Attached files

file filename
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - Wellness Center USA, Inc.f10k093012_ex31z1.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - Wellness Center USA, Inc.f10k093012_ex32z1.htm

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, 2012


      .

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.)


1014 E Algonquin Rd, Ste. 111, Schaumburg, IL, 60173

(Address of Principal Executive Offices)


(847) 925-1885

(Issuer Telephone number)


Not Applicable

(Former name or former address, if changed since last report)


Copies of communication to:


Ronald P. Duplack, Esq.

Rieck and Crotty, P.C.

55 West Monroe Street, Suite 3625, Chicago, IL 60603

Telephone (312) 726-4646 Fax (312) 726-0647


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.    X .

  

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 the last business day of the registrant's most recently completed second fiscal quarter ended March 31, 2012: $17,070,900.


As of January 11, 2013, the registrant had 30,978,237 shares of its common stock issued and outstanding.


Documents Incorporated by Reference: None.




2




TABLE OF CONTENTS


 

 

PAGE

PART I

 

 

ITEM 1.

Business

4

ITEM 1A.

Risk Factors

5

ITEM 2.

Properties

22

ITEM 3.

Legal Proceedings

22

ITEM 4.

Mine Safety Disclosures

22

 

 

 

PART II

 

 

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

23

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

33

ITEM7A.

Quantitative and Qualitative Disclosures About Market Risk

48

ITEM 8.

Financial Statements and Supplementary Data

48

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

48

ITEM 9A.

Controls and Procedures

48

 

 

 

PART III

 

 

ITEM 10.

Directors, Executive Officers and Corporate Governance

51

ITEM 11.

Executive Compensation

56

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

58

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

59

ITEM 14.

Principal Accounting Fees and Services

60

 

 

 

PART IV

 

 

ITEM 15.

Exhibits, Financial Statement Schedules

61

 

 

 

SIGNATURES

62



3



PART I

 

ITEM 1.

BUSINESS


Background.


Wellness Center USA, Inc. (the “Company”) was incorporated in the State of Nevada on June 30, 2010.  Since that date, we have been engaged in the development of an internet online store business to market customized vitamins and other nutritional supplement solutions and have expanded into additional businesses within the healthcare and medical sectors through two acquisitions, CNS-Wellness LLC, and Psoria-Shield Inc. Our online store business “aminofactory.com” is a web based online store designed to market nutritional supplements to the sports industry and health minded public. CNS-Wellness is a cognitive neuroscience company specializing in the treatment of brain-based behavioral health disorders including developmental, emotional and stress-related problems. Psoria-Shield is a developer and manufacturer of Ultra Violet (UV) phototherapy devices for the treatment of skin diseases such as; psoriasis, eczema, vitiligo, and others.


Aminofactory.com


Our intended products will be sold through our registered website www.aminofactory.com, presently under final development. Our planned product line shall consist of Amino acid and other nutritional supplements and our target market will be the sports industry and the general health minded public. Once our website is fully developed, our product portfolio shall be expanded to include a wider range of supplements, including customized formulas uniquely tailored to suite an individual’s needs. A customer logging into our www.aminofactory.com website will be able to select an Amino acid supplement and/or nutritious formula combination suitable to his/her needs. Once a suitable supplement solution has been chosen by the client, the order shall be automatically placed for processing in our supplier’s factory. Product will be shipped directly by our supplier to the client, within seven business days.


Our supplements will be produced by unaffiliated third party manufactures and/or product fulfillment suppliers, specializing in Amino nutritional supplement production. We have currently established a non-binding and non-exclusive Value Added (VAD) relationship with one such producer and product fulfillment provider, the New Jersey based Protein Factory, to support our initial offering. Supplements produced for us can be also provided to our competitors by Protein Factory or perhaps other manufacturers. However, as a VAD of Protein Factory, we are able to specifically select our product portfolio and market it through our website with our custom packaging and pricing; under the Protein Factory or our own amino factory label. Following successful conclusion of our website development, we will have the opportunity to execute a binding VAD agreement with Protein Factory.


The CNS Share Exchange.   


On May 30, 2012, we entered into an 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, we consummated the CNS share exchange 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 common stock in the Company pursuant to the CNS Exchange Agreement.  CNS is now operated as a wholly-owned subsidiary of the Company.


Description of CNS.


CNS was organized in the State of Florida on May 26, 2009. CNS provides alternative, scientific approaches to mental health and wellness. It assesses dis-regulations in brain function via EEG-based brain mapping along with other recognized behavioral health assessment tools, such as neuropsychological examinations. Its trained therapists then assist the client to restore brain function to within normative limits using leading–edge modalities, such as LENS, Neurofield EMS therapy, traditional neurofeedback, hemoencephalography, transcranial direct current stimulation, cranial alternating current stimulation, photonic stimulation and heart variability training. The client is periodically assessed throughout and following completion of the treatment program. This enables the clinical team to form treatment protocols as well as demonstrate the effectiveness of the treatment through a comparison of pre-vs. post-treatment assessments.


CNS treatment modalities, when combined in specific manners that are proprietary to CNS, contribute to restoring the brain’s ability to regulate itself within normative limits. CNS methods are noninvasive and safe, and achieve their goals without the use of prescription pharmaceuticals. This technology helps the client to overcome difficulties with mental health and/or developmental barriers to successful daily functioning, and thereby to experience a higher quality of life.


CNS services appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues.  CNS has serviced approximately 485 clients since commencement of operations in 2009.  There can be no assurance that the experience to date is indicative of results that might be expected from an expanded sample or base.



4




The PSI Share Exchange.   


On June 21, 2012, we entered into an Exchange Agreement to acquire all of the issued and outstanding shares of 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.


On August 24, 2012, we consummated the PSI 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 common stock in the Company pursuant to the PSI Exchange Agreement.  PSI is now operated as a wholly-owned subsidiary of the Company.


Description of PSI.


PSI was incorporated under the laws of the State of Florida on June 17, 2009.  It is a medical device design and manufacturing company.  It 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.   PSI intends to enter into agreements with third parties, in the United States and internationally, for the manufacture of component parts that make up the Psoria-Light and to license its proprietary technology to third parties domestically and in selected foreign markets.  


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.   PSI submitted a 510(k) application with the FDA for marketing clearance of the device in the United States (application number K103540).   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 also developed an ISO 13485 compliant quality system for the Psoria-Light which was audited in the fourth 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.  


Psoria-Light treatment appears to have been beneficial to clients, without demonstrable harmful side effects or safety issues,  and PSI has serviced approximately 100 clients since PSI started to sell the device in January 2012.  There can be no assurance that the experience to date is indicative of results that might be expected from an expanded sample or base.


ITEM 1A.

RISK FACTORS


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.


Risks Relating To Our Business and Financial Condition.


WE ONLY COMMENCED OPERATIONS UPON ACQUISITIONS OF CNS AND PSI IN AUGUST WITH LIMITED OPERATING HISTORY, AND AN INVESTMENT IN US IS CONSIDERED A HIGH RISK INVESTMENT WHEREBY YOU COULD LOSE YOUR ENTIRE INVESTMENT.


The Company commenced operations in August 2012 upon acquisitions of CNS and PSI with limited operating history. The Company is currently operating at a loss, and there is no assurance that the Company will ever be able to operate profitably. If we cannot operate profitably, you could lose your entire investment. We may not generate sufficient revenues in the next twelve months to support our operations and therefore may operate solely on the cash we raise from investments.


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 just begun operations in August 2012, had an accumulated deficit at September 30, 2012, a net loss and net cash used in operating activities for the fiscal year then ended, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.



5




While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations.  Management intends to raise additional funds by way of a public or private offering.  Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern.  While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.


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 stockholders.


WE DO NOT HAVE A MAJORITY OF DIRECTORS BEING INDEPENDENT DIRECTORS LIMITS OUR ABILITY TO ESTABLISH EFFECTIVE INDEPENDENT CORPORATE GOVERNANCE PROCEDURES AND INCREASES THE CONTROL OF MANAGEMENT.   


The Company has six directors with two (2) of whom are independent; accordingly, we cannot establish board committees with independent members to oversee certain functions such as compensation or audit issues. Until we have majority of our board of directors being independent members, if ever, there will be limited oversight of our management’s decisions and activities and little ability of stockholders to challenge or reverse those activities and decisions, even if they are not in the best interests of stockholders.


IN THE FUTURE WE MAY INCUR PRODUCT LIABILITY CLAIMS, WHICH COULD INCREASE OUR COSTS AND/OR ADVERSELY AFFECT OUR BUSINESS, REPUTATION, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.


Currently we are a development stage company and have no products requiring liability insurance. However, in the future we intend to obtain insurance coverage because if we become a retailer, formulator and/or manufacturer of products designed for human consumption, we will be subject to product liability claims if the use of our products, whether manufactured by us or by our third-party manufacturer, were to be alleged to have resulted in illness or injury or if our products were to include inadequate instructions or warnings. Our products will consist of vitamins, minerals, herbs and other ingredients that are classified as foods or dietary supplements and generally are not subject to pre-market regulatory approval or clearance in the U.S. by the U.S. Food and Drug Administration (FDA) or other governmental authorities. Our products could contain spoiled or contaminated substances, and some of our products contain ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. In addition, some of our products may be produced by third-party manufacturers. If we were a distributor of products manufactured by third parties, we may also be liable for various product liability claims for products that we do not manufacture. We could be subject to product liability claims, including among others, that our products include insufficient instructions for use or inadequate warnings concerning possible side effects or interactions with other substances. Any product liability claim against us could result in increased costs and, therefore, adversely affect our reputation with our customers, which in turn could adversely affect our business, financial condition or results of operations.


UNFAVORABLE PUBLICITY OR CONSUMER ACCEPTANCE OF OUR PRODUCTS OR OF NUTRITIONAL SUPPLEMENTS GENERALLY COULD REDUCE OUR SALES.


We will be highly dependent upon consumer acceptance of the safety, efficacy and quality of our products, as well as similar products distributed by other companies. Consumer acceptance of products can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. In addition, recent studies have challenged the safety or benefit of certain nutritional supplements and dietary ingredients. Future scientific research or publicity could be unfavorable to our industry or any of our particular products 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 of our products or any other similar products with illness or other adverse effects, or that questions the benefits of our or similar products, or that claims that such products are ineffective could have a material adverse effect on our business, reputation, financial condition or results of operations.




6




IF WE LOSE OR ARE UNABLE TO OBTAIN KEY PERSONNEL, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.


Our success depends to a significant degree upon the continued contributions of our executive officers, Andrew J. Kandalepas, William A. Lambos, Peter A. Hannouche and Scot L. Johnson. Although we have employment agreements with Mr. Lambos, Mr. Hannouche and Mr. Johnson, we cannot guarantee that any of them 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.

AN UNEXPECTED INTERRUPTION OR SHORTAGE IN THE SUPPLY OR SIGNIFICANT INCREASE IN THE COST OF RAW MATERIALS COULD LIMIT OUR ABILITY TO MANUFACTURE OUR PRODUCTS, WHICH COULD REDUCE OUR SALES AND MARGINS.


To the extent we engage in relationships with contract manufacturers in the future, an unexpected interruption of supply or a significant increase in the cost of raw materials, whether to us or to our contract manufacturers for any reason, such as regulatory requirements, import restrictions, loss of certifications, disruption of distribution channels as a result of weather, terrorism or acts of war, or other events, could result in significant cost increases and/or shortages of our products. Our inability to obtain a sufficient amount of products or to pass through higher cost of products we offer could have a material adverse effect on our business, financial condition or results of operations.


IF WE EXPERIENCE PRODUCT RECALLS, WE MAY INCUR SIGNIFICANT AND UNEXPECTED COSTS AND DAMAGE TO OUR REPUTATION AND, THEREFORE, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.


To the extent we engage in product sales in the future, we may be subject to product recalls, withdrawals or seizures if any of the products we formulate, manufacture or sell are believed to cause injury or illness or if we are alleged to have violated governmental regulations in the manufacture, labeling, promotion, sale or distribution of our products. A recall, withdrawal or seizure of any of our products could materially and adversely affect consumer confidence in our brands and lead to decreased demand for our products. In addition, a recall, withdrawal or seizure of any of our products would require significant management attention, would likely result in substantial and unexpected expenditures and could materially and adversely affect our business, 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 MANUFACTURE OUR PRODUCTS.


The processing, formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by several U.S. federal agencies, including the FDA, the Federal Trade Commission, or FTC, the Postal Service, the Consumer Product Safety Commission, the Department of Agriculture and the Environmental Protection Agency, as well as various state, local and international laws and agencies of the localities in which our products are sold. Government regulations may prevent or delay the introduction or require the reformulation of our products.


The FDA regulates, among other things, the manufacture, composition, safety, labeling, marketing and distribution of dietary supplements (including vitamins, minerals, herbs, and other dietary ingredients for human use). The FDA may not accept the evidence of safety we present for new dietary supplements we wish to market, or they may determine that a particular dietary supplement or ingredient that we currently market presents an unacceptable health risk. If that occurs, we could be required to cease distribution of and/or recall supplements or products containing that ingredient.


The FDA 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 an unacceptable drug claim or an unauthorized version of a food or dietary supplement “health claim.” Failure to comply with FDA or other regulatory requirements could prevent us from marketing particular dietary supplement products or subject us to administrative, civil or criminal penalties.



7




The FTC exercises jurisdiction over the advertising of dietary supplements and has instituted numerous enforcement actions against dietary supplement companies for failing to have adequate substantiation for claims made in advertising or for using false or misleading advertising claims. The FTC routinely polices the market for deceptive dietary supplement advertising and accepts and reviews complaints from the public concerning such advertising.


The FTC also regulates deceptive advertising claims and promotional offers of savings compared to “regular” prices. The National Advertising Division, or NAD, of the Council of Better Business Bureaus oversees an industry-sponsored self-regulatory system that permits competitors to resolve disputes over advertising claims, including promotions for savings off of regular prices. The NAD has no enforcement authority of its own but may refer promotions to the FTC that the NAD views as violating FTC guides or rules. Violations of these orders could result in substantial monetary penalties.


Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. We are not able to predict the nature of such future laws, regulations, repeals or interpretations or to predict the effect additional governmental regulation would have on our business in the future. These developments could require reformulation of certain products to meet new standards, product recalls, discontinuation of production of certain products not amenable to reformulation, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, adverse event reporting or other new requirements. Any such developments could increase our costs significantly, restrict our ability to sell our products, delay our ability to deliver products on time, result in customer migration to other suppliers, or otherwise have a material adverse effect on our business, financial condition and results of operations. For example, the Dietary Supplement and Nonprescription Drug Consumer Protection Act, requiring mandatory adverse event reporting for all dietary supplements and over-the-counter drugs sold in the U.S., was recently signed into law. This law could materially increase our record keeping and documentation costs. In addition, the FDA has issued revised final rules on Good Manufacturing Practice (GMP), creating new requirements for manufacturing, packaging or holding of dietary ingredients and dietary supplements. These regulations require dietary supplements to be prepared, packaged and held in compliance with stricter rules, and require quality control provisions similar to those in the drug GMP regulations. We or our third-party manufacturers may not be able to comply with the new rules without incurring additional expenses, which could be significant.


