UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FORM 10-Q

[X]☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended DecemberMarch 31, 20172022

[   ]☐ TRANSITION REPORT PURSUANT TO 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)

2500 West Higgins Road, Ste. 780, Hoffman Estates, IL, 60169145 E. University Boulevard, Tucson, AZ85705

(Address of Principal Executive Offices)

(847) (847) 925-1885

(Issuer Telephone number)

Not Applicable

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

2500 West Higgins Road, Ste. 780, Hoffman Estates, IL, 60169

Copies of communication to:

Ronald P. Duplack, Esq.

Rieck and Crotty, P.C.

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

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

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

Yes [X] ☒ No [   ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] ☒ No [   ]☐

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

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

Yes [   ] ☐ No [X] ☒

The number of shares issued and outstanding of each of the issuer’s classes of common equity as of DecemberMarch 31, 20172022 was 91,329,202.126,377,077.

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FORM 10-Q

WELLNESS CENTER USA, INC.

DECEMBERMARCH 31, 20172022

TABLE OF CONTENTS

PART I-- FINANCIAL INFORMATION

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Wellness Center USA, Inc.

Condensed Consolidated Balance Sheets

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

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Wellness Center USA, Inc.

Condensed Consolidated Statements of Operations

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

Wellness Center USA, Inc.

Condensed Consolidated Statements of Shareholders’ Deficit (Unaudited)

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

Wellness Center USA, Inc.

Condensed Consolidated Statements of Cash Flows

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

WELLNESS CENTER USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREESIX MONTHS ENDED DECEMBERMARCH 31, 2017 AND 20162022 and 2021

NOTE 1 – BASIS OF PRESENTATION

Organization and Operations

Wellness Center USA, Inc. ("WCUI"(“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”), National Pain Centers, Inc. (“NPC”), and StealthCo Inc. (“SCI”), d/b/a Stealth Mark, Inc. On August 11, 2017, the Company entered into an agreement to sell 100% of the issued and outstanding shares of NPC, which has been accounted for as a discontinued operation on the condensed consolidated statement of operations for the three months ended December 31, 2016. See Note 3 for details relating to the sale.

The Company currently operates in the following business segments: (i) distribution of targeted Ultra Violet ("UV"Ultraviolet (“UV”) phototherapy devices for dermatology;dermatology and sanitation purposes; and (ii) authentication and encryption products and services. The segments are operated, respectively, through PSI and SCI.

Basis of Presentation of Unaudited Financial Information

The accompanying unaudited condensed consolidated financial statements of Wellness Center USA, Inc. and Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the threesix months ended DecemberMarch 31, 20172022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018.2022.

COVID-19 Considerations

During the six months ended March 31, 2022, 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 March 31, 2022, the COVID-19 pandemic has not negatively impacted the Company’s liquidity position as of such date. Through March 31, 2022, 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 threesix months ended DecemberMarch 31, 2017,2022, the Company incurred a net loss from continuing operations of $398,002$460,396 and used cash in operations from continuing operations of $147,189,$438,201, and had a shareholders’ deficit of $556,537$3,719,244 as of DecemberMarch 31, 2017.2022. In addition, loans payable of $1,816,250 and payroll taxes of $66,834 are past due. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its strategies. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In addition, the Company's independent registered public accounting firm, in its report on the Company's September 30, 2017 financial statements, has raised substantial doubt about the Company's ability to continue as a going concern.

At DecemberMarch 31, 2017,2022, the Company had cash on hand in the amount of $23,594.$64,478. 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 threesix months ended DecemberMarch 31, 2017,2022, the Company received $141,114$326,000 through debt financingshort-term loans from officers and the exercise of stock warrants.shareholders and $304,600 through a U.S. SBA loan payable.

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

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The Company'sconsolidated 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:

SCHEDULE OF COMPANY'S CONSOLIDATED SUBSIDIARIES

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 andreserves, accruals for potential liabilities, valuations of stock-based compensation, calculations,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 threesix months ended DecemberMarch 31, 20172022 and 2016,2021, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive. At DecemberMarch 31, 20172022 and 2016,2021, the dilutive impact of outstanding stock options of 6,822,0004,427,738 and 5,785,00012,602,738 shares, respectively, and outstanding warrants for 62,716,019and 64,208,15828,256,797 and 54,379,758 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.

Revenue Recognition

TheFor trade sales, the Company recognizesgenerates its revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies for each major category of revenue:

(i)Sale of products: The Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise. Persuasive evidence of an arrangement is demonstrated via sales invoicemerchandise, or contract; product delivery is evidenced by warehouse shipping log as well as a signed bill of lading from the vessel or rail company and title transfers upon shipment, based on free on board (“FOB”) warehouse terms; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate, discount, or volume incentive. When the Company recognizesfor consulting services, revenue no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues. 

(ii)Consulting services: Revenue is recognized in the period services are rendered and earned under service arrangements with clients whereclients.

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 six months ended March 31, 2022 and 2021, all of the Company’s products were sold through its Direct Channel.

We determine revenue recognition through the following steps:

Revenue is generally recognized upon shipment or when a service fees are fixed or determinable and collectabilityhas been completed, unless we have significant performance obligations for services still to be completed. We recognize revenue when a material reversal is reasonably assured. 

no longer probable. Payments received before the relevant criteria for revenue recognition are satisfied are recorded as deferred revenue. DeferredThere was 0 deferred revenue at DecemberMarch 31, 20172022 and 2016 was $52,348 and $55,098, respectively.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)September 30, 2021.

Non-controlling InterestInventories

Non-controlling interest representsInventories are stated at the non-controlling interest holder’s proportionate sharelower of cost or net realizable value. Cost is computed on a first-in, first-out basis. At March 31, 2022, primarily all of the equityinventories 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 Company’s majority-owned subsidiary, PDC. Non-controlling interestinventory and net realizable value based upon assumptions about future demand and charged to the provision for inventory, which is adjusted fora component of cost of sales. At the non-controlling interest holder’s proportionate sharepoint of the earningsloss 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 lossesincrease in that newly established cost basis. At March 31, 2022 and other comprehensive income (loss), if any,September 30, 2021, the Company recorded a reserve of $173,930for excess and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.slow moving inventories.

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, and warrants to employees and non-employeesare recognized in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option and stock warrant grants to employeesthe 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 authoritative guidance provided by the Financial Accounting Standards Board where thegrant date fair value of the award is measuredand charged to operations on the date of grant and recognizeda straight-line basis over the vesting period. The Company accountsRecognition of compensation expense for stock option and stock warrant grants to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option or warrant grants are immediately vested and the total stock-based compensation charge is recorded in the same period ofand manner as if the measurement date.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 May 2014,June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from ContractsInstruments (“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 Customers. ASU 2014-09 is a comprehensive revenue recognition standard thatan “expected loss” model, under which companies will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenueallowances based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costsexpected rather than incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein.losses. Entities will be able to transition toapply the standard either retrospectively orstandard’s provisions as a cumulative-effect adjustment to retained earnings as of the datebeginning of adoption.the first reporting period in which the guidance is effective. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02standard is effective for all interim and annual reporting periods beginning after October 1, 2023. 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, 2018.2021, 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. A modified retrospective transition approach is requiredpermitted for lessees for capital and operating leases existing at, or entered into after,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 earliest comparative period presented in the financial statements, with certain practical expedients available.fiscal year that includes that interim period. The Company is in the process of evaluating the impactadoption of ASU 2016-022021-04 is not expected to have a material impact on the Company’s financial statements andor 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.

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NOTE 3 – DISCONTINUED OPERATIONSLOANS PAYABLE FROM OFFICERS AND SHAREHOLDERS

On August 11, 2017,As of September 30, 2021, loans payable to officers and shareholders of $2,071,200 were outstanding and $1,165,250 was past due. During the six months ended March 31, 2022, the Company and its subsidiary, PSI, borrowed $326,000 from its officers and shareholders and repaid $160,000 of those loans. The loans have an interest rate of eight percent per annum and are due one year from the date of issuance. As of March 31, 2022, loans payable to officers and shareholders of $2,237,200 were outstanding and $1,816,250 was past due.

During the year ended September 30, 2021, 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. During the three and six months ended March 31, 2022, the Company amortized $4,375 and $8,750, respectively, of the debt discount and the balance of the unamortized discount at March 31, 2022 was $7,072.

NOTE 4 – U.S. SMALL BUSINESS ADMINISTRATION LOAN PAYABLE

During the six months ended March 31, 2022, the Company entered into ana loan agreement with Dr. Jay Joshi to sell 100%the U.S. Small Business Administration (SBA) under which the Company borrowed $304,600. The note accrues interest at 3.75% per annum and calls for monthly payments of $1,569 beginning in February 2024, and maturing in February 2052. The loan is secured by all of the issued and outstanding shares of NPC Inc. (“NPC”) to Dr. Joshi. As part of the agreement, Dr. Joshi and NPC released the Company from any and all liabilities, claims and obligationsassets of the Company and is personally guaranteed by the Company’s Chief Executive Officer. The balance of $304,600 was due as of March 31, 2022.

NOTE 5 – LEASE LIABILITIES

Lease settlement liability

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 2020, in favor of Dr. Joshiits 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 NPCabout 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 arisingabandonment 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 or relating to the operation of the NPC business. Also as part of the agreement, Dr. Joshi’s employment agreement with NPC was terminatedCompany’s ex-CEO and all assets and liabilities of NPCtwo past Directors who were transferred to Dr. Joshiserving on our Board as of the date of the agreement, including $365,459lease. As of accrued compensation and shareholder advances owed to Dr. Joshi by NPC. TheMarch 31, 2022, the Company agreed to sell NPC to Dr. Joshi so that it could focus on its other business segments, PSI and Stealth Mark, which are technology companies, while NPC was a service business. Further,has recorded the eliminationfull amount of the underlined NPC liabilitiesjudgement due.

On October 6, 2021, HHE and the Company settled the HHE Litigation pursuant to Dr. Joshian 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 significantly improve Wellness Center Inc.’s financial position. As partforebear on the enforcement of the agreement,judgment and will provide the Company agreed to issue Dr. Joshi stock options to purchase 500,000 shares of its common stock with an exercise price of $0.25 per share. Dr. Joshi continued to serve on the Company’s board of directors until February 5, 2018. During the year ended September 30, 2017, the Company recorded a $252,508 gain relating to this transaction.

Componentssatisfaction of the statement of operations relating to NPC forjudgment upon the three months ended December 31, 2016 were as follows:

NOTE 4 – LOANS PAYABLE FROM SHAREHOLDERS

Loans payable of $59,000 at September 30, 2017 consist of two unsecured note agreements issued in 2014 totaling to $9,000, and two short-term unsecured loans issued in fiscal 2017 totaling to $50,000. The loans have no stated interest rate and are due on demand. During the three months ended December 31, 2017, the Company borrowed $30,500 under three short-term unsecured loans. The loans have no stated interest rate and are due on demand. As of December 31, 2017, loans payable of $89,500 were outstanding.

NOTE 5 – CONVERTIBLE NOTE AGREEMENT

In July 2017, the Company entered into a Convertible Note Payable Agreement with an individual under which the Company borrowed $165,000. Net proceeds receivedpayment by the Company underof $350,000, plus interest on the agreement were $150,000. In connection withprincipal amount thereof outstanding from time to time at the agreement,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. The Company received a letter of default from HHE on January 20, 2022, which provided the Company issued30 days to make the individual 165,000 restricted shares of its common stock and warrants to purchase 330,000 shares of its common stock, which vested upon grant. The warrants expire five years from the date of grant and have an exercise price of $0.50 per share. The note payable accrues interest at eight percent per annum, is unsecured and is convertible at any time after the 90^th day from the issue date into the Company’s common stock at the fixed conversion price of $0.25 per share. The note matures in February 2018, but may be extended at the optionpayment or HHE could seek collection of the individual.Agreed Final Judgement Amount of $725,795. The Company may prepaymade the note at any time immediately followingpayment 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, the issue date upon seven days’ prior written notice.

OnCompany had recorded a lease settlement liability of $672,878. During the datesix months ended March 31, 2022, the Company made a payment of $125,000 towards the agreement,Settlement Amount and as of March 31, 2022, the closing priceCompany has recorded a lease settlement liability of the common stock was $0.31 per share. As the conversion price embedded in the note agreement was below the trading price of the common stock on the date of issuance, a beneficial conversion feature (BCF) was recognized at the date of issuance.$547,878. The Company recognized a debt discount at the date of issuance in the aggregate amount of $150,000 related to the relative fair value of the warrants and beneficial conversion features, which comprised $94,704 related to the intrinsic value of beneficial conversion features and $55,296 related to the relative fair value of the warrants. The aggregate fair value of the warrants of $87,582 was based on a probability effected Black-Scholes option pricing model with a stock price of $0.31, volatility of 139.98% and risk-free rate of 1.28%. The unamortizedwill adjust any remaining balance of the debt discount at September 30, 2017 was $115,116. Duringliability after it has completed the three months ended December 31, 2017,payment and satisfaction of the Company amortized $70,046 of debt discount, leaving an unamortized balance of $119,930 at December 31, 2017.remaining $225,000 Settlement Amount.

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NOTE 6 – SHAREHOLDERS’ EQUITY

Common shares issued for ServicesRestricted Stock Grants

The following table summarizes restricted common stock activity:

SUMMARY OF RESTRICTED COMMON STOCK

During the three and six months ended DecemberMarch 31, 2017,2022, the Company issued 120,000recorded $43,750 and $87,500, respectively, of stock compensation for the value of vested restricted common stock, and as of March 31, 2022, unvested compensation of $237,500 remained that will be amortized over the remaining vesting period, through March 2024.

In addition to the above grants, 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 itsthe Company’s common stock valued at $21,000 for services provided by accountingto its Officers and PSI consultants. The shares were valued atDirectors, all of which will only be issued upon the trading pricesale or merger of the commonCompany. No stock atcompensation was recorded relating to that grant as management feels it is a remote possibility that a sale or merger of the date of issuance.Company will happen within the next twelve months. The Company will account for the shares once they are granted to its Officers and Directors.

Stock Options

On December 22, 2010, effective retroactively as of June 30, 2010, the Company’s boardBoard of directorsDirectors 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 Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, the Company’s policy is to issue new shares of common stock to satisfy stock option exercises. The Company applied fair value accounting for all share-based payments awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model.

The table below summarizes the Company’s stock option activities for the threesix months ended DecemberMarch 31, 2017:2022:

SCHEDULE OF STOCK OPTION ACTIVITY

The aggregate intrinsic value for option shares outstanding at December 31, 2017 was $119,688.

The following table summarizes information concerning outstanding and exercisable options as of DecemberMarch 31, 2017:2022:

SCHEDULE OF OUTSTANDING AND EXERCISABLE OPTIONS BY EXERCISE PRICE RANGE

During the six months ended March 31, 2022, 0 stock compensation was recorded for the value of options vesting during the period, and as of March 31, 2022, 0 unvested compensation remained that will be amortized over the remaining vesting period.

As of DecemberMarch 31, 2017,2022, there were 677,50025,572,262 shares of stock options remaining available for issuance under the 2010 Plan. The intrinsic value for option shares outstanding at March 31, 2022 was $3,125.

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NOTE 6 – SHAREHOLDERS’ EQUITY (CONTINUED)

Stock Warrants

During the three months ended December, 31, 2017, warrants to purchase 924,286 shares of the Company’s common stock were exercised for $110,914.

The table below summarizes the Company’s warrants activities for the threesix months ended DecemberMarch 31, 2017:2022:

SCHEDULE OF WARRANT ACTIVITY

The aggregate intrinsic value for warrant shares outstanding December 31, 2017 was $1,811,221.

The following table summarizes information concerning outstanding and exercisable warrants as of DecemberMarch 31, 2017:2022:

SCHEDULE OF OUTSTANDING AND EXERCISABLE WARRANTS BY EXERCISE PRICE RANGE