SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 31, 2007
BLUESTAR HEALTH, INC.
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(Exact name of Registrant as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation)
Colorado 000-08835 84-0736215
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
9801 Westheimer
Houston, Texas 77042
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(Address of principal executive offices) (Zip Code)
(713) 917-6787
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Registrant's telephone number, including area code
19901 Southwest Freeway, Sugar Land, TX 77479
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(Former name or former address, if changed since last report.)
Check the appropriate box below of the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 2. FINANCIAL INFORMATION
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
This Current Report on Form 8-K is being filed to disclose that BLUESTAR, Inc.
("BLUESTAR" or the "Company") consummated its acquisition of Zeon Fuel, Inc., a
company formed under the laws of Texas ("Zeon"), at a closing held on October
31, 2007. Such acquisition was consummated pursuant to and in accordance with
the Amended and Restated Agreement and Plan of Reorganization (the "Agreement"),
dated October 30, 2007, among BLUESTAR, Zeon, and Zeon Global Energy, Inc., a
Texas corporation and wholly owned subsidiary of BLUESTAR ("Subsidiary"). We are
also providing herein audited financial statements of Zeon, pro forma financial
statements reflecting our acquisition of Zeon, and certain information relating
to the assets and operations of BLUESTAR following its acquisition of Zeon.
As a result of the closing, Subsidiary has merged into Zeon and Zeon, the
surviving company, has become a wholly owned subsidiary of BLUESTAR. In exchange
for all of the issued and outstanding shares of Zeon, BLUESTAR issued to the
shareholders of Zeon 10,000 shares of Series A convertible preferred stock and
10,000 shares of Series B convertible preferred stock, the equivalent of
approximately 90,400,000 shares of the Corporation's common stock after Series A
and Series B conversion. Series A conversion into common stock takes place upon
shareholder approval of the increase in authorized common shares and Series B
conversion takes place at the later of the first anniversary of the merger or
the increase in authorized common shares of Bluestar. Each share of Series A and
Series B holds voting rights equivalent to the corresponding number of common
shares represented after conversion. The newly issued Series A and Series B
preferred shares represent the voting and ownership equivalent of 80% of the
then issued and outstanding shares of BLUESTAR common stock as of their date of
issuance. Upon approval of Bluestar shareholders, Bluestar will change its name
to Zeon Global Energy, Inc. as well as amend its articles of incorporation to
increase the number of authorized common shares from 40,000,000, to 200,000,000,
and the authorized preferred shares from 10,000,000 to 20,000,000.
For all the terms and provisions of the Agreement, reference is hereby made to
such agreement annexed as Exhibit 1.1 to this Report on Form 8-K. All statements
made herein concerning the foregoing agreement are qualified by references to
said exhibit.
DESCRIPTION OF BUSINESS
Forward Looking Statements
This Current Report on Form 8-K contains forward-looking information.
Forward-looking information includes statements relating to future actions,
future performance, costs and expenses, outcome of contingencies, financial
condition, results of operations, liquidity, business strategies, objectives of
management, and other such matters of the Company. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking
information to encourage companies to provide prospective information about
themselves without fear of litigation so long as that information is identified
as forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in the information. Forward-looking information
may be included in this Current Report on Form 8-K or may be incorporated by
reference from other documents filed with the Securities and Exchange Commission
(the "SEC") by BLUESTAR. You can find many of these statements by looking for
words including, for example, "believes," "expects," "anticipates," "estimates"
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or similar expressions in this Current Report on Form 8-K or in documents
incorporated by reference in this Report. BLUESTAR undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise. BLUESTAR has based the
forward-looking statements relating to BLUESTAR's operations on management's
current expectations, estimates, and projections about BLUESTAR and the industry
in which it operates. These statements are not guarantees of future performance
and involve risks, uncertainties, and assumptions that BLUESTAR cannot predict.
In particular, BLUESTAR has based many of these forward-looking statements on
assumptions about future events that may prove to be inaccurate. Accordingly,
BLUESTAR's actual results may differ materially from those contemplated by these
forward-looking statements. Any differences could result from a variety of
factors, including, but not limited to, failure to effectuate its business plan,
inability to maintain costs, loss of customers, regulatory issues, general
economic and business conditions, competition, and other factors.
