SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period from
__________________ to __________________
Commission File Number 0-28161
CIK Number 0001092802
WELLSTONE FILTERS, INC.
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(Exact Name of small business issuer as specified in its charter)
Delaware 33-0619264
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(State or other Jurisdiction of I.R.S. Employer Identi-
Incorporation or Organization fication No.)
1250 Crown Boulevard, Timberlake, North Carolina 27583
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(Address of Principal Executive Offices) (Zip Code)
(336) 597-8300
--------------
(Issuer's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (i) 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 (of for such shorter period that the
Registrant was required to file such reports) and (ii) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common Stock, $.001 par value 252,542,991
- ---------------------------------- -----------------------
Title of Class Number of Shares outstanding
at March 31, 2005
Transitional Small Business Format Yes No X
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No exhibits included.
1
WELLSTONE FILTERS, INC.
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2005 2004
ASSETS (unaudited)
------
---------------------------------------
Current assets:
Cash $ 1,144,674 $ 1,431,088
---------------------------------------
Total current assets 1,144,674 1,431,088
Furniture and equipment, net of accumulated depreciation 9,526 12,695
---------------------------------------
Total Assets $ 1,154,200 $ 1,443,783
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LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current Liabilities:
Accounts payable $ 6,872 $ 23,890
Accrued expenses 151,781 20,727
Related party notes payable 59,200 59,200
Related party accounts payable 40,584 40,584
---------------------------------------
Total current liabilities 258,437 144,401
---------------------------------------
Note payable net of unamortized debt discount of $850,000
and $977,500, respectively 650,000 522,500
---------------------------------------
Total liabilities 908,437 666,901
Commitments and contingencies
Shareholders' Deficit:
Preferred Stock, $.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding - -
Common Stock, $.001 par value; 300,000,000 shares
authorized; 252,542,991 shares issued and outstanding 252,543 252,543
Additional paid-in capital 21,471,903 21,471,903
Accumulated deficit (21,478,683) (20,947,564)
---------------------------------------
Total shareholders' equity 245,763 776,882
---------------------------------------
Total liabilities and shareholder's equity $ 1,154,200 $ 1,443,783
---------------------------------------
The accompanying notes are an integral part of the financial statements.
2
WELLSTONE FILTERS, INC.
(A Company in the Development Stage)
Consolidated Statement of Operations
(unaudited)
Three Months Ended Cumulative
March 31, Amounts
----------------------------------------- Since
2005 2004 Inception
------------------------------------------------------------
Revenues $ - $ - $ -
General and administrative expense 320,046 659,663 21,184,679
Stock compensation expense 67,389 - 86,969
Interest expense 143,684 1,184 207,035
------------------------------------------------------------
Loss before income taxes (531,119) (660,847) (21,478,683)
Income tax benefit - - -
------------------------------------------------------------
Net (Loss) $ (531,119) $ (660,847) $ (21,478,683)
------------------------------------------------------------
Net loss per share:
basic and diluted $ (0.00) $ (0.00)
-----------------------------------------
Weighted average shares outstanding
basic and diluted 252,543,000 237,084,000
-----------------------------------------
The accompanying notes are an integral part of the financial statements.
3
WELLSTONE FILTERS, INC.
(A Company in the Development Stage)
Consolidated Statement of Cash Flows
(unaudited)
Cumulative
from inception
Three Months Ended February 17, 1998
March 31, to March 31,
2005 2004 2005
-------------------------------------- --------------------------
Cash flows from operating activities:
Net loss $ (531,119) $ (660,847) $ (21,478,683)
Adjustments to reconcile net loss to
net cash used in operating activities:
Issuance of common stock for services - - 6,270,000
Issuance of stock options for services - 640,000 654,946
Issuance of stock options to employees
as compensation - - 13,555,000
Amortization of debt discount 127,500 - 170,000
Depreciation 781 751 7,982
Loss on disposal of furniture and equipment 4,457 - 4,457
Rental expense forgiven by officer and - - 29,400
Increase(decrease) in accounts payable (17,018) 327 6,872
Increase in related party accounts payable - (319) 29,417
Increase in accrued expenses 131,054 1,184 151,781
-------------------------------------- --------------------------
Net cash used in
operating activities (284,345) (18,904) (598,828)
Cash flows from investing activities-
Purchase of fixed assets (2,070) - (10,798)
-------------------------------------- --------------------------
Cash flows from financing activities:
Proceeds from sale of common stock - 45,000 195,000
Proceeds from long-term debt - - 1,500,000
Members' contribution of equity - - 100
Proceeds from related party notes payable - - 59,200
-------------------------------------- --------------------------
Net cash provided by
financing activities - 45,000 1,754,300
-------------------------------------- --------------------------
Net decrease (increase) in cash and cash equivalents (286,414) 26,096 1,144,674
Cash and cash equivalents at beginning of period 1,431,088 3,109 -
-------------------------------------- --------------------------
Cash and cash equivalents at end of period $ 1,144,674 $ 29,205 $ 1,144,674
-------------------------------------- --------------------------
The accompanying notes are an integral part of the financial statements.
4
WELLSTONE FILTERS, INC.
(A Company in the Development Stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2005
1. General
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The accompanying financial statements are unaudited, but in the opinion
of the management of the Company, contain all adjustments, consisting
of only normal recurring accruals, necessary to present fairly the
financial position at March 31, 2005, the results of operations for the
three months ended March 31, 2005 and 2004, and the cash flows for the
three months ended March 31, 2005 and 2004.
Reference is made to the Company's Form 10-KSB for the year ended
December 31, 2004. The results of operations for the three months ended
March 31, 2005 are not necessarily indicative of the results of
operations to be expected for the full fiscal year ending December 31,
2005.
The Company is engaged in the development and marketing of a
proprietary cigarette filter technology and the Wellstone brand of
cigarettes utilizing the filter; however, the Company has not commenced
planned principal operations and has not recognized any revenues
related to such planned operations. Accordingly, the Company is
considered a development stage company as defined in SFAS No. 7.
2. Related Party Transactions
--------------------------
The related party notes payable consist of loans from officers of the
Company. The amounts are unsecured, bearing interest at 8% and are due
on demand. Accrued interest on the notes was $15,727 and $16,911 at
December 31, 2004 and March 31, 2005, respectively.
Related party accounts payable include amounts due to an officer of the
Company and the brother of an officer of the Company.
During the quarter ended March 31, 2004 the Company sold 224,085 shares
of common stock for $45,000 to a company controlled by the brother of
the CEO. The share price was equal to the closing price on the date the
shares were sold.
3. Stock-Based Compensation
------------------------
The Company accounts for stock options granted to employees under the
recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations,
and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) NO. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost is
recognized in the financial statements, when options granted under
those plans have an exercise price equal to or greater than the market
value of the underlying common stock on the date of grant.
5
The following table illustrates the effect on net (loss) earnings per
share if the Company had applied the fair value recognition provision
of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
Three Months Ended
March 31
2005 2004
----- ----
Net loss, as reported $ (531,119) $ (660,847)
Stock-based employee
Compensation expense
Included in reported net
loss, net of related tax
Effects -- --
Deduct:
Total stock-based employee
Compensation expense
determined under fair
value based method for all
awards, net of related tax effects -- --
----------- ----------
Pro forma net (loss) income (531,119) (660,847)
----------- ----------
(Loss) earnings per share:
Basic and diluted - as reported $ -- $ --
----------- ----------
Basic and diluted - pro forma $ -- $ --
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4. Weighted Average Shares
-----------------------
The computation of basic earnings (loss) per common share is based on
the weighted average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the
weighted average number of common shares outstanding during the year,
plus the common stock equivalents that would arise from the exercise of
stock options and warrants outstanding, using the treasury stock method
and the average market price per share during the year. Options to
purchase 31,825,000 and 5,325,000 shares of common stock at prices
ranging from $.0007 to $.01 per share were outstanding at March 31,
2005 and 2004, respectively, but were excluded for the calculation of
diluted earnings per share because the effect of stock options was
anti-dilutive.
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5. Supplemental Cash Flow Information
----------------------------------
No amounts were paid for interest or income taxes during the period
from February 17, 1998 (date of inception) to March 31, 2005.
During the year ended December 31, 2003 the Company:
o acquired furniture and equipment in exchange for an increase in
related party accounts payable of $67,705.
During the year ended December 31, 2002 the Company:
o acquired furniture and equipment in exchange for an increase in
related party accounts payable of $11,167.
o issued 5,968,200 shares of common stock in settlement of $2,842 of
debt.
6. Liquidity
---------
The Company is a development stage company and has not had revenues
from operations. In addition, the Company has a deficit in working
capital and stockholders' equity, and has incurred sustained losses.
In October 2004 the Company entered into an agreement with another fund
under which it received $1.5 million in debt financing plus warrants.
