WELLNESS CENTER USA, INC. Forward Looking Statements
Except for historical information, the following discussion 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 "Description of Business," and "Analysis of Financial Condition and Results of Operations", 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" in our Annual Report on Form 10-K and in other Reports we have filed with theSecurities and Exchange Commission , as well as 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.
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. 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. Description of Business BackgroundWellness Center USA, Inc. ("WCUI" or the "Company") was incorporated inJune 2010 under the laws of theState 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, includingPsoria-Shield Inc. ("PSI") andStealthCo Inc. ("SCI"), d/b/aStealth Mark, Inc. The Company currently operates in two business segments: (i) distribution of targeted Ultra Violet ("UV") phototherapy devices for dermatology; and (ii) authentication and encryption products and services. The segments are conducted through our wholly-owned subsidiaries, PSI and SCI. PSI PSI was incorporated under the laws of the state ofFlorida onJune 17, 2009 . We acquired all of the issued and outstanding shares of stock in PSI on August
24, 2012. Joint Ventures We conducted PSI operations throughPsoria Development Company LLC , anIllinois limited liability company ("PDC"), fromJanuary 15, 2015 through October, 2018. PDC was a joint venture betweenWCUI/PSI and The Medical Alliance, Inc. , aFlorida corporation ("TMA"). OnNovember 15, 2018 , PSI and TMA terminated the PDC joint venture. On the termination date, the non-controlling interest's share of the accumulated losses of the joint venture totaled$405,383 . During the year endedSeptember 30, 2019 , the Company wrote-off the non-controlling interest's share of the accumulated losses and recorded a loss from deconsolidation of non-controlling interest of$405,383 . 19 InDecember 2018 , the Company and PSI entered into a Joint Venture Agreement withPSI GEN2 Funding, Inc. , anIllinois corporation ("GEN2"), to further develop, market, license and/or sell PSI technology and products. The Joint Venture Agreement provides for the venture to be conducted throughNEO Phototherapy, LLC , anIllinois limited liability company ("NEO"), with PSI and GEN2 to hold membership Units representing 50.5% and 36.0% ownership, respectively. It provides for an additional 13.5% of such Units to be reserved for issuance as incentive awards to key employees and consultants. PSI and GEN2 are to jointly manage NEO's day-to-day operations. According to the Joint Venture Agreement, PSI would contribute PSI technology to NEO in consideration for its Units and GEN2 would contribute$700,000 for its Units. Once NEO has realized and retained cumulative net income/distributable cash in the amount of$300,000 , the next$700,000 of realized and retained cumulative net income/distributable cash would be distributed to GEN2. Distributions thereafter would be made to PSI, GEN2 and other members, if any, in proportion to their respective Unit ownership, at the times and in the manner determined from time to time by the managers, in their sole discretion. As ofMarch 31, 2020 , NEO's operations required funding in excess of the$700,000 initially anticipated by the joint venture. As of that date, GEN2 had contributed$975,000 to NEO, for which GEN2 received Units representing a cumulative total of 39.0% ownership of NEO. Additional Units representing a 10% ownership interest in NEO were awarded to one individual as a key staff incentive from the reserve initially established for such awards, with no further awards currently anticipated. As a result, once NEO has realized and retained cumulative net income/distributable cash in the amount of$300,000 , the next$975,000 of realized and retained cumulative net income/distributable cash would be distributed to GEN2. Distributions thereafter would be made to PSI, GEN2 and the other member, in proportion to their respective Unit ownership, at the times and in the manner determined from time to time by the managers, in their sole discretion.
GEN2 contributions to NEO were derived from its shareholders, which consist of accredited investors, and which include several WCUI officers and directors, includingCalvin R. O'Harrow ,Roy M. Harsch ,William E. Kingsford ,Douglas Samuelson ,Paul D. Jones andThomas E. Scott . GEN2 shareholders, including said officers and directors of WCUI, will share any realized and retained cumulative net income/distributable cash that may be distributed to GEN2. As ofSeptember 30, 2019 , the Company interest was adjusted to 51% of the joint venture, GEN2 controlled 39% and another individual controlled the remaining 10%. As ofMarch 31, 2020 , the Company recorded its proportionate share of$497,250 to additional paid-in-capital and$477,750 to non-controlling interest as of that date. During the three and six months endedMarch 31, 2020 , NEO recorded a loss of$45,000 and$90,162 , respectively, relating to its operations. Psoria-Light
PSI 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.
Psoriasis, eczema, and vitiligo, are common skin conditions that can be
challenging to treat, and often cause the client significant psychosocial
stress. Clients may 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 alternate treatment modality for these
disorders.
Traditionally, "non-targeted" UV phototherapy 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 client'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.
20
The Psoria-Light is a targeted UV phototherapy device that produces UVB light
between 300 and 320 nm as well as UVA light between 350 and 395nm. It does not
require consumption of dangerous chemicals or require special environmental
disposal, and is cost effective for clinicians, which should result in increased
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 client record integration capabilities; the
ability to export to an external USB memory device a PDF file of 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).
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.
PSI has established an ISO 13485 compliant quality system for the Psoria-Light,
which was first audited in the third quarter of 2011. This system is intended to
ensure PSI devices will be manufactured in a controlled and reliable environment
and that its resources follow similar practices and is required for sales in
countries requiring a CE mark. PSI has also received Certified Space Technology
designation from the Space Foundation , based on PSI's incorporation of
established NASA-funded LED technology.
PSI began Psoria-Light Beta deployment in January 2012 . 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, as evidenced by more
than 10,000 treatments completed on more than 1,000 clients, domestically and
Mexico , since 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.
SCI
SCI was incorporated under the laws of the state of Illinois on March 18, 2014 .
SCI acquired certain Stealth Mark assets on April 4, 2014 and operates as a
wholly-owned subsidiary of the Company. It is a provider of: a) Stealth Mark
encryption and authentication solutions offering advanced technologies within
the security and supply chain management vertical sectors (Intelligent
Microparticles), and b) advanced data intelligence services offering
proprietary, unprecedented, and actionable technology for industries, companies,
and agencies on a global scale (ActiveDuty™).
Intelligent Microparticles
SCI provides clients premiere authentication technology for the protection of a variety of products and brands from illicit counterfeiting and diversion activities. Its technology is applicable to a wide range of industries affected by counterfeiting, diversion and theft including, but not limited to, pharmaceuticals, defense/aerospace, automotive, electronics, technology, consumer and personal care goods, designer products, beverage/spirits, and
many others. 21 SCI delivers the client a complete, simple to use, easy to implement, and cost effective turnkey system that is extremely difficult to compromise. SCI's technology includes a combination of proprietary software and intelligent microparticle marks that are unduplicatable and undetectable to the human eye. These taggants are created with proprietary materials that create unique numerical codes that are assigned meaning by the client and are machine readable without the use of rare earth or chemical tracers. They have been used in covert and overt operations with easy to implement technology and do-it-yourself in-the-field forensic caliber verification. InApril 2018 , the Company's subsidiary, SCI, concluded licensing of a patent for technology that is the next generation of Stealth Mark. Working with researchers at theOak Ridge National Labs , the patent signifies development of a new technology that will generate an invisible marking system with attributes currently unavailable in the anti-counterfeit marketplace today. The formula and techniques have been shown through extensive testing to be resilient to manufacturing processes and can be used on a wide range of materials from woven and non-woven fabrics, cardboard, metal, concrete, plastics, leather, wood, and paper. In addition, the complexity of the information that can be encoded with the system makes counterfeiting difficult. ActiveDuty™
SCI's ActiveDuty™ data intelligence services offer unique, unprecedented, actionable technology for industries, companies, and agencies on a global scale. Comprised of a suite of powerful analytical tools, including artificial intelligence and social-psychology, the service provides timely and actionable intelligence to clients. ActiveDuty™ is adaptable to a broad spectrum of illicit activities within both private and public sectors such as, but not limited to, counterfeiting, sex and human trafficking, money laundering, and a variety
of other markets.
The proprietary algorithmic architecture of ActiveDuty™ creates the first systemic reporting mechanism to deliver strategic and tactical results supported by an intense worldwide analysis of patterns of human behavior. The ActiveDuty™ global framework is heuristic in nature, capable of comprehending big data across the digital spectrum and speaks all the major languages. Up until now, there has not existed a unified system that could actively measure this lifecycle that is a collection of discreet and seemingly random behaviors of criminals anywhere within the digital domain. Criminals change their identities but not their basic behaviors. SCI was managed initially byRicky Howard , who brought over thirty years of experience in operations management and executive positions in a variety of industries ranging from entrepreneurial startups to Fortune 500 companies. He played an integral role in bringing the company's capabilities to its present status including design and creation of its manufacturing capabilities, implementation of its ERP inventory controls system, software and hardware development, marketing and sales materials processes and day-to-day operational procedures and processes. InNovember 2018 ,Mr. Howard passed away suddenly andMr. O'Harrow took over operations of SCI's business on an interim basis. Proposed Share Exchange OnSeptember 3, 2019 , our Board unanimously approved, subject to stockholder approval, the execution and delivery of a proposed Share Exchange Agreement relating to the share exchange and transfer of certain assets of SCI toDTI Holdings, Inc. ("DTI") pursuant to the terms and conditions of a Memorandum of Agreement providing, among other things, as follows: ? DTI will pay the Company$500,000 upon execution of a definitive share exchange agreement ("Share Exchange Agreement") which the parties will endeavor to negotiate and execute as quickly as possible, and not later thanOctober 15, 2019 . ? DTI will pay the Company an additional$500,000 within seven days following the completion date of the transfer of all assets and/or full ownership of SCI to DTI, with such date to occur within 120 days following execution of the Share Exchange Agreement. ? DTI will issue to the Company 3,112,000 shares of DTI common stock and will guaranty that the value of the 3,112,000 shares of DTI common stock will have a value of at least$4.50 per share ($14,004,000 , in the aggregate), as ofDecember 31, 2021 . ? To the extent that the value of the DTI common shares, as ofDecember 31, 2021 , is less than$4.50 per share ($14,004,000 , in the aggregate), DTI will issue additional shares of DTI common stock, at the then current fair market value, in an amount sufficient to cause the resulting aggregate value of all shares of DTI common stock issued to the Company to be$14,004,000 , in the aggregate.
? DTI will assign the assets transferred by SCI, including trademarks,
intellectual properties, and patents, to its subsidiary,
? Upon closing of the share exchange, the Company's Chairman will be appointed
an advisory board member of DTI and a board member of
22
The 3,112,000 shares of DTI common stock to be issued to us in exchange for all of our shares of SCI common stock will represent a minority of the issued and outstanding shares of DTI common stock as of the date of issuance. The DTI shares will be issued in reliance upon the exemption from registration requirements under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof and Regulation D thereunder. As such, such shares may not be offered or sold by us unless they are registered under the Securities Act or qualify for an exemption from the registration requirements under the Securities Act. As ofSeptember 18, 2019 , stockholders holding a majority of our outstanding common stock approved the share exchange and the Company began discussions and negotiations with DTI, which are currently on-going as of the date of this filing. There can be no assurance that the proposed transaction will be concluded successfully on the terms described or any alternate terms that may be proposed hereafter.
Analysis of Financial Condition and Results of Operations
Results of Operations for the three months ended
Revenue and Cost of Goods Sold
Revenue for the three months endedMarch 31, 2020 and 2019 was$5,000 and$12,875 , respectively. The decrease in revenue in 2020 primarily related to the decrease in revenues at SCI, as there was no revenue at PSI for each period. Cost of sales for the three months endedMarch 31, 2019 was$7,725 . There was no cost of sales for the three months endedMarch 31, 2020 . Gross profit for the three months endedMarch 31, 2020 and 2019 was$5,000 and$5,150 , respectively. Operating Expenses
Operating expenses for the three months endedMarch 31, 2020 and 2019 were$423,130 and$535,593 , respectively. The decrease in operating expenses in 2020 was due primarily to the decrease in consulting fees, employee-related costs and stock compensation. Other Expenses Other expenses during the three months endedMarch 31, 2020 consisted of$507,265 relating to the cost of the modification of terms of stock warrants and$16,211 of interest expense, totaling to$523,476 . Other expenses during the three months endedMarch 31, 2019 consisted of$21,389 of amortization of debt discount,$22,000 of financing costs and$6,878 of interest expense, totaling to$50,267 . Net Loss Our net loss for the three months endedMarch 31, 2020 was$941,606 , compared to a net loss of$580,710 for the three months endedMarch 31, 2019 . The increase in the net loss of$360,896 in 2020 was primarily due to the increase in other expenses, offset by the decrease in operating expenses. 23
Results of Operations for the six months ended
Revenue and Cost of Goods Sold
Revenue for the six months endedMarch 31, 2020 and 2019 was$5,000 and$25,750 , respectively. The decrease in 2020 was due to the decrease in revenues at SCI, as there was no revenue at PSI for each period. Cost of sales for the six months endedMarch 31, 2019 was$15,450 . There was no cost of sales for the three months endedMarch 31, 2020 . Gross profit for the six months endedMarch 31, 2019 was$5,000 and$10,300 , respectively. Operating Expenses
Operating expenses for the six months ended
Other Expenses Other expenses during the six months endedMarch 31, 2020 consisted of$507,265 relating to the cost of the modification of terms of stock warrants and$25,534 of interest expense, totaling to$532,799 . Other expenses during the six months endedMarch 31, 2019 consisted of$72,078 of amortization of debt discount,$73,434 of financing costs and$11,729 of interest expense, totaling to$157,241 . Net Loss Our net loss for the six months endedMarch 31, 2020 was$1,288,202 , compared to a net loss of$1,158,398 for the six months endedMarch 31, 2019 . The increase in the net loss of$129,804 in 2020 was primarily due to the increase in other expenses, offset by the decrease in operating expenses.
Results of Operations by Segment
The Company currently maintains two business segments:
(i) Medical Devices: which it provided through PSI, its wholly-owned subsidiary
acquired on
distributer of targeted Ultra Violet ("UV") phototherapy devices for the
treatment of skin diseases; and
(ii) Authentication and Encryption Products and Services: which it provided
through SCI, its wholly-owned subsidiary that on
certain assets of
Stealth Mark tradenames and marks, and related encryption and authentication
solutions offering advanced product security technologies within the
security and supply chain management vertical sectors.
The detailed segment information of the Company for the three and six months
ended
Operations by Segment For the Three Months Ended March 31, 2020 and 2019
For the Three Months Ended
March 31, 2020
Medical Authentication and
Corporate Devices Encryption Total
Sales:
Trade $ - $ - $ 5,000 $ 5,000
Consulting services - - - -
Total Sales - - 5,000 5,000
Cost of goods sold - - - -
Gross profit - - 5,000 5,000
Operating expenses 142,500 206,824 73,806 423,130
Loss from operations$ (142,500 ) $ (206,824 ) $ (68,806 )$ (418,130 ) For the Three Months Ended March 31, 2019 Medical Authentication and Corporate Devices Encryption Total Sales: Trade $ - $ - $ 8,725$ 8,725 Consulting services - - 4,150 4,150 Total Sales - -
12,875 12,875
Cost of goods sold - -
7,725 7,725
Gross profit - - 5,150 5,150
Operating expenses 286,686 146,272
102,635 535,593
Loss from operations$ (286,686 ) $ (146,272 ) $
(97,485 ) $ (530,443 ) There was no revenue or cost of goods sold for the Medical Devices segment for the three months endedMarch 31, 2020 and 2019. Operating expenses for the three months endedMarch 31, 2020 and 2019 was$206,824 and$146,272 , respectively. The increase in operating expenses in 2020 was due primarily to the increase in contract labor. The loss from operations for the three months endedMarch 31, 2020 and 2019 was$206,824 and$146,272 , respectively. 24
Revenue for the Authentication and Encryption segment for the three months endedMarch 31, 2020 and 2019 was$5,000 and$12,875 . The decrease in 2020 was due to the decrease in trade sales and consulting services. There was no cost of goods sold for the three months endedMarch 31, 2020 and the gross profit was$5,000 . Cost of goods sold for the three months endedMarch 31, 2019 was$7,725 and the gross profit was$5,150 . The gross profit decrease in 2020 was primarily due to the decrease in sales. Operating expenses for the three months endedMarch 31, 2020 and 2019 was$73,806 and$102,635 , respectively. The decrease in operating expenses in 2020 was due primarily to the decrease in stock compensation costs and employee-related costs. The loss from operations for the three months endedMarch 31, 2020 and 2019 was$68,806 and$97,485 , respectively. The Corporate segment primarily provides executive management services for the Company. Operating expenses for the three months endedMarch 31, 2020 and 2019 was$142,500 and$286,686 , respectively. The decrease in operating expenses in 2020 was due primarily to the decrease in professional fees and stock compensation. The loss from operations for the three months endedMarch 31, 2020 and 2019 was$142,500 and$286,686 , respectively. Operations by Segment for the Six Months EndedMarch 31, 2020 and 2019 For the Six Months Ended March 31, 2020 Medical Authentication and Corporate Devices Encryption Total Sales: Trade $ - $ - $ 5,000$ 5,000 Consulting services - - - - Total Sales - - 5,000 5,000 Cost of goods sold - - - - Gross profit - - 5,000 5,000 Operating expenses 240,962 382,110
137,331 760,403
Loss from operations$ (240,962 ) $ (382,110 ) $ (132,331 )$ (755,403 ) For the Six Months Ended March 31, 2019 Medical Authentication and Corporate Devices Encryption Total Sales: Trade $ - $ - $ 16,400$ 16,400 Consulting services - - 9,350 9,350 Total Sales - - 25,750 25,750 Cost of goods sold - - 15,450 15,450 Gross profit - - 10,300 10,300 Operating expenses 541,116 265,991
204,350 1,011,457
Loss from operations$ (541,116 ) $ (265,991 ) $
(194,050 )$ (1,001,157 ) 25
There was no revenue or cost of goods sold for the Medical Devices segment for the six months endedMarch 31, 2020 and 2019. Operating expenses for the six months endedMarch 31, 2020 and 2019 was$382,110 and$265,991 , respectively. The increase in operating expenses in 2020 was due primarily to the increase in contract labor. The loss from operations for the six months endedMarch 31, 2020 and 2019 was$382,110 and$265,991 , respectively. Revenue for the Authentication and Encryption segment for the six months endedMarch 31, 2020 and 2019 was$5,000 and$25,750 . The decrease in 2020 was due to the decrease in trade sales and consulting services. There was no cost of goods sold for the six months endedMarch 31, 2020 and the gross profit was$5,000 . Cost of goods sold for the six months endedMarch 31, 2019 was$15,450 and the gross profit was$10,300 . The gross profit decrease in 2020 was primarily due to the decrease in sales. Operating expenses for the six months endedMarch 31, 2020 and 2019 was$137,331 and$204,350 , respectively. The decrease in operating expenses in 2020 was due primarily to the decrease in stock compensation costs and employee-related costs. The loss from operations for the six months endedMarch 31, 2020 and 2019 was$132,331 and$194,050 , respectively. The Corporate segment primarily provides executive management services for the Company. Operating expenses for the six months endedMarch 31, 2020 and 2019 was$240,962 and$541,116 , respectively. The decrease in operating expenses in 2020 was due primarily to the decrease in professional fees and stock compensation. The loss from operations for the six months endedMarch 31, 2020 and 2019 was$240,962 and$541,116 , respectively.
Liquidity and Capital Resources
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 six months endedMarch 31, 2020 , the Company incurred a net loss of$1,288,202 and used cash in operations of$533,001 , and had a shareholders' deficit of$1,683,393 as ofMarch 31, 2020 . 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
AtMarch 31, 2020 , the Company had cash on hand in the amount of$40,146 . 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 six months endedMarch 31, 2020 , the Company received$520,000 through short-term loans and contributions of capital by a joint venture partner. As ofMarch 31, 2020 , loans payable to officers and shareholders of$869,250 were outstanding. All of the loans are unsecured, have an interest rate of eight percent and are due one year from the date of issuance. 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.
Comparison of six months ended
As of
As of
Cash flows used in operating activities
During the six months endedMarch 31, 2020 , the Company used cash flows in operating activities of$533,001 , compared to$685,290 used in the six months endedMarch 31, 2019 . During the six months endedMarch 31, 2020 , the Company incurred a net loss of$1,288,202 and$650,848 of non-cash expenses, compared to a net loss of$1,158,398 and$383,818 of non-cash expenses during the six months endedMarch 31, 2019 .
Cash flows used in investing activities
During the six months ended
Cash flows provided by financing activities
During the six months endedMarch 31, 2020 , the Company had proceeds from loans payable from officers and shareholders of$470,000 and proceeds of$50,000 from contributions of capital by its joint venture partner. During the six months endedMarch 31, 2019 , the Company had proceeds from loans payable from officers and shareholders of$258,250 , from the sale of common stock of$10,000 and from contributions of capital by its joint venture partner of$475,000 . 26
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.
Summary of Critical Accounting Policies.
The Company has identified critical accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. The Company's most critical accounting policies include, but are not limited to, those related to fair value of financial instruments, revenue recognition, stock based compensation for obtaining employee services, and equity instruments issued to parties other than employees for acquiring goods or services. Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2019 , filed with theSecurities and Exchange Commission onJanuary 28, 2020 . There have been no material changes to the Company's critical accounting policies that impact the Company's financial condition, results of operations or cash flows for the
six months endedMarch 31, 2020 .
Recently Issued Accounting Pronouncements
See Management's discussion of recent accounting policies included in footnote 2 to the condensed consolidated financial statements.
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