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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended September 30, 2021

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

For the transition period from ___________ to ___________

WELLNESS CENTER USA, INC.

(Name of small business issuer in its charter)

nevada

333-173216

27-2980395

(State or other jurisdiction of

incorporation or organization)

Commission

File Number

(IRS Employee

Identification No.)

145 E. University Boulevard, Tucson, AZ 85705

(Address of Principal Executive Offices)

(847) 925-1885

(Issuer Telephone number)

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

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

Title of each class registered:		Name of each exchange on which registered:
None		None

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

Common Stock, par value $0.001

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

(Do not check if a smaller reporting company)

☐

Smaller reporting company

☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒.

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of March 31, 2021: $3,827,961.

As of September 30, 2021, the registrant had 123,877,077 shares of its common stock issued and outstanding.

Documents Incorporated by Reference: See Item 15.

TABLE OF CONTENTS

		PAGE
	PART I
ITEM 1.	Business	3
ITEM 1A.	Risk Factors	5
ITEM 2.	Properties	13
ITEM 3.	Legal Proceedings	14
ITEM 4.	Mine Safety Disclosures	14

	PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	15
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	16
ITEM7A.	Quantitative and Qualitative Disclosures About Market Risk	20
ITEM 8.	Financial Statements and Supplementary Data	20
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	20
ITEM 9A.	Controls and Procedures	20

	PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	22
ITEM 11.	Executive Compensation	23
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	24
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	25
ITEM 14	Principal Accounting Fees and Services	25

	PART IV
ITEM 15.	Exhibits, Financial Statement Schedules	26

SIGNATURES		28

PART I

ITEM 1.

BUSINESS

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.

PSI

PSI was incorporated under the laws of the state of Florida on June 17, 2009. We acquired all of the issued and outstanding shares of stock in PSI on August 24, 2012.

Joint Ventures

PSI

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 to be conducted through NEO Phototherapy, Inc. (“NEO”). PSI and GEN2 were the members of NEO, owning 50.5% and 36.0%, respectively. 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 the years ended September 30, 2021 and 2020, PSI recorded a loss of $683,986 and $333,809, respectively, relating to its operations, of which $335,153 and $163,556, respectively, was allocated to the non-controlling interest.

As of September 30, 2019, GEN2 had received $975,000 of investments to contribute to NEO. 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.

Protec

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. As of September 30, 2020, PSI had contributed $191,000 to Protec with the Company’s share being approximately 32%, based on its PSI ownership. The remaining 30% share is attributed to PSI’s minority shareholders. During the year ended September 30, 2020, Protec received an additional $120,000 from non-affiliated investors. The additional investments gave the non-controlling interests a 68% ownership interest in Protec. During the years ended September 30, 2021 and 2020, Protec recorded a loss of $271,131 and $172,174, respectively, of which $185,399 and $117,732, respectively, was allocated to the non-controlling interests.

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.

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.

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.

In April 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 the Oak 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 by Ricky 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. In November 2018, Mr. Howard passed away suddenly and Mr. O’Harrow took over operations of SCI’s business on an interim basis.

ITEM 1A.

RISK FACTORS

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

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

As reflected in the accompanying consolidated financial statements, the Company had a shareholders’ deficit at September 30, 2021, and a net loss and net cash used in operating activities for the fiscal year then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s September 30, 2021, audited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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

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

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

UNFAVORABLE PUBLICITY OR CLIENT REJECTION OF OUR PRODUCTS OR SERVICES GENERALLY COULD REDUCE OUR SALES.

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

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

The production, packaging, labeling, advertising, distribution, licensing and/or sale of our products and services may be subject to regulation by several U.S. federal agencies, including the FDA, the Federal Trade Commission, the Consumer Product Safety Commission, and the Environmental Protection Agency, as well as various state, local and international laws and agencies of the localities in which our products and services are offered or are sold. Government regulations may prevent or delay the introduction or require design modifications of our products. Regulatory authorities may not accept the evidence of safety we present for existing or new products or services that we wish to market, or they may determine that a particular product or service presents an unacceptable health risk. If that occurs, we could be required to cease distribution of and/or recall products or terminate marketing of services that present such risks. Authorities may also determine that certain advertising and promotional claims, statements or activities are not in compliance with applicable laws and regulations and may determine that a particular statement is unacceptable as a “health claim.” Failure to comply with any regulatory requirements could prevent us from marketing particular existing or new products or services, or subject us to administrative, civil or criminal penalties.

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

The U.S. healthcare solutions industry is a large and highly fragmented industry. The principle elements of competition in the industry are price, selection and distribution channel offerings. We believe the market is highly sensitive to the introduction of new products and services, which may rapidly capture a significant share of the market. We will compete for sales with heavily advertised national brands offered by large and well-funded companies. In addition, as certain products or services gain market acceptance, we may experience increased competition for those products or services as more participants enter the market. To the extent that we manufacture or engage third party manufacturers to produce any product, our manufacturing capabilities may not be adequate or sufficient to compete with large scale, direct or third-party manufacturers. Certain of our potential competitors are much larger than us and have longer operating histories, larger customer bases, greater brand recognition and greater resources for marketing, advertising and promotion of their products and services. They may be able to secure inventory from vendors on more favorable terms, operate with a lower cost structure or adopt more aggressive pricing policies. In addition, our potential competitors may be more effective and efficient in introducing new products or services. We may not be able to compete effectively, and our attempt to do so may require us to increase marketing and/or reduce our prices, which may result in lower margins. Failure to effectively compete could adversely affect our market share, financial condition and growth prospects.

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

Our decisions to acquire PSI and SCI were based upon assumptions regarding their respective existing and prospective operations, products and services, the potential market for their respective products and services, and our ability to integrate their respective operations in a manner that would enable us to launch the marketing and sale of their respective products and services. Our decisions were based upon information available to management, and assumptions made by management, at the time of each respective acquisition, regarding the potential viability of such products and services and our ability to integrate operations.

Our assumptions may prove to be erroneous. Each company is a small development stage company with a limited operating history. Each is currently operating at a loss, and there is no assurance that its business development plans and strategies will ever be successful, or that their respective products and services will be favorably perceived and accepted by our assumed potential customer populations.

PSI PROVIDES AN ALTERNATIVE APPROACH TO SKIN TREATMENT THAT IS NOVEL.

Psoriasis, eczema, and vitiligo, are common skin conditions that can be challenging to treat, and often cause clients significant psychosocial stress. Clients may elect 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 has been clinically validated as an alternate treatment modality for these disorders.

“Non-targeted” UV phototherapy may be administered by lamps that emit either UVA or UVB light to both diseased and healthy skin, with sun blocks and other UV barriers used to protect healthy skin. Non-targeted UV must be low dosage to avoid excessive exposure of healthy tissue. “Targeted” UV phototherapy may be administered at 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.

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

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. While Psoria-Light treatment appears to have been beneficial to clients, without demonstrable harmful side effects or safety issues, there can be no assurance that we will be able to achieve and maintain such market acceptance by healthcare providers or clients.

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

We rely upon the current executive management of PSI and SCI to operate their respective business operations. Employment agreements with any key management personnel will not guarantee that any such personnel will remain affiliated with us.

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

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

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

	●	the ability to obtain access to or persuade adequate numbers of healthcare providers or clients to purchase and use their respective products and services;
	●	the ability to recruit, properly motivate, retain, and train adequate numbers of qualified sales and marketing personnel;
	●	the costs associated with hiring, training, maintaining, and expanding an effective sales and marketing team; and
	●	assuring compliance with applicable government regulatory requirements.

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

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

None of our subsidiaries has any prior experience with commercializing their respective products and services. To successfully commercialize their products and services we will need to establish and maintain sophisticated sales and marketing teams. Experienced sales representatives may be difficult to locate and retain, and all new sales representatives will need to undergo extensive training. There is no assurance that we will be able to recruit and retain sufficiently skilled sales representatives, or that any new sales representatives will ultimately become productive. If we are unable to recruit and retain qualified and productive sales personnel, our ability to commercialize our products and services, and to generate revenues, will be impaired, and our business will be harmed.

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

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

	●	established service and product lines with proven results;
	●	brand awareness;
	●	name recognition;
	●	established product acceptance by healthcare providers and clients;
	●	established relationships with healthcare providers and clients;
	●	integrated distribution networks; and
	●	greater financial resources for product development, sales and marketing, and patent litigation.

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

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

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

	●	the diversion of management’s time and attention from our business and operations;
	●	the expenditure of large amounts of cash on legal fees, expenses and payment of settlements or damages;
	●	decreased demand for our products and services; and
	●	negative publicity and injury to our reputation.

Each and every one of the foregoing consequences of claims and litigation could have a material adverse effect on us, our subsidiaries, and our business operations and financial condition.

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

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

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

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

	●	lack of day-to-day control over the activities of third-party distributors;
	●	third-party distributors may not fulfill their obligations to us or otherwise meet our expectations;
	●	third-party distributors may terminate their arrangements with us on limited or no notice or may change the terms of these arrangements in a manner unfavorable to us for reasons outside of our control; and
	●	disagreements with our distributors could require or result in costly and time-consuming litigation or arbitration.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	●	prevent others from successfully challenging the validity or enforceability of our issued, pending, or licensed patents (if any);
	●	prevent others from infringing upon, our issued, pending, or licensed patents (if any) and our other proprietary rights;
	●	operate our business, including the production, sale and use of the Psoria-Light, SCI encryption products, and any other products, without infringing upon the proprietary rights of others;
	●	successfully enforce our rights to issued, pending, or licensed patents (if any) against third parties when necessary and appropriate; and
	●	obtain and protect commercially valuable patents or the rights to patents both domestically and abroad.

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

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, among other things, six patents issued between November 18, 2003 and July 17, 2012 as US 6,647,649; 7,720,254; 7,831,042; 7,885,428; 8,033,450 and 8,223,964, and two pending European Applications.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WE DO NOT PAY DIVIDENDS ON OUR COMMON STOCK.

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

ITEM 2.

PROPERTIES

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. At the date of vacation, 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 sought 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. As of September 30, 2021, the Company has recorded the full amount of the judgement due.

On October 6, 2021, HHE and the Company settled the HHE Litigation pursuant to an agreement providing, among other things, that the Company agree to the entry of a final judgment order on the complaint in the amount of $725,795, which includes $657,194 in base rent awarded HHE by the Court on HHE’s Motion for Summary Judgment and the additional fees claimed by HHE and costs. HHE will forebear on the enforcement of the judgment and will provide the Company a satisfaction of the judgment upon the payment by the Company of $350,000, plus interest on the principal amount thereof outstanding from time to time at the rate of 5% per annum (the “Settlement Amount”), until the Settlement Amount is paid in full. An initial payment of $125,000 was due January 1, 2022, and was paid on February 10, 2022. The balance of $225,000 will be paid over a five-year period beginning on January 1, 2023, as follows: January 1, 2023 – $15,000 plus accrued interest only; January 1, 2024 – $15,000 plus accrued interest only; January 1, 2025 – $45,000 plus accrued interest; January 1, 2026 – $75,000 plus accrued interest; and January 1, 2027 – $75,000 plus accrued interest.

Through January 2019, PSI’s offices were located at 6408 West Linebaugh Avenue, Suite 103, Tampa, Florida, 33625. PSI’s telephone number is (866) 725-0969. In February 2019, PSI entered into a non-cancellable lease agreement to lease its office facilities located at 409 Mandeville Street, Utica, New York, 13502. The term of the lease is for two years and expired February 8, 2021, with monthly base rent of $1,800. The lease is currently on a month-to-month basis.

Through December 31, 2019, SCI offices were located at 273 Midway Lane, Oak Ridge, Tennessee 37830. On January 6, 2020, the Company entered into an agreement with the owners to terminate the agreement effective January 1, 2020. Under the agreement, the Company agreed to pay $11,000 and abandon certain Company property to the owners as documented in the agreement.

ITEM 3.

LEGAL PROCEEDINGS

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 the claim 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 $158,715 and unpaid vacation pay in the amount of $20,833 for a total amount of $179,548, 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.

As discussed in Item 2, on or about June 29, 2020 HHE filed case number 2020L006092 in the Circuit Court of Cook County alleging failure to pay Base Rent and abandonment of certain office space in Hoffman Estates, Illinois subject to a Commercial Lease dated May 26, 2016 (the “HHE litigation”). HHE sought at least $672,888 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. On October 6, 2021, HHE and the Company agreed to a settlement on the terms discussed in Item 2 above. An initial payment of $125,000 was due January 1, 2022, and was paid on February 10, 2022.

On or about January 8, 2021, Periklis Papadopoulus, a former Director who was named as an additional Defendant in the HHE litigation, filed a counterclaim against the Company seeking indemnification for attorneys’ fees he incurred in obtaining his dismissal from the HHE litigation. Subsequent to September 30, 2021, we settled the counterclaim by agreeing to pay $41,914, with $15,000 payable on or about January 4, 2022 and the balance in sixteen monthly installments commencing June 4, 2022, each in the amount of $1,791. The settlement amount shall be reduced to $37,000 if it is paid prior to April 1, 2022, or $39,000 if paid before July 1, 2022. We agreed to entry of a Judgment in the amount of $41,914 to secure payments under the settlement agreement. Upon payment of the settlement, Papadopoulos will provide the Company with a satisfaction of judgment.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5.

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

No Public Market for Our Common Stock

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

Common Stock

On September 3, 2019, the Company’s Board of Directors unanimously approved the amendment of its Articles of Incorporation to increase the total authorized capital stock from 185,000,000 common shares to 200,000,000 common shares. As of September 18, 2019, holders of a majority of the outstanding shares of voting capital stock executed written stockholder consents approving this action and the Company amended its Articles of Incorporation through a filing of a Certificate of Amendment on October 11, 2019. Holders of shares of common stock have full voting rights, one vote for each share held of record. Shareholders are entitled to receive dividends as may be declared by the Board out of funds legally available therefore and share pro rata in any distributions to shareholders upon liquidation. Shareholders have no conversion, pre-emptive or subscription rights. All outstanding shares of common stock are fully paid and non-assessable. As of September 30, 2021 and 2020, there were 123,877,077 and 118,252,077 shares of common stock issued and outstanding, respectively. During the year ended September 30, 2021, the Company’s Board of Directors approved the issuance of a combined total of 41,353,731 restricted shares of the Company’s common stock to its Officers and Directors, all of which will only be issued upon the sale or merger of the Company. None of these shares are included in the outstanding shares as of September 30, 2021.

Preferred Stock

The Company does not have any Preferred Stock authorized.

Dividends

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

Options

2010 Non-Qualified Stock Option Plan (“2010 Option Plan”)

On December 22, 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.

As of September 30, 2021 and 2020, 5,277,738 and 14,127,738 shares, respectively, were outstanding under the 2010 Option Plan.

Transfer Agent and Registrar

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

ITEM 7.

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

Forward Looking Statements

Except for historical information, the following Plan of Operation contains forward-looking statements based upon current expectations that involve certain risks and uncertainties. Such forward-looking statements include statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital, (f) our lack of operational experience and (g) the benefits related to ownership of our common stock. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis or Plan of Operations” and “Description of Business,” as well as in this 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’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Background

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 was primarily due to the decrease in consulting fees, employee-related costs and stock compensation. Stock compensation expenses relating to stock options and the fair value of common stock issued for services totaled to $192,514 and $583,064 during the years ended September 30, 2021 and 2020, respectively.

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 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:

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

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

Loss from operations	$	(211,641	)	$	(998,216	)	$	(17,999	)	$	(1,227,856	)

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

Loss from operations	$	(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.

Liquidity 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 Company’s September 30, 2021 financial statements, has raised substantial doubt about 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

As of September 30, 2021, we had $32,079 in cash, negative working capital of $3,346,348 and an accumulated deficit of $28,389,628.

As of September 30, 2020, we had $51,320 in cash, negative working capital of $2,199,340 and an accumulated 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

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

Cash flows provided 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 Labor Contracts

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

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.

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 Taggant 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).

Europe WO/EP Patent	Issued	“Title” – Summary

Appl. No. 07753043.4	Pending	“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.

Appl. No. 07753034.3	Pending	“Three-Dimensional Authentication Of Micro-particle 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 proprietary technologies and capabilities being maintained as Trade Secrets include, but are not limited to:

	●	Micro-particle Manufacturing
	●	Micro-particle Color Systems
	●	Technology advancements providing improvements in Automatic Reader 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, concessions royalty agreements or labor contracts on an ongoing basis.

Employees

We currently employ our executive officers and as of September 30, 2021, PSI had eight employees and had several independent contractors.

Summary of Significant Accounting Policies.

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

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are contained in pages F-1 through F-17 which appear at the end of this annual report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard 2201) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting.

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. We have evaluated our internal control over financial reporting and our disclosure controls and procedures and concluded that they were not effective as of September 30, 2021.

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses we identified are (i) The Company does not have an independent audit committee; (ii) the Company does not have written documentation of its internal control policies and procedures; (iii) The Company does not have sufficient segregation of duties within its accounting functions; (iv) The Company has insufficient full-time personnel with an appropriate level of current U.S. GAAP and SEC reporting requirements to timely meet regulatory filing requirements, and (v) The Company had ineffective controls over our financial statement close and reporting process and did not provide reasonable assurance that accounts were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved.

The Company is committed to remediating its material weaknesses as promptly as possible. However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future. Even effective internal control can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock and we could fail to meet our financial reporting obligations. We have identified weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.

If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

Changes in internal control over financial reporting.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the year ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors, Executive Officer and Control Persons

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

Name	Age	Position	Date

Calvin R. O’Harrow	72	Chief Executive Officer, Chief Operating Officer, Director	May 2018

Douglas W. Samuelson	62	Chief Financial Officer	Feb 2018

Paul D. Jones	77	Director, President	Dec 2017

Thomas E. Scott	64	Director, Secretary	Dec 2017

William E. Kingsford	78	Director	Dec 2017

Roy M. Harsch	75	Director, Chairman	Dec 2017

Audit Committee

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

Compliance with Section 16(A) Of the Exchange Act.

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

ITEM 11.

EXECUTIVE COMPENSATION

Executive Compensation

Summary Compensation Table

Name and Position	Year ($)	Salary ($)		Other Annual Compensation Bonus ($)		Restricted Stock ($)		Options Awards ($)		LTIP SARs ($)		Payouts ($)		All Other Compensation ($)

Calvin R. O’Harrow	2021		-		-		-		-		-		-		-
Chief Executive Officer, Director	2020		-		-		-		127,500		-		-		-

Douglas W. Samuelson	2021		-		-		40,000		-		-		-		-
Chief Financial Officer	2020		-		-		112,800		-		-		-		-

Paul D. Jones	2021		-		-		20,000		-		-		-		-
Director, President	2020		-		-		60,000		-		-		-		-

Thomas E. Scott	2021		-		-		40,000		-		-		-		-
Director, Secretary	2020		-		-		135,000		-		-		-		-

William E. Kingsford	2021		-		-		20,000		-		-		-		-
Director	2020		-		-		60,000		-		-		-		-

Roy M. Harsch	2021		-		-		30,000		-		-		-		-
Director, Chairman	2020		-		-		82,500		-		-		-		-

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

Management

On February 5, 2018, the Board of Directors appointed Calvin R. O’Harrow as Chief Operating Officer and a member of the Board. It accepted the resignation of Andrew J. Kandalepas, as Chief Financial Officer (CFO) and Chief Accounting Officer (CAO), and appointed Douglas Samuelson as CFO and CAO. In April 2018, Mr. Kandalepas resigned as Chief Executive Officer (CEO) and in May 2018, the Board approved the permanent appointment of Calvin O’Harrow as CEO.

Calvin O’Harrow started his career as a successful entrepreneur and moved on to a 34-year tenure as financial advisor at a prominent national wirehouse and wealth management firm, where he established unique team concepts designed to reward team members for their continued relationships with longstanding clients. Beyond this success, he has also been involved in several non-profit organizations and held a variety of positions in finance, sales and management. Mr. O’Harrow has a B.S. from the University of Wisconsin, Madison.

Doug Samuelson, CPA, brings over ten years of experience in public accounting, and over 20 years of experience in the private sector, including serving as CFO, Director and Controller in both private and publicly traded companies. In the past, he provided contract CFO services and assisted public companies with their Sarbanes-Oxley (SOX) compliance. He has worked for major accounting firms, including Arthur Andersen LLP and Cohn Reznick LLP. Mr. Samuelson received his B.S. degree in Accounting from the University of Utah and his M.S. degree in Computer Science from California State University, Northridge.

Stock Option Plan

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.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Shareholders

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

Name and Address of Beneficial Owner (1)	Number of Shares (2)(3)		Options to Acquire Number of Shares (2)(4)		Warrants to Acquire Number of Shares (2)(5)		Number of Shares Inclusive of Options and Warrants		Percentage (%) of Security Ownership
Calvin R. O’Harrow, CEO, COO and Director		9,183,000		-		-		9,183,000		7.4	%

Douglas W. Samuelson, CFO		4,020,000		-		-		4,020,000		3.2	%

Paul D. Jones, President, Director		3,388,305		-		-		3,388,305		2.7	%

Thomas E. Scott, Secretary, Director		4,099,710		-		-		4,099,710		3.3	%

William E. Kingsford, Director		3,683,778		-		-		3,683,778		3.0	%

Roy M. Harsch, Director, Chairman		3,803,254		-		-		3,803,254		3.1	%

Officers and Directors as a group		28,178,047		-		-		28,178,047		22.7	%

Total issued and outstanding		123,877,077		5,277,738		32,032,075		161,186,890		100.00	%

(1)	Except as otherwise noted below, the address of each of the persons shown in the above table is c/o Wellness Center USA, Inc., 145 E. University Boulevard, Tucson, AZ 85705.
(2)	Includes, where applicable, shares of common stock issuable upon the exercise of options or warrants to acquire common stock held by such person that may be exercised within sixty (60) days after September 30, 2021. Also includes unvested shares of restricted stock as to which such person has voting power but no dispositive power and in which they are issuable within sixty (60) days after September 30, 2021. Unless otherwise indicated, we believe that all persons named in the table above have sole voting power and/or investment power with respect to all shares of common stock beneficially owned by them.
(3)	Excludes shares of common stock issuable only upon the sale or merger of the Company. During the year ended September 30, 2021, the Company’s Board of Directors approved the issuance of a combined total of 41,353,731 restricted shares of the Company’s common stock to its Officers and Directors, all of which will only be issued upon the sale or merger of the Company.
(4)	During the year ended September 30, 2021, the Company’s CEO cancelled all of his outstanding stock options in exchange for the issuance of restricted shares of the Company’s common stock, all of which will only be issued upon the sale or merger of the Company (see 3 above).
(5)	During the year ended September 30, 2021, the Company’s principal shareholders cancelled all of their outstanding stock warrants in exchange for the issuance of restricted shares of the Company’s common stock, all of which will only be issued upon the sale or merger of the Company (see 3 above).

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Party Transactions

During the period covered by this Report, related parties with whom the Company had transactions were:

Loans from Officers and Shareholders

Director Independence

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

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The following table sets forth the fees billed to the Company for professional services rendered by the Company’s independent registered public accounting firm, for the years ended September 30, 2021 and 2020:

	2021		2020

Fees
Audit fees	$	90,000	$	90,000
Audit Related Fees	$	-	$	-
Tax fees	$	-	$	-
All other fees	$	-	$	-

Total Fees	$	90,000	$	90,000

Audit Fees. Consist of fees billed for professional services rendered for the audits of our financial statements and reviews of our interim consolidated financial statements included in quarterly reports.

Tax Fees. Our auditors did not provide us with professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions.

Pre-approval of All Services from the Independent Auditors

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

	●	approved by our audit committee; or

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

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

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

a) Documents filed as part of this Annual Report

1. Financial Statements

2. Financial Statement Schedules

3. Exhibits

Exhibit Number	Description of Document	Filed Herewith	Incorporated by Reference To:

2.2	Exchange Agreement dated June 21, 2012 by and between Psoria-Shield Inc. and Wellness Center USA, Inc.		Exhibit 2.2 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

2.5	Purchase Agreement dated March 31, 2014 by and between SMI Holdings, Inc. d/b/a Stealth Mark, Inc. and Stealthco, Inc., a wholly-owned subsidiary of Wellness Center USA, Inc.		Exhibit 2.5 to the Registrant’s Current Report on Form 8-K filed on April 9, 2014.

3.1	Articles of Incorporation of the Registrant as filed with the Secretary of State of Nevada.		Exhibits 3.2 to the Registrant’s Amended Registration Statement on Form S-1A1 filed on July 7, 2011.

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

3.3	Certificate of Amendment as filed with the Secretary of State of Nevada on January 12, 2017.

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

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

4.3	2010 Non-Qualified Stock Compensation Plan		Exhibits 99.3 to the Registrant’s Amended Registration Statement on Form S-1A1 filed on July 7, 2011.

5.5	Employment Agreement dated as of July 1, 2014 by and between Rick Howard and Wellness Center USA, Inc.		Exhibit 5.5 to the Registrant’s Annual Report on Form 10-K filed on January 15, 2015.

5.6	Employment Agreement dated as of January 1, 2018 by and between Rick Howard and Wellness Center USA, Inc.		Exhibit 5.6 to the Registrant’s Annual Report on Form 10-K filed on February 20, 2018.

5.7	Employment Agreement dated as of January 1, 2018 by and between Lee Anne Patterson and Wellness Center USA, Inc.		Exhibit 5.7 to the Registrant’s Annual Report on Form 10-K filed on February 20, 2018.
5.8	Employment Agreement dated as of January 1, 2018 by and between Richard Neal and Wellness Center USA, Inc.		Exhibit 5.8 to the Registrant’s Annual Report on Form 10-K filed on February 20, 2018.

10.4	License Agreement dated as of August 25, 2009 by and between Psoria-Shield Inc. and Scot L. Johnson.		Exhibit 10.4 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

10.5	License Agreement dated as of December 11, 2010 by and between Psoria-Shield Inc. and Scot L. Johnson.		Exhibit 10.5 to the Registrant’s Amended Current Report on Form 8-KA3 filed on January 22, 2013.

10.6	Management Service Agreement dated as of February 28, 2014 by and between National Pain Centers, Inc. and National Pain Centers, LLC		Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K filed on January 15, 2015

10.7	Agency Agreement dated as of October 24, 2014 by and between The Medical Alliance, Inc., Psoria-Shield, Inc. and Wellness Center USA, Inc.		Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filed on January 15, 2015

10.8	Joint Venture Agreement dated as of January12, 2015 by and between The Medical Alliance, Inc., Psoria-Shield, Inc. and Wellness Center USA, Inc.		Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed on January 15, 2015
10.9	Joint Venture Agreement dated as of November 15, 2018 by and between PSI Gen 2 Funding, Inc., Psoria-Shield, Inc. and Wellness Center USA, Inc.		Exhibit 10.9 to the Registrant’s Form 8-K filed on November 15, 2018
21.1	List of subsidiaries of the Registrant		Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K filed on January 15, 2015

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

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

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

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

101.INS	XBRL Instance Document ****	X

101. SCH	XBRL Taxonomy Extension Schema Linkbase Document ****	X

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document ****	X

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document ****	X

101.LAB	XBRL Taxonomy Extension Label Linkbase Document ****	X

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document ****	X

(*) Filed herewith.

(**) Included in Exhibit 32.1

(***) Included in Exhibit 32.2

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

SIGNATURES

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

	WELLNESS CENTER USA, INC.

Date: February 15, 2022	By:	/s/ Paul D. Jones
		Paul D. Jones President (Duly Authorized Principal Executive Officer)

	WELLNESS CENTER USA, INC.

Date: February 15, 2022	By:	/s/ Douglas W. Samuelson
		Douglas W. Samuelson Chief Financial Officer and Chief Accounting Officer (Duly Authorized Principal Accounting Officer)

POWER OF ATTORNEY

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

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

SIGNATURE	TITLE	DATE

/s/ Calvin R. O’Harrow	Chief Executive Officer, Chief Operating Officer, Director	February 15, 2022
Calvin R. O’Harrow

/s/ Douglas W. Samuelson	Chief Financial Officer, Chief Accounting Officer	February 15, 2022
Douglas W. Samuelson

/s/ Paul D. Jones	Director, President	February 15, 2022
Paul D. Jones

/s/ Thomas E. Scott	Director, Secretary	February 15, 2022
Thomas E. Scott

/s/ William E. Kingsford	Director	February 15, 2022
William E. Kingsford

/s/ Roy M. Harsch	Director	February 15, 2022
Roy M. Harsch

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Wellness Center USA, Inc.

September 30, 2021 and 2020

Index to the Consolidated Financial Statements

	Page

Report of Independent Registered Public Accounting Firm (PACOB ID: 572)	F-2

Consolidated Balance Sheets at September 30, 2021 and 2020	F-3

Consolidated Statements of Operations for the Years Ended September 30, 2021 and 2020	F-4

Consolidated Statements of Shareholders’ Deficit for the Years Ended September 30, 2021 and 2020	F-5

Consolidated Statements of Cash Flows for the Years Ended September 30, 2021 and 2020	F-6

Notes to the Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Wellness Center USA, Inc.

Tuczon, AZ

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Wellness Center USA, Inc. (the “Company”) as of September 30, 2021 and 2020, the related consolidated statements of operations, shareholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2021 and 2020, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company had a shareholders’ deficit at September 30, 2021, and incurred a net loss and utilized cash in operating activities during the year ended September 30, 2021. In addition, as of September 30, 2021, certain notes payable to officers and shareholders and payroll taxes were past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters do not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Lease Settlement Liability

As described in Note 5 to the consolidated financial statements, at September 30, 2021, the Company has recorded a lease settlement liability for $672,878.

We identified the assessment of the Company’s estimate of the lease settlement liability as a critical audit matter because of significant judgment by management when assessing the amount of the Company’s obligation, which in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assessment of the liabilities and disclosures associated with the lease settlement liability.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included evaluating management’s determination of the lease settlement liability, including determining the likelihood of the Company meeting its payment obligation, as well as financial statement disclosures. These procedures also included, among others, obtaining and evaluating the letters of audit inquiry with external legal counsel, examining the settlement agreement, evaluating the reasonableness of management’s assessment, and evaluating the sufficiency of the Company’s disclosures related to lease settlement liability.

Inventory Reserve

As described in Note 1 to the financial statements, the Company’s inventories are valued at the lower of cost or net realizable value, determined on first-in, first-out (“FIFO”) basis. The Company also determines a reserve for inventory . Factors considered in the determination of reserve include current and anticipated demand, and considers historical usage, known trends, inventory age, and market conditions. At September 30, 2021, the balance of inventory and inventory reserves were $224,000 and $174,000, respectively

We identified the reserve for inventory as a critical audit matter, because of the significant judgment by management in estimating the reserve, and the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the reasonableness of the significant assumptions used in developing the reserve.

The primary procedures we performed to address this critical audit matter included evaluating the reasonableness of the significant assumptions used by management including those related to forecasted inventory usage by considering historic sales activity and sales forecast, testing the completeness, accuracy, and relevance of the underlying data used in management’s estimates, developing an independent expectation of the inventory reserve using historic inventory activity and compared our independent expectation to the amount recorded in the financial statements, and testing inventory write-off activity subsequent to September 30, 2021, to discern whether there were any indications that the reserve for inventory may be understated.

We have served as the Company’s auditor since 2016.

Weinberg & Company, P.A.

Los Angeles, California

February 14, 2022

F-2

Wellness Center USA, Inc.

Consolidated Balance Sheets

	2021			2020
	September 30,
	2021			2020
ASSETS
Current Assets
Cash	$	32,079		$	51,320
Inventories, net		50,000			94,560
Prepaid expenses and other current assets		-			500
Total Current Assets		82,079			146,380

Right of use asset		-			6,961
Total Other Assets		-			6,961

TOTAL ASSETS	$	82,079		$	153,341

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and accrued expenses	$	624,337		$	408,297
Payroll taxes payable, past due		75,834			92,334
Lease liability		-			6,961
Lease settlement liability		672,878			672,878
Loans payable from officers and shareholders, including $1,165,250 past due at September 30, 2021 - net of debt discount of $15,822 in 2021		2,055,378			1,165,250
Total Current Liabilities		3,428,427			2,345,720

Long-term Liabilities
U.S. Small Business Administration PPP loan payable		-			37,166
Total Liabilities		3,428,427			2,382,886

Shareholders’ Deficit
Common stock, par value $0.001, 200,000,000 shares authorized; 123,877,077 and 118,252,077 shares issued and outstanding, respectively		123,877			118,252
Additional paid-in capital		25,258,005			25,053,616
Accumulated deficit		(28,389,628	)		(27,583,363	)
Total Wellness Center USA shareholders’ deficit		(3,007,746	)		(2,411,495	)

Non-controlling interest		(338,602	)		181,950
Total Shareholder’s deficit		(3,346,348	)		(2,229,545	)

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	82,079		$	153,341

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Wellness Center USA, Inc.

Consolidated Statements of Operations

	2021			2020
	Years Ended
	September 30,
	2021			2020

Trade sales	$	239,962		$	5,000

Cost of goods sold		228,580			-

Gross profit		11,382			5,000

Operating expenses		1,239,238			1,926,594

Loss from operations		(1,227,856	)		(1,921,594	)

Other income (expenses):
Forgiveness of U.S. Small Business Administration PPP loan payable		37,166			-
Debt discount amortization		(1,678	)		-
U.S. federal government COVID-19 grant		-			4,000
Financing costs		-			(43,815	)
Cost of stock option modifications		-			(22,680	)
Cost of stock warrant modification		-			(507,265	)
Interest expense		(134,449	)		(67,861	)
Gain on debt forgiveness		-			56,840
Total other income (expenses)		(98,961	)		(580,781	)

NET LOSS		(1,326,817	)		(2,502,375	)

Net loss attributable to non-controlling interest		520,552			281,299

NET LOSS ATTRIBUTABLE TO WELLNESS CENTER USA, INC.		(806,265	)		(2,221,076	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.01	)	$	(0.02	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED		120,944,817			110,486,481

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Wellness Center USA, Inc.

Consolidated Statements of Shareholders’ Deficit

	Shares		Amount		Capital		Deficit			Deficit			Interest			Total
	Common Stock				Additional Paid-in		Accumulated			Total WCUI			Non-controlling
	Shares		Amount		Capital		Deficit			Deficit			Interest			Total

Balance, September 30, 2019		107,497,077	$	107,497	$	23,777,647	$	(25,362,287	)	$	(1,477,143	)	$	393,149		$	(1,083,994	)

Fair value of vested stock options		-		-		263,414		-			263,414			-			263,414

Fair value of common stock issued for services to officers and directors		9,895,000		9,895		286,955		-			296,850			-			296,850

Fair value of common stock issued for services to consultants		285,000		285		22,515		-			22,800			-			22,800

Fair value of warrants issued upon conversion of loan payable from shareholder		-		-		43,815		-			43,815			-			43,815
Fair value of common stock issued with note payable
Fair value of common stock issued with note payable, shares

Cost of stock option modifications		-		-		22,680		-			22,680			-			22,680

Cost of stock warrant modification		-		-		507,265		-			507,265			-			507,265

Conversion of loan payable from shareholder into common shares		575,000		575		29,425		-			30,000			-			30,000

Contribution of capital by joint venture partner		-		-		99,900		-			99,900			70,100			170,000

Net loss for the year ended September 30, 2020		-		-		-		(2,221,076	)		(2,221,076	)		(281,299	)		(2,502,375	)

Balance, September 30, 2020		118,252,077	$	118,252	$	25,053,616	$	(27,583,363	)	$	(2,411,495	)	$	181,950		$	(2,229,545	)
Balance, September 30, 2020		118,252,077	$	118,252	$	25,053,616	$	(27,583,363	)	$	(2,411,495	)	$	181,950		$	(2,229,545	)

Fair value of vested stock options		-		-		21,764		-			21,764			-			21,764

Fair value of common stock issued for services to officers and directors		5,275,000		5,275		165,475		-			170,750			-			170,750

Fair value of common stock issued with note payable		350,000		350		17,150		-			17,500			-			17,500

Net loss for the year ended September 30, 2021		-		-		-		(806,265	)		(806,265	)		(520,552	)		(1,326,817	)

Balance, September 30, 2021		123,877,077	$	123,877	$	25,258,005	$	(28,389,628	)	$	(3,007,746	)	$	(338,602	)	$	(3,346,348	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Wellness Center USA, Inc.

Consolidated Statements of Cash Flows

	2021			2020
	Years Ended
	September 30,
	2021			2020
Cash Flows from Operating Activities
Net loss	$	(1,326,817	)	$	(2,502,375	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		-			1,562
Gain on debt forgiveness		-			(56,840	)
Gain on forgiveness of U.S. SBA PPP loan payable		(37,166	)		-
Amortization of right-of-use asset		6,961			20,880
Amortization of debt discount		1,678			-
Provision for excess and slow moving inventories		173,930			-
Fair value of common shares issued for services		170,750			319,650
Fair value of stock options issued for services		21,764			263,414
Fair value of warrants issued upon conversion of loan payable from shareholder					43,815
Loss on abandonment of lease					438,296
Loss on modification of conversion price on convertible note payable					22,680
Cost of warrant modification		-			507,265
Changes in Assets and Liabilities
(Increase) Decrease in:
Inventories		(129,370	)		(39,560	)
Prepaid expenses and other assets		500			(500	)
(Decrease) Increase in:
Accounts payable and accrued expenses		216,040			8,100
Payroll taxes payable		(16,500	)		(10,500	)
Lease liability		(6,961	)		(20,880	)
Net cash used in operating activities		(925,191	)		(1,004,993	)

Cash Flows from Financing Activities
Proceeds from loans payable from officers and shareholders		905,950			796,000
Proceeds from U.S. Small Business Administration PPP loan payable		-			37,166
Contribution of capital by joint venture partner		-			170,000
Net cash provided by financing activities		905,950			1,003,166

Net decrease in cash		(19,241	)		(1,827	)

Cash beginning of year		51,320			53,147
Cash end of year	$	32,079		$	51,320

Supplemental cash flows disclosures:
Interest paid	$	-		$	-
Taxes paid	$	-		$	-

Supplemental non-cash disclosures:
Debt discount on issuance of convertible note payable	$	17,500		$	-
Initial recognition of right-of-use assets and operating lease
liabilities upon adoption of ASC Topic 842	$	-		$	27,841
Initial recognition of right-of-use assets and operating lease liabilities upon adoption of ASC Topic 842	$	-		$	27,841
Reclassification of prepaid expenses to inventories	$	-		$	55,000
Conversion of loan payable from shareholder into common shares	$	-		$	30,000

The accompanying notes are an integral part of these consolidated financial statements.

F-6

WELLNESS CENTER USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 2021 and 2020

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 Ultraviolet (“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.

COVID-19 Considerations

During the year ended September 30, 2021, 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 customers 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 September 30, 2021, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of such date. Through September 30, 2021, 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 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, loans payable of $1,165,250 and payroll taxes of $75,834 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.

F-7

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the Company’s 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, 2020			Attributable interest at September 30, 2021
Psoria-Shield Inc. (“PSI”)	The State of Florida	June 2009 (August 2012)		51	% (1)		51	% (1)
StealthCo, Inc. (“StealthCo”)	The State of Illinois	March 2014		100	%		100	%
Protec Scientific, Inc (“Protec”)	The State of New York	April 2020		32	%		32	%

(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 year ended September 30, 2021 and 2020, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive. At September 30, 2021 and 2020, the dilutive impact of outstanding stock options of 5,277,738 and 14,127,738 shares, respectively, and outstanding warrants for 32,032,075 and 67,634,049 shares, respectively, have been excluded because their impact on the loss per share is anti-dilutive.

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.

The Company sells its products through two main sales channels: 1) directly to customers who use its products (the “Direct Channel”) and 2) to distribution partners who resell its products (the “Indirect Channel”).

Under the Direct Channel, the Company sells its products to and receives payment directly from customers who purchase its products. Under the Indirect Channel, the Company has entered into distribution agreements that allow the distributors to sell its products and fulfill performance obligations under the agreements. During the years ended September 30, 2021 and 2020, all of the Company’s products were sold through its Direct Channel.

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 the Company has significant performance obligations for services still to be completed. The Company recognizes 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 September 30, 2021 and 2020.

F-8

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is computed on a first-in, first-out basis. At September 30, 2021, 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 September 30, 2021, the Company recorded a reserve of $173,930 for excess and slow moving inventories. At September 30, 2020, no reserve was recorded for excess, slow moving or obsolete inventory.

Leases

The Company accounts for its leases in accordance with the guidance of ASC 842, Leases. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. The Company adopted ASC 842 on October 1, 2019. There was no cumulative-effect adjustment to accumulated deficit.

Income Taxes

Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. The Company recorded a valuation allowance against its deferred tax assets as of September 30, 2021 and 2020.

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.

Fair Value measurements

The Company determines the fair value of its assets and liabilities based on the exchange price in U.S. dollars that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value:

	●	Level 1 — Quoted prices in active markets for identical assets or liabilities.
	●	Level 2 — Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
	●	Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of financial instruments such as cash, and accounts payable and accrued liabilities, approximate the related fair values due to the short-term maturities of these instruments. The carrying value of the loans payable from officers and shareholders approximate their fair value based on the fair market interest rates of these obligations.

Non-controlling Interests

PSI

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 to be conducted through NEO Phototherapy, Inc. (“NEO”). PSI and GEN2 were the members of NEO, owning 50.5% and 36.0%, respectively. 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 the years ended September 30, 2021 and 2020, PSI recorded a loss of $746,433 and $333,809, respectively, relating to its operations, of which $365,752 and $163,556, respectively, was allocated to the non-controlling interest.

F-9

Protec

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 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. Recognition of compensation expense for non-employees is in the same period and manner as if the Company has paid cash for the services.

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.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have a material impact on the Company’s financial statements or disclosures.

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.

F-10

NOTE 3 – LOANS PAYABLE FROM OFFICERS AND SHAREHOLDERS

As of September 30, 2019, loans payable from officers and shareholders of $399,250 were outstanding. During the year ended September 30, 2020, the Company and its subsidiary, PSI, borrowed $796,000 from its officers and shareholders. The loans have an interest rate of eight percent per annum and are due one year from the date of issuance. During the year ended September 30, 2020, one of the loan holders who is not an officer or director, converted his loan in the amount of $30,000 into 575,000 shares of the Company’s common stock. In connection with the conversion of the loan payable, the Company issued the loan holder a warrant to purchase 1,150,000 shares of common stock as an inducement to convert. The warrants have an exercise price of $0.07 per share and expire five years from the date of grant. The fair value of the warrants of $43,815 was recorded as a financing cost during the year ended September 30, 2020 and was based on a probability affected Black-Scholes Merton pricing model with a stock price of $0.04, volatility of 187.0% and a risk-free rate of 0.20%.

As of September 30, 2020, loans payable from officers and shareholders of $1,165,250 were outstanding. During the year ended September 30, 2021, the Company and its subsidiary, PSI, borrowed $905,950 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. In connection with a loan in the amount of $25,000, the Company awarded the lender 350,000 shares of its common stock, valued at $17,500 on the date of grant. The Company recorded the fair value of the shares as a discount to the debt, which will be amortized over the life of the loan. During the year ended September 30, 2021, the Company amortized $1,678 of the debt discount and the balance of the unamortized discount at September 30, 2021 was $15,822.

As of September 30, 2021, loans payable to officers and shareholders of $2,055,378 were outstanding and $1,165,250 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 for $37,166 with First Western Trust Bank pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. The loan is unsecured, accrues interest at 1.0% and is due on April 23, 2022, and is guaranteed by the United States Small Business Administration (SBA). Beginning in October 2020, 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. During the year ended September 30, 2021, the Company received notification from the SBA that its loan payable had been forgiven and the Company recognized a gain on debt forgiveness in the amount of $37,166. At September 30, 2021, no amount was due under the agreement.

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%. During the year ended September 30, 2020, the Company made payments of $20,880 towards the lease liability. As of September 30, 2020, the value of the lease asset and liability was $6,961, respectively. During the year ended September 30, 2021, the Company made payments of $6,961 towards the lease liability. As of September 30, 2021, the lease liability was fully paid off.

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 years ended September 30, 2021 and 2020 was $13,389 and $21,600, respectively. During the years ended September 30, 2021 and 2020, the Company reflected amortization of the right of use asset of $6,961 and $20,880, respectively, related to this lease, resulting in no net asset balance as of September 30, 2021.

Lease settlement liability

F-11

On or about June 29, 2020, the Company received notice that Hanover Hoffman Estates, LLC (“HHE”), filed case number 2020L006092 in the Circuit Court of Cook County alleging a failure to pay Base Rent and abandonment of certain office space in Hoffman Estates, Illinois subject to a Commercial Lease dated May 26, 2016 (the “HHE Litigation”). HHE sought at least $672,878 in base rent and other amounts under the lease, as well as treble damages from the Company’s ex-CEO and two past Directors who were serving on our Board as of the date of the lease. As of September 30, 2021, the Company has recorded the full amount of the judgement due.

An initial payment of $125,000 was due January 1, 2022. The Company received a letter of default from HHE on January 20, 2022, which provided the Company 30 days to make the payment or HHE could seek collection of the Agreed Final Judgement Amount of $725,795. The Company made the payment of $125,000 on February 10, 2022. The balance of $225,000 will be paid over a five-year period beginning on January 1, 2023, as follows: January 1, 2023 – $15,000 plus accrued interest only; January 1, 2024 – $15,000 plus accrued interest only; January 1, 2025 – $45,000 plus accrued interest; January 1, 2026 – $75,000 plus accrued interest; and January 1, 2027 – $75,000 plus accrued interest.

As of September 30, 2021 and 2020, the Company has recorded a lease settlement liability of $672,878, and will adjust any remaining balance of the liability after the Company has completed the payment and satisfaction of the $350,000 Settlement Amount.

Other

Commencing on October 1, 2016, the Company’s wholly owned subsidiary, StealthCo, entered into a non-cancellable lease agreement to lease its office facilities in Oak Ridge, Tennessee. The term of the lease is five years and expires September 30, 2021. On January 6, 2020, the Company entered into an agreement with the owners to terminate the agreement effective January 1, 2020. Under the agreement, the Company agreed to pay $11,000 and abandon certain Company property as documented in the agreement. During the year ended September 30, 2020, the $11,000 was paid by the Company.

NOTE 6 – SHAREHOLDERS’ EQUITY

Authorized shares

Common Shares Issued for Services to Consultants

During the year ended September 30, 2020, the Company issued 285,000 shares of its common stock valued at $22,800 for services provided by PSI consultants. The shares were valued at the trading price of the common stock at the date of issuance and were recorded as compensation expense during the year ended September 30, 2020.

Restricted Stock Grants to Officers and Directors

During the year ended September 30, 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 vested 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 2,775,000 shares vested during the year ended September 30, 2020 and a total of 4,650,000 shares vested during the year ended September 30, 2021.

During the year ended September 30, 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 its Officers and Directors, all of which will vest monthly from April 2021 through March 2024. A total of 625,000 shares vested during the year ended September 30, 2021.

During the year ended September 30, 2021, the Company’s Board of Directors approved the issuance of a combined total of 41,353,731 restricted shares of the Company’s common stock to its Officers and Directors, all of which will only be issued upon the sale or merger of the Company. No stock compensation was recorded relating to that grant as management feels it is a remote possibility that a sale or merger of the Company will happen within the next twelve months. In relation to that grant, a total of 16,093,018 warrant shares held by the Officers and Directors were cancelled (see Stock Warrants below).

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The following table summarizes restricted common stock activity:

SUMMARY OF RESTRICTED COMMON STOCK

	Number of Restricted Shares			Fair Value			Weighted Average Grant Date Fair Value

Non-vested, September 30, 2019		-		$	-		$	-
Granted		20,170,000			605,100			0.03
Vested		(9,895,000	)		(296,850	)		0.03
Forfeited		-			-			-
Non-vested, September 30, 2020		10,275,000			308,250			0.03
Granted		3,750,000			187,500			0.05
Vested		(5,275,000	)		(170,750	)		0.03
Forfeited		-			-			-
Non-vested, September 30, 2021		8,750,000		$	325,000		$	0.04

During the years ended September 30, 2021 and 2020, the Company recorded $170,750 and $296,850, respectively, of stock compensation for the value of restricted common stock vesting during the period, and as of September 30, 2021, unvested compensation of $325,000 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.

The table below summarizes the Company’s stock option activities for the year ended September 30, 2021:

SCHEDULE OF STOCK OPTION ACTIVITY

	Number of Option Shares			Exercise Price Range Per Share		Weighted Average Exercise Price

Balance, September 30, 2019		15,237,738		$	0.03 - 2.00	$	0.28
Granted		5,000,000			0.04 – 0.09		0.05
Cancelled		(4,910,000	)		0.14 – 0.30		0.14
Exercised		-			-		-
Expired		(1,200,000	)		0.11 - 0.25		0.15
Balance, September 30, 2020		14,127,738			0.03 - 2.00		0.23
Granted		-			-		-
Cancelled		(7,262,500	)		0.04 – 0.40		0.06
Exercised		-			-		-
Expired		(1,587,500	)		0.11 - 2.00		1.29
Balance, September 30, 2021		5,277,738		$	0.03 - 0.26	$	0.15
Vested and exercisable, September 30, 2021		5,277,738		$	0.03 - 0.26	$	0.15

Unvested, September 30, 2021		-		$	-	$	-

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The following table summarizes information concerning outstanding and exercisable options as of September 30, 2021:

		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 - 0.26		5,277,738		1.58	$	0.15		-		-	$	-

$	$0.03 - 0.26		5,277,738		1.58	$	0.15		-		-	$	-

Stock Option Activity during the Fiscal Year Ended September 30, 2020

During the year ended September 30, 2020, the Company’s Board of Directors approved the cancellation of stock options to purchase 3,360,000 shares of the Company’s common stock with an exercise prices of $0.14 and $0.30 per share that had vested as of March 31, 2020, and 1,550,000 shares with an exercise price of $0.14 per share that were set to vest monthly from April 2020 through March 2021. All of the cancelled options were held by the Company’s Officers and Directors.

The Board approved the grant of stock options to its Chief Executive Officer to purchase 4,250,000 shares with an exercise price of $0.04 per share that expire ten years from the date of grant. The fair value of the shares was determined to be $127,500 as of the date of grant based on a Black-Scholes option model. A total of 1,125,000 shares vested during the year ended September 30, 2020 and 3,125,000 shares will vest monthly over the period from October 2020 through March 2023. Subsequent to the grant of these shares, the Board approved the following modifications relating to the Chief Executive Officer’s options:

	a.	Repricing of stock options to purchase 1,200,000 shares with an exercise price of $0.14 per share to $0.04 per share that had vested as of March 31, 2020,
	b.	Repricing of stock options to purchase 600,000 shares with an exercise price of $0.14 per share to $0.04 per share that were set to vest monthly from April 2020 through March 2021.
	c.	Extend the expiration of the options to ten years from the date of grant, rather than the five-year expiration the shares initially had.

In accounting for the modification, the Company calculated for the fair value of the options before modification using current valuation inputs including the Company’s closing stock price of $0.03 on May 28, 2020, a volatility metric of 183%, and a risk-free interest rate of 0.34%. The Company also calculated the fair value of the options after modification using the extended term and modified exercise price. The incremental fair value of the options resulting from the modifications was $22,680 that was recognized as an expense during the year ended September 30, 2020.

In addition to the options granted to the Company’s Chief Executive Officer noted above, during the year ended September 30, 2020, the Company granted options to several employee to purchase a total of 750,000 shares of its common stock with an aggregate fair value of $59,376. The options have an exercise price of $0.04 and $0.09 per share and expire five years from the date of grant. The shares vested on the date of grant. The Company valued the options using a Black-Scholes option pricing model.

The assumptions used for all of the options granted during the year ended September 30, 2020 are as follows:

Exercise price	$	0.04 - $0.09
Expected dividends		-
Expected volatility		157.6% – 197.0	%
Risk free interest rate		0.17 % - 1.60	%
Expected life of options		2.5

Stock Option Activity during the Fiscal Year Ended September 30, 2021

During the year ended September 30, 2021, the Company’s Board of Directors approved the cancellation of 6,050,000 option shares held the Company’s Chief Executive Officer (CEO) and replaced them with a grant of 6,050,000 option shares that will only be granted upon the sale or merger of the Company. No stock compensation was recorded relating to that grant as management feels it is a remote possibility that a sale or merger of the Company will happen within the next twelve months.

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During the years ended September 30, 2021 and 2020, the Company recorded $21,764 and $263,414, respectively, of stock compensation for the value of options vesting during the period, and as of September 30, 2021, no unvested compensation remained that will be amortized over the remaining vesting period.

The total aggregate intrinsic value for option shares outstanding at September 30, 2021 was $625. As of September 30, 2021, there were 24,722,262 shares of stock options remaining available for issuance under the 2010 Plan.

Stock Warrants

The table below summarizes the Company’s warrants activities for the year ended September 30, 2021:

SCHEDULE OF WARRANT ACTIVITY

	Number of Warrant Shares			Exercise Price Range Per Share		Weighted Average Exercise Price

Balance, September 30, 2019		66,484,049		$	0.12 - 0.40	$	0.17
Granted		1,150,000			0.07		0.07
Cancelled		-			-		-
Exercised		-			-		-
Expired		-			-		-
Balance, September 30, 2020		67,634,049			0.07 - 0.40		0.16
Granted		-			-		-
Cancelled		(16,093,018	)		0.12 - 0.18		0.15
Exercised		-			-		-
Expired		(19,508,956	)		0.15 - 0.25		0.18
Balance, September 30, 2021		32,032,075		$	0.07 - 0.40	$	0.16
Vested and exercisable, September 30, 2021		32,032,075		$	0.07 - 0.40	$	0.16

The following table summarizes information concerning outstanding and exercisable warrants as of September 30, 2021:

		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		31,082,075		1.76	$	0.16		31,082,075		1.76	$	0.16
	0.21 – 0.40		950,000		1.67		0.33		950,000		1.67		0.33

	$ 0.12 – 0.40		32,032,075		1.76	$	0.16		32,032,075		1.76	$	0.16

During the year ended September 30, 2020, in connection with the conversion of a loan payable, the Company issued a warrant to purchase 1,150,000 shares with an exercise price of $0.07 per share with a fair value of $43,815. The warrant expires five years from the date of grant.

Effective January 1, 2020, the Company’s Board of Directors approved the extension of the Company’s unexpired stock warrants as of December 31, 2019, by an additional one-year period. This change affected approximately 66,000,000 warrant shares including approximately 20,000,000 warrant shares that were set to expire by the year ending September 30, 2020. The 66,000,000 warrant shares had exercise prices ranging from $0.12 per share to $0.40 per share. The incremental fair value of the warrants resulting from modification was $507,265 and was recognized as an expense during the year ended September 30, 2020.

During the year ended September 30, 2021, the Company’s Board of Directors approved the cancellation of 16,093,018 warrant shares held by the Company’s Officers and Directors. See Restricted Stock Grants above relating to this cancellation.

There was no aggregate intrinsic value for warrant shares outstanding at September 30, 2021.

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NOTE 7 – SEGMENT REPORTING

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.

(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

	September 30, 2021
	Corporate		Medical Devices		Authentication and Encryption		Total
ASSETS
Current Assets
Cash	$	12,887	$	15,594	$	3,598	$	32,079
Inventories		-		50,000		-		50,000
Total current assets		12,887		65,594		3,598		82,079

TOTAL ASSETS	$	12,887	$	65,594	$	3,598	$	82,079

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

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

Loss from operations	$	(211,641	)	$	(998,216	)	$	(17,999	)	$	(1,227,856	)

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

Loss from operations	$	(1,004,477	)	$	(852,542	)	$	(64,575	)	$	(1,921,594	)

NOTE 8 – LEGAL MATTERS

The Company continues efforts to preserve revenue and reduce operating expenses through actions including, but not limited to, facilities consolidation and staff reductions, which it hopes 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 the claim 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 $158,715 and unpaid vacation pay in the amount of $20,833 for a total amount of $179,548, 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.

As discussed in Note 5, on or about June 29, 2020, HHE filed case number 2020L006092 in the Circuit Court of Cook County alleging failure to pay Base Rent and abandonment of certain office space in Hoffman Estates, Illinois subject to a Commercial Lease dated May 26, 2016 (the “HHE litigation”). HHE sought at least $672,888 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. On October 6, 2021, HHE and the Company agreed to a settlement on the terms discussed in Note 5 above. On February 10, 2022, the initial payment of $125,000 was paid to HHE (see Note 5).

On or about January 8, 2021, Periklis Papadopoulus, a former Director who was named as an additional Defendant in the HHE litigation, filed a counterclaim against the Company seeking indemnification for attorneys’ fees he incurred in obtaining his dismissal from the HHE litigation. Subsequent to September 30, 2021, the Company settled the counterclaim by agreeing to pay $41,914, with $15,000 payable on or about January 4, 2022 and the balance in sixteen monthly installments commencing June 4, 2022, each in the amount of $1,791. The settlement amount shall be reduced to $37,000 if it is paid prior to April 1, 2022, or $39,000 if paid before July 1, 2022. The Company agreed to entry of a judgment in the amount of $41,914 to secure payments under the settlement agreement. Upon payment of the settlement, Papadopoulos will provide the Company with a satisfaction of judgment.

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NOTE 9 – INCOME TAXES

At September 30, 2021, the Company had net operating loss (“NOL”) carryforwards for federal and state income tax purposes of approximately $21 million that may be offset against future taxable income through 2041. No tax benefit has been reported with respect to these net operating loss (NOL) carryforwards because the Company believes that the realization of the Company’s net deferred tax assets of approximately $5,300,000 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carryforwards are offset by a full valuation allowance.

The Company recognizes as income tax expense, interest and penalties on uncertain tax provisions. As of September 30, 2021, and 2020, the Company has not accrued interest or penalties related to uncertain tax positions. Tax years 2018 through 2021 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Company’s effective income tax rate differs from the amount computed by applying the federal statutory income tax rate to loss before income taxes as follows:

	September 30, 2021			September 30, 2020

Income tax benefit at federal statutory rate		(21.0	)%		(21.0	)%
State income tax benefit, net of federal benefit		(4.0	)%		(4.0	)%
Change in valuation allowance		25.0	%		25.0	%
Income taxes at effective income tax rate		-	%		-	%

The components of deferred taxes consist of the following at September 30, 2021 and 2020:

	September 30, 2021			September 30, 2020
Net operating loss carryforwards	$	5,367,250		$	5,117,750
Less: Valuation allowance		(5,367,250	)		(5,117,750	)
Net deferred tax assets	$	-		$	-

NOTE 10 – SUBSEQUENT EVENTS

Subsequent to September 30, 2021, the Company borrowed $326,000 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 October 6, 2021, the Company and a former landlord (“HHE”) agreed to a settlement agreement providing, among other things, that HHE will provide the Company a satisfaction of the judgment upon the payment by the Company of $350,000, plus interest. An initial payment of $125,000 was due January 1, 2022. On February 10, 2022, the initial payment of $125,000 was paid to HHE (see Note 5).

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Wellness Center USA, Inc. 10-K