Intercompany balances and transactions have been eliminated in consolidation.The Company has determined that its existing management services agreement with National Pain Center, LLC (“NPC LLC”) does not meet the requirements for consolidation under U.S. generally accepted accounting principles. Specifically, the Company does not have an equity ownership interest in NPC LLC. Furthermore, the Company's service agreement specifically does not give the Company "control" of NPC LLC as the Company does not have exclusive authority over decision making and the Company does not have a financial interest in NPC LLC (See Note 6).
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 valuation of inventory and obsolescence and valuations of stock-based compensation calculations, among others. Actual results could differ from these estimates.
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 six months ended March 31, 2017 and 2016, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive. At March 31, 2017 and 2016, the dilutive impact of outstanding stock options for 6,147,500 and 5,097,500 shares, respectively, and outstanding warrants for 63,741,253 and 43,876,412 shares, respectively, have been excluded because their impact on the loss per share is anti-dilutive.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies for each major category of revenue:
(i)
Sale of products: The Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement is demonstrated via sales invoice or contract; product delivery is evidenced by warehouse shipping log as well as a signed bill of lading from the vessel or rail company and title transfers upon shipment, based on free on board (“FOB”) warehouse terms; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate, discount, or volume incentive. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.
8
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ii)
Management fees of medical practice: The Company receives management fees from the non-medical management services it provides to three clinics and two surgical centers operated by a related entity. The Company earns and records 50% of the fees the practice collects as management fees when collected per management service agreement. Revenue is recorded net of $100,000 of salary earned by the director during the six months ended March 31, 2017 and 2016 and is recorded net of $50,000 of salary earned by the director during the three months ended March 31, 2017 and 2016.
(iii)
Consulting services: Revenue is recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured.
Payments received before the relevant criteria for revenue recognition are satisfied are recorded as deferred revenue. Deferred revenue at March 31, 2017 and September 30, 2016 was $52,549 and $77,375, respectively.
Non-controlling Interest
Non-controlling interest represents 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.
Stock-Based Compensation
The Company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option and stock warrant grants to employees based on the authoritative guidance provided by the Financial Accounting Standards Board where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and stock warrant grants to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option or warrant grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
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, 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.
Reclassifications
Certain salary amounts paid to a related party during the three and six months ended March 31, 2016 have been reclassified from operating costs as an offset to revenue to conform to current period presentation.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements (Continued)
In February 2016, the FASB issued Accounting Standards Update (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 12 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 capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
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 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 2017 and September 30, 2016:
| | | | | | |
| | March 31, 2017 | | September 30, 2016 |
| | | | |
Vehicles | | $ | 15,000 | | $ | 15,000 |
Computer equipment | | | 9,058 | | | 9,058 |
Furniture and fixtures | | | 27,216 | | | 24,966 |
Medical equipment | | | 18,889 | | | 18,889 |
Software | | | 23,207 | | | 23,207 |
Leasehold improvements | | | 15,170 | | | 15,170 |
| | | 108,540 | | | 106,290 |
Less: accumulated depreciation and amortization | | | (95,871) | | | (90,469) |
Property and equipment, net | | $ | 12,669 | | $ | 15,821 |
| | | | | | |
Depreciation expense for the three months ended March 31, 2017 and 2016 was $2,701 and $8,359, respectively. Depreciation expense for the six months ended March 31, 2017 and 2016 was $5,402 and $10,649, respectively.
NOTE 4 – LOANS PAYABLE
Loans payable of $39,000 at March 31, 2017 and $9,000 at September 30, 2016 consist of two unsecured note agreements issued on May 14, 2014 and August 21, 2014 totaling to $9,000, and a short-term unsecured loan for $30,000 issued on March 27, 2017. The loans have no stated interest rate and are due on demand.
NOTE 5 – SHAREHOLDERS’ DEFICIT
Common shares issued for cash
During the six months ended March 31, 2017, the Company received $424,600 from several investors to purchase 4,037,500 shares of the Company’s common stock. In connection with the sale, the Company issued warrants to the shareholders to purchase 11,793,750 shares of the Company’s common stock. The warrants expire five years from the date of grant and have exercise prices ranging from $0.12 to $0.25 per share. The shares and warrants were issued in reliance upon registration exemptions available under federal and applicable state securities laws.
Common shares issued for services
During the six months ended March 31, 2017, the Company issued 100,000 shares of its common stock to a consultant. The fair value of the shares on the date of grant was $26,000. The shares vested upon grant and the fair value of the shares is included in Operating Expenses on the March 31, 2017 Statements of Operations.
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NOTE 5 – SHAREHOLDERS’ DEFICIT (CONTINUED)
Stock Options
On December 22, 2010, effective retroactively as of June 30, 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.
During the six months ended March 31, 2017, the Company issued options to purchase 125,000 shares of its common stock to an officer of the Company with exercise prices of $0.19 per share and $0.40 per share. The options vested immediately and expire five years from the date of grant. The Company valued the options using a Black-Scholes option-pricing model and recorded $22,538 and $33,388 of stock compensation for the value of the options during the three and six months ended March 31, 2017, respectively.
During the six months ended March 31, 2017, the Company issued options to purchase 300,000 shares of its common stock to a consultant of the Company with an exercise price of $0.26 per share. The options vested immediately and expire five years from the date of grant. The Company valued the options using a Black-Scholes option-pricing model and recorded $75,040 of stock compensation for the value of the options during the three and six months ended March 31, 2017.
During the six months ended March 31, 2017, the Company issued options to purchase 500,000 shares of its common stock to a consulting firm with an exercise price of $0.12 per share. All of the options vested on January 30, 2017. The Company valued the options using a Black-Scholes option-pricing model and recorded $27,300 and $54,600 of stock compensation for the value of the options during the three and six months ended March 31, 2017, respectively.
During the six months ended March 31, 2017, the Company issued options to purchase 50,000 shares of its common stock to a consulting firm with an exercise price of $0.16 per share. The options vested immediately and expire five years from the date of grant. The Company valued the options using a Black-Scholes option-pricing model and recorded $15,040 of stock compensation for the value of the options during the three and six months ended March 31, 2017.
The assumptions used for options granted during the six months ended March 31, 2017 are as follows:
| | | |
Exercise price | | $ | 0.12 - 0.40 |
Expected dividends | | | - |
Expected volatility | | | 146.5% - 152.3% |
Risk free interest rate | | | 0.96% - 1.15% |
Expected life of options | | | 2.5 |
The table below summarizes the Company’s stock option activities for the six months ended March 31, 2017:
| | | | | | | | | | | |
| Number of Option Shares | | Exercise Price Range Per Share | | Weighted Average Exercise Price | | Fair Value at Date of Grant |
| | | | | | | | | | | |
Balance, September 30, 2016 | | 5,227,500 | | $ | 0.01 - 2.00 | | $ | 0.60 | | $ | 1,539,269 |
Granted | | 975,000 | | | 0.12 - 0.40 | | | 0.19 | | | 173,768 |
Cancelled | | (55,000) | | | 0.01 - 0.09 | | | 0.02 | | | - |
Exercised | | - | | | - | | | - | | | - |
Expired | | - | | | - | | | - | | | - |
Balance, March 31, 2017 | | 6,147,500 | | $ | 0.10 – 2.00 | | $ | 0.54 | | $ | 1,713,037 |
Vested and exercisable, March 31, 2017 | | 6,147,500 | | $ | 0.10 – 2.00 | | $ | 0.54 | | $ | 1,713,037 |
| | | | | | | | | | | |
Unvested, March 31, 2017 | | - | | $ | - | | $ | - | | $ | - |
The aggregate intrinsic value for option shares outstanding at March 31, 2017 was $640,938.
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NOTE 5 – SHAREHOLDERS’ DEFICIT (CONTINUED)
Stock Options (continued)
The following table summarizes information concerning outstanding and exercisable options as of March 31, 2017:
| | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of Exercise Prices | | NumberOutstanding | | Average Remaining ContractualLife (in years) | | Weighted AverageExercise Price | | NumberExercisable | | Average Remaining ContractualLife (in years) | | Weighted AverageExercise Price |
| | | | | | | | | | | | |
$ | 0.10 - 0.39 | | 2,625,000 | | 3.72 | | $ | 0.16 | | 2,625,000 | | 3.72 | | $ | 0.16 |
0.40 - 0.99 | | 2,122,500 | | 2.05 | | 0.40 | | 2,122,000 | | 2.05 | | 0.40 |
1.00 - 1.99 | | 750,000 | | 3.75 | | 1.00 | | 750,000 | | 3.75 | | 1.00 |
2.00 | | 650,000 | | 3.75 | | 2.00 | | 650,000 | | 3.75 | | 2.00 |
$ | 0.01 - 2.00 | | 6,147,500 | | 3.15 | | $ | 0.54 | | 6,147,500 | | 3.15 | | $ | 0.54 |
As of March 31, 2017, there was no aggregate value of the unvested stock options, as all options had vested. As of March 31, 2017, there were 1,352,500 shares of stock options remaining available for issuance under the 2010 Plan.
Stock Warrants
During the six months ended March 31, 2017, the Company issued warrants to purchase 11,793,750 shares with exercise prices of $0.12 and $0.25 per share as part of the sale of equity units (see Note 5). The warrants expire five years from the date of grant. Also during the six months ended March 31, 2017, stock warrants were exercised to purchase 2,725,655 shares of the Company’s common stock. Proceeds from the exercises totaled to $428,015.
The table below summarizes the Company’s warrants activities for the six months ended March 31, 2017:
| | | | | | | | | | | | | | |
| | | Number of Warrant Shares | | Exercise Price Range | | Weighted Average Exercise Price | | Fair Value at Date of Issuance |
| | | | | |
| | | | | | | | | |
Balance, September 30, 2016 | | 54,938,158 | | $ | 0.01 -2.31 | | $ | 0.28 | | $ | 2,119,957 |
Granted | | 11,793,750 | | | 0.12 - 0.25 | | | 0.15 | | 1,791,600 |
Canceled | - | | | - | | | - | | | - |
Exercised | (2,725,655) | | | 0.12 – 0.25 | | | 0.15 | | | - |
Expired | (265,000) | | | 0.50 – 0.75 | | | 0.57 | | | - |
Balance, March 31, 2017 | 63,741,253 | | $ | 0.12 - 2.31 | | $ | 0.24 | | $ | 3,911,557 |
| | | | | | | | | | | |
Vested and exercisable, March 31, 2017 | 63,741,253 | | $ | 0.12 - 2.31 | | $ | 0.24 | | $ | 3,911,557 |
| | | | | | | | | | | |
Unvested, March 31, 2017 | - | | $ | - | | $ | - | | $ | - |
The aggregate intrinsic value for warrant shares outstanding at March 31, 2017 was $12,388,827.
The following table summarizes information concerning outstanding and exercisable warrants as ofMarch 31, 2017:
| | | | | | | | | | |
| | Warrants Outstanding and Exercisable |
Range of Exercise Prices | | Number Outstanding | | Average Remaining Contractual Life (in years) | | Weighted Average Exercise Price |
| | | | | | | | | |
$ | 0.01 – 0.20 | | | 45,349,568 | | | 3.49 | | $ | 0.15 |
0.21 – 0.49 | | | 13,737,174 | | | 2.03 | | | 0.34 |
0.50 – 1.00 | | | 4,499,738 | | | 1.46 | | | 0.75 |
1.01 – 2.31 | | | 154,773 | | | 0.15 | | | 2.23 |
| | | | | | | | | |
$ | 0.01 – 2.31 | | | 63,741,253 | | | 3.03 | | $ | 0.24 |
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NOTE 6 – RELATED PARTY TRANSACTIONS
Advances from Shareholders
From time to time, shareholders of the Company advance funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand. At March 31, 2017 and September 30, 2016, advances from shareholders were $48,545 and $50,545, respectively.
Management service agreement between NPC and National Pain Centers, LLC
NPC was incorporated under the laws of the state of Nevada on January 24, 2014. It is an Illinois-based management services provider. It was acquired by the Company on February 28, 2014 and is operated as a wholly-owned subsidiary of the Company.NPC manages non-medical services in three clinics and two surgical centers in the Chicago-land area that provide diagnostic, surgical, treatment, research, advocacy, education, and setting standards and protocols within the interventional and multi-modal pain management, pursuant to a management service agreement dated as of February 28, 2014, by and between NPC and National Pain Centers, LLC ("NPC LLC"), which is owned by Dr. Jay Joshi, the president and CEO of NPC. Under the management agreement, NPC LLC engages NPC to provide management services for a term period of five years commencing on the effective date. During the term of this agreement, NPC LLC shall pay NPC the equivalent of 50% of all monies collected and as billed monthly to NPC LLC on net-30 term.
NPC is managed by its founder and CEO Dr. Jay Joshi, MD, DABA, DABAPM, FABAPM. Dr. Joshi also serves as the Company’s Chief Medical Officer (“CMO”) and as a member of its Board of Directors.
Management service revenue related to the collections was $40,000 and $51,843 for the three months ended March 31, 2017 and 2016, respectively. These amounts are net of salaries of $50,000 earned by Dr. Joshi during the three months ended March 31, 2017 and 2016, which have been offset to revenue earned from NPC LLC for financial statement purposes. Management service revenue related to the collections was $77,402 and $113,545 for the six months ended March 31, 2017 and 2016, respectively. These amounts are net of salaries of $100,000 earned by Dr. Joshi during the six months ended March 31, 2017 and 2016, which have been offset to revenue earned from NPC LLC for financial statement purposes.
Phototherapy Device Sales
During the three months ended March 31, 2016, the Company’s 50% owned subsidiary, PDC, sold one of its Ultra Violet ("UV") phototherapy devices (PL-1000) to NPC LLC for $54,117.
NOTE 7 – SEGMENT REPORTING
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 following business segments:
(i)
Medical Devices: which it stems from PSI, its wholly-owned subsidiary it acquired on August 24, 2012, a developer, manufacturer, marketer and distributer of targeted Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases.
(ii)
Management of Client Services: which it stems from NPC, its wholly-owned subsidiary it acquired on February 28, 2014. NPC engages in management of top-tier medical practices in the interventional and multi-modal pain management sector.
(iii)
Authentication and Encryption Products and Services: which it stems from StealthCo, its wholly-owned subsidiary formed on March 18, 2014. StealthCo engages in the business of selling, licensing or otherwise providing certain authentication and encryption products and services upon acquisition of certain assets from SMI.
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The detailed segment information of the Company is as follows:
| | | | | | | | | | | | | | |
Wellness Center USA, Inc. |
Assets By Segments |
| | | | | | | | | | | | | | |
| March 31, 2017 |
| Corporate | | Medical Devices | |
Mgmt of Medical Practice | | Authentication and Encryption | | Total |
| | | | |
ASSETS | | | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | | | |
Cash | $ | 215,009 | | $ | $34,381 | | $ | 19,698 | | $ | 27,912 | | $ | 297,000 |
Accounts receivable | | - | | | 70,000 | | | - | | | - | | | 70,000 |
Inventories | | - | | | - | | | - | | | 12,382 | | | 12,382 |
Prepaid expenses and other current assets | | - | | | - | | | 2,700 | | | 2,021 | | | 4,721 |
| | | | | | | | | | | | | | |
Total current assets | | 215,009 | | | 104,381 | | | 22,398 | | | 42,315 | | | 384,103 |
| | | | | | | | | | | | | | |
Property and equipment, net | | 3,115 | | | 3,530 | | | 3,218 | | | 2,806 | | | 12,669 |
Other assets | | 15,000 | | | 1,760 | | | - | | | - | | | 16,760 |
| | | | | | | | | | | | | | |
Total other assets | | 18,115 | | | 5,290 | | | 3,218 | | | 2,806 | | | 29,429 |
| | | | | | | | | | | | | | |
TOTAL ASSETS | $ | 233,124 | | $ | $109,671 | | $ | 25,616 | | $ | 45,121 | | $ | 413,532 |
| | | | | | | | | | | | | | | | |
Wellness Center USA, Inc. |
Operations by Segments |
| | | | | | | | | | | | | | | | |
| | | For the Six Months Ended |
| | | March 31, 2017 |
| | | Corporate | | Medical Devices | |
Mgmt of Medical Practice | | Authentication and Encryption | | Total |
Sales: | | | | | | | | | | | | | | |
| Trade | $ | - | | $ | 196,000 | | $ | - | | $ | 13,100 | | $ | 209,100 |
| Consulting services | | - | | | - | | | - | | | 28,250 | | | 28,250 |
| Management services to related party | | - | | | - | | | 77,402 | | | - | | | 77,402 |
| | | | | | | | | | | | | | | | |
Total Sales | | - | | | 196,000 | | | 77,402 | | | 41,350 | | | 314,752 |
| | | | | | | | | | | | | | | | |
Cost of goods sold | | - | | | 75,117 | | | - | | | 38,790 | | | 113,907 |
| | | | | | | | | | | | | | | | |
Gross profit | | - | | | 120,883 | | | 77,402 | | | 2,560 | | | 200,845 |
| | | | | | | | | | | | | | | | |
Operating expenses | | 568,610 | | | 157,039 | | | 148,325 | | | 300,538 | | | 1,174,512 |
| | | | | | | | | | | | | | | | |
Loss from operations | $ | (568,610) | | $ | (36,156) | | $ | (70,923) | | $ | (297,978) | | $ | (973,667) |
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NOTE 8 – LEGAL SETTLEMENT
In March 2017, the Company entered into a Final Settlement Agreement with certain former owners of PSI and relating to certain agreements executed by them prior to the 2012 share exchange with the Company. Under the agreement, the Company released the former owners, and the former owners released the Company, PSI and the Company’s CEO, from any and all claims and liabilities claimed by or owed to each of the others, including a debt of $253,194 the Company owed to two of the former owners as of March 31, 2017. This amount is recorded as Other Income on the March 31, 2017 Statements of Operations. The Company also received 250,000 shares of its common stock from the former owners as part of the settlement. The shares were then cancelled by the Company and are not included in outstanding shares as of March 31, 2017.
NOTE 9 – SUBSEQUENT EVENTS
Subsequent to March 31, 2017, the Company received $460,000 from the sale of 1,800,000 shares of its common stock to three investors. In connection with the sale, the Company issued warrants to the shareholders to purchase 2,000,000 shares of the Company’s common stock. The warrants expire five years from the date of grant and have an exercise price of $0.40 per share. Also subsequent to March 31, 2017, stock warrants were exercised to purchase 357,143 shares of the Company’s common stock. Proceeds from the exercise were $53,571. The shares and warrants were issued in reliance upon registration exemptions available under federal and applicable state securities laws.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Except for historical information, the following discussion 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 “Description of Business,” and “Analysis of Financial Condition and Results of Operations”, 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” in our Annual Report on Form 10-K and in other Reports we have filed with the Securities and Exchange Commission, as well as 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.
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. 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.
Description of Business
Background
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. Later, the Company expanded into additional businesses within the healthcare and medical sectors through acquisitions, including PsoriaShield Inc. (“PSI”), National Pain Centers, Inc. (“NPC”), 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; (ii) management of toptier medical practices in the interventional and multimodal pain management sector; and (iii) authentication and encryption products and services. The segments are operated, respectively, through PSI, NPC and SCI.
PSI
PSI was incorporated under the laws of the state of Florida on June 17, 2009. On August 24, 2012, we acquired all of the issued and outstanding shares of stock in PSI. PSI is a whollyowned subsidiary of the Company and operated by Psoria Development Company LLC, an Illinois limited liability company (“PDC”), a joint venture between WCUI/PSI and The Medical Alliance, Inc., a Florida corporation (“TMA”).
PSI designs, develops and markets a targeted ultraviolet (“UV”) phototherapy device called the PsoriaLight. The PsoriaLight 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 chemotherapylike 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.
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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.
NPC
NPC was incorporated under the laws of the state of Nevada on January 24, 2014. It is an Illinois-based management services provider. It was acquired by the Company on February 28, 2014 and is operated as a wholly-owned subsidiary of the Company.
NPC manages non-medical services in three clinics and two surgical centers in the Chicago-land area that provide diagnostic, surgical, treatment, research, advocacy, education, and setting standards and protocols within the interventional and multi-modal pain management, pursuant to a management service agreement dated as of February 28, 2014, by and between NPC and National Pain Centers, LLC ("NPC LLC"), which is owned by Dr. Jay Joshi, the president and CEO of NPC. Under the management agreement, NPC LLC engages NPC to provide management services for a term period of five (5) years commencing on the effective date. During the term of this agreement, NPCLLC shall pay NPC the equivalent of 50% of all monies collected and as billed monthly to NPCLLC on net-30 term.
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NPC is managed by its founder and CEO Dr. Jay Joshi, MD, DABA, DABAPM, FABAPM. Dr. Joshi also serves as the Company’s Chief Medical Officer (“CMO”) and as a member of its Board of Directors. Dr. Joshi is a nationally recognized double board certified Anesthesiologist and fellowship trained Interventional Spine and Pain Management physician whose capabilities combine clinical medicine, research, creativity, marketing, inventions, and business development. He is considered a National Key Opinion Leader in pain management. He has presented to a variety of audiences over 500 times, and has worked internationally at the World Health Organization (WHO).
SCI
SCI was incorporated under the laws of the state of Illinois on March 18, 2014. It is a Tennessee-based provider of Stealth Mark encryption and authentication solutions offering advanced product security technologies within the security and supply chain management vertical sectors. SCI acquired certain Stealth Mark assets on April 4, 2014 and operates as a wholly-owned subsidiary of the Company.
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 enables 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 use of intelligent micro particles that are unduplicatable and undetectable to the human eye. These taggants are created with a proprietary material that creates a unique numerical code that is assigned meaning by the client and is 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.
SCI is managed by its CEO, Ricky Howard. Mr. Howard has 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 joined Stealth Mark as V.P. of Operations at the early stage of development in 2006 and 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.
Management
Presently, all business functions of the Company are managed by our CEO/director and founder, Andrew J. Kandalepas. He is responsible for developing and planning our business units, including product development, organizational structure, financing and administrational functions. His services shall be utilized until the Company is financially capable to engage additional staffing.
On January 12, 2015, the Company entered into the PDC Joint Venture Agreement with TMA to further develop, market, license and/or sell PSI technology and products. Mr. Kandalepas manages PSI activities with John Yorke of TMA. Mr. Yorke started his career with Abbott Labs as an FDA specialist and then joined Kendall as a product manager for OR and CV products. He formed and operated Cardiomax, a $45M medical products distributorship. In 1991, he formed TFGI to assist start-up and small-cap companies to develop business plans, source funding and secure strategic partners. TFGI clients included PMG (Pennsylvania Merchant Group), J&J Development Company, Zures Medical Group, SCA Capital Partners, Forest Health Group and Hillman Medical. In 2013, TFGI merged with The ComedIT Group and Ocean Medical to form TMA.
Jay Joshi, M.D., DABA, DABAPM, FABAPM manages NPC’s business. Dr. Joshi is a nationally recognized double board certified Anesthesiologist and fellowship trained Interventional Spine and Pain Management physician whose capabilities combine clinical medicine, research, creativity, marketing, inventions, and business development. He is considered a National Key Opinion Leader in pain management. He has presented to a variety of audiences over 500 times, and has worked internationally at the World Health Organization (WHO). Although we have an Employment Agreement with Dr. Joshi, we cannot guarantee that he will remain affiliated with us.
Mr. Ricky Howard manages SCI’s business. Mr. Howard has 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 joined Stealth Mark as V.P. of Operations at the early stage of development in 2006 and 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. Although we have an Employment Agreement with Mr. Howard, we cannot guarantee that he will remain affiliated with us.
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Analysis of Financial Condition and Results of Operations
Results of Operations for the three months ended March 31, 2017 compared to the three months ended March 31, 2016.
Revenue and Cost of Goods Sold
Revenue for the three months ended March 31, 2017 and 2016 was $174,225 and $174,747, respectively, a decrease of $522. PSI’s revenues increased $1,596, from $110,404 in fiscal 2016 to $112,000 in fiscal 2017. NPC’s revenues decreased $11,843, from $51,843 in fiscal 2016 to $40,000 in fiscal 2017, while SCI’s revenues increased $9,725, from $12,500 in fiscal 2016 to $22,225 in fiscal 2017.
Cost of sales for the three months ended March 31, 2017 and 2016, was $53,407 and $39,641, respectively. Gross profit for the three months ended March 31, 2017 and 2016, was $120,818 and $135,106, respectively. The gross profit decrease of $14,288 was primarily due to lower sales prices on PSI’s PsoriaLight devices during fiscal 2017, as compared to the same period in 2016.
Operating Expenses
Operating expenses for the three months ended March 31, 2017 and 2016 was $678,985 and $671,393, respectively. The increase in operating expenses of $7,592 was due primarily to the increase in consulting and stock compensation costs during fiscal 2017, offset by a decrease in patent expenses and the write-off of a note receivable from an officer written-off as compensation expense in fiscal 2016.
Other Income (Expense)
During the three months ended March 31, 2017, the Company recognized $288,777 of other income relating to the final settlement agreement with the former owners of PSI and other vendors. During the three months ended March 31, 2016, the Company recognized a $146,301 loss relating to the loss on conversion of loans payable to equity.
Net Loss
The net loss for the three months ended March 31, 2017 was $269,390, compared to a net loss of $682,588 for the three months ended March 31, 2016. The decrease in the net loss of $413,198 in fiscal 2017 was primarily due to other income of $288,777 in fiscal 2017, compared to the $146,301 loss relating to the loss on conversion of loans payable to equity in fiscal 2016.
Results of Operations for the six months ended March 31, 2017 compared to the six months ended March 31, 2016.
Revenue and Cost of Goods Sold
Revenue for the six months ended March 31, 2017 and 2016 was $314,752 and $251,173, respectively, an increase of $63,579 in fiscal 2017. PSI’s revenues increased $83,372, from $112,628 in fiscal 2016 to $196,000 in fiscal 2017. NPC’s revenues decreased $36,143, from $113,545 in fiscal 2016 to $77,402 in fiscal 2017, while SCI’s revenues increased $16,350, from $25,000 in fiscal 2016 to $41,350 in fiscal 2017.
Cost of sales for the six months ended March 31, 2017 and 2016, was $113,907 and $42,128, respectively. Gross profit for the six months ended March 31, 2017 and 2016, was $200,845 and $209,045, respectively. The gross profit decrease of $8,200 was primarily due to lower sales prices on PSI’s PsoriaLight devices during fiscal 2017, as compared to fiscal 2016, and also lower revenues at NPC.
Operating Expenses
Operating expenses for the six months ended March 31, 2017 and 2016 was $1,174,512 and $1,322,439, respectively. The decrease in operating expenses of $147,927 was due primarily to the reduction of patent expenses and the write-off of a note receivable from officer written-off as compensation expense in fiscal 2016, offset by higher consulting and stock compensation costs in fiscal 2017.
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Other Income (Expense)
During the six months ended March 31, 2017, the Company recognized $288,777 of other income relating to the final settlement agreement with the former owners of PSI and other vendors. During the six months ended March 31, 2016, the Company recognized a $146,301 loss relating to the loss on conversion of loans payable to equity. Other income during the six months ended March 31, 2016 was $2,913 and related to interest income from a related party.
Net Loss
Our net loss for the six months ended March 31, 2017 was $684,890, compared to a net loss of $1,256,782 for the six months ended March 31, 2016. The decrease in the net loss of $571,892 in fiscal 2017 was due to other income of $288,777 in 2017, compared to the $146,301 loss relating to the loss on conversion of loans payable to equity in 2016. It was also due to the decrease in operating expenses of $147,927 in fiscal 2017.
Results of Operations by Segment
The Company maintained three (3) business segments through the end of the period covered by this Report:
(i)
Medical Devices: which it provided through 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;
(ii) Practice Management Services:which it provided through NPC, its wholly-owned subsidiary acquired on February 28, 2014, which manages non-medical services in three clinics and two surgical centers in the Chicago-land area; and
(iii)
Authentication and Encryption Products and Services: which it provided through SCI, its wholly-owned subsidiary that on April 4, 2014 acquired certain assets of SMI Holdings, Inc. d/b/a Stealth Mark, Inc., including Stealth Mark tradenames and marks, and related encryption and authentication solutions offering advanced product security technologies within the security and supply chain management vertical sectors.
The detailed segment information of the Company for the six months ended March 31, 2017 and 2016 is as follows:
| | | | | | | | | | | | | | | | |
Wellness Center USA, Inc. |
Operations by Segments |
| | | | | | | | | | | | | | | | |
| | | For the Six Months Ended |
| | | March 31, 2017 |
| | | Corporate | | Medical Devices | |
Mgmt of Medical Practice | | Authentication and Encryption | | Total |
Sales: | | | | | | | | | | | | | | |
| Trade | $ | - | | $ | 196,000 | | $ | - | | $ | 13,100 | | $ | 209,100 |
| Consulting services | | - | | | - | | | - | | | 28,250 | | | 28,250 |
| Management services to related party | | - | | | - | | | 77,402 | | | - | | | 77,402 |
| | | | | | | | | | | | | | | | |
Total Sales | | - | | | 196,000 | | | 77,402 | | | 41,350 | | | 314,752 |
| | | | | | | | | | | | | | | | |
Cost of goods sold | | - | | | 75,117 | | | - | | | 38,790 | | | 113,907 |
| | | | | | | | | | | | | | | | |
Gross profit | | - | | | 120,883 | | | 77,402 | | | 2,560 | | | 200,845 |
| | | | | | | | | | | | | | | | |
Operating expenses | | 568,610 | | | 157,039 | | | 148,325 | | | 300,538 | | | 1,174,512 |
| | | | | | | | | | | | | | | | |
Loss from operations | $ | (568,610) | | $ | (36,156) | | $ | (70,923) | | $ | (297,978) | | $ | (973,667) |
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Revenue for the Medical Devices segment for the six months ended March 31, 2017 and 2016 was $196,000 and $112,628, respectively. The increase in revenues of $83,372 was due to the increased number of sales of PsoriaLight devices. Cost of sales for the six months ended March 31, 2017 and 2016 was $75,117 and $41,220, respectively. Gross profit for the six months ended March 31, 2017 and 2016 was $120,883 and $71,408, respectively. The increase in gross profit of $49,475 in fiscal 2017 was due primarily to the increase in sales. Operating expenses for the six months ended March 31, 2017 and 2016 was $157,039 and $210,705, respectively. The decrease in operating expenses of $53,666 in fiscal 2017 was due primarily to the reduction in professional fees. The loss from operations for the six months ended March 31, 2017 and 2016 was $36,156 and $139,297, respectively.
Revenue for the Practice Management Services segment for the six months ended March 31, 2017 and 2016 was $77,402 and $113,545, respectively. The decrease of $36,143 was due to the decrease in management fees received during fiscal 2017. Operating expenses for the six months ended March 31, 2017 and 2016 was $148,325 and $105,457, respectively. The increase in operating expenses of $42,868 in fiscal 2017 was due primarily to the increase in salaries and third party billing services. The loss from operations for the six months ended March 31, 2017 was $70,923 and the income from operations for the six months ended March 31, 2016 was $8,088.
Revenue for the Authentication and Encryption segment for the six months ended March 31, 2017 and 2016 was $41,350 and $25,000, respectively. The increase of $16,350 was primarily due to the increase in consulting services during fiscal 2017. Cost of goods sold for the six months ended March 31, 2017 and 2016 was $38,790 and $908, respectively, and the gross profit was $2,560 and $24,092, respectively. The gross profit decrease in fiscal 2017 was primarily due to the very low cost of goods sold for the first six months of fiscal 2016. Operating expenses for the six months ended March 31, 2017 and 2016 was $300,538 and $167,810, respectively. The increase in operating expenses of $132,728 in fiscal 2017 was due primarily to the increase in stock compensation costs and consulting expenses. The loss from operations for the six months ended March 31, 2017 and 2016 was $297,978 and $143,718, respectively.
The Corporate segment primarily provides executive management services for the Company. Operating expenses for the six months ended March 31, 2017 and 2016 was $568,610 and $838,467, respectively. The decrease in operating expenses of $269,857 in fiscal 2017 was due primarily to the decrease in professional and consulting fees and stock compensation costs in fiscal 2017 and the write-off of a note receivable from an officer written-off as compensation expenses in fiscal 2016. The loss from operations for the six months ended March 31, 2017 and 2016 was $568,610 and $838,467, respectively.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate adequate amounts of cash to meet its cash needs.
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 six months ended March 31, 2017, the Company incurred a net loss of $684,890 and used cash in operations of $670,614, and had a shareholders’ deficit of $382,907 as of March 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. 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.
As of March 31, 2017, our cash balance was $297,000. Our current cash on hand is not sufficient to maintain our daily operations for the next 12 months unless the Company is able to generate positive cash flows from operating activities. If needed, management intends to raise additional capital through equity financing to fund our daily operations through next 12 months and during the six months ended March 31, 2017, received $424,600 through the sale of its common stock and $428,015 from the exercise of stock warrants. Subsequent to March 31, 2017, the Company received $460,000 from the sale of its common stock and $53,571 from the exercise of stock warrants. However no assurance can be given that we will be successful in raising sufficient capital through debt or equity financing, or that we will be able to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed during next 12 months. Any failure to secure sufficient debt or equity financing may force the Company to modify its business plan. In addition, we have incurred recurring losses from inception and such losses are expected to continue for the foreseeable future and until such time, if ever, as the Company is able to attain sales levels sufficient to support its operations.
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.
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The Company’s independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended September 30, 2016, has expressed substantial doubt about the Company’s ability to continue as a going concern.
Comparison of six months for the years ended March 31, 2017 and 2016
As of March 31, 2017, we had $297,000 in cash, negative working capital of $412,336 and an accumulated deficit of $18,225,619.
As of March 31, 2016, we had $200,948 in cash, negative working capital of $485,843 and an accumulated deficit of $15,748,659.
Cash flows used in operating activities
During the six months ended March 31, 2017, the Company used cash flows in operating activities of $670,614 compared to $647,491 used in the six months ended March 31, 2016. During the six months ended March 31, 2017, the Company incurred a net loss of $684,890 with $79,307 of negative non-cash expenses compared to a net loss of $1,256,782 and $558,521 of non-cash expenses during the six months ended March 31, 2016.
Cash flows used in investing activities
During the six months ended March 31, 2017, we had purchases of property and equipment of $2,250. During the six months ended March 31, 2016, we had purchases of property and equipment of $520.
Cash flows provided by financing activities
During the six months ended March 31, 2017, we had proceeds from loans payable of $30,000, from the sale of common stock and warrants of $424,600 and from the exercise of stock warrants of $428,015. We used cash to repay advances from a related party of $2,000. During the six months ended March 31, 2016, we had proceeds from notes payable of $82,300, from the sale of common stock of $655,701, from common stock issuable of $75,000 and from the exercise of stock warrants of $5,000. We used cash to repay advances from related parties of $3,269.
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.
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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:
