SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] 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.
(Exact Name of small business issuer as specified in its charter)
Delaware 33-0619264
(State or other Jurisdiction of I.R.S. Employer Identi-
Incorporation or Organization fication No.)
121 Farrington Avenue, Tarrytown, New York 10591
(Address of Principal Executive Offices) (Zip Code)
(914) 333-0090
(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
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 79,112,214
- ---------------------------------- ----------------------
Title of Class Number of Shares outstanding
at June 30, 2004
Transitional Small Business Format Yes No X
No exhibits included.
1
WELLSTONE FILTERS, INC.
(A Company in the Development Stage)
BALANCE SHEETS
ASSETS
December 31, June 30,
2003 2004
(unaudited)
Current Assets - Cash $ 3,109 $ 109,349
Furniture and Equipment,
net of depreciation 7,211 5,709
Total Assets $ 10,320 $ 115,058
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,389 $ 23,890
Accrued interest on related party notes payable 10,991 13,359
Related Party Notes payable 59,200 59,200
Related Party Advances Payable 30,224 76,584
TOTAL CURRENT LIABILITIES $ 125,804 $ 173,033
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; 20,000,000 shares
authorized; 78,989,400 and 79,112,214
shares issued and outstanding 78,989 79,112
Additional paid-in capital (deficiency) (49,489) 695,388
Deficit accumulated during development stage (144,984) (832,475)
TOTAL SHAREHOLDERS' DEFICIT (115,484) (57,975)
TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIT $ 10,320 $ 115,058
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 Six Months Ended Cumulative
June 30, June 30, amounts since
2004 2003 2004 2003 inception
Revenues $ -- $ -- $ -- $ -- $ --
General and
Administrative
Expense $ 25,460 $ 5,219 $ 45,123 $ 11,931 178,992
Compensation Expense -- -- 640,000 -- 640,000
Interest expense 1,184 584 2,368 1,168 13,483
Loss before
income taxes (26,644) (5,803)(687,491) (13,099)(832,475)
Income tax -- -- -- -- --
Net (Loss) $ (26,644) $ (5,803) $ (687,491) $ (13,099) $ (832,475)
Loss per share:
basic and diluted $ (.00) $ (.00) $ (.01) $ (.00)
Weighted average
shares outstanding 78,989,400 79,079,893 79,053,945 78,989,400
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
Six Months Ended From Inception
June 30, (February 17, 1998)
2004 2003 to June 30, 2004
Cash flows from operating activities:
Net loss $ (687,491) $ (13,099) $ (832,475)
Depreciation 1,502 1,503 5,458
Stock options issued for
services 640,000 -- 640,000
Rental Expense forgiven by
other board member -- 8,400 29,400
Decrease in accounts payable (1,499) -- 23,890
Increase in accrued interest
on related party notes payable 2,368 1,168 13,359
Increase in related party
accounts payable 46,360 10,450 65,417
Net cash provided by
(used in) operating
activities 1,240 8,422 (54,951)
Cash flows from investing activities -- -- --
Cash flows from financing
activities
Proceeds from sale of common stock 105,000 -- 105,000
Net cash provided by financing
activities 105,000 -- 105,000
Net increase (decrease) in cash 106,240 8,422 109,349
Cash, beginning of period 3,109 989 --
Cash, end of period $ 109,349 $ 9,411 $ 109,349
See accompanying Notes to Financial Statements.
4
WELLSTONE FILTERS, INC.
(A Company in the Development Stage)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2004
1. General
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 June 30, 2004, the results of operations for the
three and six months ended June 30, 2004 and 2003, and the cash flows
for the three and six months ended June 30, 2004 and 2003.
Reference is made to the Company's Form 10-KSB for the year ended
December 31, 2003. The results of operations for the three and six
months ended June 30, 2004 are not necessarily indicative of the
results of operations to be expected for the full fiscal year ending
December 31, 2004.
Wellstone Filters, LLC (Wellstone) was organized as a Delaware limited
liability company on February 17, 1998 (date of inception). On May 25,
2001, Wellstone Filters, Inc. (formerly Farallon Corporation) (the
"Registrant") acquired Wellstone pursuant to an Agreement and Plan of
Reorganization (the Agreement), dated as of May 25, 2001. The
Registrant acquired all of the outstanding membership interests of
Wellstone, in exchange for 70,000,000 shares of the Registrant's Common
Stock. In addition, the Company issued 1,989,400 shares of common stock
in cancellation of debt. All share amounts are after giving effect to a
5- for-1 forward stock split effected in July 2004 and a .4 for one
forward split effected in September 2004.
The stockholders of Wellstone, after the acquisition, owned the
majority of the combined company. Accordingly, the combination has been
accounted for as a reverse acquisition whereby, for accounting
purposes, Wellstone is the accounting acquirer and Registrant is the
accounting acquiree. Registrant and Wellstone are collectively referred
to as (the Company). The Company has adopted a December 31 year end.
The financial statements from inception through May 25, 2001, are those
of Wellstone, LLC, the accounting acquirer. Subsequent to May 25, 2001,
the financial statements reflect the consolidated position and
operations of Wellstone Filters, Inc. (Registrant) and Wellstone LLC.
The Company is engaged in the development and marketing of a
proprietary cigarette filter technology; 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.
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be
cash equivalents.
Deferred offering costs consist of costs directly attributable to the
Company's initial public offering of its common stock. These costs will
be recognized as an offset to additional paid-in capital in the period
in which the common stock is sold.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. 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. These
conditions
5
raise substantial doubt about the ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. The Company's
ability to continue as a going concern is subject to the attainment of
profitable operations and / or obtaining necessary funding from outside
sources. However, there can be no assurance they will be successful in
such efforts.
2. Related Party Notes Payable
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 $10,991 and $13,359 at
December 31, 2003 and June 30, 2004, respectively.
Related party accounts payable include amounts due to an officer of the
Company and the brother of an officer of the Company.
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.
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.
Net loss, as reported $ (13,099) $ (68,491)
Deduct:
Total stock-based employee compensation
expense determined under fair
value based method for all
awards, net of related tax effects (330) --
------------- ---------------
Pro forms net (loss) income (13,429) (687,491)
--------------- ---------------
(Loss) earnings per share:
Basic and diluted - as reported $ -- $ (.01)
--------------- ---------------
Basic and diluted - pro forma $ -- $ (.01)
--------------- ---------------
For the three months ended June 30, 2004 and 2003 there was no proforma
stock based employee compensation related to employee stock options and
warrants.
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 1,775,000 and 175,000 shares of common stock at prices ranging
from $.002 to $.01 per share were outstanding at June 30, 2004 and
2003,
6
respectively, but were excluded for the calculation of diluted earnings
per share because the effect of stock options was anti-dilutive.
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 June 30, 2004.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
We have never earned revenues from operations. Currently our operations
are being funded by shareholder advances and a financing agreement with a
private investment fund controlled by a related party. These shareholder
advances, including accrued interest, totaled $149,143 and $70,415 as of June
30, 2004 and December 31, 2003. Until we can enter into contracts with one or
more strategic partners, we will continue to have limited operations. On January
2, 2004, we entered into a funding agreement with Arrakis Select Fund, a private
investment fund controlled by a brother of our Chief Executive Officer under
which agreement Arrakis Select Fund 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 March 25, 2004
Wellstone had received $45,000 from Arrakis for the issuance of 74,695
restricted shares. The agreement was renewed for 90 additional days on April 1,
2004 and for 30 additional days on July 1, 2004. An additional $60,000 was
received in the quarter ended June 30, 2004, for the issuance of 48,119 shares.
In addition, the fund advanced $45,000 in cash as of June 30, 2004, for credit
against issuance of shares in the quarter ended September 30, 2004, and is
included in related party advances payable.
If we enter into strategic alliances for the development of our
product, we expect we will need additional funding depending on the terms of the
agreement. Wellstone does not have any arrangements or understandings with
respect to any capital raising. If we fail to raise these funds we will be
unable to develop our business plan or obtain any revenues.
We are currently producing small quantities of test filters for
marketing and testing. Initially it is more cost and time effective to produce
filters by hand. However, in the future we may need to establish a prototype
manufacturing facility. We can then better determine our production costs and
feasible levels of production. Management estimates that costs could total
$300,000.
We intend to hire three persons to assist in marketing our filter
technology. We will also have significant general and administrative expenses
for salary, legal and regulatory expenses.
We hope that after testing and marketing our compound we will be able
to obtain a supply contract with one or more cigarette or filter manufacturers,
but it might take significantly more time than one year. We might also never be
able to sell our compound in significant quantities. The terms of any supply
contract have not been determined and will depend on negotiations.
We do not have any agreements or understandings with respect to sources
of capital. We have not identified any potential sources.
Information included in this report includes forward looking
statements, which can be identified by the use of forward-looking terminology
such as may, will, expect, anticipate, believe, estimate, or continue, or the
negative thereof or other variations thereon or comparable terminology. The
statements in "Item 1 - Business, Risks and Uncertainties" and other statements
and disclaimers in this Form 10-QSB constitute cautionary statements identifying
important factors, including risks and uncertainties, relating to the
forward-looking statements that could cause actual results to differ materially
from those reflected in the forward-looking statements.
7
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 for the year ended December 31, 2003, 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 it will be able to raise the required funds for
operations from one or more future offerings, and to be able to effect our
business plan. However, Management believes that Wellstone's ability to raise
significant amounts of financing, including the $300,000 required as set forth
above, will be dependent on favorable capital markets and also on obtaining
either a small supply contract or other validation of our technology by an
independent source, and other risks inherent in the business as discussed under
the caption "Risk Factors" in the Form 10-KSB for the year ended December 31,
2003 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 "Risks and Uncertainties" in our Form 10-KSB for the year
ended December 31, 2001, 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.
Item 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. The Company's
principal executive officer and its principal financial officer, based on their
evaluation of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) as of June 30, 2004, have concluded
that the Company's disclosure controls and procedures are adequate and effective
for the purposes set forth in the definition in Exchange Act rules.
(b) Changes in internal controls. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect the Company's internal controls subsequent to the date of their
evaluation.
(c) Changes in internal controls over financial reporting. There were
no significant changes in the Company's internal controls in the Company's
fiscal quarter covered by this report that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - See Item 4.
---------------------
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
-------------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - On
June 2, 2004, stockholders holding 53,802,000 shares of common
stock authorized an amendment to the certificate of
incorporation to effect
8
an increase in authorized common shares to 300,000,000. An
information statement was mailed to all non consenting
stockholders, and the increase in authorized shares will be
effected in the quarter ended September 30, 2004.
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits--None
Reports on Form 8-K--None.
9
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: December 9, 2004 By:/s/ Samuel Veasey
-------------------------
Samueal Veasey
Chief Financial Officer
(chief financial officer and
accounting officer and duly
authorized officer)
10