Attached files

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EX-10.6 - EXHIBIT 10.6 NOTE BY ANDREW KANDALEPAS - Wellness Center USA, Inc.f10k093013_ex10z6.htm
EX-21.1 - EXHIBIT 21.1 LIST OF SUBSIDIARIES - Wellness Center USA, Inc.f10k093013_ex21z1.htm
EX-32.1 - EXHIBIT 32.1 SECTION 906 CERTIFICATION - Wellness Center USA, Inc.f10k093013_ex32z1.htm
EX-31.1 - EXHIBIT 31.1 SECTION 302 CERTIFICATION - Wellness Center USA, Inc.f10k093013_ex31z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


(Mark One)


  X . ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended September 30, 2013


      . TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ___________ to ___________


WELLNESS CENTER USA, INC.

(Name of small business issuer in its charter)


NEVADA

 

333-173216

 

27-2980395

(State or other jurisdiction of

incorporation or organization)

 

Commission File Number

 

(IRS Employee Identification No.)


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

(Address of Principal Executive Offices)


(847) 925-1885

(Issuer Telephone number)


Not Applicable

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


Copies of communication to:


Ronald P.  Duplack, Esq.

Rieck and Crotty, P.C.

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

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


Securities registered under Section 12(b) of the Exchange Act:


Title of each class registered:

Name of each exchange on which registered:

None

None


Securities registered under Section 12(g) of the Exchange Act:


Common Stock, par value $0.001

(Title of class)






Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes      . No  X .


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes      . No  X .


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X . No      .


Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  X . No      .


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K.    X .


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


Large accelerated filer

      .

Accelerated filer

      .

Non-accelerated filer

      . (Do not check if a smaller reporting company)

Smaller reporting company

  X .


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes      . No  X .


There is no established public trading market for our common stock.


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter ended March 31, 2013: $27,459,057.


As of January 10, 2014, the registrant had 45,110,670 shares of its common stock issued and outstanding.


Documents Incorporated by Reference: None.




2




TABLE OF CONTENTS


 

 

PAGE

PART I

 

4

ITEM 1.

Business

4

ITEM 1A.

Risk Factors

5

ITEM 2.

Properties

15

ITEM 3.

Legal Proceedings

15

ITEM 4.

Mine Safety Disclosures

15

 

 

 

PART II

 

16

ITEM 5.

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

16

ITEM 7.

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

27

ITEM7A.

Quantitative and Qualitative Disclosures About Market Risk

34

ITEM 8.

Financial Statements and Supplementary Data

34

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

34

ITEM 9A.

Controls and Procedures

34

 

 

 

PART III

 

37

ITEM 10.

Directors, Executive Officers and Corporate Governance

37

ITEM 11.

Executive Compensation

38

ITEM 12.

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

40

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services

41

 

 

 

PART IV

 

44

ITEM 15.

Exhibits, Financial Statement Schedules

44

 

 

 

SIGNATURES

 

46




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PART I

 

ITEM 1.

BUSINESS


Background.


Wellness Center USA, Inc. (the “Company”) was incorporated in the State of Nevada on June 30, 2010.  Since that date, we have been engaged in the development of “aminofactory.com”, a web-based online store designed to market customized vitamins and other nutritional supplements to the sports industry and health-minded public, and have expanded into additional businesses within the healthcare and medical sectors through two acquisitions, CNS-Wellness LLC (“CNS”), and Psoria-Shield Inc. (“PSI”). 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.


Description of CNS.


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


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


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


Description of PSI.


PSI was incorporated under the laws of the State of Florida on June 17, 2009.  It is a medical device design and manufacturing company. It designs, develops and markets a targeted ultraviolet (“UV”) phototherapy device called the Psoria-Light. The Psoria-Light is designated for use in targeted PUVA photochemistry and UVB phototherapy and is designed to treat certain skin conditions including; psoriasis, vitiligo, atopic dermatitis (eczema), seborrheic dermatitis, and leukoderma.   PSI intends to enter into agreements with third parties, in the United States and internationally, for the manufacture of component parts that make up the Psoria-Light and to license its proprietary technology to third parties domestically and in selected foreign markets.  


The Psoria-Light consists of three components: a base console, a color display with touchscreen control, and a hand-held delivery device with a conduit (or tether) between the handheld device and the base console.  PSI requires clearance by the United States Food and Drug Administration (“FDA”) to market and sell the device in the United States as well as permission from TUV SUD America Inc., PSI’s Notified Body, to affix the CE mark to the Psoria-Light in order to market and sell the device in countries of the European Union. PSI submitted a 510(k) application with the FDA for marketing clearance of the device in the United States (application number K103540). To obtain FDA clearance and permission to affix the CE mark, PSI was required to conduct EMC and electrical safety testing, which it completed in the second quarter of 2011. PSI also developed an ISO 13485 compliant quality system for the Psoria-Light which was audited in the fourth quarter of 2011. PSI received FDA clearance on February 11, 2011 (no. K103540) and was granted permission to affix the CE mark on November 10, 2011.  


Psoria-Light treatment appears to have been beneficial to clients, without demonstrable harmful side effects or safety issues, and PSI has serviced approximately 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.



4




ITEM 1A.

RISK FACTORS


An investment in our securities involves an exceptionally high degree of risk and is extremely speculative in nature.  The risks described below are the ones we believe are most important for you to consider. These risks are not the only ones that we face. If events anticipated by any of the following risks actually occur, our business, operating results or financial condition could suffer and the price of our common stock could decline.


WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR AUDITORS AND WE ARE CURRENTLY OPERATING AT A LOSS, WHICH RAISES SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.


We have received a “Going Concern” opinion from our auditors. As reflected in the accompanying consolidated financial statements, the Company had an accumulated deficit at September 30, 2013, a net loss and net cash used in operating activities for the fiscal year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.


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


IT IS MOST LIKELY THAT WE WILL NEED TO SEEK ADDITIONAL FINANCING THROUGH SUBSEQUENT FUTURE PRIVATE OFFERING OF OUR SECURITIES.


Because the Company does not currently have any financing arrangements, and may not be able to secure favorable terms for future financing, the Company may need to raise capital through the sale of its common stock. The sale of additional equity securities will result in dilution to our stockholders.


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


We will be highly dependent upon consumer acceptance of the safety, efficacy and quality of our products, as well as similar products distributed by other companies. Consumer acceptance of products can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. In addition, recent studies have challenged the safety or benefit of certain nutritional supplements and dietary ingredients. Future scientific research or publicity could be unfavorable to our industry or any of our particular products and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less than favorable or that question earlier favorable research or publicity could have a material adverse effect on our ability to generate revenue. Adverse publicity in the form of published scientific research, statements by regulatory authorities or otherwise, whether or not accurate, that associates consumption of our products or any other similar products with illness or other adverse effects, or that questions the benefits of our or similar products, or that claims that such products are ineffective could have a material adverse effect on our business, reputation, financial condition or results of operations.


COMPLYING WITH NEW AND EXISTING GOVERNMENT REGULATION, BOTH IN THE U.S. AND ABROAD, COULD SIGNIFICANTLY INCREASE OUR COSTS AND LIMIT OUR ABILITY TO MANUFACTURE OUR PRODUCTS.


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


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


The FDA may also determine that certain advertising and promotional claims, statements or activities are not in compliance with applicable laws and regulations and may determine that a particular statement is an unacceptable drug claim or an unauthorized version of a food or dietary supplement “health claim.” Failure to comply with FDA or other regulatory requirements could prevent us from marketing particular dietary supplement products or subject us to administrative, civil or criminal penalties.



5




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


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


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


WE WILL OPERATE IN A HIGHLY COMPETITIVE INDUSTRY, AND OUR FAILURE TO COMPETE EFFECTIVELY COULD ADVERSELY AFFECT OUR MARKET SHARE, FINANCIAL CONDITION AND GROWTH PROSPECTS.


The U.S. vitamins and dietary supplements industry is a large and highly fragmented industry. Our potential competitors include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, online merchants, mail-order companies and a variety of other participants in the industry. The principle elements of competition in the industry are price, selection and distribution channel offerings. We believe that the market is also highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. In the U.S., we shall also compete for sales with heavily advertised national brands manufactured by large pharmaceutical and food companies, as well as other retailers. In addition, as some products gain market acceptance, we may experience increased competition for those products as more participants enter the market. Currently, we are not a manufacturer. To the extent that we become a manufacturer or engage third party manufacturers to produce our products, our manufacturing capabilities may not be adequate or sufficient to compete with large scale, direct or third-party manufacturers of nutritional supplements. Certain of our potential competitors are larger than us and have longer operating histories, larger customer bases, greater brand recognition and greater resources for marketing, advertising and product promotion. They may be able to secure inventory from vendors on more favorable terms, operate with a lower cost structure or adopt more aggressive pricing policies. In addition, our potential competitors may be more effective and efficient in introducing new products. We may not be able to compete effectively, and our attempt to do so may require us to increase marketing and/or reduce our prices, which may result in lower margins. Failure to effectively compete could adversely affect our market share, financial condition and growth prospects.


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


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



6




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


Our assumptions regarding CNS and PSI may prove to be erroneous.  Each company is a small development stage company with a limited operating history. Each is currently operating at a loss, and there is no assurance that its business development plans and strategies will ever be successful, or that their respective products and services will be favorably perceived and accepted by our assumed potential client populations in the Tampa Bay-area or anywhere else.  CNS’ services appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues, but it has serviced approximately 617 clients since commencement of operations in 2009.   PSI’s Psoria-Light treatment appears to have been beneficial to clients, without demonstrable harmful side effects or safety issues, but it has serviced approximately 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.


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


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


·

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

·

the safety and efficacy of the treatments;

·

the availability and success of other alternative treatments and devices;

·

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

·

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


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


·

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

·

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

·

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


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


·

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

·

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

·

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


CNS’ services appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues, and it has serviced approximately 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. Consequently, there can be no assurance that CNS’ modalities will ever achieve and maintain market acceptance among healthcare providers and clients. Any failure to satisfy healthcare provider or client demands or to achieve meaningful market acceptance will seriously harm our business and our ability to generate revenues and may prevent us from ever becoming profitable.



7




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


PSI’s success depends upon the acceptance by healthcare providers and clients of Psoria-Light treatment as a preferred method of treatment for psoriasis and other UV-treatable skin conditions. There can be no assurance that we will be able to achieve and maintain such market acceptance by healthcare providers or clients.


Psoriasis, eczema, and vitiligo, are common skin conditions that can be challenging to treat, and often cause the patient significant psychosocial stress. Patients undergo a variety of treatments to address these skin conditions, including routine consumption of systemic and biologic drug therapies which are highly toxic, reduce systemic immune system function, and come with a host of chemotherapy-like side effects. Ultraviolet (UV) phototherapy is a clinically validated treatment modality for these disorders. ).   To obtain FDA clearance and permission to affix the CE mark, PSI was required to conduct EMC and electrical safety testing, which it completed in the second quarter of 2011.  PSI also developed an ISO 13485 compliant quality system for the Psoria-Light which was audited in the fourth quarter of 2011.  PSI received FDA clearance on February 11, 2011 (no. K103540) and was granted permission to affix the CE mark on November 10, 2011.  In its 510(k) application with the FDA (application number K103540), PSI asserted that the Psoria-Light was “substantially equivalent” in intended use and technology to two predicate devices, the X -Trac Excimer Laser, which has wide acceptance in the medical billing literature and has a large installed base in the U.S., and the Dualight, another competing targeted UV phototherapy device.


Traditionally, “non-targeted” therapy was administered by lamps that emitted either UVA or UVB light to both diseased and healthy skin. While sunblocks or other UV barriers may be used to protect healthy skin, the UV administered in this manner must be low dosage to avoid excessive exposure of healthy tissue. Today, “targeted” UV phototherapy devices administer much higher dosages of light only to affected tissue, resulting   in “clearance” in the case of psoriasis and eczema, and “repigmentation” in the case of vitiligo, at much faster rates than non-targeted (low dosage) UV treatments.


Targeted UV treatments are typically administered to smaller total body surface areas, and are therefore used to treat the most intense parts of a patient’s disease. Non-targeted UV treatment is typically used as a follow-up and for maintenance, capable of treating large surfaces of the body. Excimer laser devices (UVB at 308nm) are expensive and consume dangerous chemicals (Xenon and Chlorine). Mercury lamp devices (UVB and/or UVA) require expensive lamp replacements regularly and require special disposal (due to mercury content). Additionally, mercury lamp devices typically deliver wavelengths of light below 300nm. While within the UVB spectrum, it has been shown that wavelengths below 300nm produce significantly more “sunburn” type side effects than do wavelengths between 300 and 320nm without improvement in therapeutic benefit.


The Psoria-Light is a targeted UV phototherapy device which produces UVB light between 300 and 320 nm as well as UVA light between 350 and 395nm, does not consume dangerous chemicals or require special environmental disposal and is cost effective for clinicians, which will increase patient access to this type of treatment.  It has several unique and advanced features that we believe will distinguish it from the non-targeted and targeted UV phototherapy devices that are currently being used by dermatologists and other healthcare providers. These features include the following: the utilization of deep narrow-band UVB (“NB-UVB”) LEDs as light sources;  the ability to produce both UVA or NB-UVB therapeutic wavelengths;  an integrated high resolution digital camera and patient record integration capabilities;  the ability to export to an external USB memory device a PDF file of patient treatment information including a patent pending graph that includes digital images plotted against user tracked metrics which can be submitted to improve medical reimbursements;  an accessory port and ability to update software; ease of placement and portability;  advanced treatment site detection safety sensor; international language support; a warranty which includes the UV lamp(s); and  a non-changeable treatment log (that does not include HIPPA information).


Psoria-Light treatments appear to have been beneficial to clients, without demonstrable harmful side effects or safety issues, but PSI has serviced approximately 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. Consequently, there can be no assurance that Psoria-Light treatments will ever achieve and maintain market acceptance among healthcare providers and clients. Any failure to satisfy healthcare provider or client demands or to achieve meaningful market acceptance will seriously harm our business and our ability to generate revenues and may prevent us from ever becoming profitable.


WE RELY UPON CNS AND PSI PERSONNEL TO OPERATE THEIR RESPECTIVE BUSINESSES AND THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIALLY ADVERSE AFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.


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



8




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


If any of our key personnel were to cease their affiliation with us, our operating results could suffer. Further, we do not maintain key person life insurance on any executive officer. If we lose or are unable to obtain the services of key personnel, our business, financial condition or results of operations could be materially and adversely affected.


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


CNS and PSI each has undertaken initial, limited marketing efforts for their respective products and services. Their   sales and marketing teams will compete against the experienced and well-funded sales organizations of competitors. Their revenues and ability to achieve profitability will depend largely on the effectiveness of their respective sales and marketing team. Each will face significant challenges and risks related to marketing its services, including, but not limited to, the following:


·

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

·

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

·

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

·

assuring compliance with government regulatory requirements affecting the healthcare industry.


PSI plans to establish a network of distributors in selected foreign markets to market, sell and distribute the Psoria-Light device. If PSI fails to select or use appropriate foreign distributors, or if the sales and marketing strategies of such distributors prove ineffective in generating sales of the device, our revenues would be adversely affected and we might never become profitable.


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


Neither CNS nor PSI has any prior experience with commercializing their respective products and services. To successfully commercialize their products and services we will need to establish and maintain sophisticated sales and marketing teams. Experienced sales representatives may be difficult to locate and retain, and all new sales representatives will need to undergo extensive training. There is no assurance that we will be able to recruit and retain sufficiently skilled sales representatives, or that any new sales representatives will ultimately become productive. If we are unable to recruit and retain qualified and productive sales personnel, our ability to commercialize our product and to generate revenues will be impaired, and our business will be harmed.


CNS AND PSI EACH FACES SIGNIFICANT COMPETITION FROM COMPANIES WITH GREATER RESOURCES AND WELL-ESTABLISHED SALES CHANNELS, WHICH MAY MAKE IT DIFFICULT FOR US TO ACHIEVE MARKET PENETRATION.


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


·

established service and product lines with proven results;

·

brand awareness;

·

name recognition;

·

established product acceptance by healthcare providers and clients;

·

established relationships with healthcare providers and clients;

·

integrated distribution networks; and

·

greater financial resources for product development, sales and marketing, and patent litigation.


Many competitors may have significantly greater funds to spend on the research, development, promotion and sale of new and existing services and products. These resources can enable them to respond more quickly to new or emerging technologies and changes in the market.



9




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


Healthcare providers and clients that use CNS or PSI products or services may bring product liability or other claims against us. To limit such exposure, CNS and PSI each plans to develop a comprehensive training and education program for persons using their respective products and services.  There can be no assurance that such training and education programs will help avoid complications resulting from treatment. In addition, although they may provide such training and education, they may not be able to ensure proper treatment in each instance and may be unsuccessful at avoiding significant liability exposure as a result. While CNS and PSI each currently maintains and plans to continue to maintain liability insurance in amounts they consider sufficient, such insurance may prove insufficient to provide coverage against any or all asserted claims. In addition, experience ratings and general market conditions may change at any time so as to render them unable to obtain or maintain insurance on acceptable terms, or at all. In addition, regardless of merit or eventual outcome, product liability and other claims may result in:


·

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

·

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

·

decreased demand for CNS and PSI products and services; and

·

negative publicity and injury to our reputation.


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


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


We expect that healthcare providers will bill various third-party payors, such as Medicare, Medicaid, other governmental programs, and private insurers, for CNS and Psoria-Light treatments. We believe that the cost of CNS and Psoria-Light treatments is generally already reimbursable under governmental programs and most private plans. Accordingly, we believe that healthcare providers will generally not require new billing authorizations or codes in order to be compensated for performing medically necessary procedures using CNS and Psoria-Light treatments. There can be no assurance, however, that coverage, coding and reimbursement policies of third-party payors will not change in the future.  PSI’s success in selected foreign markets will also depend upon the eligibility of the Psoria-Light device for coverage and reimbursement by government-sponsored healthcare payment systems and third-party payors. In both the United States and foreign markets, healthcare cost-containment efforts are prevalent and are expected to continue. Prospective clients’ failure to obtain sufficient reimbursement could limit our ability to market the CNS and PSI products and services and decrease our ability to generate revenue.


WE PLAN TO RELY ON THIRD PARTY DISTRIBUTORS FOR PSI SALES, MARKETING AND DISTRIBUTION ACTIVITIES IN FOREIGN COUNTRIES.


Although we plan to market and sell the Psoria-Light device directly through our own sales representatives in the domestic market, we plan to rely on third party distributors to sell, market, and distribute the device in selected international markets. Because we intend to rely on third party distributors for sales, marketing and distribution activities in international markets, we will be subject to a number of risks associated with our dependence on these third party distributors, including:


·

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

·

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

·

third-party distributors may terminate their arrangements with us on limited or no notice or may change the terms of these arrangements in a manner unfavorable to us for reasons outside of our control; and

·

disagreements with our distributors could require or result in costly and time-consuming litigation or arbitration.


If we fail to establish and maintain satisfactory relationships with third-party distributors, we may be unable to sell, market and distribute the Psoria-Light device in international markets, our revenues and market share may not grow as anticipated, and we could be subject to unexpected costs which would harm our results of operations and financial condition.



10




TO THE EXTENT WE ENGAGE IN MARKETING AND SALES ACTIVITIES OUTSIDE THE UNITED STATES, WE WILL BE EXPOSED TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS, TRADE RESTRICTIONS AND POLITICAL, ECONOMIC AND SOCIAL INSTABILITY.


If we follow through with our plans to sell the Psoria-Light device in foreign markets, we will be subject to various risks associated with conducting business abroad. A foreign government may require us to obtain export licenses or may impose trade barriers or tariffs that could limit our ability to build our international presence. Our operations in some markets also may be adversely affected by political, economic and social instability in foreign countries. We may also face difficulties in managing foreign operations, longer payment cycles, problems with collecting accounts receivable, and limits on our ability to enforce our intellectual property rights. In addition, for financial reporting purposes, our foreign sales will be translated from local currency into U.S. dollars based on exchange rates and, if we do not hedge our foreign currency transactions, we will be subject to the risk of changes in exchange rates. If we are unable to adequately address the risks of doing business abroad, our business may be harmed.


THE PSORIA-LIGHT AND ANY FUTURE MEDICAL DEVICE PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN DOMESTIC REGULATORY PROCESS.


PSI’s Psoria-Light device and future medical device products, if any, are subject to extensive regulation in the United States by the FDA. The FDA regulates the research, testing, manufacturing, safety, labeling, storage, record keeping, promotion, distribution and production of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. In order for us to market the Psoria-Light for use in the United States, we were required to first obtain clearance from the FDA pursuant to Section 510(k) of the Federal Food, Drug, and Cosmetic Act (the “FFDCA”).


Clearance under Section 510(k) requires demonstration that a new device is substantially equivalent to another device with 510(k) clearance or grandfather status. If the FDA agrees that a device is substantially equivalent to a predicate device, it will grant clearance to commercially market the device. The FDA has a statutory 90-day period to respond to a 510(k) submission. As a practical matter, clearance often takes longer. The FDA may require further information, including clinical data, to make a determination regarding substantial equivalence. If the FDA determines that a device, or its intended use, is not “substantially equivalent,” the FDA will place the device, or the particular use of the device, into Class III, and the device sponsor must then fulfill much more rigorous pre-marketing requirements.


If the FDA does not act favorably or quickly in its review of a 501(k) submission, the submitting party may encounter significant difficulties and costs in its efforts to obtain FDA clearance or approval,  all of which could delay or preclude the sale of a device.  The FDA may request additional data or require the submitting party to conduct further testing or compile more data, including clinical data and clinical studies, in support of a 510(k) submission.  Instead of accepting a 510(k) submission, the FDA may require the submitting party to submit a pre-market approval application (“PMA”), which is typically a much more complex and burdensome application than a 510(k). To support a PMA, the FDA may require that the submitting party conduct one or more clinical studies to demonstrate that the device is safe and effective. In addition, the FDA may place significant limitations upon the intended use of a device as a condition to a 510(k) clearance or PMA approval. Product applications can also be denied or withdrawn due to failure to comply with regulatory requirements or the occurrence of unforeseen problems following clearance or approval. Any delays or failure to obtain FDA clearance or approvals of any  future medical device products we develop, any limitations imposed by the FDA on product use, or the costs of obtaining FDA clearance or approvals could have a material adverse effect on our business, financial condition and results of operations.


PSI submitted its 510(k) for the Psoria-Light to the FDA and on December 3, 2010 was assigned application number K103540. The 510(k) application for Psoria-Light was a traditional application and asserted that the Psoria-Light is “substantially equivalent” in intended use and technology to two predicate devices, the X-Trac Excimer Laser and the Dualight, which are competing targeted UV phototherapy devices.   PSI began regulatory testing of the Psoria-Light in December 2010 for EMC and electrical safety (required for FDA and CE mark sales), and completed that testing in the second quarter of 2011. PSI received FDA clearance of the Psoria-Light on February11, 2011 (no. K103540). If the Psoria-Light is significantly modified subsequent to its FDA clearance, the FDA may require submission of a separate 510(k) or PMA for the modified product before it may be marketed in the United States.


If we develop any future medical device products we will be required to seek and obtain FDA approval prior to any marketing or sales in the United States and in accordance with the 510(k) or PMA process.



11




THE PSORIA-LIGHT WILL BE SUBJECT TO VARIOUS INTERNATIONAL REGULATORY PROCESSES AND APPROVAL REQUIREMENTS. IF WE DO NOT OBTAIN AND MAINTAIN THE NECESSARY INTERNATIONAL REGULATORY APPROVALS, WE WILL NOT BE ABLE TO MARKET AND SELL OUR PRODUCTS IN FOREIGN COUNTRIES.


To be able to market and sell PSI’s Psoria-Light device in other countries, we must obtain regulatory approvals and comply with the regulations of those countries. These regulations, including the requirements for approvals and the time required for regulatory review, vary from country to country. Obtaining and maintaining foreign regulatory approvals are expensive, and we cannot be certain that we will receive regulatory approvals in any foreign country in which we plan to market our product. If we fail to obtain or maintain regulatory approval in any foreign country in which we plan to market our product, our ability to generate revenue will be harmed.


The European Union requires that manufacturers of medical products obtain the right to affix the CE mark to their products before selling them in member countries of the European Union. The CE mark is an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the right to affix the CE mark to products, a manufacturer must obtain certification that its processes meet certain European quality standards.


PSI began regulatory testing of the Psoria-Light in December 2010 for EMC and electrical safety (required for FDA and CE mark sales), and completed that testing in the second quarter of 2011.   PSI was granted permission to affix the CE mark to the Psoria-Light in the fourth quarter of 2011.  If we modify the Psoria-Light product or develop other new products in the future, we would expect to apply for permission to affix the CE mark to such products. In addition, we would be subject to annual regulatory audits in order to maintain any CE mark permissions we may obtain. We do not know whether we will be able to obtain permission to affix the CE mark to our initial, future or modified products or that we will continue to meet the quality and safety standards required to maintain any permission we may receive. If we are unable to obtain permission to affix the CE mark to any of our products, we will not be permitted to sell our products in member countries of the European Union, which will have a material adverse effect on our business, financial condition and results of operations. In addition, if after receiving permission to affix the CE mark to our products, we are unable to maintain such permission, we will no longer be able to sell our products in member countries of the European Union.


OUR ABILITY TO ACHIEVE COMMERCIAL SUCCESS WILL DEPEND IN PART ON OBTAINING AND MAINTAINING PATENT PROTECTION (IF ANY) AND TRADE SECRET PROTECTION RELATING TO THE PSORIA-LIGHT, THE TECHNOLOGY ASSOCIATED WITH THE PSORIA-LIGHT, AND ANY OTHER PRODUCTS AND TECHNOLOGY WE MAY DEVELOP, AS WELL AS SUCCESSFULLY DEFENDING OUR PATENT(S) (IF ANY) AND LICENSED PATENTS (IF ISSUED) AGAINST THIRD PARTY CHALLENGES. IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PROTECTION FOR OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY, THE VALUE OF OUR PRODUCTS WILL BE ADVERSELY AFFECTED, AND WE WILL NOT BE ABLE TO PROTECT SUCH TECHNOLOGY FROM UNAUTHORIZED USE BY THIRD PARTIES.


Our commercial success will depend largely on our ability to obtain and maintain patent protection and intellectual property protection covering certain aspects of the technology that we intend to utilize in the development and commercialization of PSI’s initial medical device product, the Psoria-Light, and to obtain and maintain patent and intellectual property protection for any other products that we may develop and seek to market. In order to protect our competitive position for the Psoria-Light and any other products that we may develop and seek to market, we, or our executive officers, as the case may be, will have to:


·

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

·

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

·

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

·

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

·

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


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


Neither the Company nor any of our officers or directors has filed (nor does the Company or any of our officers or directors currently have an intention to file) for any international patent protection for any of our products or any of the technology associated with our products.



12




Protection of intellectual property in the markets in which we compete is highly uncertain and involves complex legal and scientific questions. It may be difficult to obtain patents relating to our products or technology. Furthermore, any changes in, or unexpected interpretations of, the patent laws may adversely affect our ability to enforce our patent position.


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


We expect to rely on trademarks, trade secret protections, know-how and contractual safeguards to protect CNS and PSI non-patented intellectual property and proprietary technology. Current CNS and PSI employees, consultants and advisors have entered into, and future employees, consultants and advisors will be required to enter into, confidentiality agreements that prohibit the disclosure or use of confidential information. We also intend to enter into confidentiality agreements to protect our confidential information delivered to third parties for research and other purposes. There can be no assurance that we will be able to effectively enforce these agreements or that the subject confidential information will not be disclosed, that others will not independently develop substantially equivalent confidential information and techniques or otherwise gain access to our confidential information or that we can meaningfully protect our confidential information.


Costly and time-consuming litigation could be necessary to enforce and determine the scope and protectability of confidential information, and failure to maintain the confidentiality of confidential information could adversely affect our business by causing us to lose any competitive advantage maintained through such confidential information.


The protection of proprietary technology through claims of trade secret status has been the subject of increasing claims and litigation by various companies both to protect proprietary rights and for competitive reasons even where proprietary claims are unsubstantiated. The prosecution of proprietary claims or the defense of such claims is costly and uncertain given the uncertainty and rapid development of the principles of law pertaining to this area.


Disputes may arise in the future with respect to the ownership of rights to any technology developed with consultants, advisors or collaborators. These and other possible disagreements could lead to delays in the collaborative research, development or commercialization of our products, or could require or result in costly and time-consuming litigation that may not be decided in our favor. Any such event could have a material adverse effect on our business, financial condition and results of operations by delaying or preventing our commercialization of innovations or by diverting our resources away from revenue-generating projects.


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


We plan to market and sell PSI products in select international markets. Neither the Company nor any of our officers or directors has filed (nor does the Company or any of our officers or directors currently have an intention to file) for any international patent protection for any of our products or any of the technology associated with our products. However, to successfully enter into these international markets and achieve desired revenues internationally, we may need to enforce our patent and trademark rights (if any) against third parties that we believe may be infringing on our rights. The laws of some foreign countries do not protect intellectual property, including patents, to as great an extent as do the laws of the United States. Policing unauthorized use of our intellectual property is difficult, and there is a risk that despite the expenditure of significant financial resources and the diversion of management attention, any measures that we take to protect our intellectual property may prove inadequate in these countries. Our competitors in these countries may independently develop similar technology or duplicate our products, thus likely reducing our potential sales in these countries. Furthermore, our future patent rights (if any) may be limited in enforceability to the United States or certain other select countries, which may limit our intellectual property rights abroad.


NO MARKET CURRENTLY EXISTS FOR OUR SECURITIES AND WE CANNOT ASSURE YOU THAT SUCH A MARKET WILL EVER DEVELOP, OR IF DEVELOPED, WILL BE SUSTAINED.


Our common stock is not currently eligible for trading on any stock exchange and there can be no assurance that our common stock will be listed on any stock exchange in the future. We presently are listed on the NASD OTCQB Bulletin Board trading system pursuant to Rule 15c2-11 of the Securities Exchange Act of 1934, but there can be no assurance we will maintain such a listing. The bulletin board tends to be highly illiquid, in part because there is no national quotation system by which potential investors can track the market price of shares except through information received or generated by a limited number of broker-dealers that make a market in particular stocks. There is a greater chance of market volatility for securities that trade on the bulletin board as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors, including: the lack of readily available price quotations; the absence of consistent administrative supervision of "bid" and "ask" quotations; lower trading volume; and general market conditions. If no market for our shares materializes, you may not be able to sell your shares or may have to sell your shares at a significantly reduced price.



13




IF OUR SHARES OF COMMON STOCK ARE ACTIVELY TRADED ON A PUBLIC MARKET, THEY WILL IN ALL LIKELIHOOD BE PENNY STOCKS.


Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price per share of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules.


WE WILL INCUR ONGOING COSTS AND EXPENSES FOR SEC REPORTING AND COMPLIANCE WITHOUT REVENUE WE MAY NOT BE ABLE TO REMAIN IN COMPLIANCE, MAKING IT DIFFICULT FOR INVESTORS TO SELL THEIR SHARES, IF AT ALL.


We have a very limited number of market makers and are quoted on the OTC Electronic Bulletin Board. To be eligible for quotation, issuers must remain current in their filings with the SEC. In order for us to remain in compliance we will require future revenues to cover the cost of these filings, which could comprise a substantial portion of our available cash resources. If we are unable to generate sufficient revenues to remain in compliance it may be difficult for you to resell any shares you may purchase, if at all.


FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND STOCK PRICE.


Section 404 of the Sarbanes-Oxley Act of 2002 (“the Sarbanes-Oxley Act”) requires that we establish and maintain an adequate internal control structure and procedures for financial reporting and include a report of management on our internal control over financial reporting in our annual report on Form 10-K. That report must contain an assessment by management of the effectiveness of our internal control over financial reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have identified.  The Company has six directors with two (2) of whom are independent; accordingly, we cannot establish board committees with independent members to oversee certain functions such as compensation or audit issues for internal control and reporting purposes.  Until we have a majority of our board of directors being independent members, if ever, there will be limited oversight of our management’s decisions and activities and little ability of shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of our shareholders.


THE MARKET PRICE FOR OUR COMMON SHARES IS PARTICULARLY VOLATILE GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND THINLY TRADED PUBLIC FLOAT, LIMITED OPERATING HISTORY AND LACK OF PROFITS WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE PRICE. YOU MAY BE UNABLE TO SELL YOUR COMMON SHARES AT OR ABOVE YOUR PURCHASE PRICE, WHICH MAY RESULT IN SUBSTANTIAL LOSSES TO YOU.


The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products and services. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.



14




WE DO NOT PAY DIVIDENDS ON OUR COMMON STOCK.


We have not paid any dividends on our common stock and do not anticipate paying dividends in the foreseeable future. We plan to retain earnings, if any, to finance the development and expansion of our business.


ITEM 2.

PROPERTIES


Our principal executive offices are located at 1014 E. Algonquin Road, Suite 111, Schaumburg, Illinois 60173. Our telephone number is (847)-925-1885.  We occupy the office space pursuant to a sub-lease executed as of December 20, 2010 for a period of one year expiring December 31, 2011, with the base rent of $1,909.50 per month, which has been subsequently extended through December 31, 2014 with the same terms and conditions.   The sub-lease is with a related party.


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


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


ITEM 3.

LEGAL PROCEEDINGS


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


ITEM 4. 

MINE SAFETY DISCLOSURES.


Not applicable.




15




PART II


ITEM 5.

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


No Public Market for Our Common Stock


The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.


Common Stock


We are authorized by our Articles of Incorporation to issue up to 75,000,000 shares of common stock, par value $0.001 per share. As of September 30, 2013 there were 44,657,337 shares of common stock issued and outstanding. Holders of shares of common stock have full voting rights, one vote for each share held of record. Stockholders are entitled to receive dividends as may be declared by the Board out of funds legally available therefore and share pro rata in any distributions to stockholders upon liquidation. Stockholders have no conversion, pre-emptive or subscription rights. All outstanding shares of common stock are fully paid and non-assessable.


Preferred Stock


The Company does not have any Preferred Stock authorized.


Dividends


We have not paid any cash dividends to our shareholders.  The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, and other pertinent conditions.  It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.


Warrants


March 2012 Issuances


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


Significant terms of the warrants include Section (F) anti-dilution provisions and (G) piggy-back registration rights which are presented in the Notes to the Consolidated Financial Statements (see Note12 of the audited consolidated financial statements included herein). These terms apply to all other warrants hereinafter described.




16




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


 

 

March 8,

2012

 

 

March 15,

2012

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.53

%

 

 

64.53

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.89

%

 

 

1.11

%

 

 

 

 

 

 

 


*

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


The estimated relative fair value of the warrants was $44,452 at the date of issuance using the Black-Scholes Option Pricing Model.


April and May 2012 Issuances


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


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


 

 

April 19, 2012

 

 

May 9, 2012

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.61

%

 

 

64.54

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.84

%

 

 

0.77

%


 

 

May 14, 2012

 

 

May 21, 2012

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.53

%

 

 

64.49

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.73

%

 

 

0.75

%




17




 

 

May 22, 2012

 

 

May 25, 2012

 

Expected life (year)

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

64.49

%

 

 

64.47

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00

%

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

0.78

%

 

 

0.76

%


*

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


The estimated relative fair value of the warrants was $46,112 at the date of issuance using the Black-Scholes Option Pricing Model.


September 2012 Issuances


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


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


 

 

 

 

 

September 25,

2012

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

65.70

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.66

%

 

 

 

 

 

 

 


*

As a newly formed entity it is not practicable for the Company to estimate the expected volatility of its share price.  The Company selected five (5) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within nutritional supplements industry which the Company 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 $31,411 at the date of issuance using the Black-Scholes Option Pricing Model.


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.




18




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.



19




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.

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.




20




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.



21




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, 2011

 

 

6,693,334

 

 

 

$   

0.01

 

 

 

$   

0.01

 

 

$

38

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

756,440

 

 

 

   

0.45 - 2.31

 

 

 

   

0.10

 

 

 

121,975

 

 

 

   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(240,000

)

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2012

 

 

7,209,774

 

 

 

$   

0.45 - 2.31

 

 

 

$   

0.10

 

 

$

122,013

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned and exercisable, September 30, 2013

 

 

14,396,293

 

 

 

$   

0.01 - 2.31

 

 

 

$   

0.42

 

 

$

1,289,152

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, September 30, 2013

 

 

-

 

 

 

$   

-

 

 

 

$   

-

 

 

$

-

 

 

 

$   

-

 

 


The following table summarizes information concerning outstanding and exercisable warrants as of September 30, 2013:


 

 

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

 

 

14,396,293

 

 

3.84

 

$

0.42

 

 

14,396,293

 

 

3.84

 

$

0.28

 




22




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.  The number of shares to be received upon the exercise of an option and the exercise price to be paid for a share may be adjusted from time to time as provided in Section 7 of the plan, which is presented in the Notes to the Consolidated Financial Statements (see Note 12 of the audited consolidated financial statements included herein).


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.


March 13, 2012 Issuance


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


The 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:


 

 

 

 

 

March 13,

2012

 

 

 

 

 

Expected life (year)

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Expected volatility (*)

 

 

 

 

 

 

64.53

%

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

 

Risk-free rate(s)

 

 

 

 

 

 

0.99

%

 

 

 

 

 

 

 


*

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


The estimated fair value of the stock options was $14,265 on the date of grant, of which $3,566 were amortized on a quarterly basis over the term of the period of service.


August 24, 2012 Issuance of WCUI Stock Options for Conversion of PSI Stock Options


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


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


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



23




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.


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




24




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, 2011

 

 

1,800,000

 

 

 

$   

0.01

 

 

 

$   

0.01

 

 

$

20

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

50,000

 

 

 

 

0.44

 

 

 

 

0.44

 

 

 

14,265

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

750,000

 

 

 

 

1.00

 

 

 

 

1.00

 

 

 

417,570

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

650,000

 

 

 

 

2.00

 

 

 

 

2.00

 

 

 

745,382

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2012

 

 

3,250,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,177,237

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable, September 30, 2013

 

 

3,260,000

 

 

 

$   

0.01 - 2.00

 

 

 

$   

0.64

 

 

$

1,178,728

 

 

 

$   

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, September 30, 2013

 

 

-

 

 

 

$   

-

 

 

 

$   

-

 

 

$

-

 

 

 

$   

-

 

 




25




The following table summarizes information concerning outstanding and exercisable options as of September 30, 2013:


 

 

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

 

 

1.75

 

$

0.01

 

 

1,600,000

 

 

1.75

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01

 

 

200,000

.

 

2.12

 

 

0.01

 

 

200,000

 

 

2.12

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.44

 

 

50,000

 

 

3.45

 

 

0.44

 

 

50,000

 

 

3.45

 

 

0.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.75

 

 

10,000

 

 

5.00

 

 

0.75

 

 

10,000

 

 

5.00

 

 

0.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.00

 

 

750,000

 

 

7.20

 

 

1.00

 

 

750,000

 

 

7.20

 

 

1.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2.00

 

 

650,000

 

 

8.40

 

 

2.00

 

 

650,000

 

 

8.40

 

 

2.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.01 - 2.00

 

 

3,260,000

 

 

4.38

 

$

0.64

 

 

3,260,000

 

 

4.38

 

$

0.64

 


As of September 30, 2013, there were 4,250,000 shares of stock options remaining available for issuance under the 2010 Plan.


Transfer Agent and Registrar


The transfer agent and registrar for our common stock is Action Stock Transfer Corp., having an office situated at 2469 E. Fort Union Blvd, Ste 214, Salt Lake City, UT 84121 and its telephone number is (801) 274-1088.


INTERESTS OF NAMED EXPERTS AND COUNSEL


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


Our consolidated financial statements as of and for the fiscal year ended September 30, 2013 and 2012 are included in this Annual Report in reliance on the report of Li and Company, PC, an independent registered public accounting firm, given on the authority of that firm as experts in auditing and accounting.




26




ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS.


Forward Looking Statements


Except for historical information, the following Plan of Operation contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) our lack of operational experience and (g) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Description of Business,” as well as in this Annual Report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Annual Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual Report will in fact occur as projected.


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


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


The Company was incorporated in the state of Nevada on June 30, 2010.   Since that time, we have been engaged in the development of “aminofactory.com”, a web-based online store designed to market customized vitamins and other nutritional supplements to the sports industry and health-minded public, and have expanded into additional businesses within the healthcare and medical sectors through two acquisitions, CNS-Wellness LLC (“CNS”), and Psoria-Shield Inc. (“PSI”). 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.


CNS


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


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



27




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


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


CNS clients have reported very favorable rates of improvement – in many cases two to three (or more) times what is seen in traditional approaches.  Such improvement has been achieved in a matter of weeks or months – a fraction of the time required by existing approaches. These results have been observed without demonstrable harmful side effects or safety issues.   CNS has serviced approximately 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.


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

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


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


PSI


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


PSI is a medical device design and manufacturing company.  It designs, develops and markets a targeted ultraviolet (“UV”) phototherapy device called the Psoria-Light. The Psoria-Light is designated for use in targeted PUVA photochemistry and UVB phototherapy and is designed to treat certain skin conditions including psoriasis, vitiligo, atopic dermatitis (eczema), seborrheic dermatitis, and leukoderma.   PSI intends to enter into agreements with third parties, in the United States and internationally, for the manufacture of component parts that make up the Psoria-Light and to license its proprietary technology to third parties domestically and in selected foreign markets.  



28




The Psoria-Light consists of three components: a base console, a color display with touchscreen control, and a hand-held delivery device with a conduit (or tether) between the handheld device and the base console.  PSI requires clearance by the United States Food and Drug Administration (“FDA”) to market and sell the device in the United States as well as permission from TUV SUD America Inc., PSI’s Notified Body, to affix the CE mark to the Psoria-Light in order to market and sell the device in countries of the European Union. To obtain FDA clearance and permission to affix the CE mark, PSI was required to conduct EMC and electrical safety testing, which it completed in the second quarter of 2011.  PSI received FDA clearance on February 11, 2011 (no. K103540) and was granted permission to affix the CE mark on November 10, 2011.  In its 510(k) application with the FDA (application number K103540), PSI asserted that the Psoria-Light was “substantially equivalent” in intended use and technology to two predicate devices, the X -Trac Excimer Laser, which has wide acceptance in the medical billing literature and has a large installed base in the U.S., and the Dualight, another competing targeted UV phototherapy device.    


Psoriasis, eczema, and vitiligo, are common skin conditions that can be challenging to treat, and often cause the patient significant psychosocial stress. Patients undergo a variety of treatments to address these skin conditions, including routine consumption of systemic and biologic drug therapies which are highly toxic, reduce systemic immune system function, and come with a host of chemotherapy-like side effects. Ultraviolet (UV) phototherapy is a clinically validated treatment modality for these disorders.


Traditionally, “non-targeted” therapy was administered by lamps that emitted either UVA or UVB light to both diseased and healthy skin. While sunblocks or other UV barriers may be used to protect healthy skin, the UV administered in this manner must be low dosage to avoid excessive exposure of healthy tissue. Today, “targeted” UV phototherapy devices administer much higher dosages of light only to affected tissue, resulting   in “clearance” in the case of psoriasis and eczema, and “repigmentation” in the case of vitiligo, at much faster rates than non-targeted (low dosage) UV treatments.


Targeted UV treatments are typically administered to smaller total body surface areas, and are therefore used to treat the most intense parts of a patient’s disease. Non-targeted UV treatment is typically used as a follow-up and for maintenance, capable of treating large surfaces of the body. Excimer laser devices (UVB at 308nm) are expensive and consume dangerous chemicals (Xenon and Chlorine). Mercury lamp devices (UVB and/or UVA) require expensive lamp replacements regularly and require special disposal (due to mercury content). Additionally, mercury lamp devices typically deliver wavelengths of light below 300nm. While within the UVB spectrum, it has been shown that wavelengths below 300nm produce significantly more “sunburn” type side effects than do wavelengths between 300 and 320nm without improvement in therapeutic benefit.


The Psoria-Light is a targeted UV phototherapy device which produces UVB light between 300 and 320 nm as well as UVA light between 350 and 395nm, does not consume dangerous chemicals or require special environmental disposal and is cost effective for clinicians, which will increase patient access to this type of treatment.  It has several unique and advanced features that we believe will distinguish it from the non-targeted and targeted UV phototherapy devices that are currently being used by dermatologists and other healthcare providers. These features include the following: the utilization of deep narrow-band UVB (“NB-UVB”) LEDs as light sources; the ability to produce both UVA or NB-UVB therapeutic wavelengths; an integrated high resolution digital camera and patient record integration capabilities; the ability to export to an external USB memory device a PDF file of patient treatment information including a patent pending graph that includes digital images plotted against user tracked metrics which can be submitted to improve medical reimbursements; an accessory port and ability to update software; ease of placement and portability;    advanced treatment site detection safety sensor;  international language support;  a warranty which includes the UV lamp(s); and  a non-changeable treatment log (that does not include HIPPA information).


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


PSI has established an ISO 13485 compliant quality system for the Psoria-Light, which was first audited in the third quarter of 2011.   This system is intended to ensure PSI devices will be manufactured in a controlled and reliable environment and that its resources follow similar practices and is required for sales in countries requiring a CE mark.  PSI has also received Certified Space Technology designation from the Space Foundation, based on PSI’s incorporation of established NASA-funded LED technology.   



29




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


We expect to build upon PSI’s current development and marketing efforts, however, PSI only started to sell the devices since January 2012 with a limited operating history. It is currently operating at a loss, and there is no assurance that its business development plans and strategies will ever be successful. PSI’s success depends upon the acceptance by healthcare providers and clients of Psoria-Light treatment as a preferred method of treatment for psoriasis and other UV-treatable skin conditions.   Psoria-Light treatment appears to have been beneficial to clients, without demonstrable harmful side effects or safety issues, and PSI has serviced approximately 200 clients since PSI started to sell the device in January 2012. In order for the Company to continue PSI operations it will need additional capital and it will have to successfully coordinate integration of PSI operations without materially and adversely affecting continuation and development of other Company operations.


Aminofactory.com


Since the CNS and PSI acquisitions, we have focused primarily upon development of CNS and PSI 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.


The U.S. vitamins and dietary supplements industry is a large and highly fragmented industry. Our potential competitors include specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing organizations, online merchants, mail-order companies and a variety of other participants in the industry. The principle elements of competition in the industry are price, selection and distribution channel offerings. We believe that the market is also highly sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market. In the U.S., we shall also compete for sales with heavily advertised national brands manufactured by large pharmaceutical and food companies, as well as other retailers. In addition, as some products gain market acceptance, we may experience increased competition for those products as more participants enter the market.



30




Management


Presently, all business functions of the Company are managed by our CEO/director and founder, Andrew J. Kandalepas. He is responsible for developing and planning our business units, including product development, organizational structure, financing and administrational functions. His services shall be utilized until the Company is financially capable to engage additional staffing.


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


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


Results of Operations


For the Fiscal Year Ended September 30, 2013

 

The Company commenced operations in August upon acquisitions of CNS and PSI. For the fiscal year ended September 30, 2013 we earned $272,132 in revenues, incurred $3,134 in cost of revenues, resulting $268,998 in gross profit. We expended $689,436, $288,133, $198,782, $9,613, $865,399, $103,679 and $819,699 in consulting fees, professional fees, rent, research and development, personnel, selling and general and administrative expenses, respectively, resulting in a net operating loss of $2,705,743.

 

The Company operates in three (3) business segments:

 

(i)   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;

 

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

 

(iii) 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.


The detailed segment information of the Company is as follows:




31




The detailed segment information of the Company is as follows:


 

 

 

For the Fiscal Year

 

 

 

Ended

 

 

 

September 30, 2013

 

 

 

WCUI

 

CNS

 

PSI

 

WCUI

 

 Consolidated

 

 

 

Corporate

Headquarter

 

Patient

Services

 

Medical

Devices

 

Nutritional

Supplement

Distribution

 

 

 Revenue

 

 

 

 

 

 

 

 

 

 

 Patient services

 

 

269,644

 

-

 

-

 

269,644

 

 Sales

 

 

-

 

-

 

2,488

 

2,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total revenue

-

 

269,644

 

-

 

2,488

 

272,132

 

 

 

 

 

 

 

 

 

 

 

 

 Cost of goods sold

 

 

 

 

 

 

3,134

 

3,134

 

 

 

 

 

 

 

 

 

 

 

 

 Gross margin

-

 

269,644

 

-

 

(646)

 

268,998

 

 

 

 

 

 

 

 

 

 

 

 

 Operating expenses

 

 

 

 

 

 

 

 

 

 

 Consulting fees

689,436

 

-

 

-

 

 

 

689,436

 

 Professional fees

252,674

 

-

 

35,459

 

 

 

288,133

 

 Rent expense - related party

24,871

 

-

 

-

 

 

 

24,871

 

 Rent expense

-

 

141,811

 

32,100

 

 

 

173,911

 

 Research and development

-

 

-

 

9,613

 

 

 

9,613

 

 Salaries - officers

200,000

 

300,000

 

150,099

 

 

 

650,099

 

 Salaries - others

-

 

141,498

 

73,802

 

 

 

215,300

 

 Selling expenses

-

 

11,567

 

92,112

 

 

 

103,679

 

 General and administrative expenses

447,675

 

172,885

 

199,139

 

 

 

819,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Total operating expenses

1,614,656

 

767,761

 

592,324

 

-

 

2,974,741

 

 

 

 

 

 

 

 

 

 

 

 

 Loss from operations

(1,614,656)

 

(498,117)

 

(592,324)

 

(646)

 

(2,705,743)

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) epxense

 

 

 

 

 

 

 

 

 

 

 Financing costs

91,630

 

-

 

-

 

 

 

91,630

 

 Interest expense

1,250

 

-

 

5,828

 

 

 

7,078

 

 Interest expense - related party

-

 

4,828

 

-

 

 

 

4,828

 

 Other (income) expense

-

 

7,751

 

-

 

 

 

7,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other (income) expense, net

92,880

 

12,579

 

5,828

 

-

 

111,287

 

 

 

 

 

 

 

 

 

 

 

 

 Loss before income tax provision

(1,707,536)

 

(510,696)

 

(598,152)

 

(646)

 

(2,817,030)

 

 

 

 

 

 

 

 

 

 

 

 

 Income tax provision

-

 

-

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss

(1,707,536)

 

(510,696)

 

(598,152)

 

(646)

 

(2,817,030)

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss per common share - basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss per common share - basic and diluted

 

 

 

 

 

 

 

$

(0.08)

 

 

 

 

 

 

 

 

 

 

 

 

 

 Weighted Average Common Shares Outstanding - basic and diluted

 

 

 

 

 

 

 

 

37,480,331




32




Liquidity and Capital Resources


As of September 30, 2013, our cash balance was $499,246 inclusive $409,899 held by WCUI, $75,519 held by CNS and $13,828 held by PSI. The management estimated that our current monthly burn rate to be approximately $185,000 inclusive of $69,000 for WCUI, $49,000 for CNS and $ 67,000 for PSI, respectively. Our current cash on hand is not sufficient to maintain our daily operations for the next 12 months. The management of the Company intends to raise additional capital through private equity transactions or debt financing to fund our daily operations through next 12 months, however no assurance can be given that we will be successful in raising additional capital through private equity transactions or debt financing during the period.  For the Period from October 1, 2012 through September 30, 2013, the Company has raised approximately $2,930,486 through the sale of certain equity units inclusive of one (1) share of our common stock and a warrant to purchase one (1) share of our common stock.  In the event that we are unable to raise sufficient capital through private equity transactions or debt financing we may have to reduce our operating expenses and maintain minimum level of operations.

 

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

 

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.


PSI was issued one patent on its Psoria-Light technology on July 9th 2013, US 8,481,982, covering a unique patient safety feature. No other patents have been issued for 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.



33




Employees


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


Summary of Significant Accounting Policies.


The Company’s significant accounting policies are presented in the Notes to the Consolidated Financial Statements (see Note 2 of the audited consolidated financial statements included herein).


ITEM 7A.

QUANTITIATIVE AND QUALITATIVE DISCLOUSURES ABOUT MARKET RISK


Not applicable to a smaller reporting company.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Our consolidated financial statements are contained in pages F-1 through F-47 which appear at the end of this annual report.


ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None.


ITEM 9A.

CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.


The Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of September 30, 2013, the end of the period covered by this report. Based upon that evaluation, the Company’s CEO concluded that the Company’s disclosure controls and procedures are not effective at the reasonable assurance level due to the material weaknesses described below:


1.

The Company does not have written documentation of its internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to the Company.  Management evaluated the impact of its failure to have written documentation of its internal controls and procedures on its assessment of its disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.


2.

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




34




3.

The Company does not have sufficient segregation of duties within its accounting functions, which is a basic internal control.  Due to its size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of its failure to have segregation of duties on its assessment of its disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.


4.

The Company has had, and continues to have, a significant number of audit adjustments.  Audit adjustments are the result of a failure of the internal controls to prevent or detect misstatements of accounting information.  The failure could be due to inadequate design of the internal controls, a misapplication or override of controls, or the lack of any board member with financial expertise.  Management evaluated the impact of the significant number of audit adjustments and has concluded that the control deficiency that resulted represented a material weakness.


In light of the material weaknesses, the management of the Company performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with the accounting principles generally accepted in the United States of America.  Accordingly, we believe that our consolidated financial statements included herein fairly present, in all material respects, our consolidated financial condition, consolidated results of operations and cash flows as of and for the reporting periods then ended.


Remediation of Material Weaknesses


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


Management's Report on Internal Control Over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officer and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:


·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the issuer; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.  However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.


As of the end of our most recent fiscal year, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments.  Based on that evaluation, they concluded that, as of September 30, 2013, such internal control over financial reporting was not effective.  This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.



35




The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets; and (3) ineffective controls over period end financial disclosure and reporting processes.  The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of September 30, 2013.


To address the material weaknesses set forth in items (2) and (3) discussed above, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.


This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only the management's report in this annual report.


Management's Remediation Initiatives


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


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


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


We anticipate that these initiatives will be at least partially, if not fully, implemented by September 30, 2014 when funding is available. Additionally, we plan to test our updated controls and remediate our deficiencies by September 30, 2014.


Changes in internal controls


There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the fourth quarter of our fiscal year 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



36



PART III


ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE


Directors, Executive Officer and Control Persons


The following table sets forth the names and ages of our current directors and executive officers. Also the principal offices and positions with us held by each person and the date such person became a director or executive officer. Each executive officer was appointed by our Board of Directors. Our directors serve until the earlier occurrence of the election of his or her successor at the next meeting of stockholders, death, resignation or removal by the Board of Directors. There are no family relationships among our directors, and executive officers.


Name

Age

Position

Date

 

 

 

 

Andrew J. Kandalepas

61

Chairman, President, Chief Executive Officer and

Chief Financial Officer

June 2010

 

 

 

 

Periklis Papadopoulos

50

Director

Nov. 2010

 

 

 

 

Evan T. Manolis

55

Director, Secretary

Nov. 2010

 

 

 

 

William A. Lambos, Ph.D.

56

President, Chief Scientific Officer, CNS, Director

August 2012

 

 

 

 

Peter A. Hannouche

48

Chief Executive Officer, CNS, Director

August 2012

 

 

 

 

Scot L. Johnson

38

President, Chief Executive Officer, PSI, Director

August 2012


Audit Committee


The Board of Directors determined not to establish an audit committee at present because of our limited resources and limited operating activities do not warrant the formation of an audit committee or the expense of doing so.  We do not have a financial expert serving on the Board of Directors who meets the criteria for a financial expert under Item 401(e) of Regulation S-B due to our limited financial resources.


Certain Legal Proceedings

 

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

 

Compliance With Section 16(A) Of The Exchange Act.


Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and are required to furnish copies to the Company.




37




ITEM 11.

EXECUTIVE COMPENSATION


Executive Compensation


Summary Compensation Table


Name and Position


Year

($)


Salary

($)

Other Annual

Compensation

Bonus ($)

Restricted

Stock

(Shares)

Options

Awards

(Shares)

LTIP

SARs ($)


Payouts

($)

All Other

Compensation

($)

Andrew J. Kandalepas,

Chairman, President and CEO

2013

200,000

0

0

0

0

0

0

 

2012

0

0

0

0

0

0

0

 

2011

0

0

0

0

0

0

0

(1)

2010

0

0

3,665,000

1,600,000

0

0

0

 

 

 

 

 

 

 

 

 

Periklis Papadopoulos, Ph.D.,

Director

2013

0

0

0

0

0

0

0

 

2012

0

0

0

0

0

0

0

(2)

2011

0

0

225,000

100,000

0

0

0

 

 

 

 

 

 

 

 

 

Evan T. Manolis, MD,

Director and Secretary

2013

0

0

0

0

0

0

0

 

2012

0

0

0

0

0

0

0

(2)

2011

0

0

225,000

100,000

0

0

0

 

 

 

 

 

 

 

 

 

William A. Lambos, President of CNS, Director

2013

150,000

0

0

0

0

0

0

(3)

2012

0

0

3,650,000

0

0

0

0

 

 

 

 

 

 

 

 

 

Peter A. Hannouche,

CEO of CNS, Director

2013

150,000

0

0

0

0

0

0

(3)

2012

0

0

3,650,000

0

0

0

0

 

 

 

 

 

 

 

 

 

Scot L. Johnson, President of PSI, Director

2013

150,000

0

0

0

0

0

0

(4)

2012

0

0

3,005,000

0

0

0

0


(1)

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

(2)

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

(3)

On August 2, 2012, the Company consummated the Exchange Agreement and acquired all of the issued and outstanding limited liability company interests in CNS for and in consideration of the issuance of 7.3 million shares of the Company’s common stock pursuant to the Exchange Agreement, 3,650,000 each were issued to Mr. William A. Lambos and Mr. Peter A. Hannouche, respectively.

(4)

On August 24, 2012, the Company consummated the share exchange and acquired all of the issued and outstanding shares of stock in PSI for and in consideration of the issuance of 7,686,797 shares of its common stock pursuant to the Exchange Agreement, 3,005,000 of which were issued to Mr. Scot Johnson.


There are no annuity, pension or retirement benefits proposed to be paid to officers, directors or employees in the event of retirement at normal retirement date pursuant to any presently existing plan provided or contributed to by the Company or any of its subsidiaries, if any.




38




Employment Agreements


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


Stock Option Plan


On December 22, 2010, effective retroactively as of June 30, 2010, the Company’s board of directors approved the adoption of the “2010 Non-Qualified Stock Option Plan” (“2010 Option Plan”) by unanimous consent.  The 2010 Option Plan was initiated to encourage and enable officers, directors, consultants, advisors and key employees of the Company to acquire and retain a proprietary interest in the Company by ownership of its common stock.  A total of 7,500,000 of the authorized shares of the Company’s common stock may be subject to, or issued pursuant to, the terms of the plan. The number of shares to be received upon the exercise of an option and the exercise price to be paid for a share may be adjusted from time to time as provided in Section 7 of the plan, which is presented in the Notes to the Consolidated Financial Statements (see Note 12 of the audited consolidated financial statements included herein).


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.




39




ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


Principal Shareholders


The following table presents certain information regarding the beneficial ownership of all shares of common stock at the date of this Annual Report, for each executive officer and director of our Company and for each person known to us who owns beneficially more than five percent (5%) of the issued and outstanding shares of our common stock.


Name and Address of Beneficial Owner (1)

 

Number of

Shares (2)

 

Options to Acquire Number of

Shares (2)

 

Warrants to Acquire Number of

Shares (2)

 

Number of

Shares Inclusive of Options and Warrants

 

Percentage

(%) of Security Ownership

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

3,665,000

 

 

 

   

1,600,000

 

 

 

   

-

 

 

 

5,265,000

 

 

 

   

8.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Periklis Papadopoulos, Director (*)

 

 

225,000

 

 

 

 

100,000

 

 

 

 

-

 

 

 

325,000

 

 

 

 

0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Evan T. Manolis, Director and Secretary (*)

 

 

225,000

 

 

 

 

100,000

 

 

 

 

-

 

 

 

325,000

 

 

 

 

0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

3,650,000

 

 

 

 

-

 

 

 

 

-

 

 

 

3,650,000

 

 

 

 

5.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

3,650,000

 

 

 

 

-

 

 

 

 

-

 

 

 

3,650,000

 

 

 

 

5.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

3,005,000

 

 

 

 

-

 

 

 

 

-

 

 

 

3,005,000

 

 

 

 

4.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Officers and directors as a group (*)

 

 

14,420,000

 

 

 

 

1,800,000

 

 

 

 

-

 

 

 

16,220,000

 

 

 

 

25.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total issued and outstanding

 

 

45,110,670

 

 

 

   

3,250,000

 

 

 

   

14,396,293

 

 

 

62,766,963

 

 

 

   

100.0

 

 


(1)

Except as hereinafter noted, the address of each of the persons shown in the above table is c/o Wellness Center USA, Inc. 1014 E Algonquin Rd, Ste. 111, Schaumburg, IL, 60173.  The address for Mr. Lambos and Mr. Hannouche is c/o CNS, Two Urban Centre, 4890 West Kennedy Boulevard, Suite 295, Tampa, Florida 33609. The address for Mr. Johnson is c/o PSI, West Linebaugh Avenue, Suites 103, Tampa, Florida 33625


(2)

Includes, where applicable, shares of common stock issuable upon the exercise of options or warrants to acquire common stock held by such person that may be exercised within 60 days after September 30, 2013. Also includes unvested shares of restricted stock as to which such person has voting power but no dispositive power. Unless otherwise indicated, we believe that all persons named in the table above have sole voting power and/or investment power with respect to all shares of common stock beneficially owned by them.




40




ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 


Related Party Transactions


Advances from Stockholders


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


Notes Payable – Related Party


Note payable – related party, consisted of the following:


 

 

September 30, 2013

 

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

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 Note Payable – Officers


 

 

September 30, 2013

 

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

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

 

$

62,680

 

 

$

120,886

 

 

 

 

 

 

 

 

 

 

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

 

$

15,557

 

 

$

74,422

 

 

 

 

 

 

 

 

 

 

 

 

$

78,237

 

 

$

195,308

 


Note Payable – Officers


 On September 30, 2013, Mr. Kandalepas borrowed $250,000.00 from the Company pursuant to a promissory note that accrues simple interest of 7% per annum payable in six quarterly installments of principal and accrued interest beginning on April 1, 2014 and continuing on the first day of each calendar quarter thereafter, with the all principal and accrued interest thereon due July 1, 2015.

 

 

 

 

 

 

 

 




41




Operating Lease with a Related Party - WCUI


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


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


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


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 the period 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:

 

 

 

 

 

 

 

2013

 

$

22,914

 

 

 

 

2014

 

 

5,728

 

 

 

 

 

 

$

28,642


Director Independence


Currently, the Company does not have a policy that its directors or a majority of its directors be independent of management. The Company intends to implement a policy that a majority of the Board members be independent of the Company’s management as the members of the board of directors increases.


ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES


Audit Fees


We were billed $110,500 and $19,000 for the audit and reviews of our financial statements included in our periodic and other reports filed with the Securities and Exchange Commission for our fiscal year ended September 30, 2013 and 2012, respectively.


Tax Fees


For the fiscal year ended September 30, 2013 and 2012, we were billed $7,500 and $1,500 for professional services rendered for tax compliance, respectively.


All Other Fees


For the fiscal year ended September 30, 2013 and 2012, we were billed $14,250 and $0 for professional services rendered for the review of super 8-K, pro forma combined financial statements and response to the SEC comments, respectively.




42




Pre-approval of All Services from the Independent Auditors


Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us or our subsidiaries to render any auditing or permitted non-audit related service, the engagement be:


·

approved by our audit committee; or

·

entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular  service,  the  audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.


We do not have an audit committee, however our board of directors acts as the audit committee, established pre-approval policies and procedures as to the particular service which do not include delegation of the audit committee's responsibilities to management. Our board of directors pre-approves all services provided by our independent auditors and is informed of each service. 



43



PART IV


ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES.


a) Documents filed as part of this Annual Report

 

1. Financial Statements

 

2. Financial Statement Schedules

 

3. Exhibits


Exhibit Number

 


Description of Document

 

Filed Herewith

 


Incorporated by Reference To:

 

 

 

 

 

 

 

2.1

 

Exchange Agreement dated May 30, 2012 by and between CNS Wellness Florida LLC and Wellness Center USA, Inc.

 

 

 

Exhibit 2.1 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

2.2

 

Exchange Agreement dated June 21, 2012 by and between Psoria-Shield Inc. and Wellness Center USA, Inc.

 

 

 

Exhibit 2.2 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

3.1

 

Articles of Incorporation of the Registrant as filed with the Secretary of State of Nevada.

 

 

 

Exhibits 3.2 to the Registrant’s Amended Registration Statement on Form S-1A1 filed on July 7, 2011.

3.2

 

Bylaws of the registrant.

 

 

 

Exhibits 3.2 to the Registrant’s Amended Registration Statement on Form S-1A1 filed on July 7, 2011.

4.1

 

Subscription Agreement

 

 

 

Exhibits 99.1 to the Registrant’s Amended Registration Statement on Form S-1A1 filed on July 7, 2011.

4.2

 

Form of warrant

 

 

 

Exhibits 99.2 to the Registrant’s Amended Registration Statement on Form S-1A1 filed on July 7, 2011.

4.3

 

2010 Non-Qualified Stock Compensation Plan

 

 

 

Exhibits 99.3 to the Registrant’s Amended Registration Statement on Form S-1A1 filed on July 7, 2011.

5.1

 

Employment Agreement dated as of August 2, 2012 by and between William A. Lambos and Wellness Center USA, Inc.

 

 

 

Exhibit 5.1 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

5.2

 

Employment Agreement dated as of August 2, 2012 by and between Peter A. Hannouche and Wellness Center USA, Inc.

 

 

 

Exhibit 5.2 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

5.3

 

Employment Agreement dated as of August 24, 2012 by and between Scot L. Johnson and Wellness Center USA, Inc.

 

 

 

Exhibit 5.3 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.



44




Exhibit Number

 


Description of Document

 

Filed Herewith

 


Incorporated by Reference To:

10.1

 

Note dated August 9, 2010 by CNS Wellness Florida LLC in favor of a family member of one of its members in the principal amount of $37,139.

 

 

 

Exhibit 10.1 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

10.2

 

Note dated August 2, 2012 by CNS Wellness Florida LLC in favor of William A. Lambos in the amount of $ 120,886.30.

 

 

 

Exhibit 10.2 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

10.3

 

Note dated August 2, 2012 by CNS Wellness Florida LLC in favor of Peter A. Hannouche in the amount of $ 75,322.14.

 

 

 

Exhibit 10.3 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

10.4

 

License Agreement dated as of August 25, 2009 by and between Psoria-Shield Inc. and Scot L. Johnson.

 

 

 

Exhibit 10.4 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

10.5

 

License Agreement dated as of December 11, 2010 by and between Psoria-Shield Inc. and Scot L. Johnson.

 

 

 

Exhibit 10.5 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

10.6

 

Note dated September 30, 2013 by Andrew J. Kandalepas

 

*

 

 

21.1

 

List of subsidiaries of the Registrant

 

X

 

 

31.1

 

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

 

 

 

 

31.2

 

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

 

 

 

 

32.1

 

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

 

 

 

 

32.2

 

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

 

 

 

 

101.INS

 

XBRL Instance Document ****

 

X

 

 

101. SCH

 

XBRL Taxonomy Extension Schema Linkbase Document ****

 

X

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document ****

 

X

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document ****

 

X

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document ****

 

X

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document ****

 

X

 

 


(*)

Filed herewith.


(**)

Included in Exhibit 32.1


(***)

Included in Exhibit 32.2


(****)

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.




45




SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized..



 

WELLNESS CENTER USA, INC.

 

 

 

 

 

Date: January 14, 2014

By: /s/ Andrew J. Kandalepas

 

 

Andrew J. Kandalepas

Chairman, President, Chief Executive Officer,

Chief Accounting Officer and Chief Financial Officer

(Duly Authorized Principal Executive 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

 

Chairman, President, Chief Executive Officer,

Chief Accounting Officer and Chief Financial Officer

 

January 14, 2014

Andrew J. Kandalepas

 

 

 

 

 

 

  

 

  

/s/ Periklis Papadopoulos

 

Director

 

January 14, 2014

Periklis Papadopoulos

 

 

 

 

 

 

 

 

 

/s/ Evan T. Manolis

 

Director and Secretary

 

January 14, 2014

Evan T. Manolis

 

 

 

 

 

 

 

 

 

/s/ William A. Lambos

 

Director and President of CNS

 

January 14, 2014

William A. Lambos

 

 

 

 

 

 

 

 

 

/s/ Peter A. Hannouche,

 

Director and CEO of CNS

 

January 14, 2014

Peter A. Hannouche

 

 

 

 

 

 

 

 

 

/s/ Scot L. Johnson

 

Director and President of PSI

 

January 14, 2014

Scot L. Johnson

 

 

 

 






46




Wellness Center USA, Inc.


September 30, 2013 and 2012


Index to the Consolidated Financial Statements


Contents

Page(s)

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets at September 30, 2013 and 2012

F-3

 

 

Consolidated Statements of Operations for the Fiscal Year Ended September 30, 2013 and 2012

F-5

 

 

Consolidated Statement of Stockholders’ Equity (Deficit) for the Fiscal Year Ended September 30, 2013 and 2012

F-6

 

 

Consolidated Statements of Cash Flows for the Fiscal Year Ended September 30, 2013 and 2012

F-9

 

 

Notes to the Consolidated Financial Statements

F-10




F-1




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

Wellness Center USA, Inc.


We have audited the consolidated balance sheets of Wellness Center USA, Inc. (the “Company”) as of September 30, 2013 and 2012 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the fiscal years then ended. These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2013 and 2012 and the results of its operations and its cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.


The consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the consolidated financial statements, the Company had an accumulated deficit at September 30, 2013 and had a net loss and net cash used in operating activities for the fiscal year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.




/s/Li and Company, PC

Li and Company, PC


Skillman, New Jersey

January 14, 2014



F-2




Wellness Center USA, Inc.

 

 Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

September 30, 2012

 

 

 

 

 

 

 

 

 ASSETS

 

 

 

 

 Current Assets

 

 

 

 

 

 Cash

$

499,246

$

116,204

 

 Accounts receivable

 

4,472

 

4,200

 

 Inventories

 

135,485

 

-

 

 Current maturity of note receivable - Chairmanand CEO

 

83,333

 

-

 

 Prepayments and other current assets

 

7,475

 

-

 

 

 

 

 

 

 

 

 

 

 Total current assets

 

730,011

 

120,404

 

 

 

 

 

 

 

 

 Property and Equipment

 

 

 

 

 

 Property and equipment

 

117,805

 

101,207

 

 Accumulated depreciation

 

(43,300)

 

(9,933)

 

 

 Property and equipment, net

 

74,505

 

91,274

 

 

 

 

 

 

 

 

 Exclusive Licenses

 

 

 

 

 

 Exclusive licenses

 

5,000

 

5,000

 

 Accumulated amortization

 

(688)

 

(438)

 

 

 Exclusive licenses, net

 

4,312

 

4,562

 

 

 

 

 

 

 

 

 Acquired Technologies

 

 

 

 

 

 Acquired technologies

 

2,420,000

 

2,420,000

 

 Accumulated amortization

 

(132,433)

 

(11,437)

 

 

 Acquired technologies, net

 

2,287,567

 

2,408,563

 

 

 

 

 

 

 

 

 Non-Compete Agreements

 

 

 

 

 

 Non-compete agreements

 

240,000

 

240,000

 

 Accumulated amortization

 

(79,162)

 

(9,166)

 

 

 Non-compete agreements, net

 

160,838

 

230,834

 

 

 

 

 

 

 

 

 Trademarks

 

 

 

 

 

 Trademarks

 

740,000

 

740,000

 

 Accumulated amortization

 

(111,766)

 

(9,538)

 

 

 Trademarks, net

 

628,234

 

730,462

 

 

 

 

 

 

 

 

 Website Development Costs

 

 

 

 

 

 Website development costs

 

22,809

 

17,809

 

 Accumulated amortization

 

(8,826)

 

(2,898)

 

 

 Website development costs, net

 

13,983

 

14,911

 

 

 

 

 

 

 

 

 Other Assets

 

 

 

 

 

 Goodwill

 

4,584,648

 

4,584,648

 

 Note receivable - Chairman and CEO, net of current maturity

 

166,667

 

-

 

 Security deposits

 

38,699

 

38,699

 

 

 

 

 

 

 

 

 

 

 Total other assets

 

4,790,014

 

4,623,347

 

 

 

 

 

 

 

 

 

 

 

 Total assets

$

8,689,464

$

8,224,357

 

 

 

 

 

 

 

 



F-3



(continued)

 LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 Current Liabilities

 

 

 

 

 

 Accounts payable

$

39,749

$

221,068

 

 Accounts payable - related party

 

67,153

 

72,653

 

 Accrued interest - related parties

 

9,445

 

4,617

 

 Accrued payroll - officers

 

67,281

 

53,825

 

 Accrued warranty

 

12,000

 

12,000

 

 Credit cards payable

 

60,866

 

105,322

 

 Current portion of deferred rent

 

11,363

 

11,363

 

 Advances from related parties

 

224,736

 

278,909

 

 Customer deposits

 

-

 

25,000

 

 Convertible notes payable

 

-

 

58,000

 

 Note payable

 

-

 

20,000

 

 Note payable - related party

 

37,139

 

37,139

 

 Sales tax payable

 

-

 

2,940

 

 Accrued expenses and other current liabilities

 

52,281

 

18,544

 

 

 

 

 

 

 

 

 

 

 Total current liabilities

 

582,013

 

921,380

 

 

 

 

 

 

 

 

 Long-term Liabilities

 

 

 

 

 

 Deferred rent, net of current portion

 

18,000

 

29,362

 

 Long-term notes payable - officers

 

78,237

 

195,308

 

 

 

 

 

 

 

 

 

 

 Total long-term liabilities

 

96,237

 

224,670

 

 

 

 

 

 

 

 

 

 

 

 Total liabilities

 

678,250

 

1,146,050

 

 

 

 

 

 

 

 

 Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 Stockholders' Equity

 

 

 

 

 

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

 

 

 

 

 

 

 45,110,670 and 30,978,237 shares issued and outstanding, respectively

 

45,111

 

30,978

 

 Additional paid-in capital

 

11,340,244

 

7,604,440

 

 Accumulated deficit

 

(3,374,141)

 

(557,111)

 

 

 

 

 

 

 

 

 

 

 Total stockholders' equity

 

8,011,214

 

7,078,307

 

 

 

 

 

 

 

 

 

 

 Total liabilities and stockholders' equity

$

8,689,464

$

8,224,357

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.




F-4




Wellness Center USA, Inc.

 

 Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

For the Fiscal

 

For the Fiscal

 

 

 

 

Year Ended

 

Year Ended

 

 

 

 

September 30, 2013

 

September 30, 2012

 

 

 

 

 

 Revenue

 

 

 

 

 

 Patient services

$

269,644

$

46,638

 

 Sales

 

2,488

 

43,187

 

 

 

 

 

 

 

 

 

 Total revenue

 

272,132

 

89,825

 

 

 

 

 

 

 

 Cost of goods sold

 

3,134

 

15,931

 

 

 

 

 

 

 

 Gross margin

 

268,998

 

73,894

 

 

 

 

 

 

 

 Operating expenses

 

 

 

 

 

 Consulting fees

 

689,436

 

60,680

 

 Professional fees

 

288,133

 

90,661

 

 Rent expense - related party

 

24,871

 

25,050

 

 Rent expense

 

173,911

 

26,623

 

 Research and development

 

9,613

 

11,077

 

 Salaries - officers

 

650,099

 

67,312

 

 Salaries - others

 

215,300

 

41,633

 

 Selling expenses

 

103,679

 

24,285

 

 General and administrative expenses

 

819,699

 

128,859

 

 

 

 

 

 

 

 

 

 Total operating expenses

 

2,974,741

 

476,180

 

 

 

 

 

 

 

 Loss from operations

 

(2,705,743)

 

(402,286)

 

 

 

 

 

 

 

 Other (income) epxense

 

 

 

 

 

 Financing costs

 

91,630

 

-

 

 Interest expense

 

7,078

 

-

 

 Interest expense - related party

 

4,828

 

1,101

 

 Other (income) expense

 

7,751

 

1,498

 

 

 

 

 

 

 

 

 

 Other (income) expense, net

 

111,287

 

2,599

 

 

 

 

 

 

 

 Loss before income tax provision

 

(2,817,030)

 

(404,885)

 

 

 

 

 

 

 

 Income tax provision

 

-

 

-

 

 

 

 

 

 

 

 Net loss

$

(2,817,030)

$

(404,885)

 

 

 

 

 

 

 

 Net loss per common share - basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 Net loss per common share - basic and diluted

$

(0.08)

$

(0.02)

 

 

 

 

 

 

 

 

 Weighted Average Common Shares Outstanding - basic and diluted

 

37,480,331

 

17,147,227

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.




F-5




Wellness Center USA, Inc.

 

Statement of Stockholders' Equity (Deficit)

For theFiscal Year Ended September 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 Common Stock, Par Value $0.001

 

 

 

 

 

 

 

 Number of Shares

 

Amount

 

Additional Paid-in Capital

 

 Accumulated Deficit

 

Total Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 Balance, September 30, 2011

15,030,000

$

15,030

$

58

$

(152,226)

$

(137,138)

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $0.50 per unit on March 08, 2012

95,000

 

95

 

47,405

 

-

 

47,500

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $0.75 per unit on March 15, 2012

75,000

 

75

 

56,175

 

-

 

56,250

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $1.10 per unit on April 19, 2012

14,545

 

15

 

15,985

 

-

 

16,000

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $1.10 per unit on May 9, 2012

9,091

 

9

 

9,991

 

-

 

10,000

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $1.10 per unit on May 14, 2012

18,182

 

18

 

19,982

 

-

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $1.10 per unit on May 21, 2012

20,000

 

20

 

21,980

 

-

 

22,000

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $1.10 per unit on May 22, 2012

10,000

 

10

 

10,990

 

-

 

11,000

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $1.10 per unit on May 25, 2012

82,955

 

83

 

91,167

 

-

 

91,250

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued to consultant for future services

 

 

 

 

 

 

 

 

 

 

 on March 13, 2012 earned during the interim period

 

 

 

 

 

 

 

 

 

 

 June 30, 2012 valued at $1.10 per share

12,500

 

12

 

13,738

 

-

 

13,750

 

 

 

 

 

 

 

 

 

 

 

 Warrants issued to consultant for future services

 

 

 

 

 

 

 

 

 

 

 on March 13, 2012 earned during the quarter ended

 

 

 

 

 

 

 

 

 

 

 June 30, 2012 valued at $1.10 per share

-

 

-

 

3,565

 

-

 

3,565

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares on August 2, 2012

 

 

 

 

 

 

 

 

 

 

 for the acquisition of CNS Wellness Florida, LLC

7,300,000

 

7,300

 

3,092,700

 

-

 

3,100,000

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares on August 24, 2012

 

 

 

 

 

 

 

 

 

 

  for the acquisition of Psoria Shield, Inc.

7,686,797

 

7,687

 

4,097,313

 

-

 

4,105,000

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued to an IR firm for services on

 

 

 

 

 

 

 

 

 

 

 September 17, 2012 valued at $0.38 per share

35,000

 

35

 

13,265

 

-

 

13,300

 

 

 

 

 

 

 

 

 

 

 

 Issuance of common shares and warrants for cash

 

 

 

 

 

 

 

 

 

 

 at $0.30 per share on September 25, 2012

336,667

 

337

 

100,663

 

-

 

101,000

 

 

 

 

 

 

 

 

 

 

 

 Exercise of warrants with exercise price of $0.01 per share

 

 

 

 

 

 

 

 

 

 

 on September 25, 2012

240,000

 

240

 

2,160

 

-

 

2,400

 

 

 

 

 

 

 

 

 

 

 

 Common shares issued to consultant for future services

 

 

 

 

 

 

 

 

 

 

 on March 13, 2012 earned during the quarter ended

 

 

 

 

 

 

 

 

 

 

 September 30, 2012 valued at $0.30 per share

12,500

 

12

 

3,738

 

-

 

3,750

 

 

 

 

 

 

 

 

 

 

 

 Warrants issued to consultant for future services

 

 

 

 

 

 

 

 

 

 

 on March 13, 2012 earned during the quarter ended

 

 

 

 

 

 

 

 

 

 

 September 30, 2012 valued at $1.10 per share

-

 

-

 

3,565

 

-

 

3,565

 

 

 

 

 

 

 

 

 

 

 



F-6




 Net loss

-

 

-

 

-

 

(404,885)

 

(404,885)

 

 

 

 

 

 

 

 

 

 

 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