NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE MONTHS ENDED DECEMBER 31, 2020 AND 2019
NOTE
1 – BASIS OF PRESENTATION
Organization
and Operations
Wellness
Center USA, Inc. (“WCUI” or the “Company”) was incorporated in June 2010 under the laws of the State of
Nevada. The Company initially engaged in online sports and nutrition supplements marketing and distribution. The Company 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 the following 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
operated, respectively, through PSI and SCI.
Basis
of Presentation of Unaudited Financial Information
The
accompanying unaudited condensed consolidated financial statements of Wellness Center USA, Inc. and Subsidiaries (the “Company”)
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion
of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results
for the three months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the year ending
September 30, 2021.
COVID-19 Considerations
In the period
ended December 31, 2020, the COVID-19 pandemic did not have a material net impact on our operating results. In the future, the
pandemic may cause reduced demand for our products if, for example, the pandemic results in a recessionary economic environment
which negatively effects the consumers who purchase our products.
Our ability to
operate without significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect
our employees and our supply chain. The Company has endeavored to follow the recommended actions of government and health authorities
to protect our employees. Since the onset of the COVID-19 pandemic, we maintained the consistency of our operations. However,
the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for example
an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our
operations.
Through December
31, 2020, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of such date. Through December
31, 2020, the Company continues to generate cash flows through financing activities to meet its short-term liquidity needs, and
it expects to maintain access to those shareholder loans. The Company has not observed any material impairments of its assets
or a significant change in the fair value of its assets due to the COVID-19 pandemic.
Going
Concern
The
accompanying condensed 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
condensed consolidated financial statements, the Company has not yet generated significant revenues and has incurred recurring
net losses. During the three months ended December 31, 2020, the Company incurred a net loss of $324,300 and used cash in operations
of $267,797, and had a shareholders’ deficit of $2,501,338 as of December 31, 2020. In addition, loans payable of $504,250
and payroll taxes of $87,834 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 Company’s September 30,
2020 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.
At
December 31, 2020, the Company had cash on hand in the amount of $78,523. 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 three months ended December 31, 2020, the Company received $295,000 through short-term loans from officers and shareholders.
No
assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory
to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations,
in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Consolidation
The
consolidated financial statements include the Company’s wholly owned subsidiaries and the accounts of its subsidiaries for
which it was determined that Company has operational and management control. The Company’s consolidated subsidiaries and/or
controlled entities are as follows:
|
Name
of consolidated subsidiary or entity
|
|
State
or other jurisdiction of incorporation or organization
|
|
Date
of incorporation or formation (date of acquisition/disposition, if applicable)
|
|
Attributable
interest at September 30, 2019
|
|
|
Attributable
interest at September 30, 2020
|
|
|
Psoria-Shield Inc. (“PSI”)
|
|
The State of Florida
|
|
June 2009
(August 2012)
|
|
|
100
|
%
|
|
|
51
|
%(1)
|
|
StealthCo, Inc. (“StealthCo”)
|
|
The State of Illinois
|
|
March 2014
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Psoria Development Company LLC. (“PDC”)
|
|
The State of Illinois
|
|
January 2015/
November 2018
|
|
|
0
|
%
|
|
|
0
|
%
|
|
NEO Phototherapy LLC (“NEO”)
|
|
The State of Illinois
|
|
December 2018
|
|
|
51
|
%(1)
|
|
|
0
|
%
|
|
Protec Scientific, Inc (“Protec”)
|
|
The State of New York
|
|
April 2020
|
|
|
0
|
%
|
|
|
38
|
%
|
(1)
- Effective April 30, 2020, the Company’s 51% interest in NEO was converted into a 51% interest in PSI.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period.
Significant estimates are used in the valuation of accounts receivable and allowance for uncollectible amounts, inventory and
obsolescence reserves, accruals for potential liabilities, valuations of stock-based compensation, and realization of deferred
tax assets, among others. Actual results could differ from these estimates.
Income
(Loss) Per Share
Basic
loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of outstanding
common shares during the period. Diluted loss per share is computed by dividing the net loss applicable to common stockholders
by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued. For the three months ended December 31, 2020 and 2019, the basic and
diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive. At December 31, 2020 and
2019, the dilutive impact of outstanding stock options of 12,665,238 and 15,037,738 shares, respectively, and outstanding warrants
for 67,634,049 and 66,484,049 shares, respectively, have been excluded because their impact on the loss per share is anti-dilutive.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
The
company records revenue under the guidance of Accounting Standards Codification (“ASC“) 606, Revenue from Contracts
with Customers (Topic 606) which requires a company to recognize revenue to depict the transfer of goods or services
to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.
For
trade sales, the Company generates its revenue from sales contracts with customers with revenues being generated upon the shipment
of merchandise, or for consulting services, revenue is recognized in the period services are rendered and earned under
service arrangements with clients.
We
sell our products through two main sales channels: 1) directly to customers who use our products (the “Direct Channel”)
and 2) to distribution partners who resell our products (the “Indirect Channel”).
Under
the Direct Channel, we sell our products to and we receive payment directly from customers who purchase our products. Under our
Indirect Channel, we have entered into distribution agreements that allow the distributors to sell our products and fulfill performance
obligations under the agreements.
We
determine revenue recognition through the following steps:
|
|
●
|
Identification
of the contract, or contracts, with a customer
|
|
|
|
|
|
|
●
|
Identification
of the performance obligations in the contract
|
|
|
|
|
|
|
●
|
Determination
of the transaction price
|
|
|
|
|
|
|
●
|
Allocation
of the transaction price to the performance obligations in the contract
|
|
|
|
|
|
|
●
|
Recognition
of revenue when, or as, we satisfy a performance obligation.
|
Revenue
is generally recognized upon shipment or when a service has been completed, unless we have significant performance obligations
for services still to be completed. We recognize revenue when a material reversal is no longer probable. Payments received before
the relevant criteria for revenue recognition are satisfied are recorded as deferred revenue. There was no deferred revenue at
December 31, 2020 and 2019.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Non-controlling
Interests
In
December 2018, PSI entered into a Joint Venture Agreement with GEN2 for further development, marketing, licensing and/or sale
of PSI technology and products. Pursuant to the Joint Venture Agreement, the venture will be conducted through NEO Phototherapy,
Inc. (“NEO”). PSI and GEN2 will be the members of NEO, owning 50.5% and 36.0%, respectively, of the Units issued in
connection with the organization of NEO. An additional 13.5% of such Units will be reserved for issuance as incentives for key
employees and consultants. As of September 30, 2019, GEN2 had received $975,000 of investments to contribute to NEO. As of April
30, 2020, the Company controlled 51% of the joint venture, GEN2 controlled 39% and another individual controlled the remaining
10%.
Effective
April 30, 2020, the joint venture with GEN2 was reorganized. GEN2 shareholders exchanged their common shares in GEN2, and the
individual exchanged his membership interests in NEO, for common shares representing 49% ownership in PSI. The Company retained
its common shares in PSI, which provides the Company a 51% economic interest in the PSI technology and products developed by the
joint venture. During three months ended December 31, 2020, PSI recorded a loss of $151,433 relating to its operations, of which
$74,202 was allocated to the non-controlling interest.
Repayment
of the $975,000 investment will begin through and upon the date which PSI has realized and retained cumulative net income/distributable
cash in the amount of $300,000. The minority interest of PSI ownership consists of accredited investors, and investment participation
of $750,000 from several WCUI officers and directors, including Calvin R. O’Harrow and Roy M. Harsch.
In
May 2020, the Company’s subsidiary, PSI, agreed to become a majority shareholder in Protec Scientific, Inc. (“Protec”),
a company formed in April 2020 by John Yorke for the purpose of designing, developing and marketing products that use spectral
photonic emissions across a variety of applications. As of September 30, 2020, PSI had advanced $191,000 to Protec in furtherance
of its agreement to acquire approximately 62% of Protec, with the Company’s share being approximately 32%, based on its
PSI ownership. The remaining 30% share is to be attributed to PSI’s minority shareholders, based on their PSI ownership.
During the year ended September 30, 2020, Protec received an additional $120,000 from non-affiliated investors, of which $74,400
was recorded to additional paid-in capital and $45,600 to the non-controlling interests. The additional investments gave the non-controlling
interests a 38% ownership interest in Protec. During the three months ended December 31, 2020, Protec recorded a loss of $101,492,
of which $69,400 was allocated to the non-controlling interests.
Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost is computed on a first-in, first-out basis. At December 31, 2020,
primarily all of the inventories consisted of raw materials or work-in-progress. The Company provides inventory reserves based
on excess and obsolete inventories determined primarily by future demand forecasts. The write down amount, if any, is measured
as the difference between the cost of the inventory and net realizable value based upon assumptions about future demand
and charged to the provision for inventory, which is a component of cost of sales. At the point of the loss recognition, a new,
lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration
or increase in that newly established cost basis. At December 31, 2020, the Company recorded a reserve of $50,000 for excess
and slow moving inventories. At September 30, 2020, no reserve was recorded for excess, slow moving or obsolete inventory.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based
Compensation
The
Company periodically issues stock-based compensation to officers, directors, and consultants for services rendered, and as part
of financing transactions. Such issuances vest and expire according to terms established at the issuance date. Stock-based payments
to officers, directors, employees, and for acquiring goods and services from non-employees, which include grants of employee stock
options, are recognized in the financial statements based on their fair values in accordance with Topic 718. Stock option grants,
which are generally time vested, will be measured at the grant date fair value and charged to operations on a straight-line basis
over the vesting period.
The
fair value of the Company’s common stock option and warrant grants are estimated using a Black-Scholes Merton option pricing
model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock
options, estimated forfeitures and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes
option pricing model, and based on actual experience. The assumptions used in the Black-Scholes Merton option pricing model could
materially affect compensation expense recorded in future periods.
Recently
Issued Accounting Pronouncements
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC
326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts
and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss”
model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the
standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective. The standard is effective for interim and annual reporting periods beginning after
December 15, 2019. The adoption of ASU 2016-13 is not expected to have a material impact on the Company’s financial position,
results of operations, and cash flows.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
NOTE
3 – LOANS PAYABLE FROM OFFICERS AND SHAREHOLDERS
As
of September 30, 2020, loans payable from officers and shareholders of $1,165,250 were outstanding. During the three months ended
December 31, 2020, the Company borrowed $295,000 from its officers and shareholders. All of the loans are unsecured, have an interest
rate of eight percent and are due one year from the date of issuance. As of December 31, 2020, loans payable to officers and shareholders
of $1,460,250 were outstanding and $504,250 was past due.
NOTE
4 – U.S. SMALL BUSINESS ADMINISTRATION LOAN PAYABLE
During
the year ended September 30, 2020, the Company’s subsidiary, PSI, entered into a loan agreement with the United States Small
Business Administration (SBA) under which the Company borrowed $37,166. The loan is unsecured, accrues interest at 1.0% and is
due on April 23, 2022. Beginning in March 2021, PSI is required to make monthly interest payments and all principal and unpaid
interest is due in April 2022. If PSI meets certain criteria as defined in the agreement, the loan may be forgiven at which time
the Company would recognize a gain on debt forgiveness. As of the date of this filing, the Company had not yet applied for forgiveness
of the loan. As of December 31, 2020, a total of $37,166 was outstanding on the loan.
NOTE
5 – LEASE LIABILITIES
Operating
Lease
In
February 2019, the Company’s PSI subsidiary entered into a 24-month non-cancellable lease for its office facilities that
will require monthly payments of $1,850 through January 2021. The Company adopted ASU 2016-02, Leases, effective October 1, 2019,
which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially
measured at the present value of the lease payments. The Company classified the lease as an operating lease and determined that
the value of the lease asset and liability at the inception of the lease was $27,841, using a discount rate of 4.00%. As of September
30, 2020, the value of the lease asset and liability was $6,961, respectively. During the three months ended December 31, 2020,
the Company made payments of $5,348 towards the lease liability. As of December 31, 2020, the lease liability amounted
to $1,613.
ASU
2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is
allocated over the lease term, generally on a straight-line basis. Rent expense for the three months ended December 31, 2020 was
$5,348. During the three months ended December 31, 2020, the Company reflected amortization of the right of use asset of $5,348
related to this lease, resulting in a net asset balance of 1,613 as of December 31, 2020.
Other
Leases
The
Company leased its corporate office facility in Hoffman Estates, Illinois pursuant to a non-cancellable lease initiated in July
2016 and expiring February 28, 2024. The lease terms require a monthly payment of approximately $11,000. The Company vacated the
facility in April 2019, in favor of its present facilities in Tucson AZ, which are provided by a shareholder on a rent-free basis.
The Company is in negotiations with the owners regarding the settlement of its lease obligations and expects that the property
will be subleased or a settlement with the landlord will be reached at an amount significantly less than the remaining payment
obligations. At the date of abandonment, the Company had a remaining lease obligation of $631,587.
On
or about June 29, 2020, we received notice that Hanover Hoffman Estates, LLC (“HHE”), filed case number 2020L006092
in the Circuit Court of Cook County alleging our failure to pay Base Rent and abandonment of certain office space in Hoffman Estates,
Illinois subject to a Commercial Lease dated May 26, 2016. HHE seeks at least $672,878 in base rent and other amounts under the
lease, as well as treble damages from our ex-CEO and two past Directors who were serving on our Board as of the date of the lease.
We are currently evaluating the allegations, defenses and alternate actions. As of December 31, 2020, the Company has recorded
the full amount of the judgement due.
NOTE
6 – SHAREHOLDERS’ EQUITY
Restricted
Stock Grants
In
April 2020, the Company’s Board of Directors approved the issuance of a combined total of 20,170,000 restricted shares
of the Company’s common stock to its Officers and Directors. A total of 7,120,000 shares vested in April 2020, while
1,800,000 will vest monthly from April 2020 through March 2021, and 11,250,000 will vest monthly from April 2020 through March
2023. Of the 13,050,000 shares that vest over time, a total of 1,387,500 shares vested during the three months ended December
31, 2020.
The
following table summarizes restricted common stock activity:
|
|
|
Number
of Restricted
Shares
|
|
|
Fair
Value
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested, September 30, 2020
|
|
|
10,275,000
|
|
|
$
|
308,250
|
|
|
$
|
0.03
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(1,387,500
|
)
|
|
|
(41,625
|
)
|
|
|
0.03
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Non-vested, December 31, 2020
|
|
|
8,887,500
|
|
|
$
|
266,625
|
|
|
$
|
0.03
|
|
During
the three months ended December 31, 2020, the Company recorded $41,625 of stock compensation for the value of restricted common
stock vesting during the period, and as of December 31, 2020, unvested compensation of $266,625 remained that will be amortized
over the remaining vesting period.
Stock
Options
On
December 22, 2010, effective retroactively as of June 30, 2010, the Company’s Board of Directors approved the adoption of
the “2010 Non-Qualified Stock Option Plan” (“2010 Option Plan”) by unanimous consent. The 2010 Option
Plan was initiated to encourage and enable officers, directors, consultants, advisors and key employees of the Company to acquire
and retain a proprietary interest in the Company by ownership of its common stock. A total of 7,500,000 of the authorized shares
of the Company’s common stock may be subject to, or issued pursuant to, the terms of the plan. Effective January 1, 2018,
the Board of Directors approved to increase the number of authorized shares of the Company’s common stock that may be subject
to, or issued pursuant to, the terms of the plan from 7,500,000 to 30,000,000.
NOTE
6 – SHAREHOLDERS’ EQUITY (CONTINUED)
Stock
Options (continued)
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. The Company applied fair value accounting for all share based
payments awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing
model.
The
table below summarizes the Company’s stock option activities for the three months ended December 31, 2020:
|
|
|
Number
of
Option
Shares
|
|
|
Exercise
Price
Range
Per
Share
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020
|
|
|
14,127,738
|
|
|
$
|
0.03
- 2.00
|
|
|
$
|
0.29
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
(1,462,500
|
)
|
|
|
0.14
- 2.00
|
|
|
|
1.41
|
|
|
Balance, December 31, 2020
|
|
|
12,665,238
|
|
|
$
|
0.03
- 0.40
|
|
|
$
|
0.10
|
|
|
Vested and exercisable, December
31, 2020
|
|
|
9,702,738
|
|
|
$
|
0.03
- 0.40
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2020
|
|
|
2,962,500
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
The
following table summarizes information concerning outstanding and exercisable options as of December 31, 2020:
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
- 0.39
|
|
|
|
12,602,738
|
|
|
|
6.75
|
|
|
$
|
0.09
|
|
|
|
9,640,238
|
|
|
|
5.85
|
|
|
$
|
0.12
|
|
|
|
0.40
|
|
|
|
62,500
|
|
|
|
1.25
|
|
|
|
0.40
|
|
|
|
62,500
|
|
|
|
1.25
|
|
|
|
0.40
|
|
|
$
|
0.03
- 0.40
|
|
|
|
12,665,238
|
|
|
|
6.72
|
|
|
$
|
0.10
|
|
|
|
9,702,738
|
|
|
|
5.82
|
|
|
$
|
0.12
|
|
During
the three months ended December 31, 2020, the Company recorded $10,882 of stock compensation for the value of options vesting
during the period, and as of December 31, 2020, unvested compensation of $85,882 remained that will be amortized over the remaining
vesting period.
The
total aggregate intrinsic value for option shares outstanding at December 31, 2020 was $126,625. As of December 31, 2020, there
were 17,334,762 shares of stock options remaining available for issuance under the 2010 Plan.
NOTE
6 – SHAREHOLDERS’ EQUITY (CONTINUED)
Stock
Warrants
The
table below summarizes the Company’s warrants activities for the three months ended December 31, 2020:
|
|
|
Number
of
Warrant
Shares
|
|
|
Exercise
Price Range Per Share
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2020
|
|
|
67,634,049
|
|
|
$
|
0.07
- 0.40
|
|
|
$
|
0.16
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance, December 31, 2020
|
|
|
67,634,049
|
|
|
$
|
0.07
- 0.40
|
|
|
$
|
0.16
|
|
|
Vested and exercisable, December
31, 2020
|
|
|
67,634,049
|
|
|
$
|
0.07
- 0.40
|
|
|
$
|
0.16
|
|
The
following table summarizes information concerning outstanding and exercisable warrants as of December 31, 2020:
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.12
– 0.20
|
|
|
|
60,429,384
|
|
|
|
1.74
|
|
|
$
|
0.15
|
|
|
|
60,429,384
|
|
|
|
1.74
|
|
|
$
|
0.15
|
|
|
|
0.21
– 0.40
|
|
|
|
7,204,665
|
|
|
|
0.64
|
|
|
|
0.26
|
|
|
|
7,204,665
|
|
|
|
0.64
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.12
– 0.67
|
|
|
|
67,634,049
|
|
|
|
1.62
|
|
|
$
|
0.16
|
|
|
|
67,634,049
|
|
|
|
1.62
|
|
|
$
|
0.16
|
|
There
was no aggregate intrinsic value for warrant shares outstanding at December 31, 2020.
NOTE
7 – SEGMENT REPORTING
Reportable
segments are components of an enterprise about which separate financial information is available and that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s
reportable segments are based on products and services, geography, legal structure, management structure, or any other manner
in which management disaggregates a company.
The
Company operates in the following business segments:
(i)
Medical Devices: which stems from PSI, its wholly-owned subsidiary acquired on August 24, 2012, a developer, manufacturer,
marketer and distributer of targeted Ultra Violet (“UV”) phototherapy devices for the treatment of skin diseases,
and for sanitation 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
detailed segment information of the Company is as follows:
Assets
By Segment
|
|
|
December
31, 2020
|
|
|
|
|
Corporate
|
|
|
Medical
Devices
|
|
|
Authentication
and Encryption
|
|
|
Total
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,178
|
|
|
$
|
67,709
|
|
|
$
|
2,636
|
|
|
$
|
78,523
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
23,989
|
|
|
|
-
|
|
|
|
23,989
|
|
|
Inventories
|
|
|
-
|
|
|
|
134,522
|
|
|
|
-
|
|
|
|
134,522
|
|
|
Prepaid expenses
and other current assets
|
|
|
500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500
|
|
|
Total
current assets
|
|
|
8,678
|
|
|
|
226,220
|
|
|
|
2,636
|
|
|
|
237,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use
asset
|
|
|
-
|
|
|
|
1,613
|
|
|
|
-
|
|
|
|
1,613
|
|
|
Total
other assets
|
|
|
-
|
|
|
|
1,613
|
|
|
|
-
|
|
|
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
8,678
|
|
|
$
|
227,833
|
|
|
$
|
2,636
|
|
|
$
|
239,147
|
|
Operations
by Segment
|
|
|
For
the Three Months Ended
|
|
|
|
|
December
31, 2020
|
|
|
|
|
Corporate
|
|
|
Medical
Devices
|
|
|
Authentication
and Encryption
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade sales
|
|
$
|
-
|
|
|
$
|
90,499
|
|
|
$
|
-
|
|
|
$
|
90,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
|
-
|
|
|
|
80,100
|
|
|
|
-
|
|
|
|
80,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
10,399
|
|
|
|
-
|
|
|
|
10,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
49,109
|
|
|
|
256,471
|
|
|
|
2,961
|
|
|
|
308,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(49,109
|
)
|
|
$
|
(246,072
|
)
|
|
$
|
(2,961
|
)
|
|
$
|
(298,142
|
)
|
|
|
|
For
the Three Months Ended
|
|
|
|
|
December
31, 2019
|
|
|
|
|
Corporate
|
|
|
Medical
Devices
|
|
|
Authentication
and Encryption
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
98,462
|
|
|
|
175,286
|
|
|
|
63,525
|
|
|
|
337,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(98,462
|
)
|
|
$
|
(175,286
|
)
|
|
$
|
(63,525
|
)
|
|
$
|
(337,273
|
)
|
NOTE
8 – LEGAL MATTERS
The
Company is periodically engaged in legal proceedings arising from and relating to its business operations. Except as otherwise
described herein, we currently are not involved in any litigation that we believe could have a material adverse effect on our
financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers
of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries
or of our Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision
could have a material adverse effect on our financial condition or results of operations.
We
continue efforts to preserve revenue and reduce operating expenses through actions including, but not limited to, facilities consolidation
and staff reductions, which we hope to implement through negotiated transactions with lessors, employees and other third parties.
Such actions may result in disputes with and claims by such parties which, if not resolved through negotiations, may impact negatively
the Company’s ability to continue as a going concern. To date, the Company has negotiated settlement of all ex-employee
wage and benefits claims except for two. The first regards unpaid wages claimed due together with interest at the rate of 4% per
annum on such amount as the Company originally agreed upon in settlement negotiations. The ex-employee claims additional amounts
due for certain statutory damages under the Illinois Wage Payment and Collection which currently could exceed $21,600.00 and would
increase at the rate of 2% of the wages due per month plus attorneys’ fees if the employee elects to file suit for a violation
of the Act and is successful in obtaining a judgment on his claim.
The
second claim was filed with the Illinois Department of Labor asserting a violation of the Illinois Wage Payment and Collection
Act by the Company’s former CEO. That claim alleges unpaid wages in the amount of $158,714.60 and unpaid vacation pay in
the amount of $20,833.33 for a total amount of $179,547.90, as well as certain statutory damages including, but not limited to,
2% of the wages due per month plus attorneys’ fees if the ex-CEO elects to file suit for a violation of the Act and is successful
in obtaining a judgment on his claim. The Company has filed its response to such claim with the Department denying the substantive
allegations therein and asserting certain factual and legal defenses, including breach of fiduciary duty, as a bar to all claimed
compensation. The claim remains pending, but as the date hereof, no suit has been filed against the Company asserting a violation
of the Act based on said claim.
NOTE
9 – SUBSEQUENT EVENTS
Subsequent
to December 31, 2020, the Company borrowed $355,000 from its officers and shareholders. All of the loans are unsecured, have an
interest rate of eight percent and are due one year from the date of issuance.
On
April 1, 2021, the Company’s Board of Directors approved the issuance of a combined total of 3,750,000 restricted shares
of the Company’s common stock to certain of its Officers and Directors for future services to be performed. The shares vest
monthly from April 2023 through March 2024. The fair value of the shares on the date of grant was $187,500.
The
Board also approved the issuance of a combined total of 10,085,714 restricted shares of the Company’s common stock to certain
of its Officers and Directors in connection with their officer and shareholder loans. A total of 7,060,000 of the shares vested
upon grant and 3,025,714 shares vest in April 2025. The fair value of the shares on the date of grant was $504,286.
On
April 1, 2021, the Company’s Board of Directors approved the grant of stock options to its Chief Executive Officer (CEO)
to purchase 1,300,000 shares of the Company’s common stock with an exercise price of $0.05 per share. The options expire
ten years from the date of grant. The option grants are for future services to be performed by the CEO. The shares vest monthly
from April 2023 through March 2024. The fair value of the shares on the date of grant was approximately $65,000.
The
Board also approved the grant of stock options to its CEO to purchase 13,449,429 shares of the Company’s
common stock with an exercise price of $0.05 per share. The options expire ten years from the date of grant. The option grants
are in connection with his officer and shareholder loans. A total of 9,052,500 of the shares vested upon grant and 4,396,929 shares
vest in April 2025. The fair value of the shares on the date of grant was approximately $670,000. In connection with the option
grants, the CEO agreed to cancel 5,277,778 of his warrant shares that were scheduled to expire from September 2021 through December
2021.