Attached files

file filename
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - Wellness Center USA, Inc.f10q033114_ex32z1.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - Wellness Center USA, Inc.f10q033114_ex31z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


  X . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014


      . TRANSITION REPORT PURSUANT TO 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 whether the issuer (1) 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  X . No      .





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


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 Exchange Act.

Yes      . No  X .


State the number of shares issued and outstanding of each of the issuer’s classes of common equity, as of March 31, 2014: 50,905,909 shares of issued common stock.



2




WELLNESS CENTER USA, INC.


FORM 10-Q


March  31, 2014


INDEX


PART I - FINANCIAL INFORMATION


Item 1.

Financial Statements

4

Item 2.

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

67

Item 3

Quantitative and Qualitative Disclosures About Market Risk

73

Item 4.

Control and Procedures

74


PART II - OTHER INFORMATION


Item 1

Legal Proceedings

74

Item 1A

Risk Factors

74

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures.

74

Item 5.

Other Information

74

Item 6.

Exhibits

75


SIGNATURE



3



Wellness Center USA, Inc.


March 31, 2014 and 2013


Index to the Consolidated Financial Statements


Contents

 

Page(s)

 

 

 

Consolidated Balance Sheets at March 31, 2014 (Unaudited) and September 30, 2013

 

5

 

 

 

Consolidated Statements of Operations for the Six Months and Three Months Ended March 31, 2014 and 2013 (Unaudited)

 

7

 

 

 

Consolidated Statement of Stockholders’ Equity for the Interim Period Ended March 31, 2014 (Unaudited) and for the Fiscal Year Ended September 30, 2013

 

8

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2014 and 2013 (Unaudited)

 

11

 

 

 

Notes to the Consolidated Financial Statements (Unaudited)

 

12




4




PART I - FINANCIAL INFORMATION


ITEM 1.   FINANCIAL STATEMENTS


Wellness Center USA, Inc.


Consolidated Balance Sheets


 

 

 

 

 

March 31, 2014

 

September 30, 2013

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 ASSETS

 

 

 

 

 

 

 Current Assets

 

 

 

 

 

 

 

 Cash

 

$

35,945

 

$

499,246

 

 Accounts receivable

 

 

34,605

 

 

4,472

 

 Inventories

 

 

183,118

 

 

135,485

 

 Current maturity of note receivable - Chairman and CEO

 

 

162,233

 

 

83,333

 

 Prepayments and other current assets

 

 

20,983

 

 

7,475

 

 

 

 

 

 

 

 

 

 

 

 

 Total current assets

 

 

436,884

 

 

730,011

 

 

 

 

 

 

 

 

 

 

 Property and Equipment

 

 

 

 

 

 

 

 Property and equipment

 

 

117,805

 

 

117,805

 

 Accumulated depreciation

 

 

(59,327)

 

 

(43,300)

 

 

 Property and equipment, net

 

 

58,478

 

 

74,505

 

 

 

 

 

 

 

 

 

 

 Exclusive Licenses

 

 

 

 

 

 

 

 Exclusive licenses

 

 

5,000

 

 

5,000

 

 Accumulated amortization

 

 

(813)

 

 

(688)

 

 

 

 

 

 

 

 

 

 

 

 

 Exclusive licenses, net

 

 

4,187

 

 

4,312

 

 

 

 

 

 

 

 

 

 

 Acquired Technologies

 

 

 

 

 

 

 

 Acquired technologies

 

 

2,420,000

 

 

2,420,000

 

 Accumulated amortization

 

 

(192,931)

 

 

(132,433)

 

 Accumulated impairment

 

 

(297,920)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Acquired technologies, net

 

 

1,929,149

 

 

2,287,567

 

 

 

 

 

 

 

 

 

 

 Non-Compete Agreements

 

 

 

 

 

 

 

 Non-compete agreements

 

 

240,000

 

 

240,000

 

 Accumulated amortization

 

 

(114,160)

 

 

(79,162)

 

 Accumulated impairment

 

 

(53,340)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 Non-compete agreements, net

 

 

72,500

 

 

160,838

 

 

 

 

 

 

 

 

 

 

 Trademarks

 

 

 

 

 

 

 

 Trademarks

 

 

740,000

 

 

740,000

 

 Accumulated amortization

 

 

(162,880)

 

 

(111,766)

 

 Accumulated impairment

 

 

(89,620)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 Trademarks, net

 

 

487,500

 

 

628,234

 

 

 

 

 

 

 

 

 

 

 Website Development Costs

 

 

 

 

 

 

 

 Website development costs

 

 

22,809

 

 

22,809

 

 Accumulated amortization

 

 

(11,795)

 

 

(8,826)



5




 

 

 

 

 

 

 

 

 

 

 

 

 Website development costs, net

 

 

11,014

 

 

13,983

 

 

 

 

 

 

 

 

 

 

 Goodwill

 

 

 

 

 

 

 

 Goodwill

 

 

5,784,648

 

 

4,584,648

 

 Accumulated impairment

 

 

(2,868,045)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 Goodwill, net

 

 

2,916,603

 

 

4,584,648

 

 

 

 

 

 

 

 

 

 

 Other assets

 

 

 

 

 

 

 

 Note receivable - Chairman and CEO, net of current maturity

 

 

87,767

 

 

166,667

 

 Security deposits

 

 

38,699

 

 

38,699

 

 

 

 

 

 

 

 

 

 

 

 

#

 

 

 

126,466

 

 

205,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total assets

 

$

6,042,781

 

$

8,689,464

 

 

 

 

 

 

 

 

 

 

 LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 Current Liabilities

 

 

 

 

 

 

 

 Accounts payable

 

$

143,428

 

$

39,749

 

 Accounts payable - related party

 

 

67,153

 

 

67,153

 

 Accrued interest - related parties

 

 

11,107

 

 

9,445

 

 Accrued payroll - officers

 

 

25,000

 

 

-

 

 Accrued warranty

 

 

12,000

 

 

12,000

 

 Credit cards payable

 

 

44,187

 

 

60,866

 

 Current portion of deferred rent

 

 

11,363

 

 

11,363

 

 Advances from related parties

 

 

224,736

 

 

224,736

 

 Note payable - related party

 

 

37,139

 

 

37,139

 

 Accrued expenses and other current liabilities

 

 

105,709

 

 

57,062

 

 

 

 

 

 

 

 

 

 

 

 

 Total current liabilities

 

 

684,950

 

 

519,513

 

 

 

 

 

 

 

 

 

 

 Long-term Liabilities

 

 

 

 

 

 

#

 Deferred rent, net of current portion

 

 

12,317

 

 

18,000

#

 Long-term notes payable - officers

 

 

136,448

 

 

140,737

 

 

 

 

 

 

 

 

 

 

 

 

 Total long-term liabilities

 

 

148,765

 

 

158,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total liabilities

 

 

833,715

 

 

678,250

 

 

 

 

 

 

 

 

 

 

 Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Stockholders' Equity

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 50,905,909 and 45,110,670 shares issued and outstanding, respectively

 

 

50,906

 

 

45,111

 

 Additional paid-in capital

 

 

12,994,039

 

 

11,340,244

 

 Accumulated deficit

 

 

(7,835,879)

 

 

(3,374,141)

 

 

 

 

 

 

 

 

 

 

 

 

 Total stockholders' equity

 

 

5,209,066

 

 

8,011,214

 

 

 

 

 

 

 

 

 

 

 

 

 Total liabilities and stockholders' equity

 

$

6,042,781

 

$

8,689,464

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.



6



Wellness Center USA, Inc.


Consolidated Statements of Operations


 

 

 

 

For the Six Months

 

For the Three Months

 

For the Six Months

 

For the Three Months

 

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

 

March 31, 2014

 

March 31, 2014

 

March 31, 2013

 

March 31, 2013

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 Patient services

 

$

102,156

 

$

18,250

 

$

97,878

 

$

51,593

 

 Sales

 

 

3,030

 

 

669

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 Total revenue

 

 

105,186

 

 

18,919

 

 

97,878

 

 

51,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cost of goods sold

 

 

2,238

 

 

532

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Gross margin

 

 

102,948

 

 

18,387

 

 

97,878

 

 

51,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 Consulting fees

 

 

87,195

 

 

23,195

 

 

607,295

 

 

569,880

 

 Professional fees

 

 

85,318

 

 

72,716

 

 

160,352

 

 

66,712

 

 Rent expense - related party

 

 

12,663

 

 

6,659

 

 

12,398

 

 

6,292

 

 Rent expense

 

 

93,319

 

 

44,563

 

 

89,508

 

 

42,443

 

 Research and development

 

 

441

 

 

-

 

 

2,919

 

 

150

 

 Salaries - officers

 

 

444,940

 

 

285,465

 

 

333,654

 

 

165,385

 

 Salaries - others

 

 

150,003

 

 

65,036

 

 

85,340

 

 

39,433

 

 Selling expenses

 

 

18,778

 

 

915

 

 

36,799

 

 

10,242

 

 Depreciation and amortization

 

 

151,391

 

 

76,604

 

 

149,643

 

 

74,856

 

 Impairment of intangible assets and goodwill

 

 

3,308,925

 

 

3,308,925

 

 

-

 

 

-

 

 General and administrative expenses

 

 

214,621

 

 

62,169

 

 

153,473

 

 

73,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total operating expenses

 

 

4,567,594

 

 

3,946,247

 

 

1,631,381

 

 

1,049,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss from operations

 

 

(4,464,646)

 

 

(3,927,860)

 

 

(1,533,503)

 

 

(997,691)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest expense

 

 

-

 

 

-

 

 

4,286

 

 

1,036

 

 Interest expense - related party

 

 

1,662

 

 

823

 

 

2,672

 

 

556

 

 Other (income) expense

 

 

(4,570)

 

 

(5,568)

 

 

4,104

 

 

2,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) expense, net

 

 

(2,908)

 

 

(4,745)

 

 

11,062

 

 

4,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss before income tax provision

 

 

(4,461,738)

 

 

(3,923,115)

 

 

(1,544,565)

 

 

(1,002,020)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Income tax provision

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

$

(4,461,738)

 

$

(3,923,115)

 

$

(1,544,565)

 

$

(1,002,020)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 -

 Net loss per common share - basic and diluted

 

$

(0.10)

 

$

(0.08)

 

$

(0.05)

 

$

(0.03)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Weighted Average Common Shares Outstanding - basic and diluted

 

 

46,248,304

 

 

47,392,619

 

 

33,746,214

 

 

35,691,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.



7



Wellness Center USA, Inc.


Statement of Stockholder’s Equity

For the Interim Period  Ended March 31, 2014 (Unaudited) and for the Fiscal Year Ended September 30, 2013


 

 

 

Common Stock Par Value $0.001

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Amount

 

Additional Paid-in Capital

 

Accumulated Deficit

 

Total Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance, September 30, 2012

 

30,978,237

 

$

30,978

 

 

7,604,440

 

$

(557,111)

 

$

7,078,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued to an IR firm for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

services on October 1, 2012 valued at $0.50 per share

 

35,000

 

 

35

 

 

17,465

 

 

-

 

 

17,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued to an IR firm for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

services on November 1, 2012 valued at $0.36 per share

 

35,000

 

 

35

 

 

12,565

 

 

-

 

 

12,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares for cash at

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.10 per share on November 29, 2012  

 

1,447,550

 

 

1,448

 

 

143,307

 

 

-

 

 

144,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Conversion of accured interest to the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

common shares  at $0.10 per share on November 29, 2012  

 

12,500

 

 

13

 

 

1,237

 

 

-

 

 

1,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.30 per unit during December, 2012

 

520,999

 

 

521

 

 

155,779

 

 

-

 

 

156,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exercise of warrants with exercise price of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 per share during the quarter ended December 31, 2012

 

1,777,000

 

 

1,777

 

 

15,993

 

 

-

 

 

17,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued to consultant for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

future services on March 13, 2012 earned during the quarter ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012 valued at $0.30 per share

 

12,500

 

 

13

 

 

3,737

 

 

-

 

 

3,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Warrants issued to consultant for future

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

services on March 13, 2012 earned during the quarter ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012 valued at $1.10 per share

 

-

 

 

-

 

 

3,565

 

 

-

 

 

3,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares for IR services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on February 26, 2013 valued at $0.30 per share

 

550,000

 

 

550

 

 

164,450

 

 

-

 

 

165,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of warrants for IR services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on February 26, 2013 valued at $0.30 per share

 

-

 

 

-

 

 

47,490

 

 

-

 

 

47,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares for financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

services on March 17, 2013 valued at $0.30 per share

 

600,000

 

 

600

 

 

179,400

 

 

-

 

 

180,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of warrants for financing services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on March 17, 2013 valued at $0.30 per share

 

-

 

 

-

 

 

63,080

 

 

-

 

 

63,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



8




 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.30 per unit during the quarter ended March 31, 2013

 

3,096,603

 

 

3,097

 

 

925,884

 

 

-

 

 

928,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exercise of warrants with an exercise price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of $0.01 per share during the quarter ended March 31, 2013

 

80,000

 

 

80

 

 

720

 

 

-

 

 

800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued to consultant for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

future services on March 13, 2012 earned during the quarter ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013 valued at $0.30 per share

 

12,500

 

 

13

 

 

3,737

 

 

-

 

 

3,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Warrants issued to consultant for future

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

services on March 13, 2012 earned during the quarter ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013 valued at $1.10 per share

 

-

 

 

-

 

 

3,570

 

 

-

 

 

3,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued for consulting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

services on April 9, 2013 valued at $0.30 per share

 

50,000

 

 

50

 

 

14,950

 

 

-

 

 

15,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued for chartible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contribution on April 9, 2013 valued at $0.30 per share

 

30,000

 

 

30

 

 

8,970

 

 

-

 

 

9,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of warrants for financing services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on April 19, 2013 valued at $0.30 per share

 

-

 

 

-

 

 

9,289

 

 

-

 

 

9,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cashless exercise of warrants with exercise

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

price of $0.30 per share exercised on April 19, 2013

 

59,201

 

 

59

 

 

17,701

 

 

-

 

 

17,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cashless exercise of warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 exercised on April 19, 2013

 

(14,558)

 

 

(15)

 

 

(17,745)

 

 

-

 

 

(17,760)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exercise of warrants with an exercise price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of $0.01 per share exercised on May 7, 2013

 

100,000

 

 

100

 

 

900

 

 

-

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.50 per unit on May 9, 2013

 

40,000

 

 

40

 

 

19,960

 

 

-

 

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exercise of warrants with an exercise price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of $0.45 per share exercised on May 29, 2013

 

100,001

 

 

100

 

 

44,900

 

 

-

 

 

45,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.30 per unit during the quarter ending June 30, 2013

 

601,668

 

 

601

 

 

179,899

 

 

-

 

 

180,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.40 per share during the quarter ending September 30, 2013

 

4,121,250

 

 

4,121

 

 

1,644,379

 

 

-

 

 

1,648,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Finder's fees paid in connection with the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

private placements during the quarter ending September 30, 2013

 

-

 

 

-

 

 

(148,550)

 

 

-

 

 

(148,550)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



9




 Exercise of warrants with an exercise price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of $0.10 per share on July 13 and September 13, 2013

 

87,000

 

 

87

 

 

783

 

 

-

 

 

870

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued for employee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

services on July 3, 2013 valued at $0.10 per share

 

244,260

 

 

244

 

 

24,182

 

 

-

 

 

24,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of options for advisory services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on September 6, 2013

 

-

 

 

-

 

 

1,491

 

 

-

 

 

1,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued per consulting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

agreement valued at $0.40 per share during the quarter ending September 30, 2013

 

80,625

 

 

81

 

 

32,169

 

 

-

 

 

32,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

conversion of convertible notes at $0.30 per share on September 27, 2013

 

453,334

 

 

453

 

 

135,547

 

 

-

 

 

136,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Forgiveness of debt by stockholder

 

 

 

 

 

 

 

25,000

 

 

-

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

 

 

 

 

 

 

 

 

 

(2,817,030)

 

 

(2,817,030)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance, September 30, 2013

 

45,110,670

 

 

45,111

 

 

11,340,244

 

 

(3,374,141)

 

 

8,011,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued per consulting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

agreement  valued at $0.40 per share during quarter ending December 31, 2013

 

20,000

 

 

20

 

 

7,980

 

 

-

 

 

8,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Finder fees paid in connection with the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

private placements during quarter ending September 30, 2013

 

-

 

 

-

 

 

(9,850)

 

 

-

 

 

(9,850)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.30 per share in January, 2014

 

396,667

 

 

397

 

 

118,603

 

 

-

 

 

119,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.35 per share in January, 2014

 

228,572

 

 

228

 

 

79,772

 

 

-

 

 

80,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares for acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of NPC on February 28, 2014

 

5,000,000

 

 

5,000

 

 

1,195,000

 

 

-

 

 

1,200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of options for director services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on February 28, 2014

 

-

 

 

-

 

 

194,940

 

 

-

 

 

194,940

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash at $0.45 per share on March 28, 2014

 

150,000

 

 

150

 

 

67,350

 

 

-

 

 

67,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

-

 

 

-

 

 

-

 

 

(4,461,738)

 

 

(4,461,738)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance, March 31, 2014

 

50,905,909

 

$

50,906

 

$

12,994,039

 

$

(7,835,879)

 

$

5,209,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.




10



Wellness Center USA, Inc.


Consolidated Statements of Cash Flows


 

 

 

 

For the Six Months

 

For the Six Months

 

 

 

 

Ended

 

Ended

 

 

 

 

March 31, 2014

 

March 31, 2013

 

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 Cash flows from operating activities:

 

 

 

 

 

 

 Net loss

 

$

(4,461,738)

 

$

(1,544,565)

 Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 Common shares issued for compensation and services

 

 

8,000

 

 

383,850

 

 Warrants and options issued for compensation and services

 

 

194,940

 

 

117,705

 

 Depreciation expense

 

 

16,027

 

 

13,953

 

 Amortization expense

 

 

149,704

 

 

149,699

 

 Impairment of intangible assets and goodwill

 

 

3,308,925

 

 

-

 

 Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 Accounts receivable

 

 

(30,133)

 

 

-

 

 

 Inventories

 

 

(47,633)

 

 

4,200

 

 

 Prepayments and other current assets

 

 

(13,508)

 

 

(49,457)

 

 

 Accounts payable

 

 

99,352

 

 

(99,406)

 

 

 Accounts payable - related party

 

 

-

 

 

(5,500)

 

 

 Accrued interest - related party

 

 

1,662

 

 

2,672

 

 

 Accrued payroll - officers

 

 

25,000

 

 

107,650

 

 

 Credit cards payable

 

 

(16,679)

 

 

(7,638)

 

 

 Deferred rent

 

 

(5,683)

 

 

(5,681)

 

 

 Customer deposits

 

 

7,455

 

 

(2,940)

 

 

 Accrued expenses and other current liabilities

 

 

48,647

 

 

65,245

 

 

 

 

 

 

 

 

 

 Net cash used in operating activities

 

 

(715,662)

 

 

(870,213)

 

 

 

 

 

 

 

 

 

 Cash flows from investing activities:

 

 

 

 

 

 

 

 Purchases of property and equipment

 

 

-

 

 

(16,328)

 

 

 

 

 

 

 

 

 

 Net cash used in investing activities

 

 

-

 

 

(16,328)

 

 

 

 

 

 

 

 

 

 Cash flows from financing activities:

 

 

 

 

 

 

 

 Advances from (repayments to) related parties

 

 

-

 

 

(54,173)

 

 Proceeds from convertible notes payable

 

 

-

 

 

58,000

 

 Repayments of long-term notes payable - officers

 

 

(4,289)

 

 

(23,590)

 

 Proceeds from sale of common stock and warrants for cash, net

 

 

256,650

 

 

1,230,035

 

 Proceeds from exercise of warrants

 

 

-

 

 

18,570

 

 

 

 

 

 

 

 

 

 Net cash provided by (used in) financing activities

 

 

252,361

 

 

1,228,842

 

 

 

 

 

 

 

 

 

 Net change in cash

 

 

(463,301)

 

 

342,301

 

 

 

 

 

 

 

 

 

 Cash at beginning of the period

 

 

499,246

 

 

116,204

 

 

 

 

 

 

 

 

 

 Cash at end of the period

 

$

35,945

 

$

458,505

 

 

 

 

 

 

 

 

 

 Supplemental disclosure of cash flows information:

 

 

 

 

 

 

 

 Interest paid

 

$

-

 

$

-

 

 Income tax paid

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 Non cash financing and investing activities:

 

 

 

 

 

 

 

 Issuance of common stock for acquisition of NPC

 

$

1,200,000

 

$

-

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.



11



Wellness Center USA, Inc.


March 31, 2014 and 2013

Notes to the Consolidated Financial Statements

(Unaudited)


Note 1 - Organization and Operations


Wellness Center USA, Inc.


Wellness Center USA, Inc. ("WCUI" or the “Company”) was incorporated in June, 2010 under the laws of the State of Nevada. The Company initially engaged in online sports and nutrition supplements marketing and distribution. Upon consummation of the share exchange agreements with CNS-Wellness Florida, LLC and Psoria-Shield Inc., the Company currently operates in the following business segments: (i) nutritional supplement sales; (ii) treatment of brain-based behavioral health disorders; (iii) distribution of targeted Ultra Violet ("UV") phototherapy devices for dermatology; and (iv) management of top-tier medical practices in the interventional and multi-modal pain management sector.


Acquisition of CNS-Wellness Florida, LLC


On May 30, 2012, the Company entered into an Exchange Agreement (“Exchange Agreement”) to acquire all of the limited liability company interests in CNS-Wellness Florida, LLC (“CNS”), a Tampa, Florida-based cognitive neuroscience company, specializing in the treatment of brain-based behavioral health disorders including developmental, emotional and stress-related problems.


On August 2, 2012, the Company consummated the Exchange Agreement and acquired all of the issued and outstanding limited liability company interests in CNS for and in consideration of the issuance of 7.3 million shares of the Company’s common stock pursuant to the Exchange Agreement.   The 7.3 million common shares issued in connection with the share exchange represented 32.2% of the 22,704,773 shares of issued and outstanding common stock of the Company as of the closing date of the share exchange under the Exchange Agreement.  CNS is now operated as a wholly-owned subsidiary of the Company.


CNS Wellness Florida, LLC, the Successor of Cognitive Neuro Sciences, Inc.


Cognitive Neuro Sciences, Inc., (the ''CNS Predecessor") was incorporated on March 14, 2006 under the laws of the State of Florida. The CNS Predecessor specialized in the treatment of brain-based behavioral health disorders including developmental, emotional and stress-related problems. On May 26, 2009, the stockholders of CNS Predecessor decided to dissolve CNS Predecessor and form a Limited Liability Company (“LLC”) to carry on the business of CNS Predecessor.


CNS was formed on May 26, 2009 under the laws of the State of Florida. The sole purpose of CNS was to carry on the business of CNS Predecessor in the form of an LLC. The assets and liabilities of CNS Predecessor were carried forward to CNS and recorded at the historical cost on the date of conversion.


Suspension of the Operation of CNS Wellness Florida, LLC


As of January 24, 2014 the operation of CNS Wellness Florida, LLC has been suspended. The Company impaired remaining balances of all intangible assets associated with acquisition of CNS as of March 31, 2014.


Acquisition of Psoria-Shield Inc.


On June 21, 2012, the Company entered into an Exchange Agreement (“Exchange Agreement”) to acquire all of the issued and outstanding shares of capital stock in Psoria-Shield Inc. (“PSI”), a Tampa, Florida-based developer and manufacturer of targeted Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases, for and in consideration of the issuance of 7,686,797 shares of common stock in the Company.


On August 24, 2012, the Company consummated the share exchange and acquired all of the issued and outstanding shares of stock in PSI for and in consideration of the issuance of 7,686,797 shares of its common stock pursuant to the Exchange Agreement.  The 7,686,797 common shares issued in connection with the share exchange represented 25.3% of the 30,391,570 shares of issued and outstanding common stock of the Company as of the closing date of the share exchange under the Exchange Agreement. PSI is now operated as a wholly-owned subsidiary of the Company.



12




Psoria-Shield Inc.


Psoria-Shield Inc. (“PSI”) was incorporated on June 17, 2009 under the laws of the State of Florida. PSI engages in the business of research and development, manufacturing, and marketing and distribution of Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases.


Acquisition of National Pain Centers, Inc


On January 28, 2014, the Company entered into an Exchange Agreement (“Exchange Agreement”) to acquire all of the issued and outstanding shares of common stock of National Pain Centers, Inc. ("NPC"), a Nevada holding corporation based in Deer Park, Illinois.


On February 28, 2014, the Company consummated the Exchange Agreement and acquired all of the issued and outstanding shares of common stock of NPC for and in consideration of the issuance of 5,000,000 shares of common stock of the Company pursuant to the Exchange Agreement valued at $0.24 per share or $1,200,000, the relative fair value of the PPM consummated on January 13, 2014 with a relative value of $0.11 per share for the warrants on the $0.35 offering immediately prior to the consummation of the Exchange Agreement, which was recorded as goodwill as NPC is a newly formed entity.  NPC is now operated as a wholly-owned subsidiary of the Company.


National Pain Centers, Inc. ("NPC")


National Pain Centers, Inc. ("NPC") was incorporated on January 24, 2014 under the laws of the State of Nevada. NPC engages in acquisitions and management of top-tier medical practices in the interventional and multi-modal pain management sector.


Note 2 - Significant and Critical Accounting Policies and Practices


The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application.  Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.


Basis of Presentation - Unaudited Interim Financial Information


The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full year.  These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended September 30, 2013 and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on January 14, 2014.


Fiscal Year End


The Company elected September 30th as its fiscal year end date upon its formation.


Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).



13




Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:


(i)

Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

(ii)

Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.

(iii)

Inventory Obsolescence and Markdowns: The Company’s estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of inventory turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based on the historical results of physical inventory cycle counts.

(iv)

Fair value of long-lived 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.

(v)

Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.

(vi)

Estimates and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s) to value share options and similar instruments.


These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these 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.


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, if any, in which the parent’s power to control exists.



14




The Company's consolidated subsidiaries and/or entities are as follows:


Name of consolidated subsidiary or entity

State or other jurisdiction of incorporation or organization

Date of incorporation or formation

(date of acquisition, if applicable)

Attributable interest

 

 

 

 

CNS Wellness Florida, LLC

The State of Florida

May 26, 2009

(August 2, 2012)

100%

 

 

 

 

Psoria-Shield Inc.

The State of Florida

June 17, 2009

(August 24, 2012)

100%

 

 

 

 

National Pain Centers, Inc

The state of Nevada

January 24, 2014

(February 28, 2014)

100%


The consolidated financial statements include all accounts of the Company, NPC, CNS and PSI as of reporting periods end date and for the reporting periods then ended.


All inter-company balances and transactions have been eliminated.


Reclassification


Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.   These reclassifications had no effect on reported losses.


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.



15




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 acquisition, 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 receivable, prepayment and other current assets, accounts payable, accrued payroll – officers, accrued warranty, credit cards payable, deferred rent, and accrued expenses and other current liabilities 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.



16




Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis


The Company’s non-financial assets include inventories.  The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors.  Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.


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 other than goodwill, goodwill, and website development costs, 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 general economic conditions that may affect a client’s ability to pay.


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.


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.


There was no allowance for doubtful accounts at March 31, 2014 or September 30, 2013, or bad debt expense for the reporting periods then ended.


The Company does not have any off-balance-sheet credit exposure to its customers at March 31, 2014 or September 30, 2013.



17




Inventories


Inventory Valuation


The Company values inventory, consisting of finished goods, at the lower of cost or market.  Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory 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) estimates of future demand, and (ii) competitive pricing pressures.


Inventory Obsolescence and Markdowns


The Company evaluates its current level of inventory 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 inventory 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.


There was no inventory obsolescence for the reporting period ended March 31, 2014 or 2013.


There was no lower of cost or market adjustments for the reporting period ended March 31, 2014 or 2013.


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 estimated useful lives of the respective assets as follows:


 

 

 

 

 

 

Estimated Useful Life (Years)

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

Computer equipment

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

Furniture and fixture

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

Leasehold improvement

 

 

 

 

 

 

 

*

 

 

 

 

 

 

 

 

 

 

 

Medical and office equipment

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

Software

 

 

 

 

 

 

 

3

 


(*) Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.


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.



18




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”).  Pursuant to Paragraph 840-10-25-1 A lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee's incremental borrowing rate.  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.


Operating leases primarily relate to the Company’s leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.


Intangible Assets Other Than Goodwill


The Company has adopted Subtopic 350-30 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 on a straight-line basis over the estimated useful lives of the respective assets as follows:


 

 

 

 

 

 

Estimated Useful Life (Years)

 

 

 

 

 

 

 

 

 

 

 

Exclusive license agreements (*)

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

Acquired technologies

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

Non-compete agreements (**)

 

 

 

 

 

 

 

3-4

 

 

 

 

 

 

 

 

 

 

 

Trademarks (***)

 

 

 

 

 

 

 

7

 


(*) Amortized on a straight-line basis over the terms of the exclusive licenses and/or agreements, or the terms of legal lives of the patents, whichever is shorter


(**) Amortized on a straight-line basis over the terms of the agreements  


Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.



19




Goodwill


The Company follows Subtopic 350-20 of the FASB Accounting Standards Codification for 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.


Website Development Costs


The Company has adopted Subtopic 350-50 of the FASB Accounting Standards Codification for website development costs.  Under the requirements of Sections 350-50-15 and 350-50-25, the Company capitalizes costs incurred to develop a website as website development costs, which are amortized on a straight-line basis over the estimated useful lives of three (3) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.


Customer Deposits


Customer deposits primarily represent amounts received from customers for future delivery of products, which are fully or partially refundable depending upon the terms and conditions of the sales agreements.


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.


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.


Product Warranty


The Company estimates future costs of warranty obligations in accordance with ASC 460-10, which requires an entity to disclose and recognize a liability for the fair value of the obligation it assumes upon issuance of a warranty.  The Company warrants most of its products for a specific period of time, usually 12 months, against material defects.  The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized.  The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty. The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as reasonable allowance for warranty expenses associated with new products. On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required.



20




Commitment and Contingencies


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


If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements.  If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.


Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.  Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.


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.



21




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.


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 entitys 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 Companys 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”).



22




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.


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 entitys 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 Companys 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.



23




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.


Income Tax Provision


The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.


The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes.  Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.


The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.


Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.


Uncertain Tax Positions


The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended March 31, 2014 or 2013.


Net Income (Loss) per Common Share


Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.  Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through stock options and warrants.



24




The following table shows the number of potentially outstanding dilutive common shares excluded from the diluted net income (loss) per common share calculation as they were anti-dilutive:


 

 

Potentially Outstanding Dilutive Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

For the Reporting Period Ended

March 31,2014

 

 

For the Reporting Period Ended

March 31, 2013

 

 

 

 

 

 

 

 

 

 

Convertible Notes Payable Shares and Related Warrant Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible note payable of $58,000 issued on August 17, 2012 convertible into common shares at $0.30 per share. The note was converted on September 27, 2013.

 

 

-

 

 

 

193,334

 

 

 

 

 

 

 

 

 

 

Warrants issuable, contingent upon conversion of convertible note payable of $58,000, issued on August 17, 2012 with an exercise price of $0.45 per share. The Warrant were issued in connection with the convertible note conversion on September 27, 2013

 

 

193,334

 

 

 

193,334

 

 

 

 

 

 

 

 

 

 

Convertible note payable of $50,000 issued on October 11, 2012 convertible into common shares at $0.30 per share. The note was converted on September 27, 2013.

 

 

-

 

 

 

166,666

 

 

 

 

 

 

 

 

 

 

Warrants issuable, contingent upon conversion of convertible note payable of $50,000, issued on October 11, 2012 with an exercise price of $0.45 per share. The Warrants were issued in connection with the convertible note conversion on September 27, 2013

 

 

166,666

 

 

 

166,666

 

 

 

 

 

 

 

 

 

 

Warrants issuable, contingent upon conversion of convertible note payable of $8,000, issued on February 8, 2013 with an exercise price of $0.45 per share. The Warrants were  issued in connection with the convertible note conversion on September 27, 2013

 

 

26,667

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Warrants issuable, contingent upon conversion of convertible note payable of $20,000, issued on June 28, 2013 with an exercise price of $0.45 per share. The Warrants were issued in connection with the convertible note conversion on September 27, 2013

 

 

66,667

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Sub-total: convertible notes payable shares and related warrant shares

 

 

453,334

 

 

 

720,000

 

 

 

 

 

 

 

 

 

 

Stock Option Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options issued in June, 2010 to the founder of the Company, upon formation, with an exercise price of $0.01 per share expiring five (5) years from the date of issuance

 

 

1,600,000

 

 

 

1,600,000

 

 

 

 

 

 

 

 

 

 

Stock options issued on November 30, 2010 to the members of the board of directors of the Company with an exercise price of $0.01 per share expiring five (5) years from the date of issuance

 

 

200,000

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

Stock options issued on March 13, 2012  to a consultant with an exercise price of $0.44 per share expiring five (5) years from the date of issuance

 

 

50,000

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

Stock options issued on August 24, 2012 for conversion of PSI stock options originally issued on December 20, 2010 with an exercise price of $1.00 per share expiring ten (10) years from the date of original issuance upon acquisition of PSI

 

 

750,000

 

 

 

750,000

 



25




 

 

 

 

 

 

 

 

 

Stock options issued on August 24, 2012 for conversion of PSI stock options originally issued on February 22, 2012 with an exercise price of $2.00 per share expiring ten (10) years from the date of original issuance upon acquisition of PSI

 

 

650,000

 

 

 

650,000

 

 

 

 

 

 

 

 

 

 

Stock options issued on September 6, 2013 to the advisory board member of the Company with an exercise price of $0.75 per share expiring five (5) years from the date of issuance

 

 

10,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stock options issued on February 28, 2014  to the two officers of the Company with an exercise price of $0.40 per share expiring five (5) years from the date of issuance

 

 

1,800,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Sub-total: Stock option shares

 

 

5,060,000

 

 

 

3,250,000

 

 

 

 

 

 

 

 

 

 

Warrant Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued on November 10, 2010 to investors in connection with the Company’s November 10, 2010 equity financing with an exercise price of $0.01 per share expiring five (5) years from the date of issuance

 

 

1,600,000

 

 

 

1,600,000

 

 

 

 

 

 

 

 

 

 

Remaining unexercised warrants originally issued on November 30, 2010 to investors with an exercise price of $0.01 per share expiring five (5) years from the date of issuance

 

 

2,434,334

 

 

 

2,701,334

 

 

 

 

 

 

 

 

 

 

Warrants issued on November 30, 2010 for services with an exercise price of $0.01 per share expiring five (5) years from the date of issuance

 

 

375,000

 

 

 

375,000

 

 

 

 

 

 

 

 

 

 

Warrants issued on March 8, 2012 to an investor with an exercise price of $0.50 per share expiring five (5) years from the date of issuance

 

 

190,000

 

 

 

190,000

 

 

 

 

 

 

 

 

 

 

Warrants issued on March 15, 2012 to an investor with an exercise price of $0.75 per share expiring five (5) years from the date of issuance

 

 

75,000

 

 

 

75,000

 

 

 

 

 

 

 

 

 

 

Warrants issued on April 19, 2012 to an investor with an exercise price of $1.65 per share expiring five (5) years from the date of issuance

 

 

14,545

 

 

 

14,545

 

 

 

 

 

 

 

 

 

 

Warrants issued on May 9, 2012 to an investor with an exercise price of $2.16 per share expiring five (5) years from the date of issuance

 

 

9,091

 

 

 

9,091

 

 

 

 

 

 

 

 

 

 

Warrants issued on May 14, 2012 to investors with an exercise price of $2.25 per share expiring five (5) years from the date of issuance

 

 

18,182

 

 

 

18,182

 

 

 

 

 

 

 

 

 

 

Warrants issued between May 21 and 25, 2012 to investors with an exercise price of $2.31 per share expiring five (5) years from the date of issuance

 

 

112,955

 

 

 

112,955

 

 

 

 

 

 

 

 

 

 

Remaining unexercised warrants originally issued on September 25, 2012 to investors with an exercise price of $0.45 per share expiring five (5) years from the date of issuance

 

 

236,666

 

 

 

336,667

 

 

 

 

 

 

 

 

 

 

Warrants issued on December 19, 2012 to investors with an exercise price of $0.45 per share expiring five (5) years from the date of issuance

 

 

520,999

 

 

 

520,999

 

 

 

 

 

 

 

 

 

 

Warrants issued on February 27, 2013 and March 17, 2013 for services with an exercise price of $0.30 per share expiring five (5) years from the date of issuance

 

 

700,000

 

 

 

700,000

 

 

 

 

 

 

 

 

 

 

Warrants issued on March 18, 2013 to investors with an exercise price of $0.45 per share expiring five (5) years from the date of issuance

 

 

3,096,603

 

 

 

3,096,603

 



26




 

 

 

 

 

 

 

 

 

Warrants issued on April 18, 2013 to investors with an exercise price of $0.45 per share expiring five (5) years from the date of issuance

 

 

601,668

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Warrants issued on May 9, 2013 to investors with an exercise price of $1.00 per share expiring five (5) years from the date of issuance

 

 

40,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Warrants issued on August 15, 2013 to investors with an exercise price of $0.75 per share expiring five (5) years from the date of issuance

 

 

4,121,250

 

 

 

-


 

 

 

 

 

 

 

 

 

Warrants issued on September 29, 2013 to an investor with an exercise price of $0.45 per share expiring five (5) years from the date of issuance

 

 

250,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Warrants issued on January 13, 2014  to investors with an exercise price of $0.40  per share expiring five (5) years from the date of issuance

 

 

793,333

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Warrants issued on January 13, 2014  to investors with an exercise price of $0.45  per share expiring five (5) years from the date of issuance

 

 

228,572

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Warrants issued on March 28, 2014  to investors with an exercise price of $0.65  per share expiring five (5) years from the date of issuance

 

 

150,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Sub-total: Warrant shares

 

 

15,568,198

 

 

 

9,670,376

 

 

 

 

 

 

 

 

 

 

Total potentially outstanding dilutive common shares

 

 

21,081,532

 

 

 

13,693,710

 

 

 

 

 

 

 

 


Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.



27




Segment Information


The Company follows Topic 280 of the FASB Accounting Standards Codification for segment reporting.  Pursuant to Paragraph 280-10-50-1 an operating segment is a component of a public entity that has all of the following characteristics: a. It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity). b. Its operating results are regularly reviewed by the public entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. c. Its discrete financial information is available.  In accordance with Paragraph 280-10-50-5 the term chief operating decision maker identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the segments of a public entity. Often the chief operating decision maker of a public entity is its chief executive officer or chief operating officer, but it may be a group consisting of, for example, the public entity's president, executive vice presidents, and others.  Pursuant to Paragraph 280-10-50-10 a public entity shall report separately information about each operating segment that meets both of the following criteria: a. Has been identified in accordance with paragraphs 280-10-50-1 and 280-10-50-3 through 50-9 or results from aggregating two or more of those segments in accordance with the following paragraph; and b. Exceeds the quantitative thresholds in paragraph 280-10-50-12. In accordance with Paragraph 280-10-50-12 a public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds: a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments. b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either: 1. The combined reported profit of all operating segments that did not report a loss, or 2. The combined reported loss of all operating segments that did report a loss. c. Its assets are 10 percent or more of the combined assets of all operating segments. Pursuant to Paragraphs 280-10-50-22 and 280-10-50-29, a public entity shall report a measure of profit or loss and total assets for each reportable segment and provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. At a minimum, a public entity shall disclose all of the following: a. The basis of accounting for any transactions between reportable segments. b. The nature of any differences between the measurements of the reportable segments' profits or losses and the public entity's consolidated income (loss) before income tax provision, extraordinary items, and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). c. The nature of any differences between the measurements of the reportable segments’ assets and the public entity's consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). d. The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss. e. The nature and effect of any asymmetrical allocations to reportable segments.


Subsequent Events


The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.


Recently Issued Accounting Pronouncements


In July 2013, the FASB issued ASU No. 2013-11, Income Tax (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.


In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20.



28




Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The ASU states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation.


The ASU also requires additional disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. In addition, the ASU requires disclosure of the pre-tax profit or loss attributable to a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements.


The ASU is effective for public business entities for annual periods beginning on or after December 15, 2014, and interim periods within those years.


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.


Note 3 – Going Concern


The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.


As reflected in the consolidated financial statements, the Company had an accumulated deficit at March 31, 2014, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.


The Company is attempting to further implement its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations.  While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.


The consolidated 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.


Note 4 - Business Acquisitions


(i)

Acquisition of CNS Wellness Florida, LLC


On August 2, 2012, the Company consummated the Exchange Agreement and acquired all of the issued and outstanding limited liability company interests in CNS for and in consideration of the issuance of 7.3 million shares of the Company’s common stock pursuant to the Exchange Agreement.   The 7.3 million common shares issued in connection with the share exchange represented 32.2% of the 22,704,773 shares of issued and outstanding common stock of the Company as of the closing date of the share exchange under the Exchange Agreement.  CNS is now operated as a wholly-owned subsidiary of the Company.


Identification of the Accounting Acquirer


The Company used the existence of a controlling financial interest to identify the acquirer—the entity that obtains control of the acquiree in accordance with ASC paragraph 805-20-25-5 and identifies the acquisition date, which is the date on which it obtains control of the acquiree in accordance with ASC paragraph 805-20-25-6.  The management of the Company specifically addressed (i) the ownership interest of each party after the acquisition; (ii) the members of the board of directors from both companies; and (iii) senior management from both companies and determined that Wellness Center USA, Inc. was the accounting acquirer for the merger between Wellness Center USA, Inc. and CNS Wellness Florida, LLC.



29




The specific control factors considered to determine which entity was the accounting acquirer are as follows:


(i) The ownership interest of each party after the acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WCUI's common shares issued and outstanding prior to CNS acquisition

 

 

15,367,273

 

 

 

67.8

%

 

 

 

 

 

 

 

 

 

WCUI's common shares issued to the members of CNS for the acquisition of all of the issued and outstanding limited liability company interests in CNS upon acquisition of CNS

 

 

7,300,000

 

 

 

32.2

%

 

 

 

 

 

 

 

 

 

 

 

 

22,667,273

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

(ii) The members of the board of directors from both companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The members of the board of directors from WCUI prior to CNS acquisition

 

 

3

 

 

 

60.0

%

 

 

 

 

 

 

 

 

 

The members of the board of directors from CNS upon acquisition of CNS

 

 

2

 

 

 

40.0

%

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

(iii) Senior management from both companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior management from WCUI prior to CNS acquisition

 

 

1

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

Senior management from CNS upon acquisition of CNS

 

 

-

 

 

 

-

%

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 


Intangible Assets Identification, Estimated Fair Value and Useful Lives


With the assistance of the third party valuation firm, the Company identified certain separate recognizable intangible assets that possessed economic value, estimated their fair values and related useful lives of CNS at the date of acquisition as follows:


 

Estimated Useful Life (Years)

 

 

 

 

August 2, 2012

 

 

 

 

 

 

 

 

 

 

 

Trademark/Trade Name

9

 

 

 

 

 

$

110,000

 

 

 

 

 

 

 

 

 

 

 

Acquired Technology

20

 

 

 

 

 

 

325,000

 

 

 

 

 

 

 

 

 

 

 

Non-Competition Agreement

3

 

 

 

 

 

 

120,000

 

 

 

 

 

 

 

 

 

Total Recognized Intangible Assets

 

 

 

 

 

 

$

555,000

 




30




Business Enterprise Valuation


With the assistance of the third party valuation firm, the Company estimated the indicated value of the total invested operating capital of CNS at the date of acquisition utilizing the income approach – discounted cash flows method, was $3,100,000, as follows:


 

 

 

 

 

 

August 2, 2012

 

 

 

 

 

 

 

 

 

 

 

Present Value of Debt-Free Net Cash Flow - Forecast Period

 

 

 

 

 

 

$

807,921

 

 

 

 

 

 

 

 

 

 

 

Present Value of Debt-Free Net Cash Flow - Residual Period

 

 

 

 

 

 

 

2,287,246

 

 

 

 

 

 

 

 

 

 

 

Present Value of Debt-Free Net Cash Flow – Total

 

 

 

 

 

 

 

3,095,167

 

 

 

 

 

 

 

 

 

Value Indication Income Approach - Discounted Net Cash Flow Method (Rounded)

 

 

 

 

 

 

$

3,100,000

 


Allocation of Purchase Price


The purchase price of CNS has been allocated to the tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in CNS based on their estimated fair values at the date of acquisition as follows:


 

 

 

Book Value

 

 

Fair Value  Adjustment

 

 

Fair Market Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

$

11,713

 

 

$

-

 

 

$

11,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

 

18,459

 

 

 

 

 

 

 

18,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

 

 

 

-

 

 

 

110,000

 

 

 

110,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired technology

 

 

 

-

 

 

 

325,000

 

 

 

325,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-compete agreements

 

 

 

-

 

 

 

120,000

 

 

 

120,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

323,045

 

 

 

2,545,000

 

 

 

2,868,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Security deposits

 

 

 

36,939

 

 

 

 

 

 

 

36,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

(41,957

)

 

 

 

 

 

 

(41,957

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued interest - related party

 

 

 

(3,516

)

 

 

 

 

 

 

(3,516

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards payable

 

 

 

(66,008

)

 

 

 

 

 

 

(66,008

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll liability

 

 

 

(2,709

)

 

 

 

 

 

 

(2,709

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of deferred rent

 

 

 

(11,363

)

 

 

 

 

 

 

(11,363

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advances from related parties

 

 

 

(196,208

)

 

 

 

 

 

 

(196,208

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note payable - related party

 

 

 

(37,139

)

 

 

 

 

 

 

(37,139

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred rent, net of current portion

 

 

 

(31,256

)

 

 

 

 

 

 

(31,256

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

-

 

 

 

3,100,000

 

 

 

3,100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

 

(-

)

 

 

-

 

 

 

(-

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase price

 

 

$

-

 

 

$

3,100,000

 

 

$

3,100,000

 




31




(ii)

Acquisition of Psoria-Shield Inc.


On August 24, 2012, the Company consummated the share exchange and acquired all of the issued and outstanding shares of stock in PSI for and in consideration of the issuance of 7,686,797 shares of its common stock pursuant to the Exchange Agreement.  The 7,686,797 common shares issued in connection with the share exchange represented 25.3% of the 30,354,570 shares of issued and outstanding common stock of the Company as of the closing date of the share exchange under the Exchange Agreement. PSI is now operated as a wholly-owned subsidiary of the Company.


Identification of the Accounting Acquirer


The Company used the existence of a controlling financial interest to identify the acquirer—the entity that obtains control of the acquiree in accordance with ASC paragraph 805-20-25-5 and identifies the acquisition date, which is the date on which it obtains control of the acquiree in accordance with ASC paragraph 805-20-25-6.  The management of the Company specifically addressed (i) the ownership interest of each party after the acquisition; (ii) the members of the board of directors from both companies; and (iii) senior management from both companies and determined that Wellness Center USA, Inc. was the accounting acquirer for the merger between Wellness Center USA, Inc. and Psoria-Shield Inc.


The specific control factors considered to determine which entity was the accounting acquirer are as follows:


(i) The ownership interest of each party after the acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WCUI's common shares issued and outstanding prior to PSI acquisition

 

 

22,667,273

 

 

 

74.7

%

 

 

 

 

 

 

 

 

 

WCUI's common shares issued to the stockholders of PSI for the acquisition of all of the issued and outstanding common stock of PSI upon acquisition of PSI

 

 

7,686,797

 

 

 

25.3

%

 

 

 

 

 

 

 

 

 

 

 

 

30,354,070

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

(ii) The members of the board of directors from both companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The members of the board of directors from WCUI prior to PSI acquisition

 

 

5

 

 

 

83.3

%

 

 

 

 

 

 

 

 

 

The members of the board of directors from PSI upon acquisition of PSI

 

 

1

 

 

 

16.7

%

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

(iii) Senior management from both companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior management from WCUI prior to PSI acquisition

 

 

1

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

Senior management from PSI upon acquisition of PSI

 

 

-

 

 

 

-

%

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 




32




Intangible Assets Identification, Estimated Fair Value and Useful Lives


With the assistance of the third party valuation firm, the Company identified certain separate recognizable intangible assets that possessed economic value, estimated their fair values and related useful lives of PSI at the date of acquisition as follows:


 

Estimated Useful Life (Years)

 

 

 

 

August 24, 2012

 

 

 

 

 

 

 

 

 

 

 

Trademark - Psoria-Shield

7

 

 

 

 

 

$

210,000

 

 

 

 

 

 

 

 

 

 

 

Trademark - Psoria-Light

7

 

 

 

 

 

 

420,000

 

 

 

 

 

 

 

 

 

 

 

Acquired Technology

20

 

 

 

 

 

 

2,095,000

 

 

 

 

 

 

 

 

 

 

 

Non-Competition Agreement

4

 

 

 

 

 

 

120,000

 

 

 

 

 

 

 

 

 

Total Recognized Intangible Assets

 

 

 

 

 

 

$

2,845,000

 


Business Enterprise Valuation


With the assistance of the third party valuation firm, the Company estimated the indicated value of the total invested operating capital of PSI at the date of acquisition utilizing the income approach – discounted cash flows method, was $4,105,000, as follows:


 

 

 

 

 

 

August 24, 2012

 

 

 

 

 

 

 

 

 

 

 

Present Value of Debt-Free Net Cash Flow - Forecast Period

 

 

 

 

 

 

$

2,205,360

 

 

 

 

 

 

 

 

 

 

 

Present Value of Debt-Free Net Cash Flow - Residual Period

 

 

 

 

 

 

 

1,899,261

 

 

 

 

 

 

 

 

 

 

 

Present Value of Debt-Free Net Cash Flow – Total

 

 

 

 

 

 

 

4,104,622

 

 

 

 

 

 

 

 

 

Value Indication Income Approach - Discounted Net Cash Flow Method (Rounded)

 

 

 

 

 

 

$

4,105,000

 




33




Allocation of Purchase Price


The purchase price of PSI has been allocated to the tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the PSI based on their estimated fair values at the date of acquisition as follows:


 

 

 

Book Value

 

 

Fair Value  Adjustment

 

 

Fair Market Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

$

11,413

 

 

$

-

 

 

$

11,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

 

 

 

12,694

 

 

 

 

 

 

 

12,694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

 

80,956

 

 

 

 

 

 

 

80,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exclusive licenses

 

 

 

4,562

 

 

 

 

 

 

 

4,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark - Psoria-Shield

 

 

 

-

 

 

 

210,000

 

 

 

210,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark - Psoria-light

 

 

 

-

 

 

 

420,000

 

 

 

420,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired technology

 

 

 

-

 

 

 

2,095,000

 

 

 

2,095,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-compete agreement

 

 

 

-

 

 

 

120,000

 

 

 

120,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

456,603

 

 

 

1,260,000

 

 

 

1,716,603

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Security deposits

 

 

 

1,760

 

 

 

 

 

 

 

1,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

(161,821

)

 

 

 

 

 

 

(161,821

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards payable

 

 

 

(42,198

)

 

 

 

 

 

 

(42,198

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer deposits

 

 

 

(25,000

)

 

 

 

 

 

 

(25,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued warranty

 

 

 

(9,600

)

 

 

 

 

 

 

(9,600

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term payable

 

 

 

(72,653

)

 

 

 

 

 

 

(72,653

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan payable

 

 

 

(20,000

)

 

 

 

 

 

 

(20,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advances from stockholders

 

 

 

(233,994

)

 

 

 

 

 

 

(233,994

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

-

 

 

 

4,105,000

 

 

 

4,105,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

 

(-

)

 

 

-

 

 

 

(-

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase price

 

 

$

-

 

 

$

4,105,000

 

 

$

4,105,000

 


(iii) Acquisition of National Pain Centers, Inc


On January 28, 2014, the Company entered into an Exchange Agreement (“Exchange Agreement”) to acquire all of the issued and outstanding shares of common stock of National Pain Centers, Inc. ("NPC"), a Nevada holding corporation based in Deer Park, Illinois.


On February 28, 2014, the Company consummated the Exchange Agreement entered into on January 28, 2014 and acquired all of the issued and outstanding shares of common stock of NPC for and in consideration of the issuance of 5,000,000 shares of common stock of the Company pursuant to the Exchange Agreement valued at $0.24 per share or $1,200,000, the relative fair value of the PPM consummated on January 13, 2014 immediately prior to the consummation of the Exchange Agreement, which was recorded as goodwill as NPC is a newly formed entity.  NPC is now operated as a wholly-owned subsidiary of the Company.



34




Note 5 – Inventories


Inventories consisted of the following:


 

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

Purchased parts for assembly

 

$

57,131

 

 

$

135,485

 

 

 

 

 

 

 

 

 

 

Finished goods

 

 

125,987

*

 

 

-

 

 

 

 

 

 

 

 

 

 

$

183,118

 

 

$

135,485

 

 

 

 

 

 

 

 


*

PSI's purchased parts from vendors and assembled them to finished goods.  Due to the short duration time for the assembly, PSI did not capitalize the assembly time to finished good and there was no material work-in-process inventory at March 31, 2014 or September 30, 2013.


Slow-Moving or Obsolescence Markdowns


The Company recorded no inventory obsolescence adjustments for the reporting period ended March 31, 2014 or 2013.


Note 6 – Property and Equipment


Property and equipment, stated at cost, less accumulated depreciation consisted of the following:


 

Estimated Useful Life (Years)

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Auto

3

 

$

15,000

 

 

$

15,000

 

 

 

 

 

 

 

 

 

 

 

Computer equipment

5

 

 

12,112

 

 

 

12,112

 

 

 

 

 

 

 

 

 

 

 

Furniture and fixture

7

 

 

26,808

 

 

 

26,808

 

 

 

 

 

 

 

 

 

 

 

Leasehold improvement

5

 

 

15,170

 

 

 

15,170

 

 

 

 

 

 

 

 

 

 

 

Medical and office equipment

5

 

 

16,239

 

 

 

16,239

 

 

 

 

 

 

 

 

 

 

 

Software

3

 

 

32,276

 

 

 

32,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

117,805

 

 

 

117,805

 

 

 

 

 

 

 

 

 

 

 

Less accumulated depreciation

 

 

 

(59,327

)

 

 

(43,300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

58,478

 

 

$

74,505

 


 (i)

Depreciation Expense


Depreciation expense was $16,027 and $13,953 for the reporting period ended March 31, 2014 and 2013, respectively.


(ii)

Impairment


The Company completed the annual impairment test of property and equipment and determined that there was no impairment as the fair value of property and equipment, substantially exceeded their carrying values at September 30, 2013.



35




Note 7 – Intangible Assets Other Than Goodwill


Exclusive License Agreements


(i)

Exclusive License Agreement for Provisional Patent No. 1 Signed on August 25, 2009


Grant of License


An exclusive license agreement ("Exclusive License Agreement") was made and entered into on August 25, 2009, by and among Scot L. Johnson ("Johnson"), Edwin T. Longo ("Longo", and together with Johnson collectively referred to herein as "Licensors"), and Psoria-Shield Inc. (“PSI” or "Licensee").


Upon the execution of the Exclusive License Agreement, Licensee acquired, and Licensors granted to Licensee, for the duration of the License Term (as defined below), the sole and exclusive (including to the exclusion of Licensors), worldwide, paid-up, royalty-free right and license under the Licensed Patents, Know-how, Technical Data, and any Improvements as defined in the Exclusive License Agreement to develop, make, have made, use, sell, offer to sell, distribute, export, import, and otherwise commercialize the Licensed Product(s) in the Field. This license shall include the right of Licensee to grant sublicenses and distribution rights in the Field.


Consideration for License


As the sole and exclusive consideration for the rights and license granted in the Exclusive License Agreement, each of the Licensors received, on the date of signing, 3,000,000 shares of the common stock of PSI, or 6,000,000 shares of PSI in aggregate, which were valued at the stockholders’ cost basis of nil.


License Term


The term of the rights and license granted herein shall commence upon the date of signing of the Exclusive License Agreement and shall continue in effect in perpetuity unless and to the extent terminated as set forth in Sections 5.2 through 5.4 of the License Term of the Exclusive License Agreement.


The License may be terminated at any time by the mutual written agreement of each of the Licensors and Licensee.


(ii)

Exclusive License Agreement for Provisional Patent No. 2 Signed on December 11, 2010


Grant of License


An exclusive license agreement ("Exclusive License Agreement") was made and entered into on December 11, 2010, by and between Scot L. Johnson ("Johnson" or referred to herein as "Licensor"), and Psoria-Shield Inc. (“PSI” or "Licensee").


Upon the execution of the Exclusive License Agreement, Licensee acquired, and Licensor granted to Licensee, for the duration of the License Term (as defined below), the sole and exclusive (including to the exclusion of Licensor), worldwide, paid-up, royalty-free right and license under the Licensed Patents, Know-how, Technical Data, and any Improvements as defined in the Exclusive License Agreement to develop, make, have made, use, sell, offer to sell, distribute, export, import, and otherwise commercialize the Licensed Product(s) in the Field. This license shall include the right of Licensee to grant sublicenses and distribution rights in the Field.


Consideration for License


As the sole and exclusive consideration for the rights and license granted in the Exclusive License Agreement, the Licensor received, on the date of signing, 5,000 shares of the common stock of PSI, which was valued at the stockholder’s cost basis of $5,000.


License Term


The term of the rights and licenses granted herein shall commence upon the date of signing of the Exclusive License Agreement and shall continue in effect in perpetuity unless and to the extent terminated as set forth in Sections 5.2 through 5.4 of the License Term of the Exclusive License Agreement.



36




The License may be terminated at any time by the mutual written agreement of each of the Licensors and Licensee.


Amortization Expense


Amortization expense was $125 each for the reporting period ended March 31, 2014 and 2013.


Acquired Technologies

 

Acquired technologies, stated at cost, less accumulated amortization consisted of the following:


 

Estimated Useful Life (Years)

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

CNS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired technologies

20

 

$

325,000

 

 

$

325,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(27,080

)

 

 

(18,956

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(297,920

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

306,044

 

 

 

 

 

 

 

 

 

 

 

PSI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired technologies

20

 

 

2,095,000

 

 

 

2,095,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(165,851

)

 

 

(113,477

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(-

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,929,149

 

 

 

1,981,527

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired technologies

 

 

 

2,420,000

 

 

 

2,420,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(192,931

)

 

 

(132,433

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(297,920

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,929,149

 

 

$

2,287,567

 


Amortization Expense


Amortization expense was $60,498 each for the reporting period ended March 31, 2014 and 2013.



37




Non-compete Agreements

 

Non-compete agreements, stated at cost, less accumulated amortization consisted of the following:


 

Estimated Useful Life (Years)

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

CNS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Compete agreement

3

 

$

120,000

 

 

$

120,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(66,660

)

 

 

(46,662

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(53,340

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

73,338

 

 

 

 

 

 

 

 

 

 

 

PSI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Compete agreement

4

 

 

120,000

 

 

 

120,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(47,500

)

 

 

(32,500

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(-

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72,500

 

 

 

87,500

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Compete agreements

 

 

 

240,000

 

 

 

240,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(114,160

)

 

 

(79,162

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(53,340

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

72,500

 

 

$

160,838

 


Amortization Expense


Amortization expense was $34,998 each for the reporting period ended March 31, 2014 and 2013.



38




Trademarks


Trademarks, stated at cost, less accumulated amortization consisted of the following:


 

Estimated Useful Life (Years)

 

March  31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

CNS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

7

 

$

110,000

 

 

$

110,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(20,380

)

 

 

(14,266

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(89,620

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

95,734

 

 

 

 

 

 

 

 

 

 

 

PSI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark - Psoria-Light

7

 

 

420,000

 

 

 

420,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(87,500

)

 

 

(57,500

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(-

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

332,500

 

 

 

362,500

 

 

 

 

 

 

 

 

 

 

 

Trademark - Psoria-Shield

7

 

 

210,000

 

 

 

210,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(55,000

)

 

 

(40,000

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(-

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

155,000

 

 

 

170,000

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

 

 

740,000

 

 

 

740,000

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

(162,880

)

 

 

(111,766

)

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(89,620

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

487,500

 

 

$

628,234

 


Amortization Expense


Amortization expense was $51,114 each for the reporting period ended March 31, 2014 and 2013.


Impairment


The Company completed the annual impairment test of intangible assets other than goodwill inclusive of acquired technologies, exclusive licenses, non-compete agreements and trademarks and determined that there was total 440,880 impairment to the fair value of intangible assets other than goodwill inclusive of acquired technologies, exclusive licenses, non-compete agreements, and trademarks.



39




Note 8 – Goodwill


Goodwill, stated at cost, less accumulated impairment, if any, consisted of the following:


 

 

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Acquisition of CNS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

$

2,868,045

 

 

$

2,868,045

 

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(2,868,045

)

 

 

(-

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

2,868,045

 

 

 

 

 

 

 

 

 

 

 

Acquisition of NPC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

$

1,200,000

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(-

)

 

 

(-

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,200,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

Acquisition of PSI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

1,716,603

 

 

 

1,716,603

 

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(-

)

 

 

(-

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,716,603

 

 

 

1,716,603

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired technologies

 

 

 

5,784,648

 

 

 

4,584,648

 

 

 

 

 

 

 

 

 

 

 

Accumulated impairment

 

 

 

(2,868,045

)

 

 

(-

)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,916,603

 

 

$

4,584,648

 


Impairment


The Company completed the interim impairment test of goodwill and determined that there was an impairment of $2,868,045 to the goodwill at March 31, 2014.


Note 9 – Website Development Costs


Website development costs, stated at cost, less accumulated amortization consisted of the following:


 

Estimated Useful Life (Years)

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Website development costs

3

 

$

22,809

 

 

$

22,809

 

 

 

 

 

 

 

 

 

 

 

Less accumulated amortization

 

 

 

(11,795

)

 

 

(8,826

)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11,014

 

 

$

13,983

 




40




(i)

Amortization Expense


Amortization expense was $2,969 and $2,969 for the reporting period ended March 31, 2014 and 2013, respectively.


(ii)

Impairment


The Company completed the annual impairment test of website development costs and determined that there was no impairment as the fair value of website development costs, substantially exceeded their carrying values at September 30, 2013.


Note 10 – Related Party Transactions


Related Parties


Related parties with whom the Company had transactions are:


Related Parties

 

Relationship

 

 

 

Andrew J. Kandalepas

 

Chairman, CEO, significant stockholder and director

 

 

 

CADserv Corporation

 

An entity owned and controlled by significant stockholder

 

 

 

William A. Lambos, Ph.D.

 

Chief Cognitive Neuroscientist of CNS, significant stockholder and director

 

 

 

Peter A. Hannouche

 

CEO and COO of CNS, significant stockholder and director

 

 

 

Scot Johnson

 

President and Chief Executive Officer of PSI, significant stockholder and director

 

 

 

Lux Dynamics LLC

 

An entity owned and controlled by the spouse of a significant stockholder


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.


Note Receivable – Chairman, President and CEO


 

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

On September 30, 2013, Mr. Andrew Kandalepas, Chairman, President and CEO of the Company (“Maker”), issued a note to pay to the order of Wellness Center USA, Inc. ("Lender"), the principal sum of Two Hundred Fifty Thousand Dollars ($250,000), together with interest at 7.0% per annum, in six quarterly payments of principal and accrued interest, beginning on April 1, 2014 and continuing on the first day of each calendar quarter thereafter, with all principal and interest to be paid in full on or before July 1, 2015  (the "Maturity Date"). After the Maturity Date, and in addition to the interest described above which is due on or prior to the Maturity Date, Maker shall pay interest on the balance of principal remaining unpaid during any such period at an annual rate equal to ten percent (10%) (the "Default Rate"). The interest accruing under this paragraph shall be immediately due and payable by Maker to, and shall be additional indebtedness evidenced by, this Note.

 

$

250,000

 

 

$

250,000

 

 

 

 

 

 

 

 

 

 

Current maturity of note receivable - Chairman, President and CEO

 

 

(162,233

)

 

 

(83,333

)

 

 

 

 

 

 

 

 

 

Note receivable - Chairman, President and CEO, net of current maturity

 

$

87,767

 

 

$

166,667

 

 

 

 

 

 

 

 

 

 


Mr. Kandalepas paid $10,000 toward $45,038.75 due April 1, 2014 and is trying his best to pay the remaining balance prior to June 30, 2014.



41




Note Payable – Related Party


 

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

$

37,139

 

 

$

37,139

 

 

 

 

 

 

 

 

 

 


Long-Term Notes Payable – Officers


 

 

March 31, 2014

 

 

September 30, 2013

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Original amount

 

$

120,886

 

 

$

120,886

 

 

 

 

 

 

 

 

 

 

Repayments from inception to date

 

 

(32,862

)

 

 

(26,956

)

 

 

 

 

 

 

 

 

 

Remaining balance

 

 

88,024

 

 

 

93,930

 

 

 

 

 

 

 

 

 

 

On August 2, 2012, upon the acquisition of CNS by WCUI, CNS memorialized the advances from the former member as a promissory note to the officer. Pursuant to the terms and conditions of the note, 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 the Note. The entire principal balance together with any accrued but unpaid interest thereon is due August 2, 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Original amount

 

 

75,322

 

 

 

75,322

 

 

 

 

 

 

 

 

 

 

Repayments from inception to date

 

 

(26,898

)

 

 

(28,515

)

 

 

 

 

 

 

 

 

 

Remaining balance

 

 

48,424

 

 

 

46,807

 

 

 

 

 

 

 

 

 

 

 

 

$

136,448

 

 

$

140,737

 

 

 

 

 

 

 

 

 

 




42




Note 11 – Commitments and Contingencies


Employment Agreements - CNS


Employment Agreement - William A. Lambos


On August 2, 2012, the Company entered into an employment agreement (the “Employment Agreement”) with William A. Lambos (the “Executive”). Under the Employment Agreement, the Company acquired from the Executive all of the Executive’s limited liability company membership interests in CNS-Wellness Florida, LLC, a Florida limited liability company, in exchange for 3,650,000 shares of $0.001 par value common stock of the Company, The Company hereby employs the Executive, and the Executive hereby accepts such employment, upon the terms and conditions stated herein (1) The Executive is engaged to serve as the Chief Executive Officer of the Company’s subsidiary CNS Wellness Florida, (2) The Executive’s employment under this Agreement shall commence on the date hereof and shall continue in effect until July 31, 2015. the Executive understands that he is an at-will Executive, and that the Company may terminate his employment at any time (3) The Company shall pay to the Executive a base annual salary of $150,000, subject to increase, but not decrease, from time to time by the Board of Directors of the Company, provided other benefits and retirement plans (4) If at any time on or before July 31, 2015 the employment of the Executive is terminated by the Executive other than for good reason, or by the Company for cause, then the Company shall pay to the Executive any compensation earned but not paid to the Executive prior to the effective date of such termination (5) The Executive covenants and agrees that during the term of the Executive's employment, whether pursuant to this Agreement, any renewal hereof, or otherwise, and for a period of two years (the “Restricted Period”) after the later of the expiration of this Agreement or the termination of his employment with the Company, in the State(s) in which the Company conducts business as of the Executive's termination of employment, he will not, directly or indirectly (through one or more intermediaries), whether individually, or as an officer, director, agent, shareholder of 5% or more of the applicable company’s outstanding equity shares, member, partner, joint venturer, investor (other than as a passive trader in publicly traded securities), consultant or otherwise, compete in whole or in part with the business then engaged in by the Company. This Section shall not apply in the event of a termination by the Executive for good reason or a termination by the Company without cause.


Effective January 24, 2014, the employment agreement of William A. Lambos, PhD. and his employment thereunder was terminated by the action of the Company’s Board of Directors. Dr. Lambos subsequently resigned from the Board of Directors.


Employment Agreement - Peter A. Hannouche


On August 2, 2012, the Company entered into an employment agreement (the “Employment Agreement”) with Peter A. Hannouche (the “Executive”) with the same terms and conditions of the Employment Agreement with William A. Lambos.


Effective January 24, 2014, the employment agreement of Peter A. Hannouche and his employment thereunder was terminated by the action of the Company’s Board of Directors. Mr. Hannouche subsequently resigned from the Board of Directors.


Employment Agreements - PSI


Employment Agreement - Scot L. Johnson


On August 24, 2012, the Company entered into an employment agreement (the “Employment Agreement”) with Scot Johnson (the “Executive”). Under the Employment Agreement, the Company acquired from the Executive all of the Executive’s shares of common stock in Psoria-Shield Inc., a Florida corporation, in exchange for 3,005,000 shares of $0.001 par value common stock of the Company, the Company hereby employs the Executive, and the Executive hereby accepts such employment, upon the terms and conditions stated herein (1) The Executive is engaged to serve as the Chief Executive Officer of the Company’s subsidiary Psoria-Shield Inc, (2) The Executive’s employment under this Agreement shall commence on the date hereof and shall continue in effect until July 31, 2015. the Executive understands that he is an at-will Executive, and that the Company may terminate his employment at any time (3) The Company shall pay to the Executive a base annual salary of $150,000, subject to increase, but not decrease, from time to time by the Board of Directors of the Company, provided other benefits and retirement plans (4) If at any time on or before August 31, 2015 the employment of the Executive is terminated by the Executive other than for good reason, or by the Company for cause, then the Company shall pay to the Executive any compensation earned but not paid to the Executive prior to the effective date of such termination (5) The Executive covenants and agrees that during the term of the Executive's employment, whether pursuant to this Agreement, any renewal hereof, or otherwise, and for a period of two years (the “Restricted Period”) after the later of the expiration of this Agreement or the termination of his employment with the Company, in the State(s) in which the Company conducts business as of the Executive's termination of employment, he will not, directly or indirectly (through one or more intermediaries), whether individually, or as an officer, director, agent, shareholder of 5% or more of the applicable company’s outstanding equity shares, member, partner, joint venturer, investor (other than as a passive trader in publicly traded securities), consultant or otherwise, compete in whole or in part with the business then engaged in by the Company. This Section shall not apply in the event of a termination by the Executive for good reason or a termination by the Company without cause.



43




On April 11, 2014, Scot Johnson entered in to a separation agreement (“Separation Agreement”) with the Company where he resigned from all positions and employment with the Company and the Employment agreement with the Company was terminated.


Employment Agreement –David Angulo


On November 18, 2012 (the “Effective Date”), PSI entered into an employment agreement (the “Employment Agreement”) with David Angulo (the “Employee”) to serve as the Production Supervisor of PSI. The key terms and conditions of the Employment Agreement are as follows:


Term


The term of this Agreement shall commence on the Effective Date and shall continue until the one (1) year anniversary of the Effective Date. The term of this Agreement shall automatically renew for successive periods of one ( 1) year following the expiration of the initial term or any renewal term, unless the Company or the Employee provides notice to the other, at least thirty (30) days prior to the expiration of the expiring term, that such party does not desire to continue the employment relationship between the Company and the Employee following the last day of the expiring term (a "Termination notice").


Compensation


a.

Annual Base Salary. As compensation for the Employee's services, the Company shall pay the Employee an annual base salary of $55,000. Such annual base salary shall be payable in equal installments in accordance with the policy then prevailing for the Company's salaried employees generally, and the annual base salary shall be subject to any tax and other withholdings or deductions required by applicable laws and regulations.


b.

Bonus:

The Employee shall be entitled to only such bonuses or additional compensation as may be granted to the Employee by the Board of Directors, in its sole discretion.


Termination


The Company may terminate the Employee's employment at any time without Cause (a "Termination Without Cause") and the Employee may terminate his or her employment at any time (an "Employee Termination").


Non-solicitation and Non-disclosure Covenants


The Employee agrees that it is reasonable and necessary for the protection of the goodwill and legitimate business interests of the Company that the Employee abide the non-solicitation, non-disclosure and non-compete covenants.


Employment Agreement –Kelly DeGideo


On August 16, 2012 (the “Effective Date”), PSI entered into an employment agreement (the “Employment Agreement”) with Kelly DeGideo (the “Employee”) to serve as a regional sales manager of PSI. The key terms and conditions of the Employment Agreement are as follows:


Term


The term of this Agreement shall commence on the Effective Date and shall continue until the one (1) year anniversary of the Effective Date. The term of this Agreement shall automatically renew for successive periods of one (1) year following the expiration of the initial term or any renewal term, unless the Company or the Employee provides notice to the other, at least thirty (30) days prior to the expiration of the expiring term, that such party does not desire to continue the employment relationship between the Company and the Employee following the last day of the expiring term ("Termination notice").


Compensation


a.

Annual Base Salary. As compensation for the Employee's services, the Company shall pay the Employee an annual base salary of $75,000. Such annual base salary shall be payable in equal installments in accordance with the policy then prevailing for the Company's salaried employees generally, and the annual base salary shall be subject to any tax and other withholdings or deductions required by applicable laws and regulations.


b.

Bonus:

The Employee shall be entitled to only such bonuses or additional compensation as may be granted to the Employee by the Board of Directors, in its sole discretion.



44




Termination


The Company may terminate the Employee's employment at any time without Cause (a "Termination Without Cause") and the Employee may terminate his or her employment at any time (an "Employee Termination").


Non-solicitation and Non-disclosure Covenants


The Employee agrees that it is reasonable and necessary for the protection of the goodwill and legitimate business interests of the Company that the Employee abide the non-solicitation, non-disclosure and non-compete covenants.


Employment Agreements - NPC


Employment Agreement – Jay Joshi, MD


On February 28, 2014, the Company entered into an employment agreement (the “Employment Agreement”) with Jay Joshi, MD, a physician (the “Executive”). Under the Employment Agreement, the Company acquired from the Executive all of the Executive’s shares of common stock in National Pain Centers, Inc, a Nevada corporation, in exchange for 5,000,000 shares of $0.001 par value common stock of the Company, for the consideration given and received herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Executive and the Company hereby agree as follows:


Term


The Executive’s employment under this Agreement shall commence on the date hereof, and this Agreement shall commence as of that date and shall continue in effect until February 27, 2019.  The parties expressly understand that nothing in this Agreement is a guarantee or assurance of employment for any specific period of time.  Rather, subject to the notice provisions set forth in Section 6(c), the Executive understands that he is an at-will Executive, and that the Company may terminate his employment at any time, and the Executive is similarly free to resign at any time.


Duties


The Executive is engaged to serve as the Chief Medical Officer of the Company and the President and CEO of the Company’s wholly-owned subsidiary, NPC.  Executive shall have such duties as are customarily associated with such positions including but not limited to overall responsibility and authority for general operations, management, and employment matters and relationships, as well as such other senior executive duties as may from time to time be reasonably assigned to him by the Company’s CEO and/or Board of Directors.   In addition, at every election for the Company's Board of Directors while the Executive is employed by the Company hereunder, the Company will nominate the Executive to be elected to serve on the Board of Directors.


Compensations


(a) Base Salary.  The Company shall pay to the Executive as compensation for services rendered by the Executive hereunder a base annual salary of $200,000, subject to increase, but not decrease, from time to time by the CEO and/or the Board of Directors of the Company.  The base salary paid to the Executive is subject to such payroll and other deductions as may be agreed upon by the parties or required by law.  This salary shall be paid in accordance with Company's customary biweekly payroll procedure.


(b) Benefits.  Upon the signing of the agreement, Executive shall be issued a signing stock option to purchase 400,000 Shares at an exercise price of $0.40. Further, provided Executive remains employed by the Company, he will be granted additional stock options to buy up to an aggregate total of 1,000,000 shares of the Company’s common stock, at a vesting schedule of 200,000 per quarter, starting with quarter ending September 30, 2014. Each Stock option tranche shall carry an exercise price equal to the then market closing price, at the end of each quarter. All other terms and conditions not specified herein will be treated in accordance with the Company’s 2010 Non-Qualified Stock Compensation Plan. In the event of an acquisition or merger of the Company, all options granted or scheduled to be granted shall convert immediately into the incumbent company’s shares or be paid in cash on a cashless provision.


Termination


The Executive or the Company may voluntarily elect to terminate this Agreement (a termination "Without Cause") by delivering to the other party, at least ninety (90) days prior to the date upon which termination is desired, by written notice of such intention to terminate.



45




Covenant not to Compete


The Executive covenants and agrees that during the term of the Executive's employment, whether pursuant to this Agreement, any renewal hereof, or otherwise, and for a period of one year (the “Restricted Period”) after the later of the expiration of this Agreement or the termination of his employment with the Company, in the State(s) in which the Company conducts business as of the Executive's termination of employment, he will not, directly or indirectly (through one or more intermediaries), whether individually, or as an officer, director, agent, shareholder of 5% or more of the applicable company’s outstanding equity shares, member, partner, joint venturer, investor (other than as a passive trader in publicly traded securities), consultant or otherwise, compete in whole or in part with the business then engaged in by the Company.


Employment Agreements - WCUI


Employment Agreement – Donald Swanson


On February 28, 2014, the Company entered into an employment agreement (the “Employment Agreement”) with Donald Swanson (the “Executive”) for the consideration given and received herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Executive and the Company hereby agree as follows:


Term


The Executive’s employment under this Agreement shall commence on the date hereof, and this Agreement shall commence as of that date and shall continue in effect until February 27, 2017.  The parties expressly understand that nothing in this Agreement is a guarantee or assurance of employment for any specific period of time.  Rather, subject to the notice provisions set forth in Section 6(c), the Executive understands that he is an at-will Executive, and that the Company may terminate his employment at any time, and the Executive is similarly free to resign at any time.


Duties


The Executive is engaged to serve as the Chief Operating Officer of the Company, reporting to the Company's CEO. Executive shall have such duties as are customarily associated with such positions including but not limited to overall responsibility and authority for general operations, management, employment matters and relationships, as well as such other senior executive duties as may from time to time be reasonably assigned to him by the Company's CEO and/or Board of Directors. The Executive shall perform such services subject to the direction, supervision, and rules and regulations of the Company and the Company's Board of Directors.


Compensations


(a) Base Salary.  The Company shall pay to the Executive as compensation for services rendered by the Executive hereunder a base annual salary of $200,000, subject to increase, but not decrease, from time to time by the CEO and/or the Board of Directors of the Company.  The base salary paid to the Executive is subject to such payroll and other deductions as may be agreed upon by the parties or required by law.  This salary shall be paid in accordance with Company's customary biweekly payroll procedure.


(b) Benefits.  Upon the signing of the agreement, Executive shall be issued a signing stock option to purchase 1,400,000 Shares at an exercise price of $0.40. Further, provided Executive remains employed by the Company, he will be granted additional stock options to buy up to an aggregate total of 1,000,000 shares of the Company’s common stock, at a vesting schedule of 200,000 per quarter, starting with quarter ending September 30, 2014. Each Stock option tranche shall carry an exercise price equal to the then market closing price, at the end of each quarter. All other terms and conditions not specified herein will be treated in accordance with the Company’s 2010 Non-Qualified Stock Compensation Plan. In the event of an acquisition or merger of the Company, all options granted or scheduled to be granted shall convert immediately into the incumbent company’s shares or be paid in cash on a cashless provision.


Termination


The Executive or the Company may voluntarily elect to terminate this Agreement (a termination "Without Cause") by delivering to the other party, at least ninety (90) days prior to the date upon which termination is desired, by written notice of such intention to terminate.



46




Covenant not to Compete


The Executive covenants and agrees that during the term of the Executive's employment, whether pursuant to this Agreement, any renewal hereof, or otherwise, and for a period of one year (the “Restricted Period”) after the later of the expiration of this Agreement or the termination of his employment with the Company, in the State(s) in which the Company conducts business as of the Executive's termination of employment, he will not, directly or indirectly (through one or more intermediaries), whether individually, or as an officer, director, agent, shareholder of 5% or more of the applicable company’s outstanding equity shares, member, partner, joint venturer, investor (other than as a passive trader in publicly traded securities), consultant or otherwise, compete in whole or in part with the business then engaged in by the Company.


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 a period of 12 months 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 a period of 12 months 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 a period of 12 months from January 1, 2013 through December 31, 2013.


On November 25, 2013 the Company renewed the non-cancellable sub-lease for office space in Illinois with CADserv Corporation with the same terms and condition for a period of 12 months from January 1, 2014 through December 31, 2014.


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


Fiscal year ending September 30:

 

 

 

 

 

 

 

 

 

2014 (remainder of the year)

 

$

11,457

 

 

 

 

 

 

2015

 

 

5,728

 

 

 

 

 

 

 

 

$

17,185

 


Operating Lease - CNS


On August 10, 2010 CNS entered into a non-cancellable sub-lease for office space of approximate 4,552 square feet of rentable area in Tampa, Florida with Teachers Insurance and Annuity Association of America for the benefit of its Separate Real Estate Account, a New York corporation ("Landlord"), effective December 1, 2010, for a period of 65 months from December 1, 2010 through April 30, 2016.  On August 10, 2010, in conjunction with the signing of the lease, CNS deposited (i) $11,364.82 representing one (1) month of base rent for the sixth (6th) month of the Initial Term) and (ii) $36,939 representing the security deposit into a certificate of deposit as a security deposit upon execution.  The certificate of deposit is forfeitable to the landlord of the facility upon any event of default by CNS.


Future minimum lease payments inclusive of related tax required under the non-cancelable operating lease are as follows:


Fiscal year ending September 30:

 

 

 

 

 

 

 

 

 

2014 (remainder of the year)

 

$

74,521

 

 

 

 

 

 

2015

 

 

152,402

 

 

 

 

 

 

 

 

$

226,923

 


CNS paid the rent through January 31, 2014 and accrued February 2014 and March 31, 2014 rent obligation on its books; however, CNS stopped paying the rent as of February 1, 2014. The Company is not aware of pending legal action involving the lease.



47




Deferred Rent


To induce CNS to enter into the operating lease for a period of 65 months the Landlord granted free rent for the first five (5) months of the occupancy. The first five (5) month cumulative rent expense is recognized on a straight-line basis over the duration of the initial lease term of 65 months.


Operating Lease - PSI


On January 4, 2011 the Company entered into a non-cancellable lease for office space of approximately 3,050 square feet of rentable area in aggregate in Tampa, Florida with a third party for a period of 12 months from the date of signing at $3,000 per month plus tax and common charges.


On January 4, 2012 the Company renewed the non-cancellable lease for an additional 12 months expiring January 3, 2013 with the same terms and conditions.


On January 4, 2013 the Company renewed the non-cancellable lease for an office space of approximately 2,000 square feet of rentable area for an additional 12 months expiring January 3, 2014 at $2,000 per month plus tax and common charges.


The Company and the landlord have tentatively agreed to renew the non-cancellable lease for an office space of approximately 2,000 square feet of rentable area for an additional 12 months expiring January 3, 2015 at $2,000 per month plus tax and common charges.


Future minimum lease payments inclusive of related tax required under the non-cancelable operating lease are as follows:


Fiscal year ending September 30:

 

 

 

 

 

 

 

 

 

2014 (remainder of the year)

 

$

12,840

 

 

 

 

 

 

2015

 

 

6,420

 

 

 

 

 

 

 

 

$

19,260

 


Note 12 – Stockholders’ Equity (Deficit)


Shares Authorized


Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is Seventy Five Million (75,000,000) shares of which Seventy Five Million (75,000,000) shares shall be Common Stock, par value $.001 per share.


Common Stock


Sale of Common Stock or Equity Units


On November 29, 2012 the Company issued a total of 1,447,550 shares of its common stock at $0.10 per share for an aggregate of $144,755 in cash.


Between December 4, 2012 and December 29, 2012 the Company sold a total of 520,999 equity units consisting of one (1) common share and a warrant to purchase one (1) common share with an exercise price of $0.45 per share expiring five (5) years from the date of issuance at $0.30 per unit or $156,300 in cash, $108,786 ($0.21 per common share) and $47,514 ($0.09 per warrant share) of which were allocated as the relative fair value of the common stock and warrants, respectively.


During the quarter ended December 31, 2012, warrants to purchase 1,777,000 shares with an exercise price of $0.01 per share were exercised by shareholders for an aggregate of $17,770 in cash.


During the quarter ended March 31, 2013 the Company sold 3,096,603 equity units consisting of one (1) common share and a warrant to purchase one (1) common share with an exercise price of $0.45 per share, expiring five (5) years from the date of issuance, at $0.30 per unit or $928,980; $651,216 ($0.21 per common share) and $277,764 ($0.09 per warrant share) were allocated as the relative fair value of the common stock and warrants, respectively.



48




During the quarter ended March 31, 2013, warrants to purchase 80,000 shares with an exercise price of $0.01 per share were exercised by shareholders for an aggregate of $800 in cash.


During the quarter ended June 30, 2013 the Company sold 601,668 equity units consisting of one (1) common share and a warrant to purchase one (1) common share with an exercise price of $0.45 per share, expiring five (5) years from the date of issuance, at $0.30 per unit or $180,500; $126,109 ($0.21 per common share) and $53,789 ($0.09 per warrant share) were allocated as the relative fair value of the common stock and warrants, respectively.


On May 9, 2013 the Company sold 40,000 equity units consisting of one (1) common share and a warrant to purchase one (1) common share with an exercise price of $1.00 per share, expiring five (5) years from the date of issuance, at $0.50 per unit or $20,000; $14,740 ($0.37 per common share) and $5,220 ($0.13 per warrant share) were allocated as the relative fair value of the common stock and warrants, respectively.


On April 19, 2013, the placement agent exercised its warrant to purchase 59,201 shares of the Company’s common stock with an exercise price of $0.30 per share, on a cashless basis, per the placement agent agreement, and the Company issued 44,643 shares of its common stock to the placement agent.


On May 7, 2013, warrants to purchase 100,000 shares with an exercise price of $0.01 per share were exercised by a shareholder for $1,000 in cash.


On May 29, 2013, warrants to purchase 100,001 shares with an exercise price of $0.45 per share were exercised by a shareholder for $45,000 in cash.


During the quarter ended September 30, 2013, the Company raised $1,648,500 from the issuance of (i) 4,121,250 common shares of the Company; (ii) warrants to purchase 4,121,250 common shares with an exercise price of $0.75 per share, expiring five (5) years from the date of issuance, and (iii) warrants to purchase 250,000 common shares with an exercise price of $0.45 per share expiring five (5) years from the date of issuance; of which $1,281,297 ($0.31 per common share) and $367,203 ($0.29 per warrant share) were allocated as the relative fair value of the common stock and warrants, respectively. In connection with this tranche of equity finance the Company paid certain placement agents finder's fee at 10%, or $148,550 in the aggregate.


On July 13 and September 13, 2013, warrants to purchase 87,000 shares with an exercise price of $0.01 per share were exercised by shareholders for $870 in cash.


During the period ended March 31, 2014, the Company raised $266,450 from the issuance of (i) 775,239 common shares of the Company; (ii) warrants to purchase 793,333 common shares with an exercise price of $0.30 per share, expiring five (5) years from the date of issuance, and (iii) warrants to purchase 228,572 common shares with an exercise price of $0.35 per share expiring five (5) years from the date of issuance; and (iv) warrants to purchase 150,000 common shares with an exercise price of $0.45 per share expiring five (5) years from the date of issuance.


Issuance of Common Stock or Equity Units for Employee Services


On July 3, 2013, the Company issued 244,260 common shares of the Company to two (2) of the Company's employees for their past services, valued at $24,260 based on more reliably measurable employee services received.



49



Issuance of Common Stock or Equity Units to Parties Other Than Employees for Acquiring Goods or Services


On March 13, 2012, the Company entered into a consulting agreement (the "Consulting Agreement") with a Consultant (the "Consultant”) for a period of one (1) year from the date of signing whereby the Company agreed to retain the Consultant and the Consultant agreed to identify possible sources of working capital for the Company.  As consideration for the services, the Company granted (i) 50,000 shares of its common stock and (ii) options to purchase 50,000 shares of common stock with an exercise price of $0.44 per share expiring five (5) years from the date of issuance to the Consultant.  The common shares and warrants are earned ratably over the term of the Consulting Agreement, every three (3) months, and the unearned shares are forfeitable in the event of non-performance by the Consultant. Pursuant to 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 date of issuance and no entry should be recorded.  12,500 common shares and an option to purchase 12,500 common shares with an exercise price of $0.44 per share each are to be earned on a quarterly basis. For the quarter ended June 30, 2012, 12,500 common shares were earned and valued at $1.10 per share, then PPM price, or $13,750 and the option to purchase 12,500 common shares was earned and valued at $3,565.  For the quarter ended September 30, 2012, 12,500 common shares were earned and valued at $0.30 per share, then PPM price, or $3,750 and option to purchase 12,500 common shares was earned and valued at $3,565.  For the quarter ended December 31, 2012, 12,500 common shares were earned and valued at $0.30 per share, then PPM price, or $3,750 and option to purchase 12,500 common shares was earned and valued at $3,565.  For the quarter ended March 31, 2013, 12,500 common shares were earned and valued at $0.30 per share, then PPM price, or $3,750 and option to purchase 12,500 common shares was earned and valued at $3,570.


On September 11, 2012, the Company entered into a consulting agreement (the "Consulting Agreement") with a consulting firm (the "Consultant”). Under the terms and conditions of the Consulting Agreement, the Company agreed to retain the Consultant and the Consultant agreed to identify possible sources of working capital for the Company for a period of one (1) year from the date of signing.  As consideration for the services, the Company would pay the consultant monthly for four (4) terms: (i) cash of $8,000 each month for the first term of three (3) months; grant 35,000 common shares monthly for the first term of three (3) months to the Consultant. (ii) cash of $10,000 each month for the second term of three (3) months; grant 30,000 common shares monthly for the second term of three (3) months. (iii) cash of $17,000 each month for the third term of three (3) months; grant 25,000 common shares monthly for the third term of three (3)  months. (iv) cash of $20,000 each month for the fourth term of three (3) months; grant 20,000 common shares monthly for the fourth term of three (3) months. For the quarter ended September 30, 2012, the Company paid $8,000 in cash and issued 35,000 common shares valued at $0.38 per share, or $13,300. On October 15, 2012 the Consultant and the Company agreed to terminate the Consulting Agreement. For the period from October 1, 2012 through October 15, 2012, the Company did not pay any cash to the Consultant and issued 70,000 common shares in aggregate which were valued at $0.43 per share, or $30,100.


On October 26, 2012, the Company entered into a Placement Agreement ("Placement Agreement") with Security Research Associates, Inc. ("SRA" or the "Placement Agent")) that SRA was engaged during the engagement period commencing on the date of this Placement Agreement and ending on the earlier to occur of May 31, 2013 or the termination of this Agreement (“Engagement Period”), as exclusive placement agent on a "best-efforts" basis in connection with a proposed private placement of securities to be issued by the Company in accordance with the proposed terms. The Company agrees to pay to SRA a transaction fee (the "Transaction Fee") consisting of (i) 8% (eight percent) of the gross proceeds from the Financing received by the Company from all investors (the "Investors"), and (ii) 5 year Warrants (the "Warrant") to acquire a number of shares of the Company's Common Shares equal to 8% (eight percent) of the aggregate gross proceeds from the Financing received by the Company divided by the effective price per share of the Company's common shares paid by all of the Investors in the Financing received by the Company at closing (the "SRA Warrants"). The Transaction Fee shall be payable with respect to any Financing consummated during the Engagement Period and also with respect to any similar financing consummated within 12 months of the end of the Engagement Period. The SRA Warrants issued by the Company pursuant to this Placement Agreement will have an exercise price which will be the same as the price of such warrants issued to the Investors in the Financing. SRA Warrants issued pursuant to the Placement Agreement shall have piggyback registration rights, will include customary adjustments in the event of stock dividends and/or stock splits, reclassifications, reorganizations and/or business combinations involving the Company, will have a "cashless exercise" provision and, in the event Investors receive warrants, will contain such additional rights as are contained in the warrants issued to the Investors. On April 19, 2013, the Company issued a warrant to purchase 59,201 shares of the Company’s common stock with an exercise price of $0.30 per share to the Placement Agent. The Company estimated the relative fair value of the warrant at $9,289 at the date of issuance using the Black-Scholes Option Pricing Model. The Placement Agent exercised its warrant to purchase 59,201 shares of the Company’s common stock, on a cashless basis, on April 19, 2013, and the Company issued 44,643 shares of its common stock to the Placement Agent pursuant to the Placement Agreement.



50




On February 26, 2013, the Company entered into a Consulting agreement (the "Consulting Agreement"), with a Consultant (the "Consultant”). Under the terms and conditions of the Consulting Agreement, the Company agreed to retain the Consultant and the Consultant agreed to identify possible sources of working capital for the Company for a period of one (1) year from the date of signing.  As consideration for services, the Company would (i) pay $20,000 in cash; and (ii) grant (a) 550,000 shares of its common stock and (b) an option to purchase 300,000 shares of common stock with an exercise price of $0.30 per share, expiring five (5) years from the date of issuance, to the Consultant. The Company ratably recognizes the $20,000 payment in cash over the term of the Consulting Agreement.  550,000 common shares were valued at $0.30 per share, the PPM price, or $165,000, and the option to purchase 300,000 shares of common stock were valued at $47,490, or $212,490 in aggregate, all of which were expensed as consulting fees upon signing of the agreement as these common shares and warrants were issued upon signing the agreement and are fully vested and non-forfeitable.


On March 17, 2013, the Company entered into a Financing Service agreement (the "Financing Service Agreement"), with a Consultant (the "Consultant”). Under the terms and conditions of the Financing Service Agreement, the Company agreed to retain the Consultant and the Consultant agreed to identify possible sources of working capital for the Company for a period of one (1) year from the date of signing.  As consideration for services, the Company would grant (i) 600,000 shares of its common stock and (ii) an option to purchase 400,000 shares of its common stock with an exercise price of $0.30 per share expiring five (5) years from the date of issuance to the Consultant.  600,000 common shares were valued at $0.30 per share, the PPM price, or $180,000 and the option to purchase 400,000 shares of common stock were valued at $63,080, or $243,080 in aggregate, all of which were expensed as consulting fees upon signing of the agreement as these common shares and warrants are issued upon signing the agreement and are fully vested and non-forfeitable.


On April 9, 2013, the Company issued 50,000 shares of its common stock to a consultant for consulting services. These fully vested and non-forfeitable shares were valued at $0.30 per share, the PPM price, or $15,000, all of which were expensed as consulting fees.


On April 9, 2013, the Company issued 30,000 shares of its common stock to a foundation. These fully vested and non-forfeitable shares were valued at $0.30 per share, the PPM price, or $9,000, which were recorded as charitable contribution.


On July 18, 2013, the Company entered into a Consulting agreement (the "Consulting Agreement") with a consulting firm (the "Consultant”). Under the terms and conditions of the Consulting Agreement, the Consultant agreed to provide marketing and promotion services for the Company for a period of one (1) year from the date of signing.  As consideration for services, the Company would (i) pay $20,000 per month in cash; and (ii) grant (a) 50,000 shares of its common stock for the first month of engagement and (b) 20,000 shares of common stock per subsequent month. During the period ending September 30, 2013, the Company issued 70,000 common shares in aggregate to the consultant valued at $0.40 per share, the PPM price, or $28,000, all of which were expensed as consulting fees. On October 8, 2013, the Company issued 20,000 common shares to the consultant valued at $0.40 per share, the PPM price, or $8,000, all of which were expensed as consulting fees during the period ending December 31, 2013.


On September 3, 2013, the Company entered into a service agreement (the "Service Agreement") with a marketing firm (the "Consultant”). Under the terms and conditions of the Service Agreement, the Consultant agreed to provide marketing and public relation services for the Company through the end of 2013. As consideration for the services, the Company would pay (i) $2,000 per month in cash; and (ii) $2,000 worth of the Company’s common stock. The Company also entered another public event service agreement with the consultant for compensation of $4,600 in cash and $2,250 worth of common stock. The Company issued 10,625 common shares in aggregate to the consultant valued at $0.40 per share, the PPM price, or $4,250, all of which were expensed as consulting fees.


Stock 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.



51




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.


September 6, 2013 Issuance


On September 6, 2013, the Company issued an option to purchase 10,000 shares of its common stock to the consultant with an exercise price of $0.75 per share for advisory board services.  The option was vested and exercisable upon grant.


The Company estimated the fair value of the stock options on the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions:


 

 

 

 

 

September 6, 2013

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

61.77

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

1.77

%

 

 

 

 

 

 

 


*

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.



52




The estimated fair value of the stock options was $1,491 on the date of grant, which are recorded as consulting fees.


February 28, 2014 Issuance


On February 28, 2014, the Company issued an option to purchase 1,800,000 shares of its common stock to two officers of the Company with an exercise price of $0.40 per share expiring five (5) years from the date of issuance.


 

 

 

 

 

February 28, 2014

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

57.09

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.51

%

 

 

 

 

 

 

 


*

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 estimated relative fair value of the warrants was $55,097, $24,480, and $19,170, respectively, or $98,747, in aggregate, at the date of issuance using the Black-Scholes Option Pricing Model.


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, September 30, 2012

 

 

3,250,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,177,237

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

10,000

 

 

 

 

0.75

 

 

 

 

0.75

 

 

 

1,491

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2013

 

 

3,260,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,178,728

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,800,000

 

 

 

 

0.40

 

 

 

 

0.40

 

 

 

194,939

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2014

 

 

5,060,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,373,667

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable, March 31, 2014

 

 

5,060,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,373,667

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, March 31, 2014

 

 

-

 

 

 

$   

-

 

 

 

$   

-

 

 

$

-

 

 

 

$   

-

 

 



54




The following table summarizes information concerning outstanding and exercisable options as of March 31, 2014:


 

 

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

 

 

1.25

 

$

0.01

 

 

1,600,000

 

 

1.25

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01

 

 

200,000

.

 

1.62

 

 

0.01

 

 

200,000

 

 

1.62

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.44

 

 

50,000

 

 

2.95

 

 

0.44

 

 

50,000

 

 

2.95

 

 

0.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.00

 

 

750,000

 

 

6.69

 

 

1.00

 

 

750,000

 

 

6.69

 

 

1.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2.00

 

 

650,000

 

 

7.90

 

 

2.00

 

 

650,000

 

 

7.90

 

 

2.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.75

 

 

10,000

 

 

4.44

 

 

0.75

 

 

10,000

 

 

4.44

 

 

0.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.40

 

 

1,800,000

 

 

4.92

 

 

0.40

 

 

1,800,000

 

 

4.92

 

 

0.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 - 2.00

 

 

5,060,000

 

 

4.25

 

$

0.56

 

 

5,060,000

 

 

4.25

 

$

0.56

 


As of March 31, 2014, there were 2,450,000 shares of stock options remaining available for issuance under the 2010 Plan.


Warrants


Significant terms of the warrants


Significant terms of the warrants issued in connection with the Company's equity unit offering 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.



55




(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.


December 2012 Issuances


In December 2012, the Company issued (i) warrants to purchase 520,999 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 as part of the sale of equity units.



56




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:


 

 

 

 

 

December 19, 2012

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

63.91

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.77

%

 

 

 

 

 

 

 


*

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 engages 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 estimated relative fair value of the warrants was $47,514 at the date of issuance using the Black-Scholes Option Pricing Model.


February and March 2013 Issuance


On February 26, 2013 and March 17, 2013, the Company issued warrants to purchase 300,000 shares and 400,000 shares, or 700,000 shares in aggregate, of the Company’s common stock to consultants for future services with an exercise price of $0.30 per share expiring five (5) years from the date of issuance.


The estimated fair value of the warrants was valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

February  26, 2013

 

 

March 17, 2013

 

 

 

 

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

62.93

%

 

 

62.56

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.78

%

 

 

0.81

%

 

 

 

 

 

 

 


*

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 engages 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 estimated fair value of the warrants was $47,490 and $63,080, or $110,570 in aggregate, on the date of grant using the Black-Scholes Option Pricing Model.


March 2013 Issuances


In March 2013, the Company issued warrants to purchase 3,096,603 shares, in aggregate, of the Company’s common stock to investors with an exercise price of $0.45 per share expiring five (5) years from the date of issuance as part of the sale of equity units.



57




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 17, 2013

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

62.56

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.81

%

 

 

 

 

 

 

 


*

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 engages 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 estimated relative fair value of the warrants was $277,764 at the date of issuance using the Black-Scholes Option Pricing Model.


April 2013 Issuance


On April 19, 2013, the Company issued warrants to purchase 601,668 shares of the Company’s common stock to investors with an exercise price of $0.45 per share expiring five (5) years from the date of issuance.


The estimated fair value of the warrants was valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:


 

 

 

 

 

April 19, 2013

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

62.35

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.72

%

 

 

 

 

 

 

 


*

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 engages 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 estimated fair value of the warrants was $53,789 on the date of grant using the Black-Scholes Option Pricing Model.


May 2013 Issuances


In May 9, 2013, the Company issued warrants to purchase 40,000 shares, in aggregate, of the Company’s common stock to investors with an exercise price of $1.00 per share expiring five (5) years from the date of issuance as part of the sale of equity units.



58




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:


 

 

 

 

 

May 9, 2013

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

62.08

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.75

%

 

 

 

 

 

 

 


*

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 engages 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 estimated relative fair value of the warrants was $5,220 at the date of issuance using the Black-Scholes Option Pricing Model.


August 2013 Issuances


On August, 2013, the Company issued warrants to purchase 4,371,250 shares, in aggregate, consisting of 4,121,250 warrants with an exercise price of $0.75 per share and 250,000 warrants with an exercise price of $0.40 per share expiring five (5) years from the date of issuance.


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:


 

 

 

 

 

August 15, 2013

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

61.39

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

1.54

%

 

 

 

 

 

 

 


*

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 engages 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 estimated relative fair value of the warrants was $662,992 at the date of issuance using the Black-Scholes Option Pricing Model.


January 2014 and March 2014 Issuances


On January 13, 2014 and March 28, 2014, the Company issued warrants to purchase 1,171,905 shares, in aggregate, consisting of warrants to purchase (i) 793,333 shares with an exercise price of $0.40 per share; (ii) 228,572 shares with an exercise price of $0.45 per share and (iii) 150,000 shares with an exercise price of $0.65 per share expiring five (5) years from the date of issuance.



59




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:


 

 

January 13, 2014

 

 

March 28, 2014

 

 

 

 

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

58.28

%

 

 

56.29

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

1.60

%

 

 

1.73

%

 

 

 

 

 

 

 


*

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 engages 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 estimated relative fair value of the warrants was $98,747, in aggregate, at the date of issuance using the Black-Scholes Option Pricing Model.


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, 2012

 

 

7,209,774

 

 

 

$   

0.45 - 2.31

 

 

 

$   

0.10

 

 

$

122,013

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

9,389,721

 

 

 

   

0.30 - 1.00

 

 

 

   

0.42

 

 

 

1,167,139

 

 

 

   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(2,203,202

)

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2013

 

 

14,396,293

 

 

 

$   

0.01 - 2.31

 

 

 

$   

0.42

 

 

$

1,289,152

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,171,095

 

 

 

   

0.40 – 0.65

 

 

 

   

0.44

 

 

 

98,747

 

 

 

   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2014

 

 

15,568,198

 

 

 

$   

0.01 - 2.31

 

 

 

$   

0.42

 

 

$

1,387,899

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned and exercisable, March 31, 2014

 

 

15,568,198

 

 

 

$   

0.01 - 2.31

 

 

 

$   

0.42

 

 

$

1,387,899

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, March  31, 2014

 

 

-

 

 

 

$   

-

 

 

 

$   

-

 

 

$

-

 

 

 

$   

-

 

 




60




The following table summarizes information concerning outstanding and exercisable warrants as of March 31, 2014:


 

 

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

 

 

15,568,198

 

 

3.45

 

$

0.42

 

 

15,568,198

 

 

3.45

 

$

0.42

 


Note 13 - Concentration of Credit Risk


Credit Risk Arising from Financial Instruments


Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents.


As of March 31, 2014, substantially all of the Company’s cash and cash equivalents were held by major financial institutions and the balance at certain accounts may exceed the maximum amount insured by the Federal Deposits Insurance Corporation (“FDIC”).  However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.


Note 14 – Segment Reporting


Reportable segments are components of an enterprise about which separate financial information is available and that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.


The Company operates in 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 24, 2012, a developer, manufacturer, marketer and distributer of targeted Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases.


(iv)

Management of patient Services: which it stems from NPC, its wholly-owned subsidiary it acquired on February 28, 2014. NPC engages in acquisitions and management of top-tier medical practices in the interventional and multi-modal pain management sector.



61




The Company measures the segment profit or loss and segment assets for each reportable segment as follows:


a.

The basis of accounting for any transactions between reportable segments: The Company allows reportable segments to freely negotiate the terms and conditions of and carries out, on an arm's-length basis, any transactions between reportable segments;

b.

The nature of any differences between the measurements of the reportable segments' profits or losses and the public entity's consolidated income before income taxes, extraordinary items, and discontinued operations: There were no difference between the measurements of the reportable segments' profits or losses and the public entity's consolidated income (loss) as the Company does not allocate centrally incurred costs at the corporate headquarter;

c.

The nature of any differences between the measurements of the reportable segments’ assets and the public entity's consolidated assets: There were no difference between the measurements of the reportable segments’ assets and the public entity's consolidated assets as the Company does not have any jointly used assets;

d.

The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss: There were no change from prior periods in the measurement methods used to determine reported segment profit or loss;

e.

The nature and effect of any asymmetrical allocations to reportable segments: There were no asymmetrical allocations to reportable segments as the Company does not allocate depreciation expense to a reportable segment without allocating the related depreciable assets to that reportable segment.


The detailed segment information of the Company is as follows:


 

 

 

 

 

 

March 31, 2014

 

 

 

 

 

 

WCUI

 

CNS

 

NPC

 

PSI

 

WCUI

 

Consolidated

 

 

 

 

 

 

Corporate Headquarter

 

 Patient Services

 

 Management Services

 

 Medical Devices

 

Nutritional Supplement Distribution

 

 Total

 ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cash

 

 

45,698

 

(5,539)

 

 

 

(4,214)

 

 

 

35,945

 

 Accounts receivable

 

 

-

 

3,105

 

 

 

31,500

 

 

 

34,605

 

 Inventories

 

 

-

 

-

 

 

 

183,118

 

 

 

183,118

 

 Current maturity of note receivable - Chairman and CEO

 

 

162,233

 

-

 

 

 

-

 

 

 

162,233

 

 Prepayments and other current assets

 

 

20,567

 

-

 

 

 

416

 

 

 

20,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total current assets

 

 

228,498

 

(2,434)

 

-

 

210,820

 

-

 

436,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Property and Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Property and equipment

 

 

18,390

 

18,459

 

 

 

80,956

 

 

 

117,805

 

 Accumulated depreciation

 

 

(4,403)

 

(11,691)

 

 

 

(43,233)

 

 

 

(59,327)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Property and equipment, net

 

 

13,987

 

6,768

 

-

 

37,723

 

-

 

58,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exclusive Licenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exclusive licenses

 

 

-

 

-

 

 

 

5,000

 

 

 

5,000

 

 Accumulated amortization

 

 

-

 

-

 

 

 

(813)

 

 

 

(813)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Exclusive licenses, net

 

 

-

 

-

 

-

 

4,187

 

-

 

4,187



62




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Acquired Technologies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Acquired technologies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Acquired technologies - CNS

 

 

 

 

325,000

 

 

 

 

 

 

 

325,000

 

 Acquired technologies - PSI

 

 

 

 

 

 

 

 

2,095,000

 

 

 

2,095,000

 

 Accumulated amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated amortization - CNS

 

 

 

 

(27,080)

 

 

 

 

 

 

 

(27,080)

 

 Accumulated amortization - PSI

 

 

 

 

 

 

 

 

(165,851)

 

 

 

(165,851)

 

 Accumulated impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated impairment - CNS

 

 

 

 

(297,920)

 

 

 

 

 

 

 

(297,920)

 

 Accumulated impairment - PSI

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Acquired technologies, net

 

 

-

 

-

 

-

 

1,929,149

 

-

 

1,929,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Non-Compete Agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Non-compete agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Non-compete Agreement - CNS

 

 

 

 

120,000

 

 

 

 

 

 

 

120,000

 

 Non-compete Agreement - PSI

 

 

 

 

 

 

 

 

120,000

 

 

 

120,000

 

 Accumulated amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated amortization - CNS

 

 

 

 

(66,660)

 

 

 

 

 

 

 

(66,660)

 

 Accumulated amortization - PSI

 

 

 

 

 

 

 

 

(47,500)

 

 

 

(47,500)

 

 Accumulated impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated impairment - CNS

 

 

 

 

(53,340)

 

 

 

 

 

 

 

(53,340)

 

 Accumulated impairment - PSI

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Non-compete agreements, net

 

 

-

 

-

 

-

 

72,500

 

-

 

72,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Trademarks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Trademarks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Trade Mark:TM - CNS

 

 

 

 

110,000

 

 

 

 

 

 

 

110,000

 

 Trade Mark:TM - PL

 

 

 

 

 

 

 

 

420,000

 

 

 

420,000

 

 Trade Mark:TM - PS

 

 

 

 

 

 

 

 

210,000

 

 

 

210,000

 

 Accumulated amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated amortization - CNS

 

 

 

 

(20,380)

 

 

 

 

 

 

 

(20,380)

 

 Accumulated amortization - PL

 

 

 

 

 

 

 

 

(87,500)

 

 

 

(87,500)

 

 Accumulated amortization - PS

 

 

 

 

 

 

 

 

(55,000)

 

 

 

(55,000)

 

 Accumulated impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated impairment - CNS

 

 

 

 

(89,620)

 

 

 

 

 

 

 

(89,620)

 

 Accumulated impairment - PL

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 Accumulated impairment - PS

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Trademarks, net

 

 

-

 

-

 

-

 

487,500

 

-

 

487,500



63




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Website Development Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Website development costs

 

 

22,809

 

 

 

 

 

 

 

 

 

22,809

 

 Accumulated amortization

 

 

(11,795)

 

 

 

 

 

 

 

 

 

(11,795)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Website development costs, net

 

 

11,014

 

-

 

-

 

-

 

-

 

11,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Goodwill - CNS

 

 

 

 

2,868,045

 

 

 

 

 

 

 

2,868,045

 

 Goodwill - NPC

 

 

 

 

 

 

1,200,000

 

 

 

 

 

1,200,000

 

 Goodwill - PSI

 

 

 

 

 

 

 

 

1,716,603

 

 

 

1,716,603

 

 Accumulated impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated impairment - CNS

 

 

 

 

(2,868,045)

 

 

 

 

 

 

 

(2,868,045)

 

 Accumulated impairment - NPC

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 Accumulated impairment - PSI

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Goodwill, net

 

 

-

 

-

 

1,200,000

 

1,716,603

 

-

 

2,916,603

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Note receivable - Chairman and CEO, net of current maturity

 

 

87,767

 

-

 

 

 

-

 

 

 

87,767

 

 Security deposits

 

 

 

 

36,939

 

 

 

1,760

 

 

 

38,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total other assets

 

 

87,767

 

36,939

 

-

 

1,760

 

-

 

126,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total assets

 

 

341,266

 

41,273

 

1,200,000

 

4,460,242

 

-

 

6,042,781




64




 

 

 

 

For the Six Months

 

 

 

 

Ended

 

 

 

 

March 31, 2014

 

 

 

 

WCUI

 

CNS

 

NPC

 

PSI

 

WCUI

 

Consl Adj (2)

 

 Consolidated

 

 

 

 

Corporate Headquarter

 

 Patient Services

 

 Managemnt Services

 

 Medical Devices

 

Nutritional Supplement Distribution

 

 

 

 Total

 Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Patient services

 

-

 

102,156

 

-

 

-

 

-

 

-

 

102,156

 

 Sales

 

-

 

-

 

-

 

-

 

3,030

 

-

 

3,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total revenue

 

-

 

102,156

 

-

 

-

 

3,030

 

-

 

105,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cost of goods sold

 

-

 

-

 

-

 

-

 

2,238

 

-

 

2,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Gross margin

 

-

 

102,156

 

-

 

-

 

792

 

-

 

102,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Consulting fees

 

87,195

 

-

 

-

 

-

 

-

 

-

 

87,195

 

 Professional fees

 

78,918

 

-

 

-

 

6,400

 

-

 

-

 

85,318

 

 Rent expense - related party

 

12,663

 

-

 

-

 

-

 

-

 

-

 

12,663

 

 Rent expense

 

-

 

80,479

 

-

 

12,840

 

-

 

-

 

93,319

 

 Research and development

 

-

 

-

 

-

 

441

 

-

 

-

 

441

 

 Salaries - officers

 

234,953

 

75,000

 

59,987

 

75,000

 

-

 

-

 

444,940

 

 Salaries - others

 

33,077

 

89,426

 

-

 

27,500

 

-

 

-

 

150,003

 

 Selling expenses

 

-

 

4,013

 

-

 

14,765

 

-

 

-

 

18,778

 

 Depreciation and amortization

 

151,391

 

-

 

-

 

-

 

-

 

-

 

151,391

 

 Impairment of goodwill

 

3,308,925

 

-

 

-

 

-

 

-

 

-

 

3,308,925

 

 General and administrative expenses

 

95,173

 

54,567

 

-

 

64,881

 

-

 

-

 

214,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total operating expenses

 

4,002,295

 

303,485

 

59,987

 

201,827

 

-

 

-

 

4,567,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss from operations

 

(4,002,295)

 

(201,329)

 

(59,987)

 

(201,827)

 

792

 

-

 

(4,464,646)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) epxense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest expense - related party

 

-

 

1,662

 

-

 

-

 

-

 

-

 

1,662

 

 Other (income) expense

 

-

 

1,167

 

-

 

(5,737)

 

-

 

-

 

(4,570)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) expense, net

 

-

 

2,829

 

-

 

(5,737)

 

-

 

-

 

(2,908)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss before income tax provision

 

(4,002,295)

 

(204,158)

 

(59,987)

 

(196,090)

 

792

 

-

 

(4,461,738)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Income tax provision

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

(4,002,295)

 

(204,158)

 

(59,987)

 

(196,090)

 

792

 

-

 

(4,461,738)




65




Note 15 – Subsequent Events


The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported.  The Management of the Company determined that there were no reportable subsequent event(s) to be disclosed.






66



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward Looking Statements.


Except for historical information, this Report and Management’s Discussion and Analysis of Financial Condition and Results of Operations contain 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. Because forward-looking statements may involve known and unknown risks, uncertainties, and other factors that could impact our actual results, performance, or achievements, actual results could differ materially from those expressed or implied by such forward-looking statements as set forth in this Report, the Company’s Annual Report on Form 10-K and other reports that the Company files with the Securities and Exchange Commission. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Report will in fact occur as projected.


Management’s Discussion and Analysis of Financial Condition and Results of Operations.


The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.


Background


Wellness Center USA, Inc. (the “Company”) was incorporated in the State of Nevada on June 30, 2010. The Company is engaged in the healthcare and medical device solutions business that addresses important healthcare and wellness needs. The Company began operations as an online nutraceutical store but has expanded into additional businesses within the healthcare and medical sectors, through acquisition of CNS Wellness Florida, LLC (CNS), Psoria-Shield Inc. (PSI), and National Pain Centers Inc. (NPC). CNS is a cognitive neuroscience company specializing in the treatment of brain-based behavioral health disorders including developmental, emotional and stress-related problems. PSI is a developer and manufacturer of Ultra Violet (UV) phototherapy devices for the treatment of skin diseases such as; psoriasis, eczema, vitiligo, and others. NPC manages physician services in three clinics and two surgical centers, providing diagnostic, surgical, treatment, research, advocacy, education, and setting standards/protocols within the interventional and multi-modal pain management. Our online web-based store “aminofactory.com”, is designed to market customized vitamins and other nutritional supplements to the sports industry.


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.



67




CNS services appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues. CNS has serviced approximately 617 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.


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 200 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.


Aminofactory.com


Since we started implementation of our acquisition strategy, we have focused primarily upon the development of our subsidiaries’ products, services and operations. We have continued limited development of our aminofactory.com web-based online store and expansion of a wider range of nutritional supplements, including customized formulas uniquely tailored to suit an individual’s needs. Customers that log into our site may 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, his/her order is placed for processing through our suppliers and generally shipped directly by the supplier to the client within seven business days.


Supplements offered through our website are produced by unaffiliated third party manufacturers and/or product fulfillment suppliers, specializing in nutritional supplement production. Supplements produced for us can be also provided to our competitors by our suppliers and/or manufacturers. However, we are able to specifically select our product portfolio and market it through our website with our custom packaging and pricing, under a supplier or manufacturer’s, or under our own label.


The processing, formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our nutritional supplement 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.



68




NPC


On February 28, 2014, the Company acquired all of the issued and outstanding shares of stock in National Pain Centers, Inc. (“NPC”), a Deer Park, Illinois-based management services provider. NPC was incorporated under the laws of the State of Nevada on January 24, 2014 and is operated as a wholly-owned subsidiary of the Company. NPC manages non-medical services in three clinics and two surgical centers in the Chicagoland area providing diagnostic, surgical, treatment, research, advocacy, education, and setting standards and protocols within the interventional and multi-modal pain management.


NPC is managed by its founder and CEO Dr. Jay Joshi, MD, DABA, DABAPM, FABAPM. Dr. Joshi also serves as the Company’s Chief Medical Officer (“CMO”) and as a member of its Board of Directors. Dr. Joshi is a nationally recognized double board certified Anesthesiologist and fellowship trained Interventional Spine and Pain Management physician whose capabilities combine clinical medicine, research, creativity, marketing, inventions, and business development. He is considered a National Key Opinion Leader in pain management, has presented to a variety of audiences over 500 times, and has worked internationally at the World Health Organization (WHO). He has been featured on major TV networks, Radio, Print, and the Internet. He was accepted into medical school at the age of 16 via an accelerated honors BS/MD program with multiple scholarships.


Management


Presently, our general business functions and strategies are managed by our founder, Andrew J. Kandalepas, Dr. Joshi and Donald Swanson. Mr. Kandalepas serves as Chief Executive Officer (“CEO”), Chairman of the Board of Directors, Prinicpal Accounting Officer, and Chief Financial Officer (“CFO”) of the Company. He is responsible for developing and planning our business units, including product development, organizational structure, financing and administrational functions, working closely with Dr. Joshi and Mr. Swanson. His service in multiple capacities shall continue until we are financially capable of engaging additional management personnel.


As noted above, Dr. Joshi serves as the Company’s Chief Medical Officer (“CMO”) and as a member of its Board of Directors, as well as CEO of NPC.


Mr. Swanson serves as the Company’s Chief Operating Officer (“COO”), President and Vice-Chairman, and as a member of its Board of Directors. He brings 30 years of diverse background in emerging technologies, mergers and acquisitions, sales and marketing, and managing operations. He brings expertise in managing operations, manufacturing, R&D, brand management and marketing.


We relied upon CNS’s management team including William A. Lambos and Peter A. Hannouche to manage the CNS business through January 24, 2014, at which time their employment terminated. We are currently considering CNS management alternatives and have suspended operations.


We relied upon PSI’s executive management, Mr. Scot L. Johnson, to operate PSI’s business through the end of the period covered by this Report. Subsequently, by mutual agreement with the Company, he resigned as an officer of PSI and director of the Company. In connection with his resignation, Mr. Johnson agreed to provide technical and support consulting services through April 1, 2015, pursuant to a Separation Agreement and Consulting Agreement. He also agreed to restrictions on his shareholdings pursuant to a Lock-up Agreement. We are currently considering PSI management alternatives.


Results of Operations


For the Three Months Ended March 31, 2014


For the three months ended March 31, 2014, we earned $18,919 in revenues, incurred $532 in cost of revenues, resulting $18,387 in gross margin. We expended $23,195; $72,716; $51,222; $0; $350,501; $915; and $138,773; in consulting fees, professional fees, rent, research and development, personnel, selling and general and administrative expenses, respectively. We reported impairment of goodwill of $3,308,925. We had loss from operations of $3,927,860 for the three months ended March 31, 2014.



69




For the Six Months Ended March 31, 2014


For the six months ended March 31, 2014, we earned $105,186 in revenues, incurred $2,238 in cost of revenues, resulting $102,948 in gross margin. We expended $87,195; $85,318; $105,982; $441; $594,943; $18,778; and $366,012; in consulting fees, professional fees, rent, research and development, personnel, selling and general and administrative expenses, respectively. We reported impairment of goodwill of $3,308,925. We had loss from operations of $4,464,646 for the six months ended March 31, 2014.


The Company operated in four (4) business segments through the end of the period covered by this Report:


(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)

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


(iii)

Medical Devices: which it provides through PSI, its wholly-owned subsidiary acquired on August 24, 2012, a developer, manufacturer, marketer and distributer of targeted Ultra Violet ("UV") phototherapy devices for the treatment of skin diseases; and


(iv)

Practice Management Services: which it provides through NPC, its wholly-owned subsidiary acquired on February 28, 2014, which manages non-medical services in three clinics and two surgical centers in the Chicagoland area.




70




The detailed segment information of the Company is as follows:


 

 

 

 

For the Six Months

 

 

 

 

Ended

 

 

 

 

March 31, 2014

 

 

 

 

WCUI

 

CNS

 

NPC

 

PSI

 

WCUI

 

Consl Adj (2)

 

 Consolidated

 

 

 

 

Corporate Headquarter

 

 Patient Services

 

 Managemnt Services

 

 Medical Devices

 

Nutritional Supplement Distribution

 

 

 

 Total

 Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Patient services

 

-

 

102,156

 

-

 

-

 

-

 

-

 

102,156

 

 Sales

 

-

 

-

 

-

 

-

 

3,030

 

-

 

3,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total revenue

 

-

 

102,156

 

-

 

-

 

3,030

 

-

 

105,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Cost of goods sold

 

-

 

-

 

-

 

-

 

2,238

 

-

 

2,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Gross margin

 

-

 

102,156

 

-

 

-

 

792

 

-

 

102,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Consulting fees

 

87,195

 

-

 

-

 

-

 

-

 

-

 

87,195

 

 Professional fees

 

78,918

 

-

 

-

 

6,400

 

-

 

-

 

85,318

 

 Rent expense - related party

 

12,663

 

-

 

-

 

-

 

-

 

-

 

12,663

 

 Rent expense

 

-

 

80,479

 

-

 

12,840

 

-

 

-

 

93,319

 

 Research and development

 

-

 

-

 

-

 

441

 

-

 

-

 

441

 

 Salaries - officers

 

234,953

 

75,000

 

59,987

 

75,000

 

-

 

-

 

444,940

 

 Salaries - others

 

33,077

 

89,426

 

-

 

27,500

 

-

 

-

 

150,003

 

 Selling expenses

 

-

 

4,013

 

-

 

14,765

 

-

 

-

 

18,778

 

 Depreciation and amortization

 

151,391

 

-

 

-

 

-

 

-

 

-

 

151,391

 

 Impairment of goodwill

 

3,308,925

 

-

 

-

 

-

 

-

 

-

 

3,308,925

 

 General and administrative expenses

 

95,173

 

54,567

 

-

 

64,881

 

-

 

-

 

214,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total operating expenses

 

4,002,295

 

303,485

 

59,987

 

201,827

 

-

 

-

 

4,567,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss from operations

 

(4,002,295)

 

(201,329)

 

(59,987)

 

(201,827)

 

792

 

-

 

(4,464,646)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) epxense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Interest expense - related party

 

-

 

1,662

 

-

 

-

 

-

 

-

 

1,662

 

 Other (income) expense

 

-

 

1,167

 

-

 

(5,737)

 

-

 

-

 

(4,570)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) expense, net

 

-

 

2,829

 

-

 

(5,737)

 

-

 

-

 

(2,908)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss before income tax provision

 

(4,002,295)

 

(204,158)

 

(59,987)

 

(196,090)

 

792

 

-

 

(4,461,738)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Income tax provision

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

 

(4,002,295)

 

(204,158)

 

(59,987)

 

(196,090)

 

792

 

-

 

(4,461,738)




71




Liquidity and Capital Resources


Liquidity is the ability of a company to generate adequate amounts of cash to meet its cash needs.


As of March 31, 2014, our cash balance was $35,945. Management estimated that our current monthly burn rate is approximately $209,778. Our current cash on hand is not sufficient to maintain our daily operations for the next 12 months. Management intends to raise additional capital through debt or equity financing to fund our daily operations through next 12 months. For the six months ended March 31, 2014 we raised $256,650 from equity financing, respectively, to fund our daily operations, however no assurance can be given that we will be successful in raising sufficient capital through debt or equity financing, or that we will be able to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed during next 12 months. Any failure to secure sufficient debt or equity financing may force the Company to modify its business plan. In addition, we have incurred recurring losses from inception and such losses are expected to continue for the foreseeable future and until such time, if ever, as the Company is able to attain sales levels sufficient to support its operations. No assurance can be given that the Company will achieve or maintain profitability in the foreseeable future. In the event that we are unable to raise sufficient capital through debt or equity financing or to attain sales levels sufficient to support its operations we may have to curtail our operating activities to keep in operations.


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.


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.



72




PSI was issued one patent on its Psoria-Light technology on July 9, 2013, US 8,481,982, covering a unique patient safety feature. No other patents have been issued for CNS or PSI products or methods, or any of the other technology associated with such products, and we cannot guarantee that any other patents will be issued for such products or any of the technology associated with such products.


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 employed 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 at the beginning of the period covered by this Report; however, employment of Mr. Lambos and Mr. Hannouche ended on January 24, 2014, followed by CNS staff on February 6, 2014. Mr. Johnson no longer serves as an officer or employee of the Company or PSI, but he continues to provide technical and support consulting services pursuant to a Separation Agreement and Consulting Agreement. PSI staff was reduced to two (2) full-time and one (1) part-time employees as of the end of the period covered by this Report. We are currently considering PSI management and staffing alternatives. We employed four (4) full-time and two (2) part-time employees within NPC.


Summary of Significant Accounting Policies.


The Company has identified significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. The Company's most critical accounting policies include, but are not limited to, those related to business combinations, fair value of financial instruments, revenue recognition, stock based compensation for obtaining employee services, and equity instruments issued to parties other than employees for acquiring goods or services. Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2013, filed with the Securities and Exchange Commission on January 14, 2014. There have been no material changes to the Company's critical accounting policies that impact the Company's financial condition, results of operations or cash flows for the three months ended March 31, 2014.


Going Concern


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 12 months.


As reflected in the consolidated financial statements, the Company had an accumulated deficit at December 31, 2013, a net loss and net cash used in operating activities for the interim period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.


While the Company is attempting to further implement its business plan 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.


The consolidated 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 3.  Quantitative and Qualitative Disclosures About Market Risk


Not required for smaller reporting Companies.



73




Item 4.  Controls and Procedures


Disclosure controls and procedures.


Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective as of December 31, 2013 because we do not have sufficient staff to segregate responsibilities and no written documentation of internal control policies. We plan to seek to correct these deficiencies during the current fiscal year or the next.


Changes in internal control over financial reporting.


There have been no changes in our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION


Item 1.  Legal Proceedings


We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.


Item 1A.  Risk Factors


Not required for smaller reporting companies.


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


None.


Item 3.  Defaults upon Senior Securities


None.


Item 4.  Mine Safety Disclosures


Not applicable.


Item 5.  Other Information


None



74




Item 6.  Exhibits


Exhibit No.

Description

31.1

Certification of Principal Executive Officer Pursuant to Rule 13a-14*

32.1

CEO and CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act*

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**

__________________


* Filed herewith.

**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.




75



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

WELLNESS CENTER USA, INC.

 

 

Date: May 20, 2014

By:

/s/ Andrew J. Kandalepas

 

 

Andrew J. Kandalepas

 

 

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


POWER OF ATTORNEY


Each person whose signature appears below hereby constitutes and appoints severally Andrew J. Kandalepas, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


SIGNATURE

 

TITLE

 

DATE

 

 

 

 

 

/s/ Andrew J. Kandalepas

 

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

 

May 20, 2014

Andrew J. Kandalepas

 

 

 

 

 

 

 

 

 

/s/ Periklis Papadopoulos

 

Director

 

May 20, 2014

Periklis Papadopoulos

 

 

 

 

 

 

 

 

 

/s/ Jay Joshi, M.D.

 

Secretary and Director

 

May 20, 2014

Jay Joshi, M.D.

 

 

 

 

 

 

 

 

 

/s/ Donald Swanson

 

Chief Operating Officer, President, Vice Chairman and Director

 

May 20, 2014

Donald Swanson

 

 

 

 




76