As of March 31, 2005 the Company had a cash balance of approximately
$1,145,000, which is believed by management to be sufficient for our
working capital needs through the end of the year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
-------------------
Wellstone's Strategic Direction
In the quarter ended March 31, 2005 Wellstone determined to augment its
strategic focus. Wellstone's original plan was to license its proprietary
cigarette filter technology to existing cigarette manufacturers. Because we
believe our filter compound removes certain carcinogens, Wellstone believed that
incorporation of our compound into currently marketed brands would be the
quickest way to bring its Wellstone Filters to the smoking public. After a
review of the tobacco marketplace, Management determined to join the group of
small manufacturers who have gained market share in recent years (estimated by
some to be 12% of total US 2004 market) in this multi- billion dollar market. We
intend to offer a product or products within the discount segment of the market.
Sales of the Wellstone brand are expected to begin in the third quarter of
calendar 2005. There can be no assurance that the Company will have sales by the
third quarter of 2005.
Wellstone intends to market cigarettes that are lower in tar yet do not
compromise and may enhance the pleasurable effects of smoking. Wellstone's
strategic plan as well as its philosophy is based on two facts: First, that
quitting smoking can be difficult. Second, smokers do not apparently focus much
attention on tar levels. In 2002, 64% of all cigarettes sold in the United
7
States were high (more than 10 mg) in tar, according to industry reports.
Wellstone believes that part of the reason smokers prefer high tar cigarettes is
because of taste. The goal of Wellstone is to reduce tar and certain associated
carcinogens without affecting taste. We believe smokers will try Wellstone for
its lower price, and come back for its taste.
Wellstone will be the only small (less than $50 million in sales) US
cigarette manufacturer which is publicly traded. The remainder of the small
manufacturers in the industry are privately held or foreign. Management believes
Wellstone's access to the US capital markets will assist Wellstone in its goal
to become the largest company in the growing discount cigarette market. However,
there can be no assurance that Wellstone's access to US capital markets will
provide the necessary financing to build and grow the business.
Management has not abandoned its plan to license the formulation, and
continues discussions with industry players. Management has determined that
manufacturing and distributing a Wellstone line of cigarettes will be in the
best interests of its stockholders, particularly if Wellstone is able to
successfully market its brand. The successful launch of a Wellstone brand should
add significant value to the company. More importantly, the success of a
Wellstone brand will, it is anticipated, lead the way for other manufacturers to
utilize the filter in their own cigarettes under a Wellstone license.
Timetable to Market
Management has gone back to its original plan of bringing the Wellstone
brand to market by June 2005. Wellstone has relocated from New York to North
Carolina to avail itself of the talent pool and infrastructure already in place
in North Carolina. Wellstone has leased space in a state-of-the-art cigarette
manufacturing facility. In addition to office and plant space, Wellstone also
leases, on a non-exclusive basis as needed, certain production assets to produce
cigarette samples. The office space and plant are located at 250 Crown Boulevard
in Timberlake, North Carolina, approximately 20 miles from Durham. In
furtherance of its marketing plans, the Company:
o Enlarged its management team by adding an experienced COO and CFO
from one of the major manufacturers.
o Hired a VP Sales with extensive experience in the sale and
marketing of cigarettes.
o Is updating its package design to reflect the benefits of the
Wellstone filter.
o Retained Signal Design, Inc. of Durham, North Carolina to assist
in developing a comprehensive brand strategy and marketing
campaign.
o Has received results from an independent FTC testing facility that
confirm the Company's expectations for their patented filter
technology.
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o Is sourcing production capability for our cigarettes and the
filter incorporating our patented technology.
o Is formulating distribution plans are in engaged in discussions
with distributors.
Results of Operations
Wellstone has not yet commenced sales of its products. Sales are not
expected until the third quarter of 2005. Our operations to date have consisted
of developing and refining our proprietary filter formulation, obtaining a US
and international patent on that formulation, and on seeking to market the
filter technology and the Wellstone brand of cigarettes. The loss of $531,119
for the three months ended March 31, 2005 is primarily the result of research
and development cost, employee wages, and interest expense and legal and
professional fees. The loss of $660,847 for the quarter ended March 31, 2004 is
primarily due to option expense of $640,000 for options which were issued to a
scientific advisor to purchase 4,800,000 shares at a price of $.0007 per share.
We anticipate that by the beginning of calendar 2005 our general and
administrative expenses and interest expense will be approximately $135,000 per
month.
Liquidity and Capital Resources
We have never earned revenues from operations. Through October 31, 2004
our operations were being funded by shareholder advances and a financing
agreement with a private investment fund controlled by a related party. These
shareholder advances and financings from the related party, including accrued
interest, totaled $115,509 as of December 31, 2004. On January 2, 2004, we
entered into a funding agreement with Arrakis Select, a private investment fund
controlled by a brother of our Chief Executive Officer under which agreement
Arrakis Select agreed to satisfy Wellstone's funding requirements for 90 days
(renewable for additional 90 day periods), in exchange for common stock valued
at the closing bid price of the common stock as of the 15th day of the month in
which the funding was made. Through October 31, 2004 Wellstone had received
$195,000 from Arrakis for the issuance of 574,791 restricted shares.
In October the Company entered into an agreement with another fund
under which it received $1,500,000 in dept financing plus warrants, and the
agreement with Arrakis was not renewed. On March 31, 2004 the Company had cash
of approximately $1,145,000. Management believes that the cash will be
sufficient to sustain operations through the end of the year.
Wellstone has obtained suppliers to manufacture its patented
formulation in commercial quantities. These sources of supply will enable
Wellstone to meet all foreseeable market demand for the Wellstone line as well
as to supply other manufacturers who may choose to license the product. Because
the formulation is unique to Wellstone's product, Wellstone has been required to
specially source manufacturing to ensure that strict specifications can be met.
Wellstone intends to use multiple suppliers to ensure a reliable supply.
9
We do not have any agreements or understandings with respect to
additional sources of capital. We have not identified any potential additional
sources. If needed for our business we may need to raise other funds in the near
future.
We are a development stage company as that term is defined in
paragraphs 8 and 9 of SFAS No. 7. Our activities to date have been limited to
seeking capital; seeking supply contracts and development of a business plan.
Our auditors have included an explanatory paragraph in their report on our
financial statements, relating to the uncertainty of our business as a going
concern, due to our lack of operating history or current revenues, its nature as
a start up business, management's limited experience and limited funds. We do
not believe that conventional financing, such as bank loans, is available to us
due to these factors. Management believes that Wellstone's ability to raise
significant additional amounts of financing, will be dependent on favorable
capital markets and also on obtaining significant sales, and other risks
inherent in the business as discussed under the caption "Risks and
Uncertainties" in our Form 10-KSB for the year ended December 31, 2004 may
affect the outcome of Management's plans.
When used in this Form 10-QSB, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties, including
those set forth under the "Risks and Uncertainties" set forth below that could
cause actual results to differ materially from those projected. These
forward-looking statements speak only as of the date hereof. Wellstone expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any statement is based. This
discussion should be read together with the financial statements and other
financial information included in this Form 10-QSB.
Risks and Uncertainties
We are still in the Research and Development Stage and have not received any
revenues.
To date, Wellstone's activities have been limited to research and
development, product testing and initial marketing. We have not received any
revenues or income since inception and, even though sales and marketing of the
Wellstone brand are expected to begin in the third quarter of calendar 2005,
Wellstone might not be able to find a market for its products, achieve a
significant level of sales or attain profitability. As a result of the
significant operating expenses related to start up operations, operating results
will be adversely affected if significant sales do not materialize, whether due
to competition or otherwise. Wellstone might not be able to grow in the future
or attain profitability. Wellstone might not be able to implement its business
plan in accordance with its internal forecasts or to a level that meets the
expectations of investors.
We Are Dependent on the Domestic Tobacco Business, which is contracting.
Substantially all of our revenues are expected to be derived from sales
in the United States. The U.S. cigarette business has been contracting in recent
years. If the U.S. cigarette market continues to contract, it could adversely
10
affect our potential future sales, operating income and cash flows.
We don't have any production facilities unless we acquire them or contract out
production.
To date we have only manufactured the filter material in small batches.
Problems in purchasing equipment, establishing manufacturing facilities and
meeting demand can be expected. Problems in contracting out production can also
be expected. If we cannot produce filter material or outsource production we
cannot go to market with our own brand nor can the filter be used in existing
brands.
Competition could prevent us from meeting our objectives.
The cigarette industry is highly competitive. We encounter competition
from developers of low-carcinogen tobacco and developers of other filter
technology, which may have substantially greater financial, manufacturing,
marketing and other resources than we do. Another company could develop filter
technology similar to ours. Competition will affect our ability to market our
product and obtain financing. As we enter the cigarette market ourselves with
the Silverton and Wellstone brands, we will be subject to the competition in
that market, which has been growing and which has encountered increasing
pressure due to price discounting.
Our cigarettes and the cigarettes using our filter may not Be Accepted by
Smokers.
Our filter and the Wellstone brand utilizing it may not be accepted
ultimately by adult smokers. Adult smokers may decide not to purchase our brand
or any tobacco product made with our filters due to taste or other preferences,
and sales of filters with our technology would be adversely affected.
The Cigarette Industry is Subject to Substantial and Increasing Regulation and
Taxation and this can only have a negative impact on us.
Various federal, state and local laws limit the advertising, sale and
use of cigarettes, and these laws have proliferated in recent years. If this
trend continues, it may have material and adverse effects on potential sales,
operating income and cash flows. In addition, cigarettes are subject to
substantial and increasing excise taxes. Increased excise taxes may result in
declines in overall sales volume. This result could adversely affect the market
for our product.
The U.S. Food and Drug Administration ("FDA") has promulgated
regulations governing the sale and advertising of tobacco products. These
regulations are designed primarily to discourage the sale to, and consumption
by, adolescents and children. The authority of the FDA to promulgate such
regulations was challenged in the federal courts. On March 21, 2000, the United
States Supreme Court in a five to four decision held that the Congress has not
given the FDA authority to regulate tobacco products as customarily marketed.
Given the decision by the Supreme Court it is unclear whether the Congress in
the future will act to grant such authority to the FDA, although legislation
that would create such authority has already been introduced in Congress. See
"Government Regulation."
11
We might get sued and insurance possibly won't cover our losses.
There are currently several pending legal actions affecting the tobacco
industry, including proceedings and claims arising out of the sale,
distribution, manufacture, development, advertising, marketing and claimed
health effects of cigarettes. We may be named as a defendant in the future as
there has been a noteworthy increase in the number of these cases pending.
Punitive damages, often in amounts ranging into the hundreds of millions, or
even billions of dollars, are specifically pleaded in a number of these cases in
addition to compensatory and other damages. We don't yet have any product
liability insurance, and if such can be obtained it probably would be very
limited in scope of coverage to any claims that tobacco products manufactured by
or for us contain any foreign object. Such insurance probably does not cover
health-related claims such as those that have been made against the major
manufacturers of tobacco products. We do not believe that such insurance
currently can be obtained. Accordingly, our inclusion in any of these actions or
any future action could have a material and adverse effect on our financial
condition.
If we are successful, we might not be able to hire employees and manage a bigger
enterprise.
If we are successful in obtaining market acceptance for our products,
we will be required to manage substantial volume from our customers. To
accommodate any such growth and compete effectively, we will be required to
attract, integrate, motivate and retain additional highly skilled sales,
technical and other employees. We face competition for these people. Our ability
to successfully manage such volume also will be dependent on our ability to find
a suitable manufacturer for our brand and filters. We or any person contracted
with to produce our products in commercial quantities might not be able to
overcome the challenge of setting up any production operations, and our
personnel, systems, procedures and controls might prove inadequate to support
our future operations. Any failure to implement and improve our operational,
financial and management systems or to attract, integrate, motivate and retain
additional employees required by future growth, if any, could have a material
and adverse effect on our business and prospects, financial condition and
results of operations.
We may not be able to protect our patent against infringement.
Our success in commercially exploiting our proprietary technology
depends in large part on our ability to defend our issued patent, to obtain
further patent protection for the technology in the United States and other
jurisdictions, and to operate without infringing upon the patents and
proprietary rights of others. Additionally, we must be able to obtain
appropriate licenses to patents or proprietary rights held by third parties if
infringement would otherwise occur, both in the United States and in foreign
countries. Our primary patents have only issued in the United States and not in
foreign jurisdictions. If international patents are not issued, it would
adversely affect our competitive advantage, with respect to sales outside the
United States.
Patent positions, including our patent positions (owned or licensed)
are uncertain and involve complex legal and factual questions for which
important legal principles are unresolved. Any conflicts resulting from third
party patent applications and patents could significantly reduce the coverage of
our patents and limit our ability to obtain meaningful patent protection. If
patents are issued to other companies that contain competitive or conflicting
12
claims, we may be required to obtain licenses to these patents or to develop or
obtain alternative technology. Such licensing agreements, if required, may be
unavailable on acceptable terms or at all. If such licenses are not obtained, we
could be delayed in or prevented from pursuing the development or
commercialization of our products. It is possible that there exists an issued or
pending patent which conflict with or potentially infringe on our patent.
Litigation which could result in substantial cost may also be necessary
to enforce any patents to which we have rights, or to determine the scope,
validity and unenforceability of other parties' proprietary rights which may
affect our rights. U.S. patents carry a presumption of validity and generally
can be invalidated only through clear and convincing evidence. We may also have
to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine the priority of an invention, which could result
in substantial cost. Our licensed patents might not be held valid by a court or
administrative body or that an alleged infringer would be found to be
infringing. The mere uncertainty resulting from the institution and continuation
of any technology-related litigation or interference proceeding could have a
material and adverse effect on our business and prospects.
We may also rely on unpatented trade secrets and know-how to maintain
our competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants, suppliers and others. These agreements
might be breached or terminated, or we might not have adequate remedies for any
breach, and our trade secrets might otherwise become known or be independently
discovered by competitors.
If we lose our management it would damage our business.
We depend upon the continued services of our senior management for our
continued success. The loss of the Company's Chief Executive Officer, Learned
Jeremiah Hand, or the Company's Chief Financial Officer, Samuel Veasey could
have a serious negative impact upon our business and operating results. We do
not have an employment agreement with Mr. Hand or with Mr. Veasey, and we have
not obtained "key-man" life insurance with respect to either of their lives.
No cash dividends have or will be paid.
Wellstone has not paid any cash dividends on its capital stock.
Wellstone anticipates that its future earnings, if any, will be retained for use
in the business, or for other corporate purposes, and it is not anticipated that
any cash dividends on its common stock will be paid in the foreseeable future.
Investors cannot expect to receive any dividends or other periodic income on
their investment.
Penny Stock rules could make it hard to resell your shares.
The Penny Stock rules apply to the trading of our stock. Wellstone's
common stock does not meet the listing requirements for any trading market other
than the OTC Bulletin Board. Consequently, the liquidity of Wellstone's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and the news media's coverage of Wellstone, and
lower prices for Wellstone's securities than might otherwise be attained.
13
In addition, the "penny stock" rules limit trading of securities not
traded on NASDAQ or a recognized stock exchange, or securities which do not
trade at a price of $5.00 or higher, in that brokers making trades in those
securities must make a special suitability determination for purchasers of the
security, and obtain the purchaser's consent prior to sale. The application of
these rules may make it difficult for shareholders to resell their shares.
Management owns so many shares, it will be difficult to carry out hostile
takeovers. This could affect the value of our stock price.
Management owns 179,433,000 shares, or 71.1% of the outstanding shares.
Management is able to elect all the board of directors and otherwise control
Wellstone and its operations, and other shareholders will have little, if any
control over Wellstone's management. The concentration of control in management
will discourage takeover attempts such as tender offers, and the purchase of
shares by persons who wish to acquire control of Wellstone. Stockholders will
likely not be able to benefit from a rise in share prices which usually
accompanies hostile takeovers. .
We could change the strategy we outline in this report.
Although we have no current plan to do so, we may change our strategy
for the development and marketing of the 3C904 technology in the future. Our
business plan might not be implemented as set forth herein.
Item 3. CONTROLS AND PROCEDURES.
------------------------
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as of March 31, 2005. Based on this evaluation,
our principal executive officer and our principal financial officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective and adequately designed to ensure that
the information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in applicable rules and forms.
(b) Changes in internal controls over financial reporting.
During the quarter ended March 31, 2005, there has been no change in
our internal control over financial reporting that has material affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - None.
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
On June 2, 2004, stockholders holding 39,000,000 (post-split) shares of
common stock authorized an amendment to the certificate of
incorporation to effect a three-for-one forward stock split and an
increase in authorized common shares to 300,000,000. An information
statement was mailed to all non consenting stockholders, and the
amendment and forward stock split was effective for shareholders of
record as of September 27, 2004 with a payable date of October 5, 2004.
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
31. Certifications
31.1 Certification of Learned J. Hand
31.2 Certification of Samuel Veasey, Chief Financial Officer.
32. Certifications
32.1 Certification pursuant to 18 U.S.C. Section 1350 of Learned
J. Hand
32.2 Certification pursuant to 18 U.S.C. Section 1350 of Samuel
Veasey
Reports on Form 8-K--None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLSTONE FILTERS, INC.
Date: May 16, 2005
By /s/ Learned J. Hand
----------------------------------
Learned J. Hand
Chief Executive Officer
(Principal Executive Officer)
By /s/ Samuel Veasey
----------------------------------
Samuel Veasey
Chief Financial Officer
(Principal Financial Officer)
16