WE WILL 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. vitamins and dietary supplements industry is a large and highly fragmented industry. Our potential competitors include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, online merchants, mail-order companies and a variety of other participants in the industry. The principle elements of competition in the industry are price, selection and distribution channel offerings. We believe that the market is also highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. In the U.S., we shall also compete for sales with heavily advertised national brands manufactured by large pharmaceutical and food companies, as well as other retailers. In addition, as some products gain market acceptance, we may experience increased competition for those products as more participants enter the market. Currently, we are not a manufacturer. To the extent that we become a manufacturer or engage third party manufacturers to produce our products, our manufacturing capabilities may not be adequate or sufficient to compete with large scale, direct or third-party manufacturers of nutritional supplements. Certain of our potential competitors are larger than us and have longer operating histories, larger customer bases, greater brand recognition and greater resources for marketing, advertising and product promotion. 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. 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 FAILURE TO EFFICIENTLY RESPOND TO CHANGING CONSUMER PREFERENCES AND DEMAND FOR NEW PRODUCTS AND SERVICES COULD SIGNIFICANTLY HARM OUR PRODUCT SALES, INVENTORY MANAGEMENT AND CUSTOMER RELATIONSHIPS AND OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED.




8




If we become successful, our continued success will depend, in part, on our ability to anticipate and respond to changing consumer trends and preferences. We may not be able to respond in a timely or commercially appropriate manner to these changes. Our failure to accurately predict these trends could negatively impact our inventory levels, sales and consumer opinion of us as a source for the latest products. The success of our new product offerings depends upon a number of factors, including our ability to:


·

accurately anticipate customer needs;

·

innovate and develop new products;

·

successfully commercialize new products in a timely manner;

·

competitively price our products;

·

procure and maintain products in sufficient volumes and in a timely manner; and

·

differentiate our product offerings from those of our competitors.


If we do not introduce new products, make enhancements to existing products or maintain the appropriate inventory levels to meet customers’ demand in a timely manner, our business, results of operations and financial condition could be materially and adversely affected.


THE CURRENT GLOBAL ECONOMIC DOWNTURN OR RECESSION COULD ADVERSELY AFFECT OUR INDUSTRY AND, THEREFORE, RESTRICT OUR FUTURE GROWTH.


The current global economic downturn or recession could negatively affect our sales because many consumers consider the purchase of our products discretionary. We cannot predict the timing or duration of the economic slowdown or recession or the timing or strength of a subsequent recovery, worldwide, or in the specific end markets we serve. If the markets for our products significantly deteriorate due to the economic environment, our business, financial condition or results of operations could be materially and adversely affected.


IT IS LIKELY THAT WE WILL NEED TO SEEK ADDITIONAL FINANCING THROUGH 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 stockholders.


Risks Relating To the Acquisitions of CNS and PSI.


OUR DECISIONS TO ACQUIRE CNS AND PSI WERE BASED UPON ASSUMPTIONS WHICH MAY PROVE TO BE ERRONEOUS.


Our decision to acquire CNS was based upon assumptions regarding CNS’ operations and services, the potential market for CNS’ services and our ability to integrate CNS operations in a manner that would enable us to expand operations of the current clinic and to identify and develop additional clinics at locations to be determined. Our decision was based in part upon National Institute of Mental Health (“NIMH”) data indicating that in any given year an estimated 26.2 percent of Americans ages 18 and older suffer from a diagnosable mental disorder.  We assumed that such data suggested a potential client population that might benefit from CNS services.  We further assumed that additional potential CNS client populations would derive from individuals suffering from acquired brain injuries and children with developmental conditions associated with dis-regulations of the brain such as AD/HD, learning disorders, autism and Asperger’s disorder.  We assumed that CNS services could address these populations in the Tampa Bay-area, as well as other locations and that such services would be favorably perceived and accepted by such potential populations.


Our decision to acquire PSI was based upon assumptions regarding PSI’s operations and services, the potential market for the Psoria-Light and our ability to integrate PSI operations in a manner that would enable us to launch the marketing and sale of the Psoria-Light. Our decision was based in part upon 2009 statistics indicating that more than $11.25 billion is spent annually in the United States to treat psoriasis and National Psoriasis Foundation data indicating that psoriasis is known to affect 2% to 3% of the human population.  Surveys conducted by the National Psoriasis Foundation from 2003 to 2005 indicated that at least 50% of sufferers were receiving no treatment, that prescriptions were widely utilized, and that UV therapy was under-utilized.  We assumed that such data suggested a potential client population that might benefit from Psoria-Light treatments.  We further assumed that additional potential client populations would derive from individuals suffering from certain skin conditions including psoriasis, vitiligo, atopic dermatitis (eczema), seborrheic dermatitis, and leukoderma. We assumed that Psoria-Light treatments could address such populations in the Tampa Bay-area, as well as other locations and that such treatments would be favorably perceived and accepted by such potential populations.



9




Our assumptions regarding CNS and PSI 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 client populations in the Tampa Bay-area or anywhere else.  CNS’ services appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues, but it has serviced approximately 485 clients since commencement of operations in 2009.   PSI’s Psoria-Light treatment appears to have been beneficial to clients, without demonstrable harmful side effects or safety issues, but it has serviced approximately 100 clients since PSI started to sell the device in January 2012.  There can be no assurance that the experience to date is indicative of results that might be expected from an expanded sample or base.


CNS PROVIDES ALTERNATIVE SCIENTIFIC APPROACHES TO MENTAL HEALTH AND WELLNESS THAT ARE NOVEL.


CNS’ success depends upon the acceptance by healthcare providers and clients of CNS’ treatment modalities as a preferred method of treatment for brain-based behavioral health disorders including developmental, emotional and stress-related problems. There can be no assurance that we will be able to achieve and maintain such market acceptance by healthcare providers or clients. We believe that market acceptance of CNS’ modalities will depend on many factors, including:


·

the perceived advantages or disadvantages of CNS treatments compared to other alternative treatments and devices;

·

the safety and efficacy of the treatments;

·

the availability and success of other alternative treatments and devices;

·

the price of the treatments relative to alternative treatments and devices; and

·

our success in building an effective sales and marketing team and the effectiveness of our marketing strategies.


CNS’ alternative scientific approaches are novel and not widely used.  They may be considered to have certain advantages, including the following:


·

treats brain-based disorders by treating the very root of the problem (poor brain function), not by alleviating symptoms:;  

·

non-invasive, safe, scientifically based and yet very highly effective for many conditions; and

·

treatment allow for documenting ongoing improvements in the client's condition using specific and measurable results.


However, they may be considered to have certain disadvantages, including the following:


·

neurotherapy takes at least 20 or more treatments. As such, it is not an instant gratification fix;

·

it is limited (at present) to emotional, developmental and traumatic conditions; not helpful for neurogedenerative or neuropsychiatric conditions; and

·

insurance reimbursement is variable and hard to predict, however this appears to be improving..


CNS’ services appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues, and it has serviced approximately 485 clients since commencement of operations in 2009.  There can be no assurance that the experience to date is indicative of results that might be expected from an expanded sample or base. Consequently, there can be no assurance that CNS’ modalities will ever achieve and maintain market acceptance among healthcare providers and clients. Any failure to satisfy healthcare provider or client demands or to achieve meaningful market acceptance will seriously harm our business and our ability to generate revenues and may prevent us from ever becoming profitable.


PSI PROVIDES ALTERNATIVE SCIENTIFIC APPROACHES TO UV SKIN TREATMENT THAT ARE NOVEL.


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. There can be no assurance that we will be able to achieve and maintain such market acceptance by healthcare providers or clients.



10




Psoriasis, eczema, and vitiligo, are common skin conditions that can be challenging to treat, and often cause the patient significant psychosocial stress. Patients 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 treatment modality for these disorders. ).   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 also developed an ISO 13485 compliant quality system for the Psoria-Light which was audited in the fourth 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.       


Traditionally, “non-targeted” therapy 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 patient’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 which produces UVB light between 300 and 320 nm as well as UVA light between 350 and 395nm, does not consume dangerous chemicals or require special environmental disposal and is cost effective for clinicians, which will increase 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 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).


Psoria-Light treatments appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues, but PSI has serviced approximately 100 clients since PSI started to sell the device in January 2012.  There can be no assurance that the experience to date is indicative of results that might be expected from an expanded sample or base. Consequently, there can be no assurance that Psoria-Light treatments will ever achieve and maintain market acceptance among healthcare providers and clients. Any failure to satisfy healthcare provider or client demands or to achieve meaningful market acceptance will seriously harm our business and our ability to generate revenues and may prevent us from ever becoming profitable.


WE WILL RELY UPON CNS AND PSI 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 will rely and be dependent upon CNS’s current executive management team to operate CNS’ business. The CNS management team currently includes William A. Lambos and Peter A. Hannouche. These two individuals founded CNS, developed its operation and business plans, serve as its principal executive officers, and manage all aspects of the business. Although we have employment agreements with Mr. Lambos and Mr. Hannouche, we cannot guarantee that either of them will remain affiliated with us.


We will rely and be dependent upon PSI’s current executive management to operate PSI’s business. PSI’s executive management currently consists of Scot L. Johnson.  Mr. Johnson founded PSI, developed its operation and business plans, and serves as its principal executive officer, and manages all aspects of the business. Although we have an employment agreement with Mr. Johnson, we cannot guarantee that he will remain affiliated with us.



11




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.


WE WILL NEED ADDITIONAL CAPITAL TO CONDUCT CNS AND PSI BUSINESS ACTIVITIES.


We will require additional capital to conduct CNS’ and PSI’s planned business activities, which includes, among other things, further development of their respective products and services, funding a sales force and marketing efforts to pursue sales, training and supporting employees and staff, paying any additional legal fees associated with the  businesses (including those relating to licensing, regulatory approvals, intellectual property registration or defense, and potential products’ liability or other claims defense), paying for office facilities and related overhead.  There can be no assurance that additional capital will be available or will be available on acceptable terms. If we cannot raise additional capital when needed, we may be forced to substantially curtail planned business activities which may adversely affect our ability to execute our business plan and develop our business as well as our results of operations and financial condition.


A FAILURE TO MANAGE AND EXPAND CNS AND PSI BUSINESSES AND OPERATIONS MAY HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY AND ITS BUSINESS.


CNS and PSI each seeks, among other things, to continue development and expanded offering of their respective products and services and the implementation of an extensive marketing campaign to promote them. The successful implementation of CNS’ and PSI’s business plans may result in a rapid expansion of our business and operations which may place a significant strain on our management, financial, and other resources, especially in the event that such expansion diverts management’s attention and resources away from ongoing projects and/or involves unexpected expenditures of capital that exceed the financial resources available to our Company at that time. Our ability to manage any such growth will depend upon our ability to implement appropriate operational and financial systems and controls; to expand PSI’s manufacturing capacity; to develop sales and marketing infrastructure and capabilities; to identify, attract and retain qualified personnel (especially sales and marketing personnel); and to train, manage and supervise other personnel. Any failure to expand these areas, to meet these personnel-related needs, or to implement and develop such systems, infrastructure, capabilities, and controls in an efficient manner, at a pace consistent with any growth in CNS’ or PSI’s  business, could have a material adverse effect on the Company and its business.


CNS AND PSI OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY IN THE FUTURE, AND WE MAY NOT BE ABLE TO CORRECTLY ESTIMATE FUTURE OPERATING EXPENSES, WHICH COULD LEAD TO CASH SHORTFALLS.


CNS and PSI operating results may fluctuate significantly in the future (and from period to period) as a result of a variety of factors, many of which are outside our control. These factors may include:


·

the introduction of new technologies and competing products and services that may make their respective products and  services less attractive to healthcare providers and clients;

·

the demand for their respective products and services;

·

the purchasing patterns of their respective clients;

·

the implementation of competitive pricing strategies by competitors;

·

the ability to attract and retain personnel with the skills required for effective operations;

·

product liability and other litigation;

·

the amount and timing of Psoria-Light manufacturing expenditures;

·

government regulation and legal developments or actions regarding their respective products and services;

·

our ability to receive, and the timing in which we may receive, approval from various regulatory bodies to market and sell CNS and PSI products and services; and

·

general economic conditions affecting, among other things, the healthcare industry and related insurance providers.


Because CNS and PSI each has a limited operating history, we have limited historical financial data upon which we can base estimates regarding their future operating expenses.  Our ability to generate revenue from the CNS and PSI acquisitions will depend upon the successful commercial launch of their respective products and services.  The timing of revenue generation, if any, and increases in manufacturing, sales and marketing expenses may not coincide, resulting in operating cash shortfalls.  To the extent that expenses precede or are not followed by increased revenue, our business, results of operations and financial condition may be harmed.



12




CNS AND PSI HAVE LIMITED EXPERIENCE IN MARKETING THEIR RESPECTIVE PRODUCTS AND SERVICES.


CNS and PSI each has undertaken initial, limited marketing efforts for their respective products and services. Their   sales and marketing teams 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 team. Each will face significant challenges and risks related to marketing its services, including, but not limited to, the following:


·

the ability of sales representatives to obtain access to or persuade adequate numbers of healthcare providers to purchase and use their respective products and services;

·

the ability to recruit, properly motivate, retain, and train adequate numbers of qualified sales and marketing personnel;

·

the costs associated with hiring, training, maintaining, and expanding an effective sales and marketing team; and

·

assuring compliance with government regulatory requirements affecting the healthcare industry.


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 CNS AND PSI PRODUCTS AND SERVICES WILL REQUIRE US TO BUILD AND MAINTAIN SOPHISTICATED SALES AND MARKETING TEAMS.


Neither CNS nor PSI 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 product and to generate revenues will be impaired, and our business will be harmed.


CNS AND PSI EACH FACES 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 CNS’ and PSI’s respective products and services are highly competitive and are significantly affected by new treatment and product introductions. Direct competitors may enjoy competitive advantages, including:


·

established service and product lines with proven results;

·

brand awareness;

·

name recognition;

·

established product acceptance by healthcare providers and clients;

·

established relationships with healthcare providers and clients;

·

integrated distribution networks; and

·

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.




13




CNS OR PSI MAY BECOME INVOLVED IN FUTURE LITIGATION OR CLAIMS THAT MAY NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.


Healthcare providers and clients that use CNS or PSI products or services may bring product liability or other claims against us.  To limit such exposure, CNS and PSI each 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 treatment. In addition, although they may provide such training and education, they may not be able to ensure proper treatment in each instance and may be unsuccessful at avoiding significant liability exposure as a result. While CNS and PSI each currently maintains and plans to continue to maintain liability insurance in amounts they 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 them 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:


·

the diversion of management’s time and attention from our business and operations;

·

the expenditure of large amounts of cash on legal fees, expenses and payment of settlements or damages;

·

decreased demand for CNS and PSI products and services; and

·

negative publicity and injury to our reputation.


Each and every one of above consequences of claims and litigation occur could have a material adverse effect on CNS,  PSI, the Company, and our business operations and financial condition.


HEALTHCARE PROVIDERS MAY BE UNABLE TO OBTAIN COVERAGE OR REIMBURSEMENT FROM THIRD-PARTY PAYORS FOR CNS OR PSORIA-LIGHT TREATMENTS, WHICH COULD LIMIT OUR ABILITY TO MARKET CNS AND PSI PRODUCTS AND SERVICES.


We expect that healthcare providers will bill various third-party payors, such as Medicare, Medicaid, other governmental programs, and private insurers, for CNS and Psoria-Light treatments. We believe that the cost of CNS and 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 CNS and Psoria-Light treatments. There can be no assurance, however, that coverage, coding and reimbursement policies of third-party payors 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 payors. 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 the CNS and 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 the Psoria-Light device directly through our own sales representatives in the domestic market, we plan to rely on third party distributors to sell, market, and distribute the 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:


·

lack of day-to-day control over the activities of third-party distributors;

·

third-party distributors may not fulfill their obligations to us or otherwise meet our expectations;

·

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

·

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.



14




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 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.



15




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 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 we will be able to obtain permission to affix the CE mark to our initial, future or modified products or that we will continue to meet the quality and safety standards required to maintain any permission we 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 our products, we are unable to maintain such permission, we will no longer be able to sell our products in member countries of the European Union.


WE WILL RELY ON TWO LICENSE AGREEMENTS THAT GIVE PSI RIGHTS UNDER TWO PROVISIONAL PATENT APPLICATIONS, ANY NON-PROVISIONAL PATENT APPLICATIONS COVERING THE TECHNOLOGY DESCRIBED IN THE PROVISIONAL PATENT APPLICATIONS, AND ASSOCIATED KNOW-HOW, TECHNICAL DATA, AND IMPROVEMENTS TO DEVELOP AND COMMERCIALIZE THE PSORIA-LIGHT, AND ANY LOSS OF THESE RIGHTS WOULD ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND MARKET THE PSORIA-LIGHT.


PSI has an exclusive license agreement with its CEO, Mr.  Johnson, which provides PSI the sole and exclusive, worldwide, paid-up, royalty-free, perpetual license under an initial provisional patent application, any non-provisional patent applications filed by Mr. Johnson 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. The initial provisional application covered the Psoria-Light design concepts 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 by Mr. Johnson, 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 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 correspond to real-life treatment routines, how images are displayed and captured to memory, and how the images are arranged and illustrated in patient records. 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.


PSI  has a second exclusive license agreement with Mr. Johnson which provides PSI the sole and exclusive, worldwide, paid-up, royalty-free, perpetual license under a second provisional patent application, any non-provisional patent applications filed by Mr. Johnson 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. The second provisional patent application contains 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.



16




Our right to develop and commercialize the Psoria-Light is derived solely from PSI’s rights under these exclusive license agreements. Both exclusive license agreements provide that either party may terminate the exclusive license agreement by reason of an uncured material breach of the other party. If either of the exclusive license agreements is terminated, we will not have a right or license under the provisional patent applications, the non-provisional patent applications covering the technology described in the provisional patent applications, and associated know-how, technical data, and improvements to develop and commercialize the Psoria-Light, and other related intellectual property to develop and commercialize the Psoria-Light covered by such exclusive license agreement. Additionally, we may be unable to re­acquire the necessary license on satisfactory terms, if at all. The failure to maintain these licenses could prevent or delay the development and commercialization of the Psoria-Light. Because the development and commercialization of the Psoria-Light is a significant focus of our business plan, any failure to develop or commercialize, or any delay in the development or commercialization of, the Psoria-Light will have a material adverse effect on our business and our ability to generate revenues and may prevent us from ever becoming profitable.


OUR ABILITY TO ACHIEVE COMMERCIAL SUCCESS WILL DEPEND IN PART ON OBTAINING AND MAINTAINING PATENT PROTECTION (IF ANY) AND TRADE SECRET PROTECTION RELATING TO THE PSORIA-LIGHT, THE TECHNOLOGY ASSOCIATED WITH THE PSORIA-LIGHT, 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 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 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:


·

prevent others from successfully challenging the validity or enforceability of our issued, pending, or licensed patents (if any);

·

prevent others from infringing upon, our issued, pending, or licensed patents (if any) and our other proprietary rights;

·

operate our business, including the manufacture, sale and use of the Psoria-Light and any other products, without infringing upon the proprietary rights of others;

·

successfully enforce our rights to issued, pending, or licensed patents (if any) against third parties when necessary and appropriate; and

·

obtain and protect commercially valuable patents or the rights to patents both domestically and abroad.


No patents have been issued for any CNS or PSI products or any of the technology associated with such products, and we can not guarantee that any patents will be issued for such products or any of the technology associated with such products.


Mr. Johnson has 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 by Mr. Johnson 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 Mr. Johnson, who have 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 Mr. Johnson 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.



17




Mr. Johnson 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. This second provisional patent application is owned by Mr. Johnson who has granted PSI the sole and exclusive, worldwide, paid-up, royalty-free, perpetual license under this second provisional patent application, any non-provisional patent applications filed by Mr. Johnson 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.


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.


In the event that a patent is not (or patents are not, as the case may be) issued, it will be difficult (or impossible) for us to protect the Psoria-Light and the technologies associated therewith. In the event that patents are issued to us or our executive officers in the future (for the technology associated with the Psoria-Light or for other products or technologies), our competitors or other patent holders may challenge the validity of such patents or assert that our products and the technologies and methods we employ are covered by their patent(s). If the validity or enforceability of any of our patents or licensed patents are challenged, or others assert their patent rights against us, we may incur significant expenses in defending against such actions, and if any such challenge is successful, our business may be harmed.


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.


Other risks and uncertainties that we face with respect to our licensed patents (if any), our pending patents (if any), our patents (if any), and our other proprietary rights include the following:


·

our licensed, issued, and pending patents (if any) may not be valid or enforceable or may not provide adequate coverage for our products;

·

the claims of any licensed, issued, and pending patents may not provide meaningful protection;

·

our licensed, issued and pending patents (if any) may expire before we are able to successfully commercialize the Psoria-Light or any other product candidates or before we receive sufficient revenues in return;

·

patents pending, issued to us, or licensed to us (if any) may be successfully challenged, circumvented, invalidated or rendered unenforceable by third parties;

·

the patents issued, pending or licensed to us (if any) may not provide a competitive advantage;

·

patents pending or issued to other companies, universities or research institutions may harm our ability to do business;

·

other companies, universities or research institutions may independently develop similar or alternative technologies or duplicate our technologies and commercialize discoveries that we or our executive officers attempt to patent;

·

other companies, universities or research institutions may design around technologies we license, patent or develop;

·

because the information contained in patent applications is generally not publicly available until published (usually 18 months after filing), we cannot assure you that we or our executive officers will be the first to file patent applications for inventions or similar technology or that we or our executive officers will have priority of ownership;

·

the future and pending applications we will file or have filed, or to which we will or do have exclusive rights, may not result in issued patents or may take longer than we expect to result in issued patents; and

·

we may be unable to develop additional proprietary technologies that are patentable.


WE EXPECT TO RELY ON TRADEMARKS, TRADE SECRET PROTECTIONS, KNOW-HOW AND CONTRACTUAL SAFEGUARDS TO PROTECT CNS AND PSI NON-PATENTED INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY.


We expect to rely on trademarks, trade secret protections, know-how and contractual safeguards to protect CNS and PSI non-patented intellectual property and proprietary technology. Current CNS and PSI 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.



18




Costly and time-consuming litigation could be necessary to enforce and determine the scope and protectability 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 BUSINESS MAY BE HARMED, AND WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.


A third party may assert that we have infringed his, her or its patents and proprietary rights or challenge the validity or enforceability of our patents (if any) and proprietary rights. Our competitors, many of which have substantially greater resources than us and have made significant investments in competing technologies or products, may seek to apply for and obtain patents that will prevent, limit or interfere with our ability to make, use and sell our products either in the United States or in international markets. Further, we may not be aware of all of the patents and other intellectual property rights owned by third parties that may be potentially adverse to our interests. Intellectual property litigation in the medical device industry is common, and we expect this trend to continue. We may need to resort to litigation to enforce our patent rights (if any) or to determine the scope and validity of a third party’s patents or other proprietary rights. The outcome of any such proceedings is uncertain and, if unfavorable, could significantly harm our business. If we do not prevail in this type of litigation, we or our distributors or strategic collaborators may be required to:


·

pay actual monetary damages, royalties, lost profits and/or increased damages and the third party’s attorneys’ fees, which may be substantial;

·

expend significant time and resources to modify or redesign the affected products or procedures so that they do not infringe on a third party’s patents or other intellectual property rights; further, there can be no assurance that we will be successful in modifying or redesigning the affected products or procedures;

·

obtain a license in order to continue manufacturing or marketing the affected products or services, and pay license fees and royalties; if we are able to obtain such a license, it may be non-exclusive, giving our competitors access to the same intellectual property, or the patent owner may require that we grant a cross-license to our patented technology (if any); or

·

stop the development, manufacture, use, marketing or sale of the affected products through a court-ordered sanction called an injunction, if a license is not available on acceptable terms, or not available at all, or our attempts to redesign the affected products are unsuccessful.


Any of these events could adversely affect our business strategy and the potential value of our business. In addition, the defense and prosecution of intellectual property suits, interferences, oppositions and related legal and administrative proceedings in the United States and elsewhere, even if resolved in our favor, could be expensive and time consuming, could generate negative publicity and could divert financial and managerial resources. Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater financial resources.



19




OUR ABILITY TO MARKET PSI PRODUCTS IN SOME FOREIGN COUNTRIES MAY BE IMPAIRED BY THE ACTIVITIES AND INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.


We plan to market and sell PSI products in select international markets. 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.


Risks Related to Our Securities.


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 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.



20




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.


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.


RULE 144 RELATED RISK.


The SEC adopted amendments to Rule 144 which became effective on February 15, 2008 that apply to securities acquired both before and after that date. Under these amendments, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell their securities provided that: (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding a sale, (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and (iii) if the sale occurs prior to satisfaction of a one-year holding period, we provide current information at the time of sale.


Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or at any time during the three months preceding a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:


·

1% of the total number of securities of the same class then outstanding; or

·

the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale;


provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale. Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.



21




RESTRICTIONS ON THE RELIANCE OF RULE 144 BY SHELL COMPANIES OR FORMER SHELL COMPANIES.


Historically, the SEC staff has taken the position that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies. The SEC has codified and expanded this position in the amendments discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business-combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met:


·

The issuer of the securities that was formerly a shell company has ceased to be a shell company,

·

The issuer of the securities is subject to the reporting requirements of Section 14 or 15(d) of the Exchange Act,

·

The issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and

·

At least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company.


As a result, it is likely that pursuant to Rule 144, stockholders who receive our restricted securities in a business combination will not be able to sell our shares without registration until one year after we have completed our initial business combination.


ITEM 2.

PROPERTIES


Our principal executive offices are located at 1014 E. Algonquin Road, Suite 111, Schaumburg, Illinois 60173. Our telephone number is (847)-925-1885.  We occupy the office space pursuant to a sub-lease executed as of December 20, 2010 for a period of one year expiring December 31, 2011, with the base rent of $1,909.50 per month, which has been subsequently extended through December 31, 2013 with the same terms and conditions.   The sub-lease is with a related party.


CNS offices are located at Two Urban Centre, 4890 West Kennedy Boulevard, Suite 295, Tampa, Florida 33609.   CNS’ telephone number is (813) 235-4270.  CNS occupies the location pursuant to a lease executed by CNS as of August 11, 2010 which extends through February 28, 2016, with initial monthly base rent of $10,621.33, which is subject to annual increases at the rate of 3%, and additional rent in the form of a pro-rata share of common area maintenance operating and maintenance expenses.   


PSI offices are located at 6408 West Linebaugh Avenue, Suites 103 and 104, Tampa, Florida 33625.   PSI’s telephone number is (866) 725-0969.  In January, 2011 PSI occupies both Suites 103 and 104 pursuant to a lease executed by PSI which was extended through January, 2013, with monthly base rent of $3,000.00, which was subject to additional rent in the form of a pro-rata share of common area maintenance operating and maintenance expenses.  The combined suites comprised a total of approximately 3,050 square feet and included office space, a sales area, space for inventory, manufacturing and receiving operations, as well as an engineering lab and video conferencing room. In January 2013 PSI renewed the lease to only occupy Suites 103, with monthly base rent of $2,000.00, which was subject to additional rent in the form of a pro-rata share of common area maintenance operating and maintenance expenses. The Suite 103 comprised approximately 2,000 square feet and included office space, a sales area, space for inventory, manufacturing and receiving operations, as well as an engineering lab and video conferencing room.


ITEM 3.

LEGAL PROCEEDINGS


There are no pending legal proceedings to which the Company is a party or in which any director, nominee for director, executive officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.


ITEM 4. 

MINE SAFETY DISCLOSURES.


The Company is not required to provide disclosures required by this Item.




22



PART II


ITEM 5.

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER 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


We are authorized by our Articles of Incorporation to issue up to 75,000,000 shares of common stock, par value $0.001 per share. As of September 30, 2012 there were 30,978,237 shares of common stock issued and outstanding. Holders of shares of common stock have full voting rights, one vote for each share held of record. Stockholders 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 stockholders upon liquidation. Stockholders have no conversion, pre-emptive or subscription rights. All outstanding shares of common stock are fully paid and non-assessable.


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, our general economic conditions, 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.


Warrants


November 2010 Issuances


In November 2010, the Company issued (i) warrants to purchase 6,318,334 shares of the Company’s common stock with an exercise price of $0.01 per share expiring five (5) years from the date of issuance to the investors in connection with the sale of common shares in November 2010 (the “2010 Offering”) which were valued at zero due to the fact that those equity units were sold at par of $0.001, (ii) warrants to purchase 375,000 shares of the Company’s common stock with an exercise price of $0.01 per share expiring five (5) years from the date of issuance to the consultants as part of their professional services, valued at $38 on the date of grant, all of which have been earned upon issuance.


Significant terms of the warrants include Section (F) Anti-dilution provisions and (G) Registration rights.


Pursuant to Section (F) Anti-dilution provisions of the warrant, the number of shares to be received upon the exercise of the warrant and the exercise price to be paid for a share hereinafter sometimes referred to as “Exercise Price” which may be adjusted from time to time as hereinafter provided:


(1)

In case the Company shall issue Shares as a dividend upon Shares or in payment of a dividend thereon, or shall subdivide the number of outstanding Shares into a greater number of shares or shall contract the number of outstanding Shares into a lesser number of shares, the Exercise Price then in effect shall be adjusted, effective at the close of business on the record date for the determination of shareholders entitled to receive the same, to the price (computed to the nearest cent) determined by dividing: (a) the product obtained by multiplying the Exercise Price in effect immediately prior to the close of business on such record date by the number of Shares outstanding prior to such dividend, subdivision or contraction; by (b) the sum of the number of Shares outstanding immediately after such dividend, subdivision, or contraction.



23




(2)

If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the Holder of each Warrant shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in the Warrant and in lieu of the Shares of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented by such Warrant, such Shares, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented by such Warrant had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interest of the Holder to the end that the provisions of the Warrant (including, without limitation, provisions for adjustment of the Exercise Price and of the number of Shares issuable upon the exercise of Warrants) shall thereafter be applicable as nearly as may be practicable in relation to any shares of stock, securities, or assets thereafter deliverable upon exercise of Warrants. The Company shall not affect any such consolidation, merger or sale unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument, the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase.


(3)

Upon each adjustment of the Exercise Price pursuant to this Section (F), the number of shares of Common Stock specified in each Warrant shall thereupon evidence the right to purchase that number of shares of Common Stock (calculated to the nearest hundredth of a share of Common Stock) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock purchasable immediately by the Exercise Price in effect after such adjustment.


(4)

Irrespective of any adjustment of the number or kind of securities issuable upon exercise of Warrants or the Exercise Price, Warrants theretofore or thereafter issued may continue to express the same number of Shares and Exercise Price as are stated in similar Warrants previously issued.


(5)

The Company may, at its sole option, retain the independent public accounting firm regularly retained by the Company, or another firm of independent public accountants of recognized standing selected by the Company's Board of Directors, to make any computation required under this Section (F) and a certificate signed by such firm shall be conclusive evidence of any computation made under this Section (F).


(6)

Whenever there is an adjustment in the Exercise Price or in the number or kind of securities issuable upon exercise of the Warrants, or both, as provided in this Section (F), the Company shall: (i) promptly file in the custody of its Secretary or Assistant Secretary a certificate signed by the Chairman of the Board or the President or a Vice President of the Company and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, showing in detail the facts requiring such adjustment and the number and kind of securities issuable upon exercise of each Warrant after such adjustment; and (ii) cause a notice stating that such adjustment has been effected and stating the Exercise Price then in effect and the number and kind of securities issuable upon exercise of each Warrant to be sent to each registered holder of Warrant.


(7)

In addition to the adjustments otherwise set forth in this Section (F), the Company, in its sole discretion, may reduce the Exercise Price or extend the expiration date of the Warrant.


(8)

The Exercise Price and the number of Shares issuable upon exercise of a Warrant shall be adjusted in the manner and only upon the occurrence of the events heretofore specifically referred to in this Section (F).


Pursuant to Section (G) Registration rights of the warrant, the warrant holder shall have piggyback registration rights as set forth in paragraph 12 of that certain Stockholder Subscription Agreement by and between the Company and the warrant holder.




24




The Company estimated the fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

November 10, 2010

 

 

November 30, 2010

 

 

 

 

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

63.78

%

 

 

63.78

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

1.23

%

 

 

1.47

%


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price.  The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company plans to engage in to calculate the expected volatility.  The Company calculated those five (5) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility.


The Company estimated the aggregate fair value of the warrants issued on the date of grant using the Black-Scholes Option Pricing Model at $38.


March 2012 Issuances


In March 2012, the Company issued (i) warrants to purchase 265,000 shares, in the aggregate, of the Company’s common stock with an exercise price ranging from $0.50 to $0.75 per share expiring five (5) years from the date of issuance to the investors in connection with the sale of common shares, all of which were earned upon issuance.


Significant terms of the warrants include Section (F) Anti-dilution provisions and (G) Registration rights, same as that included in November 2010 issuances.


The Company estimated the relative fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

March 8, 2012

 

 

March 15, 2012

 

 

 

 

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.53

%

 

 

64.53

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.89

%

 

 

1.11

%


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price.  The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company plans to engage in to calculate the expected volatility.  The Company calculated those five (5) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility.


The Company estimated the aggregate relative fair value of the warrants issued in March 2012 using the Black-Scholes Option Pricing Model at $44,452 at the date of issuance.



25




April and May 2012 Issuances


During April and May 2012, the Company issued (i) warrants to purchase 154,773 shares, in the aggregate, of the Company’s common stock with an exercise price ranging from $1.65 to $2.31 per share expiring five (5) years from the date of issuance to the investors in connection with the sale of common shares, all of which were earned upon issuance.


Significant terms of the warrants include Section (F) Anti-dilution provisions and (G) Registration rights, same as that included in November 2010 issuances.


The Company estimated the relative fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

April 19, 2012

 

 

May 9, 2012

 

 

 

 

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.61

%

 

 

64.54

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.84

%

 

 

0.77

%


 

 

May 14, 2012

 

 

May 21, 2012

 

 

 

 

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.53

%

 

 

64.49

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.73

%

 

 

0.75

%


 

 

May 22, 2012

 

 

May 25, 2012

 

 

 

 

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.49

%

 

 

64.47

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.78

%

 

 

0.76

%


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price.  The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company plans to engage in to calculate the expected volatility.  The Company calculated those five (5) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility.


The Company estimated the aggregate relative fair value of the warrants issued during the quarter ended June 30, 2012 using the Black-Scholes Option Pricing Model was $46,112 at the date of issuance.


September 2012 Issuances


In March 2012, the Company issued (i) warrants to purchase 336,667 shares, in aggregate, of the Company’s common stock to the investors with an exercise price of $0.45 per share expiring five (5) years from the date of issuance in connection with the sale of common shares which were valued total $31,411.


Significant terms of the warrants include Section (F) Anti-dilution provisions and (G) Registration rights, same as that included in November 2010 issuances.



26




The Company estimated the relative fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

 

 

 

September 25, 2012

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

65.70

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.66

%

 

 

 

 

 

 

 


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price.  The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company plans to engage in to calculate the expected volatility.  The Company calculated those five (5) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility.


The aggregate relative fair value of the warrants issued in March 2012 using the Black-Scholes Option Pricing Model was $31,411 at the date of issuance.


Summary of the Company’s Warrants Activities


The table below summarizes the Company’s warrants activities:


 

 

Number of

Warrant Shares

 

Exercise Price Range

Per Share

 

Weighted Average Exercise Price

 

Fair Value at Date of Issuance

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2010

 

 

-

 

 

 

$   

-

 

 

 

$   

-

 

 

$

-

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

6,693,334

 

 

 

   

0.01

 

 

 

   

0.01

 

 

 

38

 

 

 

   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2011

 

 

6,693,334

 

 

 

$   

0.01

 

 

 

$   

0.01

 

 

$

38

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

756,440

 

 

 

   

0.45 - 2.31

 

 

 

   

0.10

 

 

 

121,975

 

 

 

   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(240,000

)

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2012

 

 

7,209,774

 

 

 

$   

0.45 - 2.31

 

 

 

$   

0.10

 

 

$

122,013

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned and exercisable, September 30, 2012

 

 

7,209,774

 

 

 

$   

0.45 - 2.31

 

 

 

$   

0.10

 

 

$

122,013

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, September 30, 2012

 

 

-

 

 

 

$   

-

 

 

 

$   

-

 

 

$

-

 

 

 

$   

-

 

 




27




The following table summarizes information concerning outstanding and exercisable warrants as of September 30, 2012:


 

 

Warrants Outstanding

 

Warrants Exercisable

 

Range of Exercise Prices

 

Number Outstanding

 

Average Remaining Contractual Life  (in years)

 

Weighted Average Exercise Price

 

Number Exercisable

 

Average Remaining Contractual Life  (in years)

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 – 2.31

 

 

7,209,774

 

 

3.31

 

$

0.10

 

 

7,209,774

 

 

3.31

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 – 2.31

 

 

7,209,774

 

 

3.31

 

$

0.10

 

 

7,209,774

 

 

3.31

 

$

0.10

 


Options


2010 Non-Qualified Stock Option Plan (“2010 Option Plan”)


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.


Pursuant to Section 7 - Adjustments or Changes in Capitalization of the Stock Option Plan, the number of shares to be received upon the exercise of the option and the exercise price to be paid for a share hereinafter sometimes referred to as “Exercise Price” which may be adjusted from time to time as hereinafter as follows:


7.1

In the event that the outstanding Common Shares of the Company are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, other reorganization, recapitalization, reclassification, combination of shares, stock split-up or stock dividend:


A.

Prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to Stock Options which may be granted under the Plan, such that the Optionee shall have the right to purchase such Common Shares as may be issued in exchange for the Common Shares purchasable on exercise of the NQSO had such merger, consolidation, other reorganization, recapitalization, reclassification, combination of shares, stock split-up or stock dividend not taken place;


B.

Rights under unexercised Stock Options or portions thereof granted prior to any such change, both as to the number or kind of shares and the exercise price per share, shall be adjusted appropriately, provided that such adjustments shall be made without change in the total exercise price applicable to the unexercised portion of such NQSO’s but by an adjustment in the price for each share covered by such NQSO’s; or


C.

Upon any dissolution or liquidation of the Company or any merger or combination in which the Company is not a surviving corporation, each outstanding Stock Option granted hereunder shall terminate, but the Optionee shall have the right, immediately prior to such dissolution, liquidation, merger or combination, to exercise his NQSO in whole or in part, to the extent that it shall not have been exercised, without regard to any installment exercise provisions in such NQSO.


7.2

The foregoing adjustments and the manner of application of the foregoing provisions shall be determined solely by the Committee, whose determination as to what adjustments shall be made and the extent thereof, shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan on account of any such adjustments.


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.


June 30, 2010 Issuance


On June 30, 2010, upon formation, the Company issued an option to purchase 1,600,000 shares of common stock to the Company’s founder at $0.01 per share.




28




The stock options were valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

 

 

 

June 30, 2010

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

63.78

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

1.79

%

 

 

 

 

 

 

 

 

 

Expected dividends

 

 

 

 

 

 

0.00

%


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price. The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company plans to engage in to calculate the expected volatility.  The Company calculated those five (5) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility.


The Company estimated the fair value of the stock options issued under the 2010 Option Plan on the date of grant using the Black-Scholes Option Pricing Model on the date of issuance at nil as compensation.


November 30, 2010 Issuance


On November 30, 2010, the Company issued options to purchase 200,000 shares of common stock to the newly appointed members of the board of directors with an exercise price of $0.01 per share as part of their professional services.


The stock options were valued on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

 

 

 

November 30, 2010

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

63.78

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

1.47

%


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price.  The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company plans to engage in to calculate the expected volatility.  The Company calculated those five (5) comparable companies’ historical volatility over the expected life and averaged them as its expected volatility.


The Company estimated the fair value of the stock options using the Black-Scholes Option Pricing Model at $20 on the date of grant.




29




March 13, 2012 Issuance


Pursuant to the Consulting Agreement entered on March 13, 2012, the Company issued an option to purchase 50,000 shares of common stock to the consultant with an exercise price of $0.44 per share as part of the future professional services.


The stock options were valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

 

 

 

March 13, 2012

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

64.53

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.99

%


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price.  The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company plans to engage in to calculate the expected volatility.  The Company calculated those five (5) comparable companies’ historical volatility over the expected life and averaged them as its expected volatility.


The Company estimated the fair value of the stock options on the date of grant using the Black-Scholes Option Pricing Model at $14,265 to be amortized over a period of one (1) year.


August 24, 2012 Issuance for Conversion of PSI Stock Options


On August 24, 2012, the Company converted PSI stock options to WCUI stock options and issued certain options to purchase 1,400,000 shares of its common stock in aggregate with the original terms and conditions to PSI Option holders upon acquisition of PSI. The detailed PSI Stock Options Issuance history is as follows:



30




On December 22, 2010, the Company granted (i) options to purchase 450,000 shares of its common stock with an exercise price of $1.00 per share expiring ten (10) years from the date of grant to its employees for their services; and (ii) an option to purchase 300,000 shares of its common stock with an exercise price of $1.00 per share expiring ten (10) years from the date of grant to a consultant and a member of its Medical Advisory Board as part of his professional services.


On February 22, 2012, the Company granted (i) options to purchase 410,000 shares of its common stock with an exercise price of $2.00 per share expiring ten (10) years from the date of grant to its employees for their services; and (ii) an option to purchase 240,000 shares of its common stock with an exercise price of $2.00 per share expiring ten (10) years from the date of grant to a consultant and a member of its Medical Advisory Board as part of his professional services.


Summary of the Company’s Stock Option Activities


The table below summarizes the Company’s stock option activities:


 

 

Number of

Option Shares

 

Exercise Price Range

Per Share

 

Weighted Average Exercise Price

 

Fair Value

at Date of Grant

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2010

 

 

1,600,000

 

 

 

$   

0.01

 

 

 

$   

0.01

 

 

 

*

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2010

 

 

1,600,000

 

 

 

$   

0.01

 

 

 

$   

0.01

 

 

 

*

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

200,000

 

 

 

 

0.01

 

 

 

 

0.01

 

 

 

20

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2011

 

 

1,800,000

 

 

 

$   

0.01

 

 

 

$   

0.01

 

 

$

20

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

50,000

 

 

 

 

0.44

 

 

 

 

0.44

 

 

 

14,265

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

750,000

 

 

 

 

1.00

 

 

 

 

1.00

 

 

 

417,570

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

650,000

 

 

 

 

2.00

 

 

 

 

2.00

 

 

 

745,382

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2012

 

 

3,250,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,177,237

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable, September 30, 2012

 

 

3,225,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,170,105

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, September 30, 2012

 

 

25,000

 

 

 

$   

0.01

 

 

 

$   

0.44

 

 

$

7,133

 

 

 

$   

-

 

 


* - nil



31




The following table summarizes information concerning outstanding and exercisable options as of September 30, 2012:


 

 

Options Outstanding

 

Options Exercisable

 

Range of Exercise Prices

 

Number Outstanding

 

Average Remaining Contractual Life  (in years)

 

Weighted Average Exercise Price

 

Number Exercisable

 

Average Remaining Contractual Life  (in years)

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01

 

 

1,600,000

 

 

3.00

 

$

0.01

 

 

1,600,000

 

 

3.00

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01

 

 

200,000

.

 

3.37

 

 

0.01

 

 

200,000

 

 

3.37

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.44

 

 

50,000

 

 

4.70

 

 

0.44

 

 

12,500

 

 

4.70

 

 

0.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.00

 

 

750,000

 

 

8.20

 

 

1.00

 

 

750,000

 

 

8.20

 

 

1.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2.00

 

 

650,000

 

 

9.40

 

 

2.00

 

 

650,000

 

 

9.40

 

 

2.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 - 2.00

 

 

3,250,000

 

 

5.39

 

$

0.64

 

 

3,212,500

 

 

5.39

 

$

0.64

 


As of September 30, 2012, there were 4,250,000 shares of stock options remaining available for issuance under the 2010 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, Ste 214, Salt Lake City, UT 84121.


INTERESTS OF NAMED EXPERTS AND COUNSEL


No expert or counsel named in this Annual Report as having prepared or certified any part of this Annual Report or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee. 


The consolidated financial statements of Wellness Center USA, Inc., a Nevada corporation have been included in this Annual Report in reliance on the report of Li and Company, PC, an independent registered public accounting firm, given on the authority of that firm as experts in auditing and accounting.


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 Annual 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 Annual Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual Report will in fact occur as projected.



32




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.


The Company currently operates in three (3) business segments: (i) Nutritional supplement sales; (ii) treatment of brain-based behavioral health disorders; and (iii) distribution of Ultra Violet ("UV") phototherapy devices upon acquisition of CNS and PSI.


Nutritional Supplement Plan of Operations - WCUI


Our intended products will be sold through our registered website www.aminofactory.com, presently under final development. Our planned product line shall consist of Amino acid and other nutritional supplements and our target market will be the sports industry and the general health minded public. Once our website is fully developed, our product portfolio shall be expanded to include a wider range of supplements, including customized formulas uniquely tailored to suite an individual’s needs. A customer logging into our www.aminofactory.com website will be able to select an Amino acid supplement and/or nutritious formula combination suitable to his/her needs. Once a suitable supplement solution has been chosen by the client, the order shall be automatically placed for processing in our supplier’s factory. Product will be shipped directly by our supplier to the client, within seven business days.


Our supplements will be produced by unaffiliated third party manufactures and/or product fulfillment suppliers, specializing in Amino nutritional supplement production. We have currently established a non-binding and non-exclusive Value Added (VAD) relationship with one such producer and product fulfillment provider, the New Jersey based Protein Factory, to support our initial offering. Supplements produced for us can be also provided to our competitors by Protein Factory or perhaps other manufacturers. However, as a VAD of Protein Factory, we are able to specifically select our product portfolio and market it through our website with our custom packaging and pricing; under the Protein Factory or our own amino factory label. Following successful conclusion of our website development, we will have the opportunity to execute a binding VAD agreement with Protein Factory.


Treatment of Brain-Based Behavioral Health Disorders - CNS


On August 2, 2012, we consummated the acquisition of all of the issued and outstanding limited liability membership interests in CNS. CNS is now operated as a wholly-owned subsidiary of the Company, with four full-time and eleven part-time employees.   We believe that CNS’ operations and services will provide an attractive complement to the Company’s operations and products and represent a viable alternative to current approaches to mental health and well-being.


Current approaches primarily consist of “talk therapy” and prescription medications.  These are often combined, but they each retain their individual shortcomings in combination. The former – so-called psychotherapy or mental health counseling – can take years to achieve results and is often completely ineffective.   The latter – known as psychopharmacology – relies in many cases on dangerous drugs with severe and unpredictable side effects, many of which are irreversible. Many also have strong and severe addictive properties that result in substance abuse and dependency, which leaves the client worse.  Neither of the current approaches is, in daily application to client care, subject to objective evidence of success or failure, because the only indicator of treatment outcome is the subjective report of clients.  In addition, these approaches to treatment have not been updated to take advantage of recent discoveries and knowledge of brain function that has emerged in the past two decades.


CNS provides alternative, scientific approaches to mental health and wellness. It assesses dis-regulations in brain function via EEG-based brain mapping along with other recognized behavioral health assessment tools, such as neuropsychological examinations. Its trained therapists then assist the client to restore brain function to within normative limits using leading–edge modalities, such as LENS, Neurofield EMS therapy, traditional neurofeedback, hemoencephalography, transcranial direct current stimulation, cranial alternating current stimulation, photonic stimulation and heart variability training. The client is periodically assessed throughout and following completion of the treatment program. This enables the clinical team to form treatment protocols as well as demonstrate the effectiveness of the treatment through a comparison of pre- vs. post-treatment assessments.


CNS treatment modalities, when combined in specific manners that are proprietary to CNS, contribute to restoring the brain’s ability to regulate itself within normative limits. CNS methods are noninvasive and safe, and achieve their goals without the use of prescription pharmaceuticals. This technology helps the client to overcome difficulties with mental health and/or developmental barriers to successful daily functioning, and thereby to experience a higher quality of life.



33




CNS clients have reported very favorable rates of improvement – in many cases two to three (or more) times what is seen in traditional approaches.  Such improvement has been achieved in a matter of weeks or months – a fraction of the time required by existing approaches. These results have been observed without demonstrable harmful side effects or safety issues.   CNS has serviced approximately 1,000 clients since commencement of operations in 2009. There can be no assurance that the experience to date is indicative of results that might be expected from an expanded sample or base.


We acquired CNS based in part upon NIMH data indicating that in any given year an estimated 26.2 percent of Americans ages 18 and older suffer from a diagnosable mental disorder.  We assumed that such data suggested a potential client population that might benefit from CNS services.  We further assumed that additional potential CNS client populations would derive from individuals suffering from acquired brain injuries and children with developmental conditions associated with dis-regulations of the brain such as AD/HD, learning disorders, autism and Asperger’s disorder.  We assumed that CNS services could address these populations in the Tampa Bay-area, as well as other locations and that such services would be favorably perceived and accepted by such potential populations.


We are aware of only a handful of clinics competing with CNS in the Tampa Bay-area, and believe that these clinics offer only a small fraction of the alternative treatments offered by CNS. Indirect competitors may include pharmaceutical companies and traditional psychotherapy methods.  We expect to build upon CNS’ current marketing plan which has emphasized use of print media, particularly health-oriented magazines, billboard and radio advertisements, and “grass-roots” networking, to drive potential clients to CNS’ state-of-the-art website.  Nevertheless, our acquisition assumptions may prove to be erroneous. CNS is a small development stage company with a limited operating history.


CNS is currently operating at a loss, and there is no assurance that its business development plans and strategies will ever be successful, or that its services will be favorably perceived and accepted by our assumed potential client populations in the Tampa-bay area or anywhere else.  Although its services appear to have been beneficial to clients, there can be no assurance that the experience to date is indicative of results that might be expected from an expanded sample or base. In order for the Company to continue CNS operations it will need additional capital and it will have to successfully coordinate integration of CNS operations without materially and adversely affecting continuation and development of other Company operations.


Distribution of Ultra Violet ("UV") Phototherapy Devices - PSI


On August 24, 2012, we consummated the acquisition of all of the issued and outstanding shares of stock in PSI. PSI is now operated as a wholly-owned subsidiary of the Company, with three full-time employees and several independent contractors.   We believe that PSI’s operations and services will provide an attractive complement to the Company’s operations and products and represent a viable alternative to current approaches to Ultra Violet (UV) phototherapy treatment of skin diseases.   


PSI is a medical device design and manufacturing company.  It 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.   PSI intends to enter into agreements with third parties, in the United States and internationally, for the manufacture of component parts that make up the Psoria-Light and to license its proprietary technology to third parties domestically and in selected foreign markets.  


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.    


Psoriasis, eczema, and vitiligo, are common skin conditions that can be challenging to treat, and often cause the patient significant psychosocial stress. Patients 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 treatment modality for these disorders.


Traditionally, “non-targeted” therapy 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.



34




Targeted UV treatments are typically administered to smaller total body surface areas, and are therefore used to treat the most intense parts of a patient’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 which produces UVB light between 300 and 320 nm as well as UVA light between 350 and 395nm, does not consume dangerous chemicals or require special environmental disposal and is cost effective for clinicians, which will increase 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 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).


Mr. Johnson has led initial steps to develop and market the Psoria-Light device. He has substantial experience in promoting difficult-to-sell medical devices (i.e., medical devices that are expensive and that do not have an established billing code for reimbursement) in difficult-to-penetrate and non-traditional markets (i.e., military and space markets).  He also has a solid track record of working together to develop space technology partnerships and technical product marketing programs.  Mr. Johnson has extensive experience in medical device and LED-based optics design, manufacturing and sales.   Mr. Johnson has begun assembling a sales and marketing team, which consists of their U.S. Sales Manager, a group of experienced independent  sales representatives, and an experienced marketing consultant, as well as a quality and regulatory team, which consists of Mr. Johnson and a group of experienced independent quality and regulatory consultants, with substantial experience in submitting 510(k) applications, receiving and maintaining FDA approval, and setting up and maintaining certified quality systems which are subject to scrutiny by domestic and international regulatory authorities.  


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 has registered a variety of domain names and established an initial website to include in depth information regarding psoriasis, eczema, vitiligo, and the Psoria-Light device. It has developed informational videos, flyers, booklets and tradeshow materials, as well as a database of U.S. dermatologists that can be used to assist sales personnel in contacting dermatologists that might be interested in the Psoria-Light device.


We expect to build upon PSI’s current development and marketing efforts, however, PSI only started to sell the devices since January 2012 with a limited operating history. 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, and PSI has serviced approximately 100 clients since PSI started to sell the device in January 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.


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. Mr. Kandalepas has elected not to receive any compensation for his services, until the Company is financially capable to compensate him. He also serves on the Company’s board of directors, supported by five other directors.



35




We will rely upon CNS’s current executive management team to operate CNS’ business. The CNS management team currently includes William A. Lambos and Peter A. Hannouche. These two individuals founded CNS, developed its operation and business plans, serve as its principal executive officers, and manage all aspects of the business. Although we have employment agreements with Mr. Lambos and Mr. Hannouche, we cannot guarantee that either of them will remain affiliated with us.


We will rely upon PSI’s current executive management, Mr. Scot L. Johnson, to operate PSI’s business. Mr. Johnson founded PSI, developed its operation and business plans, serves as its principal executive officer, and manages all aspects of the business. Although we have an employment agreement with Mr. Johnson, we cannot guarantee that he will remain affiliated with us.


Results of Operations


For the Fiscal Year Ended September 30, 2011 and 2012


The Company commenced operations in August upon acquisitions of CNS and PSI. For the fiscal year ended September 30, 2012 we earned $89,825 in revenues, incurred $15,931 in cost of revenues, resulting $73,894 in gross profit. We expended $151,341, $51,673, $11,077, $108,945, $24,285 and $95,820 in professional fees, rent, research and development, personnel, selling and general and administrative expenses, respectively.


The Company operates in three (3) business segments:


(i)

Nutritional Supplement Distribution: nutritional supplement business segment engages in the development of an internet online store business to market nutritional supplement solutions through the Company's website www.aminofactory.com;


(ii)

Patient Services: which it stems from CNS, its wholly-owned subsidiary it acquired on August 2, 2012, a patient service provider specializing in the treatment of brain-based behavioral health disorders including developmental, emotional and stress-related problems; and


(iii)

Medical Devices: which it stems from PSI, its wholly-owned subsidiary it acquired on August 2, 2012, a developer, manufacturer, marketer and distributer of Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases.




36




The detailed segment information of the Company is as follows:


Wellness Center USA, Inc.

 Consolidated Statements of Operations

 By Reportable Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Fiscal Year

 

 

 

Ended

 

 

 

September 30, 2012

 

 

 

WCUI

 

CNS

 

PSI

 

WCUI

 

 Consolidated

 

 

 

Corporate Headquarter

 

 Patient Services

 

 Medical Devices

 

Nutritional Supplement Distribution

 

 

 NET REVENUES

-

 

46,638

 

42,000

 

1,187

 

89,825

 

 

 

 

 

 

 

 

 

 

 

 

 COST OF GOODS SOLD

-

 

-

 

15,094

 

837

 

15,931

 

 

 

 

 

 

 

 

 

 

 

 

 GROSS PROFIT

-

 

46,638

 

26,906

 

350

 

73,894

 

 

 

 

 

 

 

 

 

 

 

 

 OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 Amortization expenses

2,898

 

11,412

 

18,729

 

-

 

33,039

 

 Consulting fees

60,680

 

-

 

-

 

-

 

60,680

 

 Professional fees

90,406

 

-

 

255

 

-

 

90,661

 

 Rent expenses - Related party

25,050

 

-

 

-

 

-

 

25,050

 

 Rent expenses

-

 

23,413

 

3,210

 

-

 

26,623

 

 Research and Development

-

 

-

 

11,077

 

-

 

11,077

 

 Salaries - officers

-

 

50,000

 

17,312

 

-

 

67,312

 

 Salaries - others

-

 

27,210

 

14,423

 

-

 

41,633

 

 Selling expenses

-

 

1,047

 

23,238

 

-

 

24,285

 

 General and administrative expenses

49,900

 

16,110

 

29,810

 

-

 

95,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total operating expenses

228,934

 

129,192

 

118,054

 

-

 

476,180

 

 

 

 

 

 

 

 

 

 

 

 

 LOSS FROM OPERATIONS

(228,934)

 

(82,554)

 

(91,148)

 

350

 

(402,286)

 

 

 

 

 

 

 

 

 

 

 

 

 OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

 

 

 

 

 Interest income

-

 

-

 

-

 

-

 

-

 

 Interest expense

-

 

-

 

-

 

-

 

-

 

 Interest expense - related party

-

 

1,101

 

-

 

-

 

1,101

 

 Other (income) expense

-

 

1,498

 

-

 

-

 

1,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total other (income) expense

-

 

2,599

 

-

 

-

 

2,599

 

 

 

 

 

 

 

 

 

 

 

 

 LOSS BEFORE INCOME TAX PROVISION

(228,934)

 

(85,153)

 

(91,148)

 

350

 

(404,885)

 

 

 

 

 

 

 

 

 

 

 

 

 INCOME TAX PROVISION

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 NET LOSS

(228,934)

 

(85,153)

 

(91,148)

 

350

 

(404,885)

 

 

 

 

 

 

 

 

 

 

 

 


Liquidity and Capital Resources


As of September 30, 2012, our cash balance was $112,494 inclusive $86,141 held by WCUI, $8,798 held by CNS and $17,555 held by PSI. The management estimated that our current monthly burn rate to be approximate $107,000 inclusive of $15,000 for WCUI, $34,000 for CNS and $58,000 for PSI, respectively. Our current cash on hand is not sufficient to maintain our daily operations for the next 12 months. The management of the Company intends to raise additional capital through private equity transactions or debt financing to fund our daily operations through next 12 months, however no assurance can be given that we will be successful in raising additional capital through private equity transactions or debt financing during the period.  For the Period from October 1, 2012 through December 31, 2012, the Company has raised approximately $300,000 through the sale of certain equity units inclusive of one (1) share of our common stock and a warrant to purchase one (1) share of our common stock.  In the event that we are unable to raise sufficient capital through private equity transactions or debt financing we may have to reduce our operating expenses and maintain minimum level of operations.


Our independent registered public accounting firm issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills.




37




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.     


Mr. Johnson 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 by Mr. Johnson 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 Mr. Johnson, 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 Mr. Johnson 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.



38




Mr. Johnson 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. This second provisional patent application is owned by Mr. Johnson who has granted PSI the sole and exclusive, worldwide, paid-up, royalty-free, perpetual license under this second provisional patent application, any non-provisional patent applications filed by Mr. Johnson 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.


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, four (4) full-time and eleven (11) part-time employees within CNS, three (3) full-time employees and five (5) part time employees within PSI.  We have employment agreements with Mr. Lambos, Mr. Hannouche, Mr. Johnson, but none with Mr. Kandalepas, who currently serves as our Chairman, President, CEO and CFO.


Summary of Significant Accounting Policies.


Basis of Presentation


The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).


Principles of Consolidation


The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC") to determine whether and how to consolidate another entity.  Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee.  Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation.  The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, in which the parent’s power to control exists.


The consolidated financial statements include all accounts of the Company as of September 30, 2012 and 2011 and for the fiscal year then ended, all accounts of CNS as of September 30, 2012 and for the period from August 2, 2012 (date of acquisition) through September 30, 2012 and all accounts of PSI as of September 30, 2012 and for the period from August 24, 2012 (date of acquisition) through September 30, 2012 as follows:


Entity

Jurisdiction or Place of Incorporation

Attributable Interest

 

 

 

CNS Wellness Florida, LLC

The State of Florida

100%

 

 

 

Psoria-Shield Inc.

The State of Florida

100%


All inter-company balances and transactions have been eliminated.


Use of Estimates and Assumptions


The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.



39




The Company’s significant estimates and assumptions include the fair value of businesses acquired and the allocation of the purchase prices of acquired entities to the tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest, based on their estimated fair values for each acquisition; the fair value of financial instruments; allowance for doubtful accounts; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of property and equipment, intangible assets other than goodwill; expected term of share options and similar instruments, expected volatility of the entity’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s); revenue recognized or recognizable, sales returns and allowances; income tax rate, income tax provision, deferred tax assets and the valuation allowance on deferred tax assets, and the assumption that the Company will continue as a going concern.  Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.


Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.


Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.


Actual results could differ from those estimates.


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 a business combination it is required that the assets acquired and liabilities assumed constitute a business. 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.


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 date on which the acquirer obtains control of the acquiree generally is the date on which the acquirer legally transfers the consideration, acquires the assets, and assumes the liabilities of the acquiree—the closing date.


Intangible Assets Identification, Estimated Fair Value and Useful Lives


In accordance with ASC Section 805-20-25 as of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in ASC paragraphs 805-20-25-2 through 25-3.


The recognized intangible assets of the acquiree were valued through the use of the market, income and/or cost approach, as appropriate. The Company utilizes the income approach on a debt-free basis to estimate the fair value of the identifiable assets acquired in the acquiree at the date of acquisition with the assistance of the third party valuation firm.  This method eliminates the effect of how the business is presently financed and provides an indication of the value of the total invested capital of the Company or its business enterprise value.




40




Business Enterprise Valuation


The Company utilizes the income approach – discounted cash flows method to estimate the business enterprise value with the assistance of the third party valuation firm.  The income approach considers a given company's future sales, net cash flow and growth potential.  In valuing the business enterprise value of business acquired, the Company forecasted sales and net cash flow for the acquiree for five (5) years into the future and used a discounted net cash flow method to determine a value indication of the total invested capital of the acquiree.  The basic method of forecasting involves using past experience to forecast the future. The next step was to discount these projected net cash flows to their present values.  One of the key elements of the income approach is the discount rate used to discount the projected cash flows to their present values.  Determining an appropriate discount rate is one of the more difficult parts of the valuation process.  The applicable rate of return or discount rate, the rate investors in closely-held companies require as a condition of purchase, varies from time to time, depending on economic and other conditions.  The discount rate is determined after considering the overall risk of the investment, which includes: (1) operating and financial risk in the business enterprise or asset; (2) current and projected profitability and growth; (3) risk of the respective industry; and (4) the equity risk premium relative to Treasury bonds.  The discount rate is also affected by an analyst's judgment regarding the credibility of the income projections.  The discount rate rises as the projections become increasingly optimistic, or falls as the degree of certainty increases.


Inherent Risk in the Estimates


Management makes estimates of fair values based upon assumptions believed to be reasonable.  These estimates are based on historical experience and information obtained from the management of the acquired companies. Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from revenues, customer relationships, key management and market positions, assumptions about the period of time the acquired trade names will continue to be used in the Company’s combined portfolio of products and/or services, and discount rates used to establish fair value.  These estimates are inherently uncertain and unpredictable.  Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.


Fair Value of Financial Instruments


The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:


Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

 

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

 

 

Level 3

 

Pricing inputs that are generally observable inputs and not corroborated by market data.


Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.


The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.


The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments.


Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.


It is not, however, practical to determine the fair value of advances from stockholders, if any, due to their related party nature.



41




Carrying Value, Recoverability and Impairment of Long-Lived Assets


The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, intangible assets inclusive of trademark, unpatented technologies, non-compete agreements, website development costs and goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.


The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.


The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes.  The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.


The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.


Cash Equivalents


The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.


Accounts Receivable and Allowance for Doubtful Accounts


Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.


Outstanding account balances are reviewed individually for collectability.  The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any.  Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.


There was no allowance for doubtful accounts at September 30, 2012 or 2011.


The Company does not have any off-balance-sheet credit exposure to its customers at September 30, 2012 or 2011.


Inventories


Inventory Valuation


The Company values inventories, consisting of raw materials, packaging material and finished goods, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method for raw materials and finished goods.  Substantially all of the cost of finished goods comprises of the cost of parts purchased from third party vendors as the assembly cost is immaterial. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.



42




Inventory Obsolescence and Markdowns


The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.


Property and Equipment


Property and equipment is recorded at cost.  Expenditures for major additions and betterments are capitalized.  Maintenance and repairs are charged to operations as incurred.  Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives.  Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.


Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.  Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.


Leases


Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”).  When substantially all of the risks and benefits of property ownership have been transferred to the Company, as determined by the test criteria in Paragraph 840-10-25-1, the lease then qualifies as a capital lease.  Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets.  Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.


Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term.


Intangible Assets Other Than Goodwill


The Company has adopted paragraph 350-30-25-3 of the FASB Accounting Standards Codification for intangible assets other than goodwill.  Under the requirements, the Company amortizes the acquisition costs of intangible assets other than goodwill inclusive of trademark, unpatented technology, non-compete agreements and website development costs on a straight-line basis over their relevant estimated useful lives of nine (9), twenty (20), three (3) years and three (3) years, respectively.  Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.


Goodwill


Goodwill represents the excess of the cost of an acquired entity over the fair value of the net assets at the date of acquisition. Under paragraph 350-20-35-1 of the FASB Accounting Standards Codification, goodwill acquired in a business combination with indefinite useful lives are not amortized; rather, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.


Related Parties


The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.


Pursuant to Section 850-10-20 the Related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.



43




The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.


Revenue Recognition


The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company will recognize revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when 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.


(ii)

Patient Services:  The Company derives its revenues from the patient services it provides. Deferred revenues are recorded at the time patients pay prior to services being rendered. The Company recognizes revenues as services are provided, which typically is over a period of three (3) to five (5) months. The Company’s clients sign a contract prior to any service. Clients who wish to pay for the full package in advance receive a discount ranging from 10% to 15% depending on the package of the services chosen. In the majority of cases, payments are collected before all services are rendered. The client signs an agreement stating that they are required to complete treatment within one (1) year or remaining unused treatments are forfeited. In addition, the contract stipulates that if the client does not appear for treatment for a period of six (6) consecutive months, their package is placed into abandonment. In such a case the Company retains all payments and is able to pursue any balances.


Shipping and Handling Costs


The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification.  While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.


Stock-Based Compensation for Obtaining Employee Services


The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.



44




The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs are as follows:


·

Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding.  Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments.  Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.


·

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.


·

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.


·

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.


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.


Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services


The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).


Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.




45




The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs are as follows:


·

Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  The Company uses historical data to estimate holder’s expected exercise behavior.  If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.


·

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.


·

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.


·

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.


Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.


Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.


Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.




46




Recently Issued Accounting Pronouncements


FASB Accounting Standards Update No. 2011-08


In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.


The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.


FASB Accounting Standards Update No. 2011-11


In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.


The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.


FASB Accounting Standards Update No. 2012-02


In July 2012, the FASB issued the FASB Accounting Standards Update No. 2012-02 “Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”).


This Update is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. This guidance builds upon the guidance in ASU 2011-08, entitled Testing Goodwill for Impairment. ASU 2011-08 was issued on September 15, 2011, and feedback from stakeholders during the exposure period related to the goodwill impairment testing guidance was that the guidance also would be helpful in impairment testing for intangible assets other than goodwill. 


The revised standard allows an entity the option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired.


This Update is effective for annual and interim impairment tests performed in fiscal years beginning after September 15, 2012.  Earlier implementation is permitted.


Other Recently Issued, but not yet Effective Accounting Pronouncements


Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.


Going Concern


As reflected in the financial statements, the Company had a deficit accumulated during the development stage at June 30, 2012, a net loss and net cash used in operating activities for the interim period then ended, respectively.


While the Company is attempting to commence operations and generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.



47




The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.


ITEM 7A.

QUANTITIATIVE AND QUALITATIVE DISCLOUSURES 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-47 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, 2012, 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.

We do not have written documentation of our 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 us as of and for the fiscal year ending September 30, 2011.  Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

2.

The Company’s board of directors has no audit committee, independent director or member with financial expertise which causes ineffective oversight of the Company’s external financial reporting and internal control over financial reporting.

3.

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our 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 our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

4.

We have had, and continue to have, a significant number of audit adjustments.  Audit adjustments are the result of a failure of the internal controls to prevent or detect misstatements of accounting information.  The failure could be due to inadequate design of the internal controls or to a misapplication or override of controls.  Management evaluated the impact of our significant number of audit adjustments and has concluded that the control deficiency that resulted represented a material weakness.



48




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.


Remediation of Material Weaknesses


We intend to remediate the material weaknesses in our disclosure controls and procedures identified above by adding independent director or member with financial expertise or hiring a full-time CFO, with SEC reporting experience, in the future when working capital permits and by working with our independent registered public accounting firm and refining our internal procedures. To date, we have not been successful in reducing the number of audit adjustments, but will continue our efforts in the coming fiscal year as more fully detailed below.


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;

·

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 only in accordance with authorizations of management and directors of the issuer; and

·

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.


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, 2012, 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; (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; and (3) ineffective controls over period end financial disclosure and reporting processes.  The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of September 30, 2012.


To address the material weaknesses set forth in items (2) and (3) 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.



49




This annual 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 registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this annual report.


Management's Remediation Initiatives


In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:


We will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. First, we will create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.


Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.


We anticipate that these initiatives will be at least partially, if not fully, implemented by September 30, 2013. Additionally, we plan to test our updated controls and remediate our deficiencies by September 30, 2013.


Changes in internal controls


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 fourth quarter of our fiscal year 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



50



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 current directors and executive officers. 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 stockholders, death, resignation or removal by the Board of Directors. There are no family relationships among our directors, and executive officers.


Name

Age

Position

Date

 

 

 

 

Andrew J. Kandalepas

60

Chairman, President, Chief Executive Officer and

Chief Financial Officer

June 2010

 

 

 

 

Periklis Papadopoulos

49

Director

Nov. 2010

 

 

 

 

Evan T. Manolis

54

Director, Secretary

Nov. 2010

 

 

 

 

William A. Lambos, Ph.D.

55

President, Chief Scientific Officer, CNS

Director

August 2012

 

 

 

 

Peter A. Hannouche

47

Chief Executive Officer, CNS

Director

August 2012

 

 

 

 

Scot L. Johnson           

  37

President, Chief Executive Officer, PSI

Director

August 2012


Andrew J. Kandalepas - Chairman, President, Chief Executive Officer and Chief Financial Officer


Recent and Present Professional History:


·

Senior Vice President and Director – GeoVax Labs, Inc. / Atlanta, GA

·

President, CEO and Chairman – Dauphin Technology, Inc. / Palatine, IL


Mr. Kandalepas has a varied 30+ year’s career as an entrepreneur and executive manager in private and publicly traded companies, particularly in the high-tech and biomedical sectors. His involvement in the public sectors started following 10 successful years with Motorola and the establishment of CadServ Corporation, a privately owned Engineering Solutions boutique service provider to major electronic OEM’s. He earned his BA degree from DeVry University in 1974.


From 1995 to 2006, he served as the Chief Executive Officer and Chairman of the Board of Dauphin Technology, Inc., a leading developer of mobile hand writing recognition tablets and Broad Band Set Top Boxes. As a major stockholder in the corporation, he accepted the position as CEO/COB in 1995, at a time when Dauphin Technology Inc. was in the midst of bankruptcy proceedings and needed someone capable to lead the company out of bankruptcy. Indeed, Mr. Kandalepas spearheaded the challenge and was successful in resolving the Company’s $52 Million bankruptcy debt. He then developed business plans which carried Dauphin Technology through several acquisitions and partnerships to the benefit of the corporation’s shareholders.


In 2006, Mr. Kandalepas designed and executed a successful reverse merger between Dauphin Technology and GeoVax, Inc., creating GeoVax LABS Inc., an HIV/AIDS vaccine research and development firm located in Atlanta, Georgia. GeoVax’s preventive as well as its therapeutic vaccines are presently undergoing human trials testing, sponsored by the National Institutes of Health (NIH) and AIDS Research Consortium of Atlanta (ARCA), respectively. Until his resignation in July of 2009, Mr. Kandalepas was a member of GeoVax’s Board of Directors and served as the Company’s Senior Vice President. During his combined tenure at Dauphin Technology, Inc. and GeoVax Labs, Inc., he was successful in achieving more than $60 million in capital raisings, through various private placements.



51




Following a brief career break, from July 2009 to May 2010, Mr. Kandalepas founded Wellness Center USA, Inc., in June of 2010. Wellness Center USA, Inc., is a start-up firm engaged in developing an internet store business to market customized nutritional supplement solutions. From inception to present, Mr. Kandalepas has assumed several leading roles, including President and Chief Executive Officer, to organize, finance and execute the company’s business plan which this Current Report is a part of. He is also serving as a director on the Company’s Board.


Mr. Kandalepas’s extensive entrepreneurial experience combined with his strong knowledge of the financial sectors through his 15 years executive roles in running public companies; brings strong credibility to the Company’s executive team. His proven ability to lead and help finance development stage companies, will be key in executing the company’s business plan and building a successful enterprise in the health care sector and potentially public arena.


Mr. Kandalepas is an active participant in the local Greek community and was instrumental in the establishment of St. Athanasios Greek Orthodox Greek Seminary, located in McHenry County, Illinois. Mr. Kandalepas is a proud husband to Cynthia and father of two.


Periklis Papadopoulos, Ph.D. - Director


Recent and Present Professional History:


·

President and CEO – Space Systems Corp. / Atherton, CA.

·

Full Time Professor – San Jose State University / San Jose CA.

·

Senior Staff - Aeronautical Engineer / Sunnyvale, CA.


Dr. Papadopoulos earned his Bachelor’s degree in Mechanical and Aerospace Engineering from Illinois institute of Technology and Master’s and Doctorate Degrees from Stanford University. During his education he was honors listed. Dr. Papadopoulos is a graduate of the Aeronautics and Astronautics department at Stanford, class of ’92 where he was recognized with the best thesis award. He is also a member of the honors societies TAU-BETA-PI National Engineering Honorary Society and PI-TAU-SIGMA National Mechanical Engineering Honorary Fraternity.


He served as senior research scientist at NASA-ARC / ELORET – Thermosciences Institute for over 15 years where he participated and project lead planetary mission studies, space transportation and re-entry programs. Programs that he was involved include the reusable launch vehicles X-33, X-34, X-38 and XCRV, space shuttle contingency abort, Space Launch initiative (SLI), Mars Science Laboratory, Mars Pathfinder, Galileo probe, and Venus Composition Probe, amongst others. He also served as a member of the NASA-ARC COBRA team for designing a next generation Mars Entry vehicle able to land heavy payload delivery systems. His scientific contributions to the space program have been published in over 60 conference and journal publications. In his tenure at NASA, he was recognized with several spotlight awards for his outstanding contributions, public service award to the space program, including NASA’s prestigious Turning Goals Into Reality (TGIR) award. He has also been invited speaker at the JANNAF Interagency Propulsion Committee, AIAA Thermophysics conference, and International Conference on Numerical Grid Generation in Computational Field Simulations,


Dr. Papadopoulos is the founder and CEO of Space Systems, LLC, founded in 2003. He lead a team of researchers that successfully completed and awarded several contracts from the US Department of the Air Force, Headquarters Flight Test Center (AFMC), the Air Force Research Laboratory (AFRL) Advanced Vehicles Concepts branch of the Propulsion Directorate at Edwards Air Force Base, ERC and NASA ARC.




52




The goals of the organization are focused in developing and participating with technology innovation and commercialization, which addresses specific and detailed governmental agency needs within NASA, DoD, DoE, DARPA and similar branches. He has established partnership and teaming agreement with Lockheed Martin Technical Operations (LMTO). The AFRL, AFMC, ERC, NASA awarded contract topics include:


·

Novel Analysis Tools for Rapid Evaluation of Advanced Propulsion Systems (REAPS), AFRL Contract Number FA9300-04-C-0047 (Phase I and Phase II awards.)

·

Advanced Modeling & Simulation (M&S) of Complex Non-Equilibrium Plasma Flows for Micro-satellite Propulsion, AFRL contract number F04611-03-M-3035, (Phase I award.)

·

Combustion chamber Ablation Modeling – CCAM (Phase II enhancement contract award), AFMC Contract Number F04611-03-M-3038

·

High Altitude Access to Space Feasibility Study (Phase II enhancement contract award), AFRL Contract Number FA9300-04-C-0047 Enhancement.

·

Launch Vehicle Power Trajectory Modeling and Co-Optimization Code (Phase II enhancement contract award), AFRL Contract Number FA9300-04-C-0047 Enhancement.

·

Two NASA contract were awarded to provide Three-Dimensional CFD Modeling of the ATROMOS Mars Entry Architecture under Purchase Order NNA08CG19P with NASA Ames Research Center.

·

GPU Implementation of Large-Scale Simulations For Non-Equilibrium Fluid and Plasma Dynamics. AFRL subcontract with Air Force on site contractor ERC.

·

Dr. Papadopoulos, currently holds a tenure, full professor, position at California’s San Jose State University. He is the director/founder of the Center of Excellence for Space Transportation and Exploration. He was the co-investigator and probe developer for the ATROMOS/NASA Mars Polar Lander. He directed the microsatellite and cube-sat program and laboratory at SJSU. He established a high performance computing cluster sponsored by the INTEL Corporation. He established a memorandum of understanding between the SJSU/MAE department and the Lockheed Martin Co. (LMCO and LMTO) for development of business opportunities in the areas of space transportation, propulsion, and engineering and technology services and to jointly submit proposals to government agencies. He coordinated the SJSU/LMCO on sight cohort graduate Aerospace Engineering Program. He supervised student’s publication that obtained best paper awards at the AIAA Atmospheric Flight Mechanics Conference in San Francisco, Ca. August 2005, 3rd place at the International Planetary Probe Workshop III in Athens, Greece, 3rd place at the AIAA western regional student conference in the graduate division, and best student award at the International Planetary Probe Workshop VI in Atlanta, Georgia, 2008. Dr. Papadopoulos, has served as member of the International Steering committees of the International Planetary Probe Workshop (IPPW) and the International Society of Grid Generation (ISGG) in numerical field simulations. Organized the 9th International conference on Numerical Grid Generation in Computational Field Simulations at San Jose State University, the 2nd, 3rd, 4th, 5th and 6th conferences on planetary probes and the Thermal and Fluids Analysis Workshop (TFAWS).


Dr. Papadopoulos’s vast academic career and strong entrepreneurial experience in the aeronautical field shall be of great value and benefit to Wellness Center USA, Inc. His scholar, research and strong development experience, bring invaluable diversity to the company’s board and management in introducing new applications in generally untapped markets.


Evan T. Manolis, MD - Director, Secretary


Recent and Present Professional History:


·

Practicing Physician in Plastic and Reconstructive Surgery – Self Employed / Orland Park, IL

·

President – Evan Manolis & Associates / Orland Park, IL

·

President – MIA Medical Spa / Orland Park, IL

·

Director – Acron Genomics / London, England


Dr. Manolis is a veteran plastics and reconstructive surgeon in the Chicago-land area, with extensive personal experience in medical spa establishment, management and marketing. He has served in advisory roles to local hospitals for practice developments. Further, Dr. Manolis presently serves as chairman of an international biotech company involved in point of care diagnostics technology development in association with Imperial College, in London.


Education: He earned his B.S. in Biology at the University of Illinois, in Chicago (1976-1981). From 1987-1991 he attended school of medicine at Southern Illinois University, where he earned his M.D. Post graduate training and residency were conducted at the Medical College of Ohio, 1991-1996, followed by Reconstructive and Plastic Surgery Residency at the school of medicine at Southern Illinois University, 1996-1998. His microsurgery and hand fellowship were completed at the school of medicine, University of Nevada, 1998-1999.



53




Dr. Manolis’s medical and health care knowledge adds invaluable expertise to the Board of Directors of Wellness Center, USA. Further, his business experience and public market knowledge extend additional contributions to the company’s executive team.


William A. Lambos, Ph.D. Director, President, Chief Scientific Officer, CNS


Recent and Present Professional History:


William A. Lambos, Ph.D., is a licensed Psychologist and the President and Chief Cognitive Neuroscientist CNS Wellness, Florida, LLC.  He is an experienced psychologist with a postdoctoral certification in clinical neuropsychology, and is licensed to practice in the States of in Florida (PY8140) and California (PSY21786).  He is Board Certified in Neurofeedback Therapy by the Biofeedback Certification International Alliance (BCIA), Certified in qEEG Analysis by the Society for Advancement of Brain Analysis (SABA), Certified in Advanced Rational Emotive Therapy by the Albert Ellis Institute & The Rational Living Foundation.  Dr. Lambos is a Supreme Court Certified Family and County Mediator in the State of Florida.


Dr. Lambos possesses a strong background in experimental and clinical psychology, neuropsychology, broad neuroscience, EEG-based approaches to brain analysis and treatment, cognitive science, quantitative & multivariate statistical analysis, and information technologies.  He was the owner and president of a technical consultancy firm with over 10 employees and annual revenues exceeding $1 million for over 15 years.  The firm, WAL Consulting, Inc., specialized in custom database application program development for the insurance and shipping industries, as well as developing, reselling and configuring high-end solutions in paperless technologies and distributed information systems design, coding and implementation.  Dr. Lambos has himself written over three million lines of commercially used computer code in languages from assembly code to high-level coding languages such as C++, Pascal and Delphi, and thin client platforms using PERL, JavaScript and HTML.


Dr. Lambos has been a faculty member at McMaster University, St. Petersburg College and the University of South Florida.  He has taught undergraduate and graduate level courses in psychology, neuroscience and computer science.


Dr. Lambos received his Master's and Doctorate degrees in Psychology from McMaster University.  He holds a Master’s degree in Rehabilitation and Mental Health Counseling from the University of South Florida, and received a postgraduate Certificate in Clinical Neuropsychology from Fielding Graduate University.


Dr. Lambos is the author or co-author of three books on marriage and family counseling, and a variety of other publications in both peer-reviewed journals, magazines and book chapters.


Peter A. Hannouche Director, Chief Executive Officer, CNS


Recent and Present Professional History:


Peter A. Hannouche is the Chief Executive Officer and a 50% Equity Owner of CNS Wellness Florida LLC.  He made his investment in CNS Wellness in 2009 after receiving services himself.  He was so impressed with the approach, technology and results of his experience that he convinced Dr. Lambos to form a joint venture company to expand and develop the vision and possibilities of CNS Wellness.


Mr. Hannouche has extensive experience in the Hospitality, Food Service and Property Development Industries.  Prior to his investment in, and full-time employment by, CNS Wellness, Mr. Hannouche was an owner and operator of group of companies in Tampa, including Tampa Concessions, Inc., 720 South Howard, LLC, Hyde Park Properties, LLC, PTC Investments LLC, and the well known Tampa “Whiskey” Brand (Whiskey Soho, Whiskey North, etc.).  He also owned and operated a large number of commercial real estate properties.  Collectively, his business assets attained a market value in excess of $25 million, and revenues in excess of $10 million per year.


Mr. Hannouche has managed over 300 employees concurrently in his combined portfolio of properties.  By age 28, he operated five business locations with annual sales of over $22 million.  At age 33, he relocated to Tampa, FL and, with partners, opened seven locations that dominated the Tampa market in late night entertainment and dining.


Mr. Hannouche sold his equity in most of his interests and properties in 2008 at the height of the real estate boom.  Looking for an opportunity to use his skills and vision to help others, he adopted a personal and professional mission to bring CNS Wellness to as many other individuals as possible and remains tenaciously committed to ensuring that clients achieve wellness and inner peace through CNS methods.



54




Scot L. Johnson Director, President and Chief Executive Officer, PSI


Mr. Johnson has served as the President, Secretary and as a member of the Board of Directors of PSI since June 2009.   He previously served as PSI’s Chief Technology Officer. He has more than 15 years of biomedical engineering and manufacturing experience. His accomplishments include development and life-cycle management of over 30 FDA-cleared, CE marked Class II medical devices (diagnostic and therapeutic). He has also monitored and participated in more than 40 clinical studies, written more than 14 patent applications (five currently published), and has experience managing teams of up to 11 full-time engineers (reporting directly). Before joining PSI, Mr. Johnson served in clinical design engineering and contract manufacturing for Dolphin Medical, developing and manufacturing LED based medical devices.  Mr. Johnson has served as a technical consultant and Engineering Director for Axiom Worldwide, LLC, a company that designed, manufactured, and marketed spinal decompression equipment. While working with Axiom Worldwide, LLC, he designed automated chiropractic equipment and electrical stimulation devices, initiated and developed a strategic partnership program, co-developed a certified space technology partnership, authored technical specifications for eight patent applications, and co-developed a successful military sales expansion effort.  Mr. Johnson graduated from the University of South Florida in 2000 with a Bachelor of Science in Electrical Engineering and successfully completed his professional project management coursework in Spring 2004 through the Villanova Project Management Institute.  


Audit Committee


The Board of Directors determined not to establish an audit committee at present because of 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.


Certain Legal Proceedings

 

No director, nominee for director, or executive officer of the Company has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.

 

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.




55




ITEM 11.

EXECUTIVE COMPENSATION


Executive Compensation


Summary Compensation


Our CEO currently receives no compensation. The current Board of Directors is comprised of Mr. Kandalepas, Mr. Manolis, Mr. Papadopoulos, Mr. Lambos, Mr. Hannouche and Mr. Johnson.


Summary Compensation Table


 

 

 

 

 

 

 

 

 

Name & Principle Position


Year

($)


Salary

($)

Other Annual

Compensation

Bonus ($)

Restricted

Stock

(Shares)

Options

Awards

(Shares)

LTIP

SARs ($)


Payouts

($)

All Other

Compensation

($)

Andrew J. Kandalepas,

Chairman, President and CEO

2012

0

0

0

0

0

0

0

 

2011

0

0

0

0

0

0

0

(1)

2010

0

0

3,665,000

1,600,000

0

0

0

 

 

 

 

 

 

 

 

 

Periklis Papadopoulos, Ph.D.,

Director

2012

0

0

0

0

0

0

0

(2)

2011

0

0

225,000

100,000

0

0

0

 

 

 

 

 

 

 

 

 

Evan T. Manolis, MD,

Director and Secretary

2012

0

0

0

0

0

0

0

(2)

2011

0

0

225,000

100,000

0

0

0

 

 

 

 

 

 

 

 

 

William A. Lambos, President of CNS, Director (3)

2012

0

0

3,650,000

0

0

0

0

 

 

 

 

 

 

 

 

 

Peter A. Hannouche,

CEO of CNS, Director (3)

2012

0

0

3,650,000

0

0

0

0

 

 

 

 

 

 

 

 

 

Scot L. Johnson, President of PSI, Director (4)

2012

0

0

3,005,000

0

0

0

0

 

 

 

 

 

 

 

 

 


(1)

Upon formation the Company issued to the Company’s founder (i) 3,665,000 shares of its common stock valued at par, or $3,665 and (ii) an option to purchase 1,600,000 shares of its common stock with an exercise price of $0.01 per share expiring five (5) years from the date of issuance valued at nil, on the date of grant, as officer's compensation.

(2)

On June 30, 2011 the Company issued 125,000 shares each or 250,000 shares of its common stock in aggregate, valued at $250 on the date of issuance to the two (2) outside members of the board of directors as compensation.



56




(3)

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, 3,650,000 each were issued to Mr. William A. Lambos and Mr. Peter A. Hannouche, respectively.

(4)

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, 3,005,000 of which were issued to Mr. Scot Johnson.


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.


Employment Agreements


We have employment agreements with our executive officers, Mr. Lambos and Mr. Hannouche, who serve as President/Chief Scientific Officer and Chief Executive Officer, respectively, of CNS, and with Mr. Johnson, who serves as President/ Chief Executive Officer, of PSI.  Each agreement is for a term of three years beginning August 2, 2012 and provides a base salary of $150,000, subject to increase, but not decrease, from time to time as determined by the Board of Directors.  Employment under each agreement is at will and terminable by either party at any time.   If an employment agreement is terminated by the executive for good reason (as defined therein), or by the Company other than for cause (as defined therein), the executive is entitled to pay through the termination date plus three month’s base pay for each full year of service then remaining. If an employment agreement is terminated by the executive for other than good reason, or by the Company for cause, the executive is entitled only to pay through the termination date and a portion of Company shares held by him or for his benefit are subject to forfeiture. Each agreement contains covenants not to compete, secrecy and non-interference which apply during employment and continue for a period of two years following termination.


Stock Option Plan


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.


Pursuant to Section 7 - Adjustments or Changes in Capitalization of the Stock Option Plan, the number of shares to be received upon the exercise of the option and the exercise price to be paid for a share hereinafter sometimes referred to as “Exercise Price” which may be adjusted from time to time as hereinafter as follows:


7.1

In the event that the outstanding Common Shares of the Company are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation, other reorganization, recapitalization, reclassification, combination of shares, stock split-up or stock dividend:

 

A.

Prompt, proportionate, equitable, lawful and adequate adjustment shall be made of the aggregate number and kind of shares subject to Stock Options which may be granted under the Plan, such that the Optionee shall have the right to purchase such Common Shares as may be issued in exchange for the Common Shares purchasable on exercise of the NQSO had such merger, consolidation, other reorganization, recapitalization, reclassification, combination of shares, stock split-up or stock dividend not taken place;


B.

Rights under unexercised Stock Options or portions thereof granted prior to any such change, both as to the number or kind of shares and the exercise price per share, shall be adjusted appropriately, provided that such adjustments shall be made without change in the total exercise price applicable to the unexercised portion of such NQSO’s but by an adjustment in the price for each share covered by such NQSO’s; or


C.

Upon any dissolution or liquidation of the Company or any merger or combination in which the Company is not a surviving corporation, each outstanding Stock Option granted hereunder shall terminate, but the Optionee shall have the right, immediately prior to such dissolution, liquidation, merger or combination, to exercise his NQSO in whole or in part, to the extent that it shall not have been exercised, without regard to any installment exercise provisions in such NQSO.



57




7.2

The foregoing adjustments and the manner of application of the foregoing provisions shall be determined solely by the Committee, whose determination as to what adjustments shall be made and the extent thereof, shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan on account of any such adjustments.


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.


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 Annual 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.


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

 

 

 

 

 

 

 

 

 

 

Andrew J. Kandalepas, Chairman, President and CEO (*)

3,665,000

 

1,600,000

 

-

 

5,265,000

 

12.7

 

 

 

 

 

 

 

 

 

 

Periklis Papadopoulos, Director (*)

225,000

 

100,000

 

-

 

325,000

 

0.8

 

 

 

 

 

 

 

 

 

 

Evan T. Manolis, Director and Secretary (*)

225,000

 

100,000

 

-

 

325,000

 

0.8

 

 

 

 

 

 

 

 

 

 

William A. Lambos, CNS Co-CEO and Director (*)

3,650,000

 

-

 

-

 

3,650,000

 

8.8

 

 

 

 

 

 

 

 

 

 

Peter Hannouche, CNS Co-CEO and Director (*)

3,650,000

 

-

 

-

 

3,650,000

 

8.8

 

 

 

 

 

 

 

 

 

 

Scot Johnson, PSI President and CEO and Director (*)

3,005,000

 

-

 

-

 

3,005,000

 

7.3

 

 

 

 

 

 

 

 

 

 

Officers and directors as a group (*)

17,335,000

 

1,800,000

 

-

 

19,135,000

 

39.2

 

 

 

 

 

 

 

 

 

 

Total issued and outstanding

30,978,237

 

3,250,000

 

7,209,774

 

41,438,011

 

100.0


(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. 1014 E Algonquin Rd, Ste. 111, Schaumburg, IL, 60173.


(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 60 days after September 30, 2012. Also includes unvested shares of restricted stock as to which such person has voting power but no dispositive power. 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.




58




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 


Related Party Transactions


Advances from Stockholders


From time to time, stockholders of the Company advance funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.


Notes Payable – Related Party


Note payable – related party, consisted of the following:


 

 

September 30, 2012

 

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

On August 29, 2010 CNS issued a promissory note to a family member of a stockholder, then one of CNS' members to memorialize (i) the receipt of the funds in the amount of $37,139 and (ii) the terms of note. Pursuant to the terms, the note accrues simple interest of 5% per annum until the note is fully repaid. Interest has been computed as of the date of the receipt of the funds. The note is due on demand.

 

$

37,139

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

$

37,139

 

 

$

-

 

 

 

 

 

 

 

 


Long-Term Note Payable – Officers


 

 

September 30, 2012

 

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

On August 2, 2012, upon the acquisition of CNS by WCUI, CNS memorialized the advances from the former member as a promissory note of the officer. Pursuant to the terms, CNS promises to pay the officer the principal sum of $120,886.30  and the note accrues simple interest of 2% per annum payable annually on each anniversary date of the Note. The entire principal balance together with any accrued but unpaid interest thereon due August 2, 2015.

 

$

120,886

 

 

$

-

 

 

 

 

 

 

 

 

 

 

On August 2, 2012, upon the acquisition of CNS by WCUI, CNS memorialized the advances from the former member as a promissory note of the officer. Pursuant to the terms, CNS promises to pay the officer the principal sum of $75,322.14 and the note accrues simple interest of 2% per annum payable annually on each anniversary date of this Note. The entire principal balance together with any accrued but unpaid interest thereon due August 2, 2015. In September 2012, CNS repaid $900 toward the note.

 

$

74,422

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

$

195,308

 

 

$

-

 

 

 

 

 

 

 

 

 

 


Operating Lease with a Related Party - WCUI


On December 20, 2010 the Company entered into a non-cancellable sub-lease for office space in Illinois with CADserv Corporation for $1,909.50 per month for the period from January 1, 2011 through December 31, 2011.


On January 10, 2012 the Company renewed the non-cancellable sub-lease for office space in Illinois with CADserv Corporation with the same terms and condition for the period from January 1, 2012 through December 31, 2012.


On December 19, 2012 the Company renewed the non-cancellable sub-lease for office space in Illinois with CADserv Corporation with the same terms and condition for the period from January 1, 2013 through December 31, 2013.




59




Future minimum lease payments required under the non-cancelable operating lease are as follows:


Fiscal year ending September 30:

 

 

 

 

 

 

 

 

 

2013

 

$

22,914

 

 

 

 

 

 

2014

 

 

5,728

 

 

 

 

 

 

 

 

$

28,642

 


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 directors increases.


ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES


Audit Fees


We were billed $19,000 and $20,200 for the audit and reviews of our financial statements included in our periodic and other reports filed with the Securities and Exchange Commission for our fiscal year ended September 30, 2012 and 2011, respectively.


Tax Fees


For the Company's fiscal year ended September 30, 2012 and 2011, we were billed $1,500 and $0 for professional services rendered for tax compliance, respectively.


All Other Fees


None.


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. 




60



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

 

Exhibits No. 

Descriptions

  

  

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (**)

 

 

101.INS

XBRL Instance Document***

101.SCH

XBRL Taxonomy Extension Schema***

101.CAL

XBRL Taxonomy Extension Calculation Linkbase***

101.DEF

XBRL Taxonomy Extension Definition Linkbase***

101.LAB

XBRL Taxonomy Extension Label Linkbase***

101.PRE

XBRL Taxonomy Extension Presentation Linkbase***


(*)

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.




61




SIGNATURES


Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Schaumburg State of Illinois, on January 16, 2013.



WELLNESS CENTER USA, INC.


By: /s/ Andrew J. Kandalepas

Andrew J. Kandalepas


Chairman, Chief Executive Officer, Principal Accounting Officer and Chief Financial Officer


POWER OF ATTORNEY


Known All Persons By These Present, that each person whose signature appears below appoints Mr. Andrew Kandalepas as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, to sign any amendment (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said 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 in connection therewith, as fully to all intents and purposes as he may do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or any of them, or of his/her substitutes, may lawfully do or cause to be done by virtue hereof.


Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:



SIGNATURE

 

TITLE

 

DATE

  

 

  

 

  

/s/ Andrew J. Kandalepas

 

Chief Executive Officer, Chairman, Principal Accounting Officer, Chief Financial Officer, and Director

 

January 16, 2013

Andrew J. Kandalepas

 

 

 

 

 

 

  

 

  

/s/ Periklis Papadopoulos

 

Director

 

January 16, 2013

Periklis Papadopoulos

 

 

 

 

 

 

 

 

 

/s/ Evan T. Manolis

 

Director and Secretary

 

January 16, 2013

Evan T. Manolis

 

 

 

 

 

 

 

 

 

/s/ William A. Lambos

 

President of CNS and Director

 

January 16, 2013

William A. Lambos

 

 

 

 

 

 

 

 

 

/s/ Peter A. Hannouche

 

CEO of CNS and Director

 

January 16, 2013

Peter A. Hannouche

 

 

 

 

 

 

 

 

 

/s/ Scot L. Johnson

 

President of PSI and Director

 

January 16, 2013

Scot L. Johnson

 

 

 

 





62




Wellness Center USA, Inc.


September 30, 2012 and 2011


Index to the Consolidated Financial Statements





Contents

Page(s)

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets at September 30, 2012 and 2011

F-3

 

 

Consolidated Statements of Operations for the Fiscal Year Ended September 30, 2012 and 2011  

F-4

 

 

Consolidated Statement of Stockholders’ Equity (Deficit) for the Fiscal Year Ended September 30, 2012 and 2011

F-5

 

 

Consolidated Statements of Cash Flows for the Fiscal Year Ended September 30, 2012 and 2011  

F-6

 

 

Notes to the Consolidated Financial Statements

F-7





F-1




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

Wellness Center USA, Inc.

Schaumburg, Illinois


We have audited the accompanying consolidated balance sheets of Wellness Center USA, Inc. (the “Company”) as of September 30, 2012 and 2011 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the fiscal years then ended.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2012 and 2011 and the consolidated results of its operations and its cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the consolidated financial statements, the Company had an accumulated deficit at September 30, 2012 and had 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. Management’s plans in regards to these matters are also described in Note 3.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.




/s/Li and Company, PC

Li and Company, PC


Skillman, New Jersey

January 15, 2013



F-2




Wellness Center USA, Inc.

 Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 ASSETS

 

 

 

 

 

 Current Assets

 

 

 

 

 

 

 Cash

$

116,204

 

$

175

 

 Accounts receivable

 

4,200

 

 

-

 

 

 Total Current Assets

 

120,404

 

 

175

 Property and Equipment

 

 

 

 

 

 

 Property and equipment

 

101,207

 

 

1,150

 

 Accumulated depreciation

 

(9,933)

 

 

(288)

 

 

 Property and equipment, net

 

91,274

 

 

862

 Website Development Cost

 

 

 

 

 

 

 Website development cost

 

17,809

 

 

-

 

 Accumulated amortization

 

(2,898)

 

 

-

 

 

 Website development cost, net

 

14,911

 

 

-

 Exclusive Licenses

 

 

 

 

 

 

 Exclusive licenses

 

5,000

 

 

-

 

 Accumulated amortization

 

(438)

 

 

-

 

 

 Exclusive licenses, net

 

4,562

 

 

-

 Acquired Technologies

 

 

 

 

 

 

 Acquired technologies

 

2,420,000

 

 

-

 

 Accumulated amortization

 

(11,437)

 

 

-

 

 

 Acquired technologies, net

 

2,408,563

 

 

-

 Non-Compete Agreements

 

 

 

 

 

 

 Non-compete agreements

 

240,000

 

 

-

 

 Accumulated amortization

 

(9,166)

 

 

-

 

 

 Non-compete agreements, net

 

230,834

 

 

-

 Trademarks

 

 

 

 

 

 

 Trademarks

 

740,000

 

 

-

 

 Accumulated amortization

 

(9,538)

 

 

-

 

 

 Trademarks, net

 

730,462

 

 

-

 Other Assets

 

 

 

 

 

 

 Goodwill

 

4,584,648

 

 

-

 

 Security deposits

 

38,699

 

 

-

 

 

 Total other assets

 

4,623,347

 

 

-

 

 

 

 Total Assets

$

8,224,357

 

$

1,037

 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 Current Liabilities

 

 

 

 

 

 

 Accounts payable

$

293,721

 

$

-

 

 Accrued interest - related parties

 

4,617

 

 

-

 

 Accrued payroll - officers

 

53,825

 

 

-

 

 Accrued warranty

 

12,000

 

 

-

 

 Credit cards payable

 

105,322

 

 

-

 

 Current portion of deferred rent

 

11,363

 

 

-

 

 Advances from related parties

 

278,909

 

 

134,875

 

 Customer deposits

 

25,000

 

 

-

 

 Note payable

 

20,000

 

 

-

 

 Note payable - related party

 

37,139

 

 

-

 

 Convertible note payable - stockholder

 

58,000

 

 

-

 

 Sales tax payable

 

2,940

 

 

-

 

 Accrued expenses and other current liabilities

 

18,544

 

 

3,300

 

 

 Total Current Liabilities

 

1,116,688

 

 

138,175

 Non-Current Liabilities

 

 

 

 

 

 

 Deferred rent, net of current portion

 

29,362

 

 

-

 

 Long-term notes payable – Officers

 

195,308

 

 

-

 

 

 Total Non-Current Liabilities

 

29,362

 

 

-

 

 

 

 Total Liabilities

 

1,146,050

 

 

138,175

 Commitments and Contingencies

 

 

 

 

 

 Stockholders' Equity (Deficit)

 

 

 

 

 

 

 Common stock: $0.001 par value: 75,000,000 shares authorized;

 30,978,237 and 15,030,000 shares issued and outstanding, respectively

 

 

 

 

 

 

 

30,978

 

 

15,030

 

 Additional paid-in capital

 

7,604,440

 

 

58

 

 Accumulated deficit

 

(557,111)

 

 

(152,226)

 

 

 Total Stockholders' Equity (Deficit)

 

7,078,307

 

 

(137,138)

 

 

 Total Liabilities and Stockholders' Equity (Deficit)

$

8,224,357

 

$

1,037

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.




F-3




Wellness Center USA, Inc.

 Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Fiscal Year

 

For the Fiscal Year

 

 

 

Ended

 

Ended

 

 

 

September 30, 2012

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET REVENUES

$

89,825

 

$

312

 

 

 

 

 

 

 

 

 COST OF GOODS SOLD

 

15,931

 

 

314

 

 

 

 

 

 

 

 

 GROSS PROFIT

 

73,894

 

 

(2)

 

 

 

 

 

 

 

 

 OPERATING EXPENSES:

 

 

 

 

 

 

 Amortization expense

 

33,039

 

 

-

 

 Consulting fees

 

60,680

 

 

13,913

 

 Professional fees

 

90,661

 

 

59,335

 

 Rent expenses - Related party

 

25,050

 

 

21,489

 

 Rent expenses

 

26,623

 

 

-

 

 Research and Development

 

11,077

 

 

-

 

 Salaries - officers

 

67,312

 

 

-

 

 Salaries - others

 

41,633

 

 

-

 

 Selling expenses

 

24,285

 

 

-

 

 General and administrative expenses

 

95,820

 

 

14,447

 

 

 

 

 

 

 

 

 

 

 Total operating expenses

 

476,180

 

 

109,184

 

 

 

 

 

 

 

 

 LOSS FROM OPERATIONS

 

(402,286)

 

 

(109,186)

 

 

 

 

 

 

 

 

 OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

 Interest expense - related party

 

1,101

 

 

-

 

 Other (income) expense

 

1,498

 

 

-

 

 

 

 

 

 

 

 

 

 

 Total other (income) expense

 

2,599

 

 

-

 

 

 

 

 

 

 

 

 LOSS BEFORE INCOME TAX PROVISION

 

(404,885)

 

 

(109,186)

 

 

 

 

 

 

 

 

 INCOME TAX PROVISION

 

-

 

 

-

 

 

 

 

 

 

 

 

 NET LOSS

$

(404,885)

 

$

(109,186)

 

 

 

 

 

 

 

 

 NET LOSS PER COMMON SHARE - BASIC AND DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss per common share - basic and diluted

$

(0.02)

 

$

(0.01)

 

 

 

 

 

 

 

 

 

 Weighted Average Common Shares Outstanding - basic and diluted

 

17,147,227

 

 

13,125,860

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.




F-4




Wellness Center USA, Inc.

Statement of Stockholders' Equity (Deficit)

For the fiscal year ended September 30, 2012 and 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common Stock, $0.001 Par Value

 

 

 

 

 

 

 

 

 

 

 

 Number of Shares

 

Amount

 

Additional Paid-in Capital

 

 Accumulated Deficit

 

Total Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance September 30, 2010

 

3,665,000

 

$

3,665

 

$

-

 

$

(43,040)

 

$

(39,375)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 at par on November 10, 2010  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,557,500

 

 

2,557

 

 

-

 

 

-

 

 

2,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 at par on November 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,982,500

 

 

7,983

 

 

-

 

 

-

 

 

7,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares as compensation

 valued at par on November 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

375,000

 

 

375

 

 

-

 

 

-

 

 

375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of warrants as compensation  on November 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

-

 

 

38

 

 

-

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares to newly appointed

 board of directors valued at par

 on November 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200,000

 

 

200

 

 

-

 

 

-

 

 

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of options to newly appointed

 board of directors

 on November 30, 2010