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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, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to .
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Commission file number: 000-08835
Bluestar Health, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-0736215
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19901 Southwest Freeway, Suite 206
Sugar Land, TX 77479
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(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 |_| No |X|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| 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 June 30, 2007, there
were 14,000,504 shares of common stock, par value $0.001, outstanding.
Transitional Small Business Disclosure Format
(check one):
Yes |_| No |X|
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Bluestar Health, Inc.
TABLE OF CONTENTS
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PART I
ITEM 1 Financial Statements 3
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ITEM 2 Managements Discussion and Analysis 10
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ITEM 3 Controls and Procedures 16
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PART II
ITEM 1 Legal Proceedings 16
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ITEM 3 Defaults Upon Senior Securities 17
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ITEM 6 Exhibits and Reports on Form 8-K 17
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2
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
Bluestar Health, Inc.
Consolidated Balance Sheet
June 30, 2006
June 30, September 30,
2006 2005
----------- -----------
(Unaudited)
Assets
Cash $ 65 $ 38
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Total current assets 65 38
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Total assets $ 65 $ 38
=========== ===========
Liabilities and Shareholders' Deficit
Accounts payable $ 69,058 $ 84,966
Accrued expenses 5,357 58,639
Short term debt 100,000 47,593
Current maturities of long term debt -- 21,152
Advances from related party 238,432 185,664
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Total current liabilities 412,847 398,014
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Long Term Debt
Long term debt, net of current maturities -- 60,106
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Total liabilities 412,847 458,120
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Shareholders' Deficit
Common stock, $.001 par value, 40,000,000 shares
authorized, 15,673,546 shares issued, 14,000,504
and 13,607,094 outstanding, respectively 14,001 13,607
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding -- --
Additional paid in capital 1,979,129 1,550,533
Accumulated deficit (2,405,912) (2,022,222)
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Total shareholders' deficit (412,782) (458,082)
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Total Liabilities and Shareholders' Deficit $ 65 $ 38
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The accompanying notes are an integral part of
these consolidated financial statements.
3
Bluestar Health, Inc.
Consolidated Statements of Operations
For the Three and Nine Months Ended
June 30, 2006 and June 30, 2005
(Unaudited)
Three months ended June 30, Nine months ended June 30,
---------------------------- ----------------------------
Revenues 2006 2005 2006 2005
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues $ -- $ 20,272 $ -- $ 361,506
------------ ------------ ------------ ------------
Total revenues -- 20,272 -- 361,506
------------ ------------ ------------ ------------
Operating Expenses:
General and administrative 40,883 201,197 207,680 1,095,015
Impairment -- 137,000 -- 137,000
Bad debt expense -- -- 100,000 --
Depreciation -- 2,066 -- 6,195
------------ ------------ ------------ ------------
Total operating expenses 40,883 340,263 307,680 1,238,210
------------ ------------ ------------ ------------
Operating loss (40,883) (319,991) (307,680) (876,704)
Interest expense (4,185) (6,104) (76,010) (11,462)
------------ ------------ ------------ ------------
Net loss $ (45,068) $ (326,095) $ (383,690) $ (888,166)
============ ============ ============ ============
Net loss per share:
Basic & Diluted $ (0.00) $ (0.02) $ (0.03) $ (0.07)
============ ============ ============ ============
Weighted average shares outstanding:
Basic & Diluted 14,000,504 13,054,887 13,863,220 13,211,836
============ ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
4
Bluestar Health, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended
June 30, 2006 and 2005
(Unaudited)
Nine Months Ended June 30,
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2006 2005
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Cash flows from operating activities:-
Net loss $(383,690) $(888,166)
Adjustments to reconcile net loss to cash used in operating
activities:
Stock issued for services 155,203 510,112
Impairment -- 137,000
Bad debt expense 100,000 --
Non cash interest expense 67,331 --
Depreciation -- 6,194
Changes in assets and liabilities from operating activity:
Accounts receivable -- 83,186
Accounts payable 6,710 (34,008)
Accrued expenses 4,918 --
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Net cash used in operating activities (49,528) (185,682)
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Cash flows from investing activities:
Loan receivable (100,000) --
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Net cash provided (used) by investing activities (100,000) 0
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Cash flows from financing activities:
Proceeds from related parties 52,768 (42,206)
Proceeds from sale of stock -- 23,310
Proceeds from short term debt 100,000 46,913
Net borrowings (payments) on debt (3,213) 2,183
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Net cash provided by financing activities 149,555 30,200
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Net change in cash 27 (155,482)
Cash, beginning of year 38 155,989
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Cash, end of year $ 65 $ 507
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Supplemental cash flow information:
Interest $ 76,010 $ 11,462
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Taxes $ -- --
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Non-cash activity:
Paid in capital in liquidation of debts $ 206,456 $ --
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The accompanying notes are an integral part of
these consolidated financial statements.
5
Bluestar Health, Inc.
Notes to Consolidated Financial Statements
June 30, 2006
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited interim consolidated financial statements and related notes of
Bluestar Health, Inc. ("Bluestar", the "Company", or "we") have been prepared in
accordance with generally accepted accounting principles and the rules of the
Securities and Exchange Commission ("SEC") applicable to interim financial
statements. Accordingly, certain information and footnote disclosures normally
included in complete financial statements prepared in accordance with generally
accepted accounting principles have been omitted. The accompanying unaudited
interim financial statements and notes should be read in conjunction with the
audited financial statements and notes thereto contained in the Company's Annual
Report on Form 10-KSB for the year ended September 30, 2005.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments and certain non-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 preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The results
of operations for interim periods are not necessarily indicative of the results
to be expected for the full year.
NOTE 2 - ASSET PURCHASE AGREEMENT
On February 13, 2006, Bluestar entered into an Asset Purchase Agreement (the
"Purchase Agreement") with Bluestar Acquisition, Inc., a Texas corporation and a
wholly-owned subsidiary of Bluestar (the "Bluestar Subsidiary"), Gold Leaf
Homes, Inc., a Texas corporation ("Gold Leaf") and Tom Redmon, the sole
shareholder of Gold Leaf ("Redmon"), whereby Bluestar would acquire
substantially all of Gold Leaf's assets in exchange for 37,000,000 shares of
Bluestar's common stock. Bluestar agreed to increase its authorized common stock
from 40,000,000 shares to 100,000,000 shares in order to issue all the common
stock required to be issued under this transaction.
On February 13, 2006, in connection with the Purchase Agreement, Bluestar
entered into a Transitional Agreement (the "Transitional Agreement") with Alfred
Oglesby, Bluestar's president and sole director ("Oglesby"), and Gold Leaf
whereby we agreed that for the term of the Transitional Agreement (i) Oglesby
will receive a bonus of 3% of the revenues of each company or assets acquired by
Bluestar, payable quarterly in either (a) cash or (b) Bluestar's common stock,
at Oglesby's discretion; (ii) Bluestar will not issue shares of Bluestar common
stock that will be registered on a Form S-8 for a period of 12 months without
Oglesby's written consent; (iii) Bluestar will not issue preferred stock or
effectuate a reverse stock split without Oglesby's written consent; (iv)
Bluestar will increase revenues in 2006 by at least 10% over Gold Leaf's 2005
numbers; (v) Bluestar will complete at least one acquisition of another company
in the same or a related industry to Gold Leaf in 2006; and (vi) Bluestar will
remove the restrictive legend on any shares of our stock owned by Oglesby or his
assigns as soon as possible in compliance with Federal and state securities laws
and upon request by Oglesby.
On February 13, 2006, in connection with the Purchase Agreement, Bluestar
entered into an Escrow Agreement (the "Escrow Agreement") with Gold Leaf,
Oglesby, Redmon, and The Lebrecht Group, APLC (the "Agent") whereby Bluestar
agreed to deliver to the Agent the 37,000,000 shares of Bluestar `s common
stock, issued in the name of Gold Leaf and accompanied by an irrevocable stock
power, to be delivered to Gold Leaf upon the fulfillment of its obligations
under the Purchase Agreement and the Transitional Agreement. Bluestar entered
into a Consulting Agreement (the "Consulting Agreement") with Oglesby whereby we
agreed to pay Oglesby 1,000,000 shares of Bluestar's common stock. In addition,
6
Bluestar agreed to issue 2,000,000 shares of Bluestar's common stock to Oglesby
if we list securities on a national securities exchange, including the NASDAQ
Small Cap Market, during the term of the Consulting Agreement.
The Purchase Agreement and its related transaction documents replaced an earlier
agreement dated October 15, 2005. This earlier agreement, captioned a
Reorganization and Purchase Agreement ("Reorganization Agreement"), was between
the Company, Oglesby, Gold Leaf and Redmon. The terms of the Purchase Agreement
were never met by Gold Leaf and the transaction was terminated. Accordingly, the
contemplated merger never occurred, and no operations of Gold Leaf are included
in these financial statements. (See "Subsequent Events")
NOTE 3 - 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, 2006, Bluestar issued 393,410 shares of
common stock under the 2004 Plan for both staff costs and consulting services at
a value of $61,513, of which no shares were issued in the three months ended
June 30, 2006. All of the 1,200,000 shares originally authorized for issuance
under the 2004 Plan have been issued and the 2004 Plan is no longer being
utilized.
During the three months ended June 30, 2006 Bluestar agreed to issue 38,656
shares under a previous commitment for consulting services performed by third
parties and 247,826 shares under a consulting agreement with Alfred Oglesby, the
Company's largest shareholder and former director and officer. The 286,482
shares of common are pending issuance and have been recorded as an increase to
paid-in capital of $39,572. (See "NOTE 6 - SUBSEQUENT EVENTS")
Including the 286,482 shares described above which were issued in the prior
three months, the Company agreed to issue during the nine months ended June 30,
2006, a total of 673,042 shares under various consulting agreements and
1,000,000 shares of common stock to the Company's largest shareholder Alfred
Oglesby in exchange for his assumption of financial obligations among other
agreements. (See "NOTE 6 - SUBSEQUENT EVENTS")
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, hurricane Katrina hit the region in
August 2005 and the needed capital and resources to complete the restructuring
were not available. On February 13, 2006 the Company elected to permanently
close down its physical therapy, prevention and wellness operations which
constituted all of the Company's operations. Management had previously written
off the value of goodwill that had been acquired in the original purchase. This
impairment valued at $137,000 was recorded in the quarter ended June 30, 2005.
In the period ending September 30, 2005 management chose to write down the value
of the physical assets associated with these operations by $30,926 to $0.
On February 13, 2006, Bluestar entered into the Purchase Agreement (see Note 2)
and shifted the Company's focus to home building. Bluestar does not have any
current business operations or other means of generating revenues. Pursuant to
7
the terms of the Purchase Agreement, the Company's sole director and officer was
replaced by the sole shareholder of Gold Leaf, Tom Redmon. Mr. Redmon does not
have public company experience and the company will be required to raise funds
to execute the new business plan. (See "Subsequent Events") These factors raise
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. (see "NOTE 6 - SUBSEQUENT EVENTS")
NOTE 5 - DEBT
Debt consisted of the following obligations at June 30, 2006:
Status as Principal at Accrued
of June 30, June 30, Interest at June
2006 2006 30, 2006
Term loan, principle and interest at 10% per
annum due April 16, 2006 In Default $100,000 $3,849
Non-interest bearing demand loan owed to
Alfred Oglesby for advances to fund operating Current $238,432 $0
expenses.
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Total Debt Obligations and Accrued Interest $338,432 $3,849
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NOTE 6 - SUBSEQUENT EVENTS
On July 1, 2006, Bluestar agreed to a consulting agreement for Richard Greenwood
to assist Tom Redmon and Bluestar bring the company current with its SEC filings
and develop policies and procedures for the emerging publicly held home building
business. The contract called for a monthly fee of $15,000 plus expense
reimbursement. The Company has made no payments under this agreement. This
agreement has been superseded (see below).
On November 3, 2006 Bluestar entered into an Interim Agreement with Gold Leaf
Homes, Inc., a Texas corporation ("Gold Leaf"), and Tom Redmon ("Redmon"), the
sole shareholder of Gold Leaf, and Alfred Oglesby, an individual ("Oglesby"),
which acknowledged that the acquisition of substantially all of the assets of
Gold Leaf pursuant to the parties February 3, 2006 Asset Purchase Agreement and
associated agreements ("Asset Purchase") had not been consummated and agreed to
the rescission of the transaction. The parties determined that it was
impracticable to consummate the acquisition of Gold Leaf assets.
Bluestar, Gold Leaf, Oglesby and Redmon agreed to rescind the February 13, 2006
Asset Purchase and return the parties as closely as possible to the positions
they were in prior to entering into the Asset Purchase transaction documents.
The parties have effected material elements of the rescission of the Asset
Purchase by this Interim Agreement. Mr. Redmon has appointed Mr. Richard M.
Greenwood his successor as sole director and officer of Bluestar and resigned
from all of his positions as a director and officer with Bluestar. No Gold Leaf
assets were effectively transferred to Bluestar and no Bluestar shares issued to
Redmon. All of the past and current operations of Gold Leaf have been transacted
through Gold Leaf Homes, Inc., a Texas corporation rather than through Bluestar.
The parties continue to work towards the resolution of all remaining issues and
anticipate executing definitive agreements to complete this process prior to the
Company's transaction with Zeon Fuel, Inc.
On or about January 25, 2007 management was informed that on November 11, 2006
BlueStar Health, Inc. and BlueStar Acquisition, Inc., a shell subsidiary of
BlueStar Health, Inc (inactive) were added as co-defendants in a lawsuit
originally filed April 24, 2004 which included as original defendants Gold Leaf
Homes and Thomas Redmon. The suit is Cause No. 2004-19989; Home Loan Corporation
vs. Alvin Mark Eiland, et al filed in the 333rd Judicial District Court of
8
Harris County, Texas. The lawsuit alleges statutory fraud, breach of contract,
breach of fiduciary duty and negligence in the sale and financing of two homes
by Gold Leaf before its attempted acquisition by Bluestar. The Company has filed
a general denial with the 333rd Judicial District Court of Harris County, Texas.
The lawsuit was filed prior to BlueStar Health, Inc. entering into an agreement
with Gold Leaf Homes, Inc. and its principal owner Thomas Redmon; however, the
company was not advised by Gold Leaf Homes or Mr. Redmon of the lawsuit.
Management believes there is low probability of any adverse impact on the
Company or its subsidiary BlueStar Acquisitions, Inc.
On February 27, 2007 the Company entered into a Stock Purchase and
Recapitalization Agreement ("Zeon Purchase Agreement") with Zeon Fuel, Inc., a
Texas corporation, ("Zeon") pursuant to which Bluestar would acquire all of the
outstanding stock of Zeon in exchange for the issuance of 1,000,000 shares of
Series A Convertible Preferred Stock and 1,000,000 shares of Series B
Convertible Preferred Stock ("Convertible Stock"). The Bluestar Convertible
Stock would be convertible into common stock of Bluestar equivalent to
approximately eighty Percent (80%) of the total issued and outstanding common
stock of Bluestar on a fully diluted basis, subject to certain equitable
adjustments. In addition, the Purchase Agreement would result in the appointment
of four additional directors to the board of directors of Bluestar and the
appointment of two additional executive officers.
Pursuant to the terms of the Zeon Purchase Agreement, which is subject to
approval of Bluestar's shareholders and certain other conditions, the Articles
of Incorporation of Bluestar would be amended and restated to, among other
items, change the company's name to Zeon Global Energy, Inc., and increase the
total authorized capital of Bluestar from 50,000,000 to 220,000,000 shares. The
change in authorized capital would consist of an increase of common shares from
40,000,000 to 200,000,000 shares and an increase of preferred shares from
10,000,000 to 20,000,000.
On March 1, 2007 the Company issued two promissory notes to Alfred Oglesby, one
for $238,432 in payment for cash advances (this amount includes the $233,763
reported on the June 30, 2006 Balance Sheet shown above) and Company expenses
paid by Mr. Oglesby through April 30, 2006, and one for $300,000 as
compensation. The promissory notes bear interest at the rate of 10% commencing
March 1, 2007. The $238,432 note is payable in twenty equal quarterly payments
of $16,442 commencing December 1, 2007. The $300,000 note is a demand note under
which Mr. Oglesby may not make demand for more than $40,000 prior to April 1,
2007, and may make demand for the remaining balance no earlier than 60 days
after the closing of the Company's purchase of Zeon, or October 31, 2007,
whichever occurs first. Both promissory notes are secured by the grant of a
security interest in all of the assets of the Company.
On May 21, 2007 Zeon Fuel, Inc., pursuant to the terms of the parties February
27, 2007 Stock Purchase and Recapitalization Agreement, advanced $91,277 to
Bluestar to pay certain accounts payable due ($51,277) and make an initial
payment ($40,000) to Alfred Oglesby under the terms of the $300,000 demand note.
On June 30, 2007 the Company entered into a Consulting Agreement with Richard M.
Greenwood to replace the previous consulting agreement effective July 1, 2006.
The new agreement provides for payment to Mr. Greenwood of $15,000 per month
retroactive to July 1, 2006, the same commencement date and compensation rate as
the earlier agreement under which no payments were made. The agreement also
provides for a success fee of 1,000,000 shares of the common stock of Bluestar
to be paid upon the successful completion of a merger or other business
combination of the Company with an operating company. The consulting fee to Mr.
Greenwood is payable entirely in common stock and the expense reimbursement may
be in either cash or common stock based upon the share price during the period
earned.
On June 30, 2007 Bluestar agreed to an Amended and Restated Consulting and
Indemnity Agreement with Alfred Oglesby to replace the original Consulting
Agreement dated February 13, 2006 and Indemnity Agreement dated October 15,
2005. The restated agreement provides for Oglesby to provide consulting services
in a variety of areas and provide office space, telephone, internet and other
general office services to the Company from March 1, 2006 through the closing of
the Zeon transaction. In addition, effective as of June 30, 2006, the scope of
Mr. Oglesby's obligation to assume Bluestar financial obligations and indemnify
the Company from all liabilities related to the Company's former physical
therapy operations was expanded to include a $70,000 Bluestar debt. Compensation
to Mr. Oglesby is a fee of 1,000,000 shares of Bluestar common stock (See "NOTE
2 - COMMON STOCK") plus $11,000 per month payable in cash or Bluestar common
stock commencing April 1, 2006 and terminating at the end of the month in which
the Zeon transaction closes.
9
On June 30, 2007 Bluestar also entered into a consulting agreement with ALO
Investments, Inc., a Texas limited liability company ("ALO") owned by Alfred
Oglesby and Richard Greenwood. This agreement provides for a fee of $15,000 per
month for providing consulting services related to a variety of potential equity
and debt related capital transactions. The Company will pay ALO a transaction
fee equal to 10% of the net proceeds of any sales of equity, 6-8% of the net
proceeds of any term loans and 2-5% of the maximum availability under any line
of credit. The Company will receive credit against transaction fees for all
monthly consulting fees paid to ALO from the commencement of the agreement. The
fees to ALO shall be paid monthly in cash or accrued unless ALO elects to
receive payment in the form of Bluestar common stock at a discount of 25% from
the market price. The agreement is for a term of one year following the closing
of the Zeon transaction and may be terminated by the Company if within six
months of the Zeon closing ALO does not arrange for and close transactions which
bring a specified amount of additional capital to the Company on terms
acceptable to the Company.
ALO will also receive prior to closing the Bluestar transaction with Zeon
2,450,000 shares of Zeon Fuel Inc. common stock from Zeon on a pre-merger basis
which will be convertible into shares on Bluestar common on the same terms as
other Zeon shareholders.
BlueStar Acquisition is a shell entity originally formed to accommodate the Gold
Leaf Home merger. Ultimately, that transaction was rescinded. On June 30, 2007
Bluestar agreed to sell its ownership in BlueStar Acquisition for consideration
of $1.00 to Alfred Oglesby.
ITEM 2 Managements Discussion and Analysis
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 establish or acquire an operating
business, the ability to raise cash or otherwise satisfy not only existing and
delinquent obligations but future costs, general economic downturns, 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
Bluestar Health was in the business of owning and operating licensed outpatient
physical therapy clinics. On November 5, 2003, we entered into an asset purchase
agreement for all of the assets used to operate a physical therapy and
rehabilitation clinic in Florida. However, on August 24, 2004, as a result of a
series of material breaches of the acquisition agreement by the seller, we
rescinded the acquisition in its entirety. Since that transaction was rescinded
in its entirety, for the below comparisons to the three months ended December
31, 2004, we have eliminated all amounts that were attributable to the clinic
purchased from Healthquest, Inc.
Due to rescinding the acquisition of the clinic from Healthquest, our
operations, prior to May 2005, consisted entirely of two physical therapy
clinics which we acquired on June 16, 2004. The clinics were located in Jackson,
10
Mississippi and Canton, Mississippi. These two clinics provided post-operative
outpatient care and treatment for a variety of orthopedic related disorders and
sports-related injuries. In May 2005, we closed the two clinics in order to
restructure operations and planned to re-open both in the fall of 2005 or early
2006. However, due to the economic consequences of Hurricane Katrina in February
2006 the Company elected to permanently close both clinics. Due to closing the
clinics in May 2005, we did not have any revenues during the three months ended
June 30, 2006.
On February 13, 2006, we entered into an Asset Purchase Agreement (the "Purchase
Agreement") to acquire substantially all of the assets of Gold Leaf Homes, Inc.
("Gold Leaf") in exchange for the issuance of 37,000,000 shares of our common
stock. This transaction resulted from the renegotiation of the earlier
Reorganization and Purchase Agreement dated October 17, 2005 (the
"Reorganization Agreement") which provided for all of the outstanding stock of
Gold Leaf to be acquired by the Company for substantially equal consideration.
We entered into the Purchase Agreement and terminated the Reorganization
Agreement because during the course of our due diligence, it became apparent
that it was in the best interests of our shareholders to structure the
transaction as an asset purchase rather than a stock purchase.
On November 3, 2006 Bluestar Health signed an Interim Agreement with Tom Redmon
and Gold Leaf Homes to rescind the February 13, 2006 Asset Purchase Agreement.
While the attempted acquisition of Gold Leaf Homes assets in 2006 was expected
to benefit BlueStar, closing the transaction became impracticable and we entered
into an agreement to rescind the attempted purchase. (See "NOTE 6 - SUBSEQUENT
EVENTS")
On February 27, 2007 Bluestar entered into a Stock Purchase and Recapitalization
Agreement with Zeon Fuel, Inc., a Texas corporation, ("Zeon") pursuant to which
Bluestar would acquire all of the outstanding stock of Zeon in exchange for the
issuance of 1,000,000 shares of Series A Convertible Preferred Stock and
1,000,000 shares of Series B Convertible Preferred Stock ("Convertible Stock").
The Bluestar Convertible Stock would be convertible into common stock of
Bluestar equivalent to approximately eighty percent (80%) of the total issued
and outstanding common stock of Bluestar on a fully diluted basis, subject to
certain equitable adjustments. Zeon is a newly formed company in the business of
blending and distributing biodiesel fuel to truck stops and gas stations in the
greater Houston and south central Texas market. We believe the growing desire
for energy independence and the related demand for "renewable" fuel sources
makes this sector an attractive opportunity to acquire an operating business and
generate positive shareholder value. (See "NOTE 6 - SUBSEQUENT EVENTS")
Three Months Ended June 30, 2006 Compared to the Three Months Ended June 30,
2005
Results of Operations
Introduction
- ------------
As a result of our closing of our physical therapy clinics our financial
performance for the three months ended June 30, 2006 differs significantly from
our financial performance for the same period one year earlier. For example, we
had no revenues for the quarter ended June 30, 2006, compared to $20,727 for the
period ended June 30, 2005. We do not anticipate any revenue going forward until
we acquire a business in a different industry. As noted above, the recent
attempted purchase of substantially all of the assets of Gold Leaf Homes, Inc.
was not completed and the current financial reports do not reflect any of the
operations of Gold Leaf, nor are its operations considered in the forward
looking statements in this Quarterly Report unless expressly so stated.
Revenues and Net Loss
- ---------------------
Our revenues, general and administrative expenses, interest expense,
and net loss for the quarter ended June 30, 2006, as compared to the quarter
ended June 30, 2005, are as follows:
11
Quarter Quarter
ended June ended June
30, 2006 30, 2005
------------ ------------
Revenues $ -- $ 20,272
General and administrative 40,883 201,197
Impairment -- 137,000
Depreciation -- 2,066
Interest expense (4,185) (6,104)
------------ ------------
Net loss $ (45,068) $ (326,095)
============ ============
Revenues
- --------
Our revenues were $0 for the quarter ended June 20, 2006 when compared to
$20,272 last year for the same period due to the fact we closed the two clinics
in May, 2005 for restructuring and did not have any revenue from other sources.
Unless we acquire an operating business or assets we will not have any revenues.
While the closure of the clinics resulted in the elimination of all Company
revenues, the clinics had operated at a loss and negative cash flow, so their
closure eliminated an ongoing expense and cash drain for the Company.
General and Administrative Expenses
- -----------------------------------
Our general and administrative expenses were $40,883 for the quarter ended June
30, 2006, compared to $201,197 for the same period one year ago. The decrease in
general and administrative expenses this year compared to last year is due in
part to the fact we did not operate the clinics during the three months ended
June 30, 2006.
Other Significant Expenses
- --------------------------
During the same period a year ago the Company recognized an impairment charge of
$137,000 related to its discontinued physical therapy business.
Non Cash Stock Issued for Services
- ----------------------------------
During the period ended June 30, 2006 Bluestar agreed to issue 38,656 shares
under a previous commitment for consulting services performed by third parties
and 247,826 shares under a consulting agreement with Alfred Oglesby, the
Company's largest shareholder and former director and officer. The 286,482
shares of common are pending issuance and have been recorded as an increase to
paid-in capital of $39,572.
Interest Expense
- ----------------
Interest expense for the period were $4,185 compared to interest expense of
$6,104 for the same period of the prior year due to the elimination of certain
obligations assumed by Mr. Oglesby. (See "NOTE 6 - SUBSEQUENT EVENTS")
Net Loss
- --------
Our net loss for the three months ended June 30, 2006 was $45,068, compared to
$326,095 for the three months ended June 30, 2005. This decrease in our net loss
from year to year is primarily attributable to reduced costs associated with the
physical therapy business and the one time impairment charge taken in the
quarter ended June 30, 2005. We anticipate our adjusted net loss of
approximately $85,000 for subsequent three month periods will be fairly
indicative until we have acquired another business or incurred costs related to
a prospective business transaction.
12
Nine Months Ended June 30, 2006 Compared to the Nine Months Ended June 30, 2005
Results of Operations
Introduction
- ------------
As a result of closing our two outpatient and physical therapy clinics, our
financial information for the nine months ended June 30, 2006 differs
significantly from our financial information for the same period one year
earlier. For example, our revenues for the nine months ended June 30, 2006, were
$0, compared to $361,506 for the nine months ended June 30, 2005. 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 six months ended June 30, 2006, as compared to the six months ended
June 30, 2005, are as follows:
Nine Months Nine Months
ended June ended June
30, 2006 30, 2005
----------- -----------
Revenues $ -- $ 361,506
General and administrative 207,680 1,095,015
Impairment -- 137,000
Bad debt expense 100,000 --
Depreciation -- 6,195
Interest expense (76,010) (11,462)
----------- -----------
Net loss $ (383,690) $ (888,166)
=========== ===========
Revenues
- --------
As noted above, our revenues were significantly lower this nine month period ($0
for the nine months ended June 30, 2006) when compared to the same nine month
period one year ago ($361,506 for the nine months ended June 30, 2005) due to
closing the Company's two clinics.
General and Administrative Expenses
- -----------------------------------
Our general and administrative expenses were $207,680 for the nine months ended
June 30, 2006, compared to $1,095,015 during the same period one year ago. This
decrease in general and administrative expenses this year is due to the clinics
being closed down the entire period.
Other Significant Expenses
- --------------------------
During the nine months ended June 30, 2006 the Company recognized a bad debt
expense of $100,000 representing the obligation due from Gold Leaf Homes. During
the same period a year ago the Company recognized an impairment charge of
$137,000 related to its discontinued physical therapy business.
Non Cash Stock Issued for Services
- ----------------------------------
For the nine months ended June 30, 2006, Bluestar issued 393,410 shares of
common stock under the 2004 Plan for both staff costs and consulting services at
a value of $61,513, of which no shares were issued in the three months ended
June 30, 2006. All of the 1,200,000 shares originally authorized for issuance
under the 2004 Plan have been issued and the 2004 Plan is no longer being
utilized.
13
For the nine months ended June 30, 2006, we issued or made commitments to issue
shares of common stock valued at $93,690 for services and the Company issued
shares that relieved Bluestar of $206,456 in liabilities for a total value
recorded in paid-in capital of the Company of $300,146, compared to $510,111 for
the nine months ended June 30, 2005. While the decrease in the nine months ended
June 30, 2006 compared to the same period a year ago is significant, it is
difficult to compare the two periods. The latest period represents the clinics'
closing down and removal of liabilities form Bluestar's balance sheet, the
comparable prior year period reflected the results of operating costs of the
physical therapy business.
Interest Expense
- ----------------
Interest expense for the period were $76,010; after taking into consideration a
charge of $67,331 to recognize the relative value (cost) of the warrants issued
in the quarter, the remaining $8,679 compared to interest expense of $11,462 for
the same period of the prior year. The nine month period comparison is down
modestly as absolute interest bearing obligations were lower on average over the
most recent nine month period.
Net Loss
- --------
Our net loss for the nine months ended June 30, 2006 was $383,690 compared to
$888,166 for the nine months ended June 30, 2005. This significant decrease in
our net loss from year to year even though revenue dropped to $0 is attributable
to significantly reduced general and administrative expenses as a result of
closing the unprofitable clinics.
Liquidity and Capital Resources
Introduction
- ------------
The Company has not operated profitably for several years, and does 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 advanced by
our majority stockholder or borrowed from others and guaranteed by our majority
stockholder, Alfred Oglesby. The agreement to purchase substantially all of the
assets of Gold Leaf Homes, Inc. did not close during the period and we
subsequently entered into an agreement to rescind the attempted purchase. The
failure of this transaction to close eliminated the potential revenues from this
planned acquisition and resulted in the Company incurring various transaction
costs. (See "Subsequent Events")
Our cash, total current assets, total assets, total current liabilities, and
total liabilities as of June 30, 2006 and September, 30, 2005 are as follows:
June 30, September
2006 30, 2005 Change
------------ ------------ ------------
Cash $ 65 $ 38 $ 27
Total current assets 65 38 27
Total assets 65 38 27
Total current liabilities 412,847 398,014 14,833
Total liabilities 412,847 458,120 (45,273)
Cash Requirements
- -----------------
The Company's cash requirements consist primarily of general and administrative
expenses maintaining our status as a public company, certain debt payments that
come due or are in default and anticipated transaction expenses related to
acquiring or building an operating business.
14
Sources and Uses of Cash
- ------------------------
Operations
The Company had no revenue or ongoing operations as of June 30, 2006. Our recent
agreement to acquire substantially all of the assets of Gold Leaf Homes, Inc.
did not close and we subsequently entered into an agreement to rescind the
attempted purchase. As a result the Company incurred various costs associated
with the attempted transaction and will not receive any of the anticipated
revenues. (See "NOTE 6 - SUBSEQUENT EVENTS")
Financing
During the Quarter ending June 30, 2006, Alfred Oglesby, Bluestar's majority
shareholder loaned the Company $23,990 bringing the total advanced and
outstanding at June 30, 2006 to $238,432. The loan from Mr. Oglesby is
non-interest bearing and due on demand with the understanding it will be repaid
as cash becomes available. The other significant source of funds during the
quarter was the $100,000 loan from Brass Bulls Corp. (See "NOTE 6 - SUBSEQUENT
EVENTS")
Debt Instruments, Guarantees, and Related Covenants
- ---------------------------------------------------
Mr. Alfred Oglesby assumed $211,125 of debt and account payable obligations
effective as of March 31, 2006, resulting in their elimination from the balance
sheet. (See "NOTE 2 COMMON STOCK" and "NOTE 6 - SUBSEQUENT EVENTS")
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
Currently the Company has no sources of revenue. However, in the past our
revenue recognition policy was objective in that we recognized revenue when
services were performed. Accordingly, there were no estimates or assumptions
that 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
15
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.
ITEM 3 Controls and Procedures
As of the end of the period covered by this Quarterly Report, the Company's
Chief Executive Officer and Chief Financial Officer evaluated 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)
and have concluded that the Company's disclosure controls and procedures were
not 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 significant changes in the Company's internal controls over financial
reporting at the time of the change in control occurring on February 13, 2006
when Mr. Redmon became the sole director and officer. The lack of familiarity of
the Company's new management with the requirements of adequate record keeping
and controls caused a failure to maintain adequate financial records or controls
over financial reporting processes.
PART II
ITEM 1 Legal Proceedings
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 alleged 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 of Bluestar 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. On January 20, 2006 the purpose
for the lawsuit was resolved and the case was dismissed.
On or about January 25, 2007 management was informed that on November 11, 2006
BlueStar Health, Inc. and BlueStar Acquisition, Inc., a shell subsidiary of
BlueStar Health, Inc (inactive) were added as co-defendants in a lawsuit
originally filed April 24, 2004 which included as original defendants Gold Leaf
Homes and Thomas Redmon. The suit is Cause No. 2004-19989; Home Loan Corporation
vs. Alvin Mark Eiland, et al filed in the 333rd Judicial District Court of
Harris County, Texas. The lawsuit was brought by the lender which loaned money
to the buyers of two homes built by Gold Leaf and alleges statutory fraud,
breach of contract, breach of fiduciary duty and negligence In the sale and
financing of two homes by Gold Leaf before its attempted acquisition by
Bluestar. The purchasers subsequently defaulted on the loans and the lender
repossessed both properties. The Company has filed a general denial with the
333rd Judicial District Court of Harris County, Texas. The lawsuit seeks
compensatory and punitive damages and attorney's fees from all defendants. The
lawsuit was filed prior to BlueStar Health, Inc. entering into an agreement with
Gold Leaf Homes, Inc. and its owner Thomas Redmon; however, the company was not
advised by Gold Leaf Homes or Mr. Redmon of the lawsuit. Management believes
there is low probability of any adverse impact on the Company or its subsidiary
BlueStar Acquisitions, Inc. except for the costs to defend the action.
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
16
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.
ITEM 3 Defaults Upon Senior Securities
The Company is in default under substantially all of its debt obligations for
which payment was due prior the date of filing this report. (see "Note 5 Debt"
and "Managements Discussion and Analysis - Debt Instruments, Guarantees and
Related Covenants").
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
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
10.1 (6) Promissory Note to Brass Bulls Corp.
10.2 (6) Warrant to Brass Bulls Corp.
10.3 (3) Reorganization and Purchase Agreement dated October 15, 2005.
10.4 (4) Asset Purchase Agreement dated February 13, 2006
10.5 (4) Transitional Agreement dated February 13, 2006
10.6 (4) Escrow Agreement dated February 13, 2006
10.7 (4) Consulting Agreement dated February 13, 2006
10.8 (4) Convertible Promissory Note dated February 13, 2006
10.9 (5) Interim Agreement dated effective as of November 3, 2006 between
Bluestar Health, Inc., Gold Leaf Homes, Inc., Tom Redmon and
Alfred Oglesby.
17
10.10 (6) Stock Purchase and Recapitalization Agreement dated February 27,
2007.
10.11 (6) Promissory Note for $238,432 payable to Alfred Oglesby dated
March 1, 2007.
10.12 (6) Promissory Note for $300,000 payable to Alfred Oglesby dated
March 1, 2007.
10.13 (6) Consulting Agreement dated June 30, 2007 between the Company and
Richard M. Greenwood.
10.14 (6) Amended and Restated Consulting and Indemnity Agreement between
the Company and Alfred Oglesby, dated June 30, 2007.
10.15 (6) Consulting Agreement between the Company and ALO Investments,
LLC, dated June 30, 2007.
31 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
and Chief Financial Officer as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Chief Executive Officer and 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.
(3) Incorporated by reference from our Report on Form 8-K filed
with the Commission on October 21, 2005
(4) Incorporated by reference from our Report on Form 8-K filed
with the Commission on February 21, 2006.
(5) Incorporated by reference from our Report on Form 8-K filed
with the Commission on March 5, 2007.
(6) Incorporated by reference from our Report on Form 10-QSB for
the period ended March 31, 2006, filed with the Commission
on [September 5, 2007]
(b) Reports on Form 8-K
On October 21, 2005, we filed a Report on Form 8-K regarding our entry
into a Reorganization and Purchase Agreement for the acquisition of Gold Leaf
Homes, Inc., a Texas corporation, which was to close on or about November 20,
2005. However, as noted above, on February 17, 2006, we filed a Report on Form
8-K disclosing that the Reorganization and Purchase Agreement had been
terminated in favor of an Asset Purchase Agreement among the same parties. On
March 5, 2007 we filed a Report on Form 8-K disclosing the rescission of the
Asset Purchase Agreement and execution of a Stock Purchase and Reorganization
Agreement with Zeon Fuel, Inc.
18
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: September 5, 2007 Bluestar Health, Inc.
By: /s/ Richard M. Greenwood
------------------------------------
Richard M. Greenwood
President and
Chief Financial Officer
19