Company History
We were incorporated on April 26, 1977 as Taurus Oil Corporation. We have
changed our name several times to reflect changes in our business, most recently
on August 12, 2004, when we changed our name from Taurus Entertainment
Companies, Inc. to Bluestar Health, Inc.
On June 12, 2003, we entered into a Stock Exchange Agreement with Alfred
Oglesby, our majority shareholder before the Zeon transaction, in which Oglesby
exchanged all of his stock in Bluestar Physical Therapy, Inc., a Texas
corporation, for 9,650,000 shares of our common stock, representing 94.5% of our
outstanding common stock at the time. This transaction resulted in our acquiring
two physical therapy clinics, one in Jackson, Mississippi the second in Canton,
Mississippi. They provided outpatient physical therapy treatments, primarily for
patients following an injury, surgery, or other event. Their services included
pre- and post-operative orthopedic, spinal, occupational, and sports-related
injuries. These services were provided using physical medicine, which required a
medical doctor to be present during all phases of a patient's treatment.
In November 2003 we attempted to acquire a third physical therapy clinic located
in Florida which provided physical therapy and rehabilitation treatment.
However, in August, 2004, as a result of a series of material breaches of the
acquisition agreement by the seller, we rescinded the acquisition in its
entirety.
In May 2005, we closed the two clinics in order to restructure operations. We
planned to restructure the clinics to provide physical therapy using physical
therapists rather than licensed medical doctors and reopen them in the fall of
2005 or early 2006. However, following the economic consequences of Hurricane
Katrina in August 2005 the Company elected in October 2005 to permanently close
both clinics and instead pursue other business opportunities. Since the closure
of the two clinics in Mississippi, we have had no business operations or
revenues and the Company has sought a business to acquire.
From October, 2005 through the fall of 2006, we attempted to enter the custom
home building business in the Houston metropolitan area by acquiring the home
building business of Gold Leaf Homes, Inc., a Texas corporation owned by Thomas
Redmon. While portions of the acquisition agreement were implemented, such as
the replacement of our sole director and officer by the owner of Gold Leaf
Homes, no home building business was conducted through Bluestar and the
attempted purchase was not consummated. The parties subsequently rescinded the
transaction. Mr. Redmon resigned and the sole director and officer of Bluestar
became Richard M. Greenwood, a nominee of our prior majority shareholder, Alfred
Oglesby.
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On February 27, 2007 the Company entered into a Stock Purchase and
Recapitalization Agreement with Zeon under which Zeon would merge into Bluestar
in exchange for shares representing 80% of the fully diluted common shares of
the Company upon closing. As reported above the Agreement was amended and
modified on October 31, 2007 concluding in our acquisition of Zeon as a wholly
owned subsidiary.
Principal Products and Services
Prior to closing our clinics in 2005 our principal business was the operation of
outpatient physical therapy treatment centers, providing services primarily for
patients following an injury, surgery, or other event. These services included
pre- and post-operative orthopedic, spinal, occupational, and sports-related
injuries. These services were provided using physical medicine, which required a
medical doctor to be present during all phases of a patient's treatment.
Markets and Distribution
After discontinuing the physical therapy clinics and prior to our acquisition of
Zeon, we conducted no business operations except an ongoing search for an
operating business to acquire.
Our prior business of operating physical and occupational therapy clinics was
highly competitive and underwent continual changes in the manner in which
services were delivered and in which providers are selected. Competitive factors
affecting our business included quality of care, cost, treatment outcomes,
convenience of location, and relationships with and ability to meet the needs of
referral and payor sources. Our clinics competed directly or indirectly with the
physical and occupational therapy departments of acute care hospitals,
physician-owned therapy clinics, other private therapy clinics and
chiropractors.
Of these sources, we believe acute care hospital outpatient therapy clinics and
private therapy clinic organizations were our primary competitors. Consolidation
in the therapy industry happens frequently through the acquisition of
physician-owned and other privately-owned therapy practices.
New Business Model
After closing our physical therapy clinics Bluestar's objective was to identify
a business that would generate operating income and improve Bluestar shareholder
value. As discussed earlier, Bluestar's Subsidiary and Zeon have merger and
Zeon, the surviving company has become a wholly owned subsidiary of BLUESTAR. In
exchange for all of the issued and outstanding shares of Zeon, BLUESTAR issued
to the shareholders of Zeon 10,000 shares of Series A convertible preferred
stock and 10,000 shares of Series B convertible preferred stock, the equivalent
of approximately 90,400,000 shares of the Corporation's common stock after
Series A and Series B conversion. Series A conversion takes place upon
shareholder approval of the increase in authorized common shares and Series B
conversion takes place at the later of the first anniversary of the merger or
the increase in authorized common shares Bluestar. Each share of Series A and
Series B has been given voting rights equivalent to the corresponding number of
common shares represented after conversion. The Series A and Series B preferred
represents the equivalent of 80% of the issued and outstanding shares of
BLUESTAR as the date of issuance. Additionally, the board of directors of
Bluestar was increased to five directors and four additional directors were
appointed: Naved Jafry, C. Kevin Moore, Ronald M. Hall; and Wallace J. Rutland.
The officers appointed at the time of the closing and their offices are: Naved
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Jafry (Chairman) Richard Greenwood (President and CEO), C. Kevin Moore
(Executive Vice President, CFO, Secretary and Treasurer), and Amir Pirzada
(Director - Operations).
Zeon's primary business is and will continue to be the distribution of gasoline
and diesel fuel. Zeon's product offering includes petroleum based gasoline and
diesel as well as bio-fuels such as ethanol blends and biodiesel blends. Zeon
intends to promote use of environmentally friendly bio-fuels, primarily
biodiesel, while ensuring our customer's preferences are addressed. Zeon's plan
calls for it managing the retail distribution points of fuels by the
acquisition/lease and operation of retail gasoline/diesel outlets (primarily
"truck stops") as well as entering into "fuel contracts" which will give Zeon
control over the fuel pumps (and pricing) at the location where the contract is
in place. Zeon's primary source of revenue will continue to be the sale of
petroleum and bio-fuels both unblended and blended with petroleum-based fuel.
The fuel products delivered to the customer are purchased from various terminals
and refineries based upon cost and location of our customer. All products meet
or exceed the ASTM specification for that product.
History of Zeon
Zeon Fuel, Inc. was incorporated on October 12, 2006 in the State of Texas to
pursue development of a business in the blending and sale of biodiesel and other
petroleum and alternative fuels.
BACKGROUND
Bio-fuels encompass several different types of raw material that are all derived
from renewable biological sources (organic plants, animals, and waste). The key
word is renewable. Unlike the limited, essentially finite resource of
hydro-carbon-based petroleum products, these raw materials can be easily grown /
raised on farms to produce a continuous source for the "feedstock" required for
bio-fuel production.
Feedstock is a term commonly used to describe any raw material required for the
industrial process of making bio-fuels. The feedstocks we are concerned with
come under the category of biomass feedstock, which includes any plant-derived
organic matter. According to the U.S. Department of Energy's definition,
"Biomass available for energy on a sustainable basis includes herbaceous and
woody energy crops, agricultural food and feed crops, agricultural crop wastes
and residues, wood wastes and residues, aquatic plants, and other waste
materials including some municipal wastes
Unlike in most industrial processes, bio-fuel feedstock comes from plants as
they naturally photosynthesize solar energy into chemical energy. A simple
explanation is that the stored chemical energy from the sun is released when
this feedstock is burned.
To allay the concerns of environmentalists, most of the carbon dioxide emitted
into the atmosphere when bio-fuels, including biodiesel, burn amounts, in large
part, to a recycling of what was absorbed during plant growth. Therefore, the
net production of greenhouse gases is substantially reduced.
In the case of biodiesel, the end product, technically known as mono alkyl
esters, is a cleaner-burning, diesel-equivalent processed fuel that is made from
natural, biological sources (including vegetable oils, animal fats, and algae).
Because of its positive environmental impact, biodiesel has been termed "green"
oil.
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The table below shows that biodiesel can dramatically reduce particulate matter
emissions. Unburned hydrocarbons and carbon monoxide are also reduced, although
they are not usually a problem with diesel engines.
------------------------ ---------- ----------------------------------
Test Engine Test Fuel Transient Emissions, g/hp-hr
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HC CO NOx PM
------------------------ ---------- ------- -------- -------- --------
Cummins N-14 B100 0.01 0.41 5.17 0.076
------------------------ ---------- ------- -------- -------- --------
Cummins N-14 B20 0.19 0.64 4.76 0.102
------------------------ ---------- ------- -------- -------- --------
Cummins N-14 2-D 0.23 0.75 4.57 0.106
------------------------ ---------- ------- -------- -------- --------
DDC Series 50 B100 0.01 0.92 5.01 0.052
------------------------ ---------- ------- -------- -------- --------
DDC Series 50 B20 0.06 1.38 4.66 0.088
------------------------ ---------- ------- -------- -------- --------
DDC Series 50 2-D 0.06 1.49 4.50 0.102
------------------------ ---------- ------- -------- -------- --------
Cummins B5.9 B100 0.08 1.27 4.90 0.081
------------------------ ---------- ------- -------- -------- --------
Cummins B5.9 B20 0.21 1.61 4.79 0.109
------------------------ ---------- ------- -------- -------- --------
Cummins B5.9 2-D 0.31 2.05 4.70 0.128
------------------------ ---------- ------- -------- -------- --------
Emissions on 3 engines with biodiesel
One of the fuels that Rudolf Diesel originally considered for his engine was
vegetable seed oil, an idea that is now coming back as so-called "biodiesel."
Biodiesel can be manufactured from vegetable oils, animal fats, or recycled
restaurant grease. It is biodegradable and can reduce vehicle emissions of
particulates, carbon monoxide, and hydrocarbons. Blends of 20% biodiesel with
80% petroleum diesel (B20) can generally be used in unmodified diesel engines.
Biodiesel may be one of the "additives" used to improve lubricity of ULSD (Ultra
Low Sulfur Diesel) fuel, which will be negatively affected by the removal of
sulfur to meet the ULSD standards. Biodiesel production increased from less than
500,000 gallons ten years ago to nearly 75 million gallons in 2005, tripling to
approximately 225 million gallons in 2006. Most biodiesel is produced from
soybean oil at some 160 facilities and is available in every state.
Biodiesel is simply mixed with petro-diesel at the desired ratio. No special
processing is required.
More information on biodiesel is available on the Web site of the United States
Department of Energy's Office of Energy Efficiency and Renewable Energy at:
www.eere.energy.gov/afdc/altfuel/biodiesel.html.
We are dedicated to promoting the use of bio-fuels, primarily biodiesel, through
retail locations and for specialized power generation sites. In addition to
establishing retail distribution locations where consumers can access biodiesel
at competitive prices, critical to the growth and increased integration of this
environmentally friendly fuel is the availability and economically competitive
price of bio-fuel feedstock. Zeon expects to work with producers of various raw
material sources to improve the efficiency of production and the development of
a lower-cost, non-food source feedstock.
Our primary source of revenue is the sale of petroleum and bio-fuels both
unblended and blended with petroleum-based fuel. The fuel products delivered to
the customer are purchased from various terminals and refineries based upon cost
and location of our customer. All products meet or exceed the ASTM specification
for that product.
Our primary emphasis is the promotion and sale of biodiesel. With respect to
biodiesel, we procure only biodiesel that meets or exceeds the ASTM D6751
specification, and seek to sell fuel primarily at the retail pump and to a
lesser extent to wholesalers. We acquire pure biodiesel (known as B100) and
blend it to produce, for example: B20 (which is a blend of 20 percent biodiesel,
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and 80 percent petrodiesel). The selling prices we realize for our biodiesel are
closely linked to market prices of petrodiesel, the supply and demand for
biodiesel, as well as the tax incentives offered by federal and state
governments for the blending of alternative fuels. The amount of revenue that we
recognize from the sale of a gallon of biodiesel depends on whether it is sold
as a blended product with petrodiesel whereby we collect the equivalent of a
$1.00 per gallon federal excise tax credit on that portion of the blend sold in
addition to the sale price of the fuel (e.g. B20 is 20% biodiesel therefore the
tax credit on the gallon of B20 equals $0.20 - ($1.00 X 20% = $0.20). We are a
registered blender with the Internal Revenue Service.
Critical for success in the high volume narrow margin business Zeon participates
in is (1) sales volume, (2) efficient distribution logistics, (3) managing
working capital to finance inventory and receivables, (4) securing lower cost
feedstock to support increasing demand. Zeon is organized into two primary
operating units and two support units.
The first operating unit focuses on securing the retail location and either
purchasing it, leasing it, or securing a "fuel contract." Once secured, this
unit is responsible for maintaining the level of product flow and in those cases
where it applies they operate the associated convenience store. All purchased
locations will be held in a separate entity and leased back to the operating
unit.
The second unit focuses on procuring the fuel needed by Zeon managed locations.
This involves awareness of price, supply and transportation costs to optimize
best cost delivery to each endpoint. Once supply is identified this unit places
orders and arranges transportation then monitors delivery until it arrives at
the designated location.
Supporting the two business units requires the funding to secure retail sales
locations and working capital to carry the rolling inventory and accounts
receivable. Zeon's finance and treasury department is responsible for optimizing
cash management and identifying alternative funding sources and maintaining
strategic alliances with specialists in this area.
Zeon's long term goal is to promote bio-fuels as an alternative to petroleum
based fuels and locate more efficient and cost effective feedstock that goes
into producing bio-fuels like ethanol and biodiesel. This unit is focused on
moving Zeon toward a lower cost feedstock supply to assure availability and
improve profitability of our renewable fuel product sales.
PRODUCTS AND SERVICES
Fuels
Zeon's business model is based upon the simple premise of delivering fuel to
Zeon's customers through wholesale and retail outlets. Zeon believes and is
dedicated to the expanded use of environmentally friendly renewable fuels
("bio-fuels"). In support of that objective, Zeon will procure pure biodiesel
fuel (B100) and distribute petroleum/biodiesel blended fuel (typical 80%
petrodiesel and 20% biodiesel referred to as B20) for sale through our network.
Our strategy is based on a growing market for biodiesel products and continued
federal government tax credits to support market growth, maintaining product
quality, and employing superior logistics to meet the demands of the
marketplace.
Our principal market approach is the operation and/or control of retail Zeon
outlets, branding the "Zeon" logo, in the greater Houston, Texas area and
expanding across the State of Texas. These outlets sell traditional
petroleum-based diesel and gasoline fuel, as well as blends of bio-fuels such as
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B20 diesel fuel. We also sell all blends from B99 (99% biodiesel) to B1 (1%
biodiesel) biodiesel products based upon the needs and demands of our customers.
Convenience Stores
Zeon managed seven stations in the greater Houston, Texas area at October 31,
2007. The agreements under which Zeon performs these fuel station & convenience
store management services provide for the management of operations for a stated
fee. These initial agreements originated between the station owner and a company
owned by Amir Pirzada, Zeon's director of operations. They have been assigned to
Zeon. While these agreements expire December 31, 2008, the Company and Mr.
Pirzada have undertaken to revise the agreements to provide for the substitution
of Bluestar for Mr. Pirzada's company. Zeon may terminate the agreements on
thirty days written notice.
Our retail segment operations include sales of all transportation fuels and
convenience store merchandise through our company operated retail sites. In
addition to transportation fuels, our company operated convenience stores sell
snacks, candy, beer, fast foods, cigarettes, convenience items and fountain
drinks. All retail sales are final, and revenue is recognized at the time of the
transaction. We record revenues on a gross basis on lease or lease operations
wherein we are responsible to account for the purchase and sale volumes of
diesel and gasoline.
Zeon will acquire similar contracts for additional fuel stations and convenience
stores for Zeon personnel to operate.
ZEON'S STRATEGY
The following points summarize how we plan to move our ultimate business
strategy forward, while protecting and growing Zeon shareholder value:
o Promote and support the sale of environmentally preferred fuel
sources/blends
o Deliver fuel to locations where we control the pump, but remain flexible
enough to respond to opportunistic sales
o Secure bio-fuel product through strategic alliances with producers
(primarily biodiesel)
o Participate in the production of cheaper, non-food-source feedstock to
ensure lowest possible cost of feedstock to produce biodiesel
o Adjust product sales mix to optimize economics and secure increasing sales
volume
COMPETITION
The sale of transportation fuel is basic to the US economy with many
participants in an industry primarily driven by price of product and location.
According to the latest (2002) US Census Bureau data there were over 120,000 gas
stations in the US and of those almost 11,000 were in Texas, Zeon's initial
market. More recent unofficial estimates indicated there are over 150,000 gas
stations in the US with about 12,000 in Texas. Of these, as of September 2007,
it is estimated that approximately 750 gas stations and truck stops offer
biodiesel across the USA and about 60 of those were located in our Texas.
Each station in the US averaged 134.2 thousand gallons of gasoline and diesel
combined per month during the first 8 months of 2007 according to data compiled
from the Energy information Administration (EIA) data and the US Census Bureau.
Texas stations were running at a slightly higher average over the same period at
145.7 thousand gallons per month.
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MARKET DEFINITIONS
A transportation fuel generally refers to (unleaded) gasoline (at various octane
levels commonly identified as Regular, Mid-grade and Premium) and diesel (No. 2,
Ultra Low-Sulfur and Low-Sulfur). Increasingly, in an effort to reduce harmful
emissions associated with carbon based fuels and to reduce dependence on foreign
oil, bio-fuels such as ethanol and biodiesel are being blended with gasoline and
petrodiesel, respectively as additives.
The sale of transportation fuel has multiple major brand name offerings. However
ownership of outlets in the industry is primarily the prevue of small business
owners with over 60% of the total units reported in the 2002 census owned by
businesses with less than ten units. Of that number about 84% are one unit
businesses. However, 73 (23%) of the firms own over 100 units. A majority of the
locations (78%) that sell transportation fuel also had a convenience store
located at the location.
Entry into this sector requires specialized storage tanks and dispensing
equipment. The industry is regulated to ensure environmental protection
standards are followed and to monitor accuracy in measuring fuel dispensed
MARKET SIZE
According to the latest statistics total US gasoline sales (all grades) by prime
suppliers was 137.8 billion gallons in 2006 and running at an annualized rate of
138.5 billion gallons through August of 2007. Total US diesel sales (all No. 2
categories) by prime suppliers was 52.3 billion gallons in 2006 and running at
an annualized rate of 54.8 billion gallons through August of 2007. In Texas,
sales over the same periods were 12.4 billion gallons and 12.8 billion gallons
for gasoline; and 5.9 billion gallons and 6.4 billion gallons respectively for
diesel.
During 2006, 225 million gallons of biodiesel was produced in the US. If the
total potential US biodiesel market was assumed to be equal to 2% of all diesel
fuel sold in the US and petroleum diesel the remaining 98%, the quantity of
biodiesel required would be 1.1 billion gallons. If the total potential US
biodiesel market was assumed to be 20% of all diesel fuel sold in the US and
petroleum diesel the remaining 80%, the quantity of biodiesel required would be
11 billion gallons. The same assumptions applied to the state of Texas would
suggest market potential of 128 million and 1.3 billion gallons of biodiesel
respectively.
BENEFITS
Zeon believes that bio-fuels not only provide the answer to meeting our future
energy needs, but also address certain of the environmental challenges we face,
as well. Such fuels offer many strategic, economic and environmental benefits.
Strategic and Economic Benefits
- -------------------------------
Bio-fuels offer the following strategic and economic benefits:
o Decrease dependence on foreign oil, keeping billions of dollars at
home
o Contribute to the U.S. economy by increased jobs, farm revenue and
additional tax revenues
o Help guard against economic slowdown/recession
o With respect to biodiesel:
o Requires little or no modification of existing diesel engines
o Reduce diesel engine wear in trucks and cars
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Environmental Benefits
- ----------------------
Bio-fuels offer the following environmental benefits:
o Nontoxic - free of sulfur and aromatics
o Biodegradable - biodegrades as fast as sugar
o Climate-friendly - lower CO2 and carbon emissions to counteract
greenhouse effect and global warming
o Sustainability - produced from renewable, organic resources that store
energy until burned
Risk Factors
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Risks Relating to the Corporation after the Acquisition:
We may not be successful in integrating the business operations of Zeon into our
own business operations, stifling growth and hindering the realization of a
profit.
The acquisition involves the integration of companies that have previously
operated independently. A successful integration of Zeon's operations into our
own will depend on our ability to adapt Zeon's management, systems and controls
to the environment of a publicly reporting company with the added
administrative, legal and reporting requirements. Difficulties could include the
loss of key employees, the disruption of Zeon's ongoing businesses, and possible
inconsistencies in standards, controls, procedures and policies.
Inexperience of Zeon management
With the exception of our Chairman and CEO, who will remain as CEO and President
following the closing of the Zeon acquisition, the management of Zeon
constitutes the management of the Company since the acquisition transaction
closed. Zeon's management has no experience in managing a public reporting
company and only limited experience in the biofuel industry. This lack of
experience could result in failure to manage effectively and contribute to or
cause failure to execute on the Company's plan to grow a profitable biofuel
business.
Need for additional financing
Even after the Zeon acquisition, we have limited net revenue from operations and
therefore may not able to meet the operating costs of the Company. As such, the
Company will need to raise capital within the next several months in order to
pay operating costs and service its existing debt. However, there can be no
assurance that we will be able to raise the required capital or that any capital
raised will be obtained on terms favorable to the Company. Failure to obtain
adequate capital will significantly curtail Zeon's plan of operation.
We may be unable to manage the growth of our business which could negatively
affect development, revenue, and fiscal independence.
We believe that if our post-acquisition growth plan is successful, our business
has the potential to grow in size and complexity. If our new management is
unable to manage growth effectively, our business development may be slowed, our
operating results may not show a profit, and we may not become financially
independent from outside funding sources. Any new sustained growth would be
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expected to place a significant strain on our management systems and operational
resources. We anticipate that new sustained growth, if any, will require us to
recruit, hire and retain new personnel. We cannot be certain that we will be
successful in recruiting, hiring or retaining personnel. Our ability to compete
effectively and to manage our future growth, if any, will depend on our ability
to maintain and improve operational, financial, and management information
systems on a timely basis and to expand, train, motivate and manage our work
force. If we begin to grow, we cannot be certain that our personnel, systems,
procedures, and controls will be adequate to support our operations.
Risks Related to Our New Business:
Zeon's limited operating history; anticipated losses; uncertainly of future
results.
Zeon's business was organized in the last quarter of 2006 and has limited
operating history upon which an evaluation of its business and prospects can be
based. Our prospects in operating this business must be evaluated with a view to
the risks encountered by a company in an early stage of development,
particularly in light of the uncertainties relating to the acceptance and
success of our new business model.
We will be incurring costs to develop our fuel distribution and blending
business. There can be no assurance that we will be profitable on a quarterly or
annual basis. In addition, as we expand our business operations we will likely
need to increase operating expenses and increase administrative resources. To
the extent that such expenses are not subsequently followed by commensurate
revenues, our business, results of operations and financial condition will be
materially adversely affected.
Unpredictability of future revenues; potential fluctuations in quarterly
results.
As a result of Zeon's lack of operating history and the competitive nature of
the retail fuel business as well as the emerging nature of the biofuel market in
which we compete, we are unable to forecast revenues accurately. Our current and
future expense levels are based largely on Zeon's investment/operating plans and
Zeon's estimates of future revenue.
We may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall or delay. Accordingly, any significant shortfall or
delay in revenue in relation to our planned expenditures would have an immediate
adverse affect on our business, financial condition, and results of operations.
Dependence on spot market purchases of fuel.
Our business depends on the continued ability to purchase adequate quantities of
petroleum and bio fuels to support our anticipated sales growth on an as-needed
basis from Houston area refineries. We currently purchase both petroleum and bio
fuels on an as-needed basis paying current prices at the time of purchase.
Should suppliers have obligations to other purchasers in a time of short supply,
or the ability to increase prices for spot purchases over longer term supply
contracts, our business and our profitability could be substantially effected,
and our ability to continue in business.
11
Dependence on key personnel.
Our performance and operating results are substantially dependent on the
continued service and performance of our new officers and directors. We intend
to hire additional personnel as we move forward with our new business model.
Competition for such personnel is intense, and there can be no assurance that we
can retain our key employees, or that we will be able to attract or retain
highly qualified personnel in the future. The loss of the services of any of our
new key employees or the inability to attract and retain the necessary personnel
could have a material adverse effect upon our business, financial condition,
operating results, and cash flows.
Employees
Zeon had no employees at the date it was acquired. The Company intends to employ
five or more persons soon after the closing of the acquisition. Zeon's officers
and directors have received no compensation for their services up to the date of
this filing.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
Over the eleven month balance of the fiscal year following the Zeon acquisition,
the Company plans to seek fuel contracts or leases for the locations where it
primarily manages convenience store operations, thereby extending its management
to all activities at these locations. We will also seek additional outlets where
we will manage the fuel sales with additional fuel contracts or leases. As
appropriate opportunities are found, the Company will consider purchasing
locations as well. Focus in the initial months will be on building
infrastructure and establishing process controls as well as generating cash flow
to support our business. Once these are satisfactorily in place we will commence
a deliberate and aggressive expansion strategy to benefit from this industry's
economies of scale. As stated earlier, to move our business strategy forward,
while protecting and growing shareholder value, the Company intends to:
o Promote and support the sale of environmentally preferred fuels
o Deliver fuel to locations where we control the pump, but remain flexible
enough to respond to opportunistic sales
o Secure bio-fuel product through strategic alliances with producers
(primarily biodiesel)
o Participate in the production of cheaper, non-food-source feedstock to
ensure lowest possible cost of feedstock to produce biodiesel
o Adjust product sales mix to optimize economics and secure sales volumes.
To meet our objective for the first year the Company will need to secure certain
financing support to achieve:
o Fuel sale related working capital financing for the time delay between when
we have to pay for fuels and when we collect from our customers. We
anticipate this will represent approximately 24% of a month's sales volume
at any one point in time. The Company expects it will have to pay for
product at the terminal when it is loaded on the truck or have a
collateralized credit line from the terminal. We expect to collect from the
sales (mostly debit and credit transactions at the pump) between 7 and 10
days from the date of sale. Initially this represents approximately
$2,000,000 and will grow with added locations accordingly. Delay in
securing this financing will slow our ability to grow. This facility would
self liquidate every 7 to 10 days on a continuous use basis.
12
o General working capital funding of $3,000,000 to provide working capital
for initial startup and requirements for inventory and signage at new
locations. It is anticipated that after the first $650,000 which is needed
quickly, the remaining working capital requirements will be drawn down as
needed over the first year.
o Location acquisition capital. Depending on the available programs the
Company will use various lease financing and cash flow mortgage programs to
facilitate acquiring target locations. Until internally generated capital
is accumulated the Company will be required to raise the equity portion of
each location purchased. If half of the projected activity were to be
accomplished through a lease purchase instead of an outright purchase, the
amount required to fund the equity portion of these transactions would be
approximately $2,000,000 during the first year.
If the Company is not successful in securing this capital, our growth will be
significantly limited.
Financial Condition and Results of Operation
Zeon was created October 2006 and has initiated implementation of its business
model in 2007. During the first quarter of 2007, we began purchasing biodiesel,
blending it with purchased petroleum diesel and delivering a B20 bio-diesel
product to the marketplace. This confirmed the first phase of our process model.
During the first quarter 2007, we recorded revenues of approximately $536,000
and incurred a net loss of approximately $59,000.
During the second quarter of 2007 we initiated the second phase of our model and
contracted for the operation of seven retail locations for both petroleum
products and convenience store operations. During the quarter ended June 30,
2007, we recorded revenues of approximately $7.7 million, resulting in a net
income of approximately $5,000. We are now engaged in seeking locations to lease
or purchase and operate under fuel contracts.
Our retail segment operations include sales of all transportation fuels and
convenience store merchandise through our company operated retail sites. In
addition to transportation fuels, our company operated convenience stores sell
snacks, candy, beer, fast foods, cigarettes, convenience items and fountain
drinks. We record revenues on a gross basis on lease or lease operations wherein
we are responsible to account for the purchase and sale volumes of diesel and
gasoline.
Off Balance Sheet Arrangements
None.
DESCRIPTION OF PROPERTY
The Company occupies leased office space of approximately 1,500 sq ft, in
Houston, Texas and pays monthly rent of approximately $3,200 per month.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 31, 2007, certain information with
respect to the Company's equity securities owned of record or beneficially by
(i) each Officer and Director of the Company; (ii) each person who owns
beneficially more than 5% of each class of the Company's outstanding equity
13
securities; and (iii) all Directors and Executive Officers as a group.
Information relating to beneficial ownership of common stock by our principal
stockholders and management is based upon information furnished by each person
using "beneficial ownership" concepts under the rules of the Securities and
Exchange Commission. Under these rules, a person is deemed to be a beneficial
owner of a security if that person has or shares voting power, which includes
the power to vote or direct the voting of the security, or investment power