WELLNESS CENTER USA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL SITUATION AND PLAN OF OPERATIONS. (Form 10-K)

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



Management report and analysis of the financial situation and operating results.

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



Background



Wellness Center USA, Inc. ("WCUI" or the "Company") was incorporated in June
2010 under the laws of the State of Nevada. We initially engaged in online
sports and nutrition supplements marketing and distribution. We subsequently
expanded into additional businesses within the healthcare and medical sectors
through acquisitions, including Psoria-Shield Inc. ("PSI") and StealthCo Inc.
("SCI"), d/b/a Stealth Mark, Inc.



The Company currently operates in two business segments: (i) distribution of
targeted Ultra Violet ("UV") phototherapy devices for dermatology and sanitation
purposes; and (ii) authentication and encryption products and services. The
segments are conducted through our wholly-owned subsidiaries, PSI and SCI.

Results of operations for the year ended September 30, 2021 compared to the year ended September 30, 2020

Revenue and Cost of Goods Sold




Revenue for the years ended September 30, 2021 and 2020 was $239,962 and $5,000,
respectively. The increase in 2021 was due to the increase in sales at PSI, due
to the roll-out of their new Aurora medical device.



Cost of sales for the year ended September 30, 2021 was $228,580. There was no
cost of sales for the year ended September 30, 2020. Gross profit for the years
ended September 30, 2021 and 2020, was $11,382 and $5,000, respectively. The
gross profit increase in 2021 was due to the increase in sales.



Operating Expenses


Operating expenses for the years ended September 30, 2021 and 2020 was
$1,239,238 and $1,926,594, respectively. The decrease in operating expenses in 2021 is mainly due to the decrease in consulting fees, personnel costs and stock-based compensation. Stock-based compensation expense related to stock options and the fair value of common shares issued for services amounted to
$192,514 and $583,064 over the past years September 30, 2021 and 2020, respectively.



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Other Income (Expenses)



Other income during the year ended September 30, 2021 consisted of $37,166 from
the forgiveness of our U.S. Small Business Administration PPP loan payable.
Other expenses during the year ended September 30, 2021 consisted of $134,449 of
interest expense and $1,678 of debt discount amortization, totaling to a net
expense of $98,961. Other income during the year ended September 30, 2020
consisted of $4,000 from a U.S. government grant relating to COVID-19 and
$56,840 from the write-off of long outstanding accounts payable. Other expenses
during the year ended September 30, 2020 consisted of $507,265 relating to the
cost of the modification of terms of stock warrants, $22,680 relating to the
cost of the modification of terms of stock options, $43,815 of financing costs
and $67,861 of interest expense, totaling to a net expense of $580,781.



Net Loss


Our net loss for the years ended September 30, 2021 and 2020 was $1,326,817 and
$2,502,375, respectively. The decrease in the net loss in 2021 was primarily due
to the decrease in operating expenses and total other expenses.



Segment Information



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



The Company operates in the following business segments:

(i) Medical Devices: which comes from PSI, its wholly-owned subsidiary acquired on August 24, 2012a developer, manufacturer, distributor and distributor of Ultra Violet (“UV”) phototherapy devices targeted for the treatment of skin diseases and for health purposes.

(ii) Authentication and Encryption Products and Services: which stems from
StealthCo, its wholly-owned subsidiary formed on March 18, 2014, which has
engaged in the business of selling, licensing or otherwise providing certain
authentication and encryption products and services since acquisition of certain
assets from SMI on April 4, 2014.



The Company’s detailed segment information is as follows:




     Operations by Segment for the Years Ended September 30, 2021 and 2020



                                                          For the Year Ended
                                                          September 30, 2021
                                                                     Authentication and
                                Corporate       Medical Devices          Encryption            Total

 Trade Sales                   $         -     $         239,962     $                -     $    239,962

 Cost of goods sold                      -               228,580                      -          228,580

 Gross profit                            -                11,382                      -           11,382

 Operating expenses                211,641             1,009,598           

17,999 1,239 238

Operating loss ($211,641) ($998,216) $

     (17,999 )   $ (1,227,856 )




                                                           For the Year Ended
                                                           September 30, 2020
                                                                      Authentication and
                                Corporate        Medical Devices          Encryption            Total

 Trade Sales                   $          -     $               -     $            5,000     $      5,000

 Cost of goods sold                       -                     -                      -                -

 Gross profit                             -                     -                  5,000            5,000

 Operating expenses               1,004,477               852,542          

69,575 1,926,594

Operating loss $(1,004,477) ($852,542) $

     (64,575 )   $ (1,921,594 )




Revenue for the Medical Devices segment for the year ended September 30, 2021
was $239,962. There was no revenue or cost of sales for the Medical Devices
segment for the year ended September 30, 2020. Cost of goods sold for the year
ended September 30, 2021 was $228,580 and gross profit was $11,382. The increase
in gross profit in 2021 was due to the increase in sales. Operating expenses for
the years ended September 30, 2021 and 2020 was $1,009,598 and $852,542,
respectively. The increase in operating expenses in 2021 was primarily due to
the increase in employee and contract labor related costs. The loss from
operations for the years ended September 30, 2021 and 2020 was $998,216 and
$852,542, respectively.



Revenue for the Authentication and Encryption segment for the year ended
September 30, 2020 was $5,000. There was no revenue or cost of sales for the
year ended September 30, 2021. The decrease in sales in 2021 was due to the
decrease in trade sales. There was no cost of goods sold for the year ended
September 30, 2020 and the gross profit was $5,000. The decrease in gross profit
in 2021 was due to the decrease in sales. Operating expenses for the years ended
September 30, 2021 and 2020 was $17,999 and $69,575, respectively. The decrease
in operating expenses in 2021 was primarily due to the decrease in labor costs,
consulting costs and professional fees in 2021, as there were very limited
operating activities for the segment in 2021. The loss from operations for the
years ended September 30, 2021 and 2020 was $17,999 and $64,575, respectively.



The Corporate segment primarily provides executive management services for the
Company. Operating expenses for the years ended September 30, 2021 and 2020 was
$211,641 and $1,004,477, respectively. The decrease in operating expenses in
2021 was primarily due to the decrease in professional fees and stock
compensation. The loss from operations for the years ended September 30, 2021
and 2020 was $211,641 and $1,004,477, respectively.



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Cash and capital resources



Going Concern


The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. As reflected in
the accompanying consolidated financial statements, the Company has not yet
generated significant revenues and has incurred recurring net losses. During the
year ended September 30, 2021, the Company incurred a net loss of $1,326,817 and
used cash in operations of $925,191, and had a shareholders' deficit of
$3,346,348 as of September 30, 2021. In addition, $1,165,250 of notes payable to
officers and shareholders and $75,834 of payroll taxes are past due. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The ability of the Company to continue as a going concern is
dependent upon the Company's ability to raise additional funds and implement its
strategies. The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.



In addition, the Company’s independent registered public accounting firm, in its report on the September 30, 2021 financial statements, has raised substantial doubt as to the Company’s ability to continue as a going concern.




At September 30, 2021, the Company had cash on hand in the amount of $32,079.
The ability to continue as a going concern is dependent on the Company attaining
and maintaining profitable operations in the future and raising additional
capital soon to meet its obligations and repay its liabilities arising from
normal business operations when they come due. Since inception, we have funded
our operations primarily through equity and debt financings and we expect to
continue to rely on these sources of capital in the future. During the year
ended September 30, 2021, the Company received $905,950 through short-term loans
primarily from its officers and directors.



No assurance can be given that any future financing will be available or, if
available, that it will be on terms that are satisfactory to the Company. Even
if the Company is able to obtain additional financing, it may contain undue
restrictions on our operations, in the case of debt financing or cause
substantial dilution for our shareholders, in case of equity financing.



Comparison of years ended September 30, 2021 and 2020

From September 30, 2021we have had $32,079 in cash, negative working capital of
$3,346,348 and a cumulative deficit of $28,389,628.

From September 30, 2020we have had $51,320 in cash, negative working capital of
$2,199,340 and a cumulative deficit of $27,583,363.

Cash flows used in operating activities




During the year ended September 30, 2021, we used cash from operating activities
of $925,191, compared to $1,004,993 used in the year ended September 30, 2020.
During the year ended September 30, 2021, we incurred a net loss of $1,326,817
and had non-cash expenses of $337,917, compared to a net loss of $2,502,375 and
non-cash expenses of $1,560,722 during the year ended September 30, 2020.



Cash flows used in investing activities

Over the years ended September 30, 2021 and 2020, we had no cash flow from investing activities.

Cash flows generated by financing activities

During the year ended September 30, 2021, we had proceeds of $905,950 from loans
payable from officers and shareholders. During the year ended September 30,
2020, we had proceeds of $796,000 from loans payable from officers and
shareholders, $37,166 from a U.S. SBA loan and $170,000 from contributions of
capital by its joint venture partners.



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 employment contracts

PSI received FDA clearance for Psoria-Light on February 11, 2011 (no. K103540) and obtained the authorization to affix the CE mark for Psoria-Light in the fourth quarter of 2011.




PSI's founder and past president filed a provisional patent application covering
certain aspects of the technology that we intend to utilize in the development
and commercialization of the Psoria-Light, including handheld ergonomics,
emitter platform and LED arrangements, methods for treatment site detection,
cooling methods, useful information displays, collection of digital images and
graphical correlation to quantitative metrics, and base console designs. Two
non-provisional patent applications were submitted claiming the prior filing
date of the initial provisional application.



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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 PSI's past president, who has granted PSI the
sole and exclusive, worldwide, paid-up, royalty-free, perpetual license under
the initial provisional patent application, any non-provisional patent
applications filed by him covering the technology described in the initial
provisional patent application, and associated know-how, technical data, and
improvements to develop and commercialize the Psoria-Light.



PSI's past president filed a second provisional patent application containing
concepts for the improvement of microelectronics packages and thermal management
solutions, the improvement of handheld phototherapy devices in general (either
used on humans, animals, or plants, or used on inanimate objects), and
replacement of laser therapy devices with LED devices. PSI was granted the sole
and exclusive, worldwide, paid-up, royalty-free, perpetual license under this
second provisional patent application, any non-provisional patent applications
covering the technology described in the second provisional patent application,
and associated know-how, technical data, and improvements to develop and
commercialize the Psoria-Light.



In addition to the foregoing, Stealth Mark devoted substantial effort and
resources to develop and advance micro-particle security technologies in support
of its business activities. Protection of the acquired Stealth Mark intellectual
property is maintained through a combination of Patents, Trademarks, and Trade
Secrets consisting of the following:



U.S. Patent     Issued              "Title" - Summary

No. 6 647 649 November 18, 2003 “Micro-particle labeling systems”

                                    - Generation of Micro-particle codes from marks
                                    containing encrypted Micro-particles.


No. 7,720,254   May 18, 2010        "Automatic Micro-particle Mark Reader"
                                    - Automatic readers for interrogating
                                    Micro-particle marks.

No. 7,831.042   November 9, 2010    "Three-Dimensional Authentication Of Micro-particle
                                    Mark
                                    - Validation of 3D nature of micro-particle mark to
                                    protect against counterfeiting of mark.
No. 7,885,428   February 8, 2011    "Automatic Micro-particle Mark Reader"
                                    - Automatic readers for interrogating
                                    micro-particle marks (broadened 

protection).


No. 8,033,450   October 11, 2011    "Expression Codes For Micro-particle Marks Based On
                                    Signature Strings"
                                    - Generation of expression codes ("fingerprints")
                                    unique to each micro-particle mark to protect
                                    against counterfeiting of marks.

No. 8,223,964    July 17, 2012      "Three-Dimensional Authentication Of Micro-particle
                                    Mark
                                    - Validation of 3D nature of micro-particle mark to
                                    protect against counterfeiting of marks (broadened
                                    protection).




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Europe
WO/EP Patent   Issued         "Title" - Summary

Appl. No.      Pending        "Expression Codes For Micro-particle Marks Based On
07753043.4                    Signature Strings"
                              - Generation of expression codes ("fingerprints")
                              unique to each micro-particle mark to protect
                              against counterfeiting of marks.

Appl. No.      Pending        "Three-Dimensional Authentication Of Micro-particle
07753034.3                    Mark
                              - Validation of 3D nature of Micro-particle mark to
                              protect against counterfeiting of mark.




Trademarks      Type             Countries

Stealth Mark®   Registered       United States
                                 European Community
                                 Australia

StealthFire     Not Registered   United States
                                 European Community

ActiveDuty™     Not Registered   United States




Trade Secrets


Stealth Mark’s proprietary technologies and capabilities maintained as trade secrets include, but are not limited to:



  ? Micro-particle Manufacturing
  ? Micro-particle Color Systems

? Technological advancements to improve autoreader performance

  ? Software solutions supporting Micro-particle security solutions
  ? Algorithms, artificial intelligence, and technologies related to Data
    Intelligence



We will assess the need for any additional patent, trademark or copyright applications, franchises, franchise royalty agreements or employment contracts on an ongoing basis.



Employees


We currently employ our senior leaders and since September 30, 2021PSI had eight employees and several independent contractors.

Summary of significant accounting policies.

The significant accounting policies of the Company are presented in the notes to the consolidated financial statements (see note 2 of the audited consolidated financial statements included).

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