are reasonable. The pro forma combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with the Company’s historical financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2011 as filed with United States Securities and Exchange Commission (“SEC”) on December 13, 2011 and in its Quarterly Report on Form 10-Q for the interim period ended June 30, 2012 as filed with SEC on August 20, 2012; CNS’s historical financial statements included in the Amendment No. 1 to the Current Report on Form 8-K/A1 for the fiscal year ended September 30, 2011 and for the interim period ended June 30, 2012 as Exhibits as filed with SEC on October 23, 2012; and PSI’s historical financial statements included elsewhere in the Amendment No. 1 to the Current Report on Form 8-K/A1 for the fiscal year ended September 30, 2011 and for the interim period ended June 30, 2012 as Exhibits as filed with SEC herewith.
The pro forma combined financial statements do not purport to represent what the results of operations or financial position of the Company would actually have been if the merger had in fact occurred on October 1, 2010, nor do they purport to project the results of operations or financial position of the Company for any future period or as of any date, respectively.
These pro forma combined financial statements do not give effect to any restructuring costs or to any potential cost savings or other operating efficiencies that could result from the merger between WCUI and CNS and CNS since such amounts, if any, are not presently determinable.
P-13
NOTE 3
- Pro Forma Adjustments
Acquisition of CNS Wellness Florida, LLC
The accompanying pro forma combined financial statements reflect the following pro forma adjustments:
