U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________.
Commission file number: 000-08835
Bluestar Health, Inc.
(Exact name of registrant as specified in its charter)
Colorado | 84-0736215 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
19901 Southwest Freeway, Suite 209 | |
Sugar Land, TX | 77479 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (281) 207-5485
Check 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 past 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¨
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o No ¨
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. As of August 19, 2005, there were 13,607,094 shares of common stock, par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format
(check one):
Yes ¨ No ¨
Bluestar Health, Inc.
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company’s future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
BLUESTAR HEALTH, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2005
ASSETS | |
CURRENT ASSETS: | | | | |
| Cash | | $ | 507 | |
| Total current assets | | | 507 | |
| | | | | |
PROPERTY AND EQUIPMENT, net | | | 32,991 | |
| | | | | |
| Total assets | | $ | 33,498 | |
| | | | | |
LIABILITIES AND SHAREHOLDERS’ DEFICIT | | | | |
| | | | | |
CURRENT LIABILITIES: | | | | |
| Current maturities of long term debt | | $ | 32,975 | |
| Short term Bank line of credit | | | 46,913 | |
| Accounts payable | | | 49,767 | |
| Accrued expenses | | | 21,251 | |
| Advance from shareholder | | | 143,184 | |
| Total current liabilities | | | 294,090 | |
| | | | | |
LONG TERM DEBT | | | 54,275 | |
TOTAL LIABILITIES | | | 348,365 | |
| | | | | |
COMMITMENTS AND CONTINGENCIES | | | | |
| | | | | |
SHAREHOLDERS’ DEFICIT | | | | |
Common stock, $.001 par value, 40,000,000 shares authorized, 13,607,094 shares issued and outstanding | | | 13,607 | |
| Additional paid in capital | | | 1,550,533 | |
| Accumulated deficit | | | (1,879,007 | ) |
| Total shareholders’ deficit | | | (314,867 | ) |
| Total liabilities and shareholders’ deficit | | $ | 33,498 | |
The accompanying notes are an integral part of these condensed financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended
June 30, 2005 and June 30, 2004
| | | THREE MONTHS ENDING JUNE 30, | | NINE MONTHS ENDING JUNE 30, | |
| | | 2005 | | 2004 (RESTATED) | | 2005 | | 2004 (RESTATED) | |
| | | | | | | | | | |
| REVENUES | | $ | 20,272 | | $ | - | | $ | 361,506 | | $ | - | |
| | | | | | | | | | | | | | |
| OPERATING EXPENSES: | | | | | | | | | | | | | |
| GENERAL & ADMINISTRATIVE | | | 136,696 | | | 36,675 | | | 584,902 | | | 113,536 | |
| NON CASH STOCK FOR SERVICES | | | 64,501 | | | - | | | 510,113 | | | 204,600 | |
| DEPRECIATION | | | 2,066 | | | - | | | 6,195 | | | - | |
| IMPAIRMENT | | | 137,000 | | | - | | | 137,000 | | | - | |
| TOTAL OPERATIONS EXPENSES | | | 340,263 | | | 36,675 | | | 1,238,210 | | | 318,136 | |
| | | | | | | | | | | | | | |
| OPERATING LOSS | | | (319,991 | ) | | (36,675 | ) | | (876,704 | ) | | (318,136 | ) |
| | | | | | | | | | | | | | |
| INTEREST EXPENSE | | | (6,104 | ) | | (3,150 | ) | | (11,462 | ) | | (9,502 | ) |
| | | | | | | | | | | | | | |
| NET LOSS | | $ | (326,095 | ) | $ | (39,825 | ) | $ | (888,166 | ) | $ | (327,638 | ) |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| NET LOSS PER SHARE: | | | | | | | | | | | | | |
| Basic and diluted | | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.03 | ) |
| | | | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
| | | 13,054,887 | | | 10,987,680 | | | 13,211,836 | | | 10,749,009 | |
The accompanying notes are an integral part of these condensed financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
June 30, 2005 and 2004
| | | 2005 | | 2004 (RESTATED) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net loss | | $ | (888,166 | ) | $ | (327,638 | ) |
| Adjustments to reconcile net loss to cash used in operating activities: | | | | | | | |
| Stock issued for services | | | 510,112 | | | 204,600 | |
| Impairment | | | 137,000 | | | - | |
| Depreciation | | | 6,194 | | | - | |
| Changes in current assets and liabilities: | | | | | | | |
| Accounts receivable | | | 83,186 | | | - | |
| Prepaid expenses and other current assets | | | - | | | - | |
| Accounts payable and accrued expenses | | | (34,008 | ) | | 27,076 | |
| Net cash used in operating activities | | | (185,682 | ) | | (95,962 | ) |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
| Advances from shareholder | | | (42,206 | ) | | 71,543 | |
| Proceeds from sale of stock | | | 23,310 | | | 25,000 | |
| Funds from short term bank line of credit | | | 46,913 | | | - | |
| Payments on notes payable | | | 2,183 | | | - | |
| | | | 30,200 | | | 96,543 | |
Net Change In Cash | | | (155,482 | ) | | 581 | |
CASH, beginning of year | | | 155,989 | | | - | |
CASH, end of year | | $ | 507 | | $ | 581 | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | |
| Interest paid | | $ | 5,470 | | $ | - | |
| Taxes paid | | $ | - | | $ | - | |
The accompanying notes are an integral part of these condensed financial statements.
Bluestar Health, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Bluestar Health, Inc. (“Bluestar”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Form 10-KSB filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements in the Form 10-K have been omitted.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated economic lives of the assets that range between three and seven years.
Stock Options
The Company accounts for its stock-based compensation plans under Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. Statement of Financial Accounting Standard ("FAS") No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, issued in December 2002 requires pro forma net income (loss) and pro forma net income (loss) per share to be disclosed in interim financial statements. For the period ended June 30, 2003, Blue Star’s pro forma net loss and net loss per share are equal to the net loss and net loss per share reported herein.
NOTE 2 - COMMON STOCK
In September 2004, Bluestar adopted a Non Qualified Stock Grant and Option plan (the “2004 Plan”) for employees, officers, directors and consultants which authorized the issuance of 1,200,000 shares of common stock. The 2004 Plan is administered by the Board of Directors. The Board of Directors has the exclusive power to select the participants in the 2004 Plan, to establish the terms of the options granted to each participant, and to make all determinations necessary or advisable.
For the nine months ended June 30, 2005, Bluestar has issued 1,156,590 shares of common stock under the 2004 Plan for both staff costs and consulting services at a value of $510,111.
During the quarter ended June 30, 2005, Bluestar issued 360,000 shares of common stock under the 2004 Plan for both staff costs and consulting services at a value of $64,500.
In March 2005, Bluestar agreed to issue 142,000 shares of its common stock, restricted in accordance with Rule 144, to 11 different investors in exchange for $21,610 in cash.
NOTE 3 - RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS
On August 24, 2004, our Board of Directors elected to rescind the acquisition of HealthQuest, Inc., in its entirety. On August 27, 2004, Bluestar Physical Therapy, a Division of Bluestar Health Inc., filed suit seeking rescission of the transaction by which Bluestar Physical Therapy acquired HealthQuest Inc. The suit alleges fraudulent inducement and first material breach of the contract by HealthQuest and Dr. Peter Lord, the President and Chief Executive Officer of HealthQuest, which rendered the continued performance under the agreement impossible.
Due to the rescission, the prior year’s numbers have been restated to remove the effects of the HealthQuest activity in both the three and nine months ended June 30, 2004. A summary of the restatement for the June 30, 2004 financials is disclosed below:
| | | Previously Stated | | Increase Decrease | | Restatement | |
| As of June 30, 2004 | | | | | | | |
| Consolidated Balance Sheet: | | | | | | | |
| Cash | | $ | 581 | | $ | - | | $ | 581 | |
| Vehicles, net | | | 41,247 | | | (41,247 | ) | | - | |
| Total Assets | | $ | 41,828 | | $ | (41,247 | ) | $ | 581 | |
| | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 105,368 | | $ | (59,662 | ) | $ | 45,706 | |
| Note payable | | | 435,923 | | | (352,723 | ) | | 83,200 | |
| Advances from stockholders | | | 228,316 | | | (60,118 | ) | | 168,198 | |
| Long term debt, net of current portion | | | 7,159 | | | (7,159 | ) | | - | |
| Common stock | | | 11,289 | | | (250 | ) | | 11,039 | |
| Additional paid in capital | | | 787,007 | | | (183,129 | ) | | 603,878 | |
| Deficit accumulated during development stage | | | (1,533,234 | ) | | 621,794 | | | (911,440 | ) |
| Total liabilities and stockholders deficit | | $ | 41,828 | | $ | (47,247 | ) | $ | 581 | |
| | | | | | | | | | | |
| For the nine months ended June 30, 2004 | | | | | | | | | | |
| Consolidated Statement of Operations | | | | | | | | | | |
| Revenues | | $ | 29,393 | | $ | (29,393 | ) | $ | - | |
| Operating expenses: | | | | | | | | | | |
| General and administrative | | | 467,136 | | | (149,000 | ) | | 318,136 | |
| Impairment | | | 482,981 | | | (482,981 | ) | | - | |
| Interest expense | | | 28,708 | | | (19,206 | ) | | 9,502 | |
| Total operating expenses | | | 978,825 | | | (651,187 | ) | | 327,638 | |
| | | | | | | | | | | |
| Net loss | | $ | (949,432 | ) | $ | 621,794 | | $ | (327,638 | ) |
| | | | | | | | | | | |
| Net loss per share: Basic and diluted | | | ($0.09 | ) | | | | | ($0.03 | ) |
| | | | | | | | | | | |
| Weighted average shares outstanding: Basic and diluted | | | 10,996,009 | | | | | | 10,746,009 | |
| | | | | | | | | | | |
| For the three months ended June 30, 2004 | | | | | | | | | | |
| Consolidated Statement of Operations | | | | | | | | | | |
| Revenues | | $ | - | | $ | - | | $ | - | |
| Operating expenses: | | | | | | | | | | |
| General and administrative | | | 53,864 | | | (17,189 | ) | | 36,675 | |
| Impairment | | | - | | | - | | | - | |
| Interest expense | | | 11,625 | | | (8,475 | ) | | 3,150 | |
| Total operating expenses | | | 65,489 | | | (25,664 | ) | | 39,825 | |
| | | | | | | | | | | |
| Net loss | | $ | (65,489 | ) | | | | $ | (39,825 | ) |
| | | | | | | | | | | |
| Net loss per share: Basic and diluted | | | ($0.01 | ) | | | | | ($0.01 | ) |
| | | | | | | | | | | |
| Weighted average shares outstanding: Basic and diluted | | | 11,237,680 | | | | | | 10,987,680 | |
NOTE 4 - GOING CONCERN AND IMPAIRMENT
In May 2005, Bluestar decided to restructure its operations and convert the two existing facilities from physical medicine operations into physical therapy, prevention and wellness operations. Substantially all the assets, liabilities, revenues and expenses reflected in the financial statements relate to these facilities. During this restructuring, the facilities have been closed down and there are not any revenues being generated. Although it is management’s intention to re-open these facilities, to date that has not happened. Based on this change in operations, management decided to write off the value of goodwill that had been acquired in the original purchase. This impairment in value of $137,000 was recorded in the quarter ended June 30, 2005. Because it is management’s intent to re-open these facilities, the physical assets associated with these operations have not been written down.
As long as the restructuring of the Mississippi facilities is ongoing, Bluestar does not have any current means of generating revenues. Bluestar is also currently seeking to acquire additional facilities from various third parties. However, there is no assurance that a definitive agreement can be reached or that sufficient financing resources will be available to conclude any acquisitions. These factors raise substantial doubt about the ability of Bluestar to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| Managements Discussion and Analysis or Plan of Operation |
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. The following discussion should be read together with our financial statements and the notes to those financial statements included elsewhere in this quarterly report.
Except for historical information, the materials contained in this Management’s Discussion and Analysis are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and involve a number of risks and uncertainties. These include the Company’s historical losses, the need to manage its growth, general economic downturns, competition in the physical therapy industry, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks and uncertainties, actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by the Company in this Quarterly Report, as an attempt to advise interested parties of the risks and factors that may affect the Company’s business, financial condition, and results of operations and prospects.
Overview
We own two licensed outpatient physical therapy clinics, both of which we acquired during the quarter ended June 30, 2004. In May 2005, we closed the two clinics in order to restructure the clinics. Prior to May 2005, the two clinics provided post-operative care and treatment for a variety of orthopedic related disorders and sports-related injuries, on an outpatient basis through the use of physical medicine, which required a licensed medical doctor to be present during all phases of a patient’s treatment. Through the current restructuring we intend to re-open the clinics as true physical therapy clinics, which will still care and treat orthopedic-related disorders and sports-related injuries, but through physical therapy utilizing physical therapists rather than physical medicine. Due to our closing of the clinics we do not have any operations and do not anticipate having any revenues until either we re-open the clinics or we acquire additional clinics.
If the restructured clinics are successful we hope to eventually acquire and develop additional outpatient physical therapy clinics, initially in Texas and the South, and later to expand on a national basis.
Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004
Results of Operations
Introduction
As a result of our acquisition of the two outpatient and physical therapy clinics and our subsequent closing of those clinics for restructuring, our financial information for the three months ended June 30, 2005 differs significantly from our financial information for the same period one year earlier and from our financial information for the previous quarter, ended March 31, 2005. For example, our revenues for the quarter ended June 30, 2005, were $20,727, compared to $0 for the period ended June 30, 2004, and $142,580 for the quarter ended March 31, 2005. Although our revenues rose significantly compared to last year, we are not operating profitably, and do not anticipate doing so in the near future due to the temporary closing of our clinics for restructuring and since any increase in revenues will likely be accompanied by a corresponding increase in our operating costs. The comparison of these two periods is detailed below. Since we now have operations, where we did not one year ago, we have also included our previous quarter (March 31, 2005) numbers for comparison.
Revenues and Net Loss
Our revenues, general and administrative expenses, interest expense, and net loss for the quarter ended June 30, 2005, as compared to the quarters ended June 30, 2004 and March 31, 2005, are as follows:
| | | Quarter ended June 30, 2005 | | Quarter ended June 30, 2004 | | Quarter ended March 31, 2005 | |
| | | | | | | | |
| Revenues | | $ | 20,272 | | $ | - | | $ | 142,580 | |
| General and administrative | | | 136,696 | | | 36,675 | | | 234,704 | |
| Non cash stock for services | | | 64,501 | | | - | | | 22,074 | |
| Depreciation | | | 2,066 | | | - | | | 2,064 | |
| Impairment | | | 137,000 | | | - | | | - | |
| Interest expense | | | (6,104 | ) | | (3,150 | ) | | (2,880 | ) |
| Net loss | | | (326,095 | ) | | (39,825 | ) | | (119,142 | ) |
Revenues
Our revenues were higher this year ($20,272 for the quarter ended June 30, 2005) when compared to last year ($0 for the quarter ended June 30, 2004) due to our acquisition and operation of the two clinics. Since the three months ended June 30, 2005 was only our fourth quarter operating the clinics, and during the quarter we closed the clinics to restructure their business, our revenues of $20,272 for this quarter may not be indicative of the revenues from those two clinics in future quarters. During the two quarters before June 30, 2005, the three months ended March 31, 2005 and December 31, 2004, our revenues were $142,580 and $198,654, respectively. These quarter-to-quarter changes in revenues illustrate how our revenues from the two clinics may change dramatically quarter-to-quarter. While our clinics are closed for restructuring, we will likely not have any revenues from our operations. Once we re-open the clinics with a new business focus the previous quarters revenues may not be indicative of our revenues when the clinics re-open. Additionally, we plan on locating additional clinics to acquire in the future, which may also change our revenues in future quarter and year periods.
General and Administrative Expenses
Our general and administrative expenses were $136,696 for the quarter ended June 30, 2005, compared to $36,675 for the same period one year ago, and compared to $234,704 for the quarter ended March 31, 2005. The increase in general and administrative expenses this year compared to last year is due to the expenses involved in operating the clinics. The decrease in general and administrative expenses from the quarter ended June 30, 2005 compared to March 31, 2005 is primarily due to the fact we closed the clinics for renovation in May 2005. When we re-open the clinics with a new business focus our general and administrative expenses may vary greatly from what they were prior to when we closed them for restructuring.
Non Cash Stock Issued for Services
For the quarter ended June 30, 2005, we issued stock valued at $64,501 for services, compared to $0 for the quarter ended June 30, 2004, and $22,074 for the quarter ended March 31, 2005. These stock issuances were primarily made to consultants and to our employees.
Interest Expense
Our interest expense of $6,104 for the quarter ended June 30, 2005 is related to a note payable that dates back to the transaction between us and Alfred Oglesby, our sole officer and director, whereby Mr. Oglesby transferred his stock ownership in Bluestar Physical Therapy, Inc., a Texas corporation for 94.5% of our outstanding stock. Currently this note payable has repayment terms of 60 monthly payments of $1,500 beginning in October, 2004.
Net Loss
Our net loss for the three months ended June 30, 2005 was $326,095, compared to $39,825 for the three months ended June 30, 2004. This significant increase in our net loss from year to year is attributable to the costs involved in operating the two clinics, the issuance of stock for services and the write down of goodwill as a result of restructuring the two clinics. One year ago we had not operated the clinics for a full quarter so our operating expenses were less for the quarter ended June 30, 2004 compared to June 30, 2005. For the three months ended March 31, 2005, we had a net loss of $119,142. The increase in our net loss for the quarter ended June 30, 2005, compared to March 31, 2005, is due to the fact that while our operation expenses were higher for the three months ended March 31, 2005, we had significantly higher revenues for that period, and issued less stock for services, than we did in the quarter ended June 30, 2005. In the quarter ended June 30, 2005, we also had a write down of goodwill as a result of restructuring the two clinics.
Nine Months Ended June 30, 2005 Compared to the Nine Months Ended June 30, 2004
Results of Operations
Introduction
As a result of our acquisition of the two outpatient and physical therapy clinics, our financial information for the nine months ended June 30, 2005 differs significantly from our financial information for the same period one year earlier. For example, our revenues for the nine months ended June 30, 2005, were $361,506, compared to $0 for the nine months ended June 30, 2004. The comparison of these two periods is detailed below.
Revenues and Net Loss
Our revenues, general and administrative expenses, interest expense, and net loss for the nine months ended June 30, 2005, as compared to the nine months ended June 30, 2004, are as follows:
| | | Nine Months ended June 30, 2005 | | Nine Months ended June 30, 2004 | |
| | | | | | |
| Revenues | | $ | 361,506 | | $ | - | |
| General and administrative | | | 584,902 | | | 113,536 | |
| Non cash stock for services | | | 510,113 | | | 204,600 | |
| Depreciation | | | 6,195 | | | - | |
| Impairment | | | 137,000 | | | - | |
| Interest expense | | | 11,462 | | | 9,502 | |
| Net loss | | | (888,166 | ) | | (327,638 | ) |
Revenues
As noted above, our revenues were significantly higher this nine month period ($361,506 for the nine months ended June 30, 2005) when compared to the same nine month period one year ago ($0 for the nine months ended June 30, 2004) due to our acquisition and operation of the two clinics. Since we just began operating the clinics in June 2004, and have now closed the clinics for renovation and restructuring, the revenues for the nine months ended June 30, 2005, may not be indicative of the revenues from those two clinics in future nine month periods.
General and Administrative Expenses
Our general and administrative expenses were $584,902 for the nine months ended June 30, 2005, compared to $113,536 during the same period one year ago. This significant increase in general and administrative expenses during this nine-month period is due to the expenses involved in operating the clinics.
Non Cash Stock Issued for Services
For the nine months ended June 30, 2005, we issued stock valued at $510,113 for services, compared to $204,600 for the nine months ended June 30, 2004. As noted above, these stock issuances were primarily to our employees and consultants.
Interest Expense
Our interest expense of $11,462 for the nine months ended June 30, 2005, is related to a note payable that dates back to the transaction between us and Alfred Oglesby whereby Mr. Oglesby transferred his stock ownership in Bluestar Physical Therapy, Inc., a Texas corporation, for 94.5% of our outstanding stock. Currently this note payable has repayment terms of 60 monthly payments of $1,500 beginning in October, 2004.
Net Loss
Our net loss for the nine months ended June 30, 2005, was $888,166, compared to $327,638 for the nine months ended June 30, 2004. This significant increase in our net loss from year to year is attributable to both the increase in our general and administrative expenses due to the operation of the two clinics, the increase in stock issued for services for this nine-month period over the same period one year ago and the write down of goodwill as a result of restructuring the two clinics.
Liquidity and Capital Resources
Introduction
We have not operated profitably, and do not anticipate doing so in the near future. We are seeking to raise capital through a variety of sources to fund operations until such time as we might operate on a positive cash flow basis. To date, we have relied primarily on funds from our majority stockholder, and anticipate continuing to do so until we raise the necessary capital.
Our cash, total current assets, total assets, total current liabilities, and total liabilities as of June 30, 2005 and December 31, 2004 are as follows:
| | | June 30, 2005 | | December 31, 2004 | | Change | |
| | | | | | | | |
| Cash | | $ | 507 | | $ | 148,899 | | $ | (148,392 | ) |
| Total current assets | | | 507 | | | 184,052 | | | (183,545 | ) |
| Total assets | | | 32,991 | | | 358,172 | | | (325,181 | ) |
| Total current liabilities | | | 294,090 | | | 268,954 | | | 25,136 | |
| Total liabilities | | | 348,365 | | | 337,686 | | | 10,679 | |
Cash Requirements
Currently, our cash requirements consist primarily of general and administrative expenses related to operating the two clinics, our costs in restructuring the clinics’ business focus, maintaining our status as a public company, and certain debt payments that come due.
Sources and Uses of Cash
Operations
Our net cash provided by operating activities totaled $185,682 for the nine months ended June 30, 2005, compared to $95,963 for the nine months ended June 30, 2004. We generated revenues totaling $361,506 for the nine months ended June 30, 2005, mainly from the operation of our two clinics. Due to the closing of the two clinics in order to restructure the businesses we anticipate a significant decrease in our revenues from these two clinics in the next quarter. After the restructuring we anticipate generating revenue from the operations of the two clinics but we do not anticipate we will be operating at a positive cash flow in the near future.
Financing
For the nine months ended June 30, 2005, our net cash from financing activities totaled $30,200, consisting of $46,913 from a short term bank line of credit, $23,310 from the sale of our common stock, $2,183 from payments on notes payable, and the repayment of advances from a shareholder totaling $42,206. Prior to beginning to operate the two clinics we funded expenses primarily through advances from our majority shareholder. Until we can raise additional capital and/or increase the revenues from the clinics to get cash flow positive, we anticipate we will continue to take advances from our majority shareholder to help fund our operations. We do not currently have any specific plans as to how we will raise the necessary capital or increase the revenues from the clinics.
Debt Instruments, Guarantees, and Related Covenants
We have two primary debt obligations. The first is a vehicle loan, which is current. The second obligation is a note to the controlling shareholder of Taurus Entertainment Companies, Inc., arising out of the transaction whereby our current majority shareholder obtained control. Under new revised terms for this note, its new repayment terms are $1,500 per month for the next 60 months, beginning in October, 2004.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
Revenue Recognition
Our revenue recognition policy is objective in that we recognize revenue when services are performed. Accordingly, there are no estimates or assumptions that have caused deviation from our revenue recognition policy.
Accounting for Stock-Based Compensation
We account for stock-based compensation based on the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” as amended by the Financial Accounting Standards Board Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation.” These rules state that no compensation expense is recorded for stock options or other stock-based awards to employees that are granted with an exercise price equal to or above the estimated fair value per share of the Company’s common stock on the grant date. We adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” which requires compensation expense to be disclosed based on the fair value of the options granted at the date of the grant.
In December 2002, the Financial Accounting Standards Board issued Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure—an amendment of Financial Accounting Standards Board Statement No. 123.” This statement amends Statement of Financial Accounting Standards No. 123, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of Statement of Financial Accounting Standards No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. We did not voluntarily change to the fair value based method of accounting for stock-based employee compensation, therefore, the adoption of Statement of Financial Accounting Standards No. 148 did not have a material impact on our financial position.
The Company’s Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this quarterly report (the “Evaluation Date”), have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.
On August 27, 2004, Bluestar Physical Therapy, a Division of Bluestar Health, Inc., filed suit seeking rescission of the transaction by which Bluestar Physical Therapy acquired HealthQuest, Inc. The suit alleges fraudulent inducement and first material breach of the contract by HealthQuest and Dr. Peter Lord, the President and Chief Executive Officer of HealthQuest, which rendered the continued performance under the agreement impossible. The suit is Cause No. 2004-47308; Bluestar Physical Therapy, a Division of Bluestar Health, Inc. v. HealthQuest, Inc. and Peter Lord; filed in the 152nd Judicial District Court of Harris County, Texas. HealthQuest answered with a general denial and discovery in the case is ongoing.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
| Changes in Securities and Use of Proceeds |
In March 2005, we agreed to issue 112,000 shares of our common stock, restricted in accordance with Rule 144, to 10 investors in exchange for $19,910 in cash. This stock was issued in April 2005. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investors were sophisticated investors.
On April 14, 2005, we issued 10,000 shares of our common stock, restricted in accordance with Rule 144, to one investor in exchange for $1,700 in cash. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investor was a sophisticated investor.
On April 14, 2005, we issued 20,000 shares of our common stock, restricted in accordance with Rule 144, to an employee as compensation. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the investor was a sophisticated investor who is familiar with our business operations.
| Defaults Upon Senior Securities |
There have been no events that are required to be reported under this Item.
| Submission of Matters to a Vote of Security Holders |
There have been no events that are required to be reported under this Item.
In May 2005, we closed our two clinics in order to restructure the clinics. Prior to May 2005, the two clinics provided post-operative care and treatment for a variety of orthopedic related disorders and sports-related injuries, on an out patient basis through the use of physical medicine, which required a licensed medical doctor to be present during all phases of a patient's treatment. Through the current restructuring we intend to re-open the clinics as true physical therapy clinics, which will still care and treat orthopedic-related disorders and sports-related injuries, but through physical therapy utilizing physical therapists rather than physical medicine. Due to our closing of the clinics we do not have any operations and do not anticipate having any revenues until either we re-open the clinics or we acquire additional clinics.
| Exhibits and Reports on Form 8-K |
| | 3.1 (1) | Restated Articles of Incorporation of Taurus Petroleum, Inc. |
| | 3.2 (2) | Articles of Amendment to the Articles of Incorporation of Taurus Petroleum, Inc. |
| | 3.3 (1) | Bylaws of Taurus Oil Corporation |
| | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
| | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
| | | Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | (1) | Incorporated by reference from our Annual Report on Form 10-KSB for the year ended September 30, 1998, filed with the Commission on January 20, 1999. |
| | (2) | Incorporated by reference from our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004, filed with the Commission on August 25, 2004. |
We did not file any Current Reports on Form 8-K during the quarter ended June 30, 2005.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: August 23, 2005 | Bluestar Health, Inc. |
| | | |
| | | |
| | /s/ Alfred Oglesby |
| | By: | Alfred Oglesby, President and |
| | | Chief Financial Officer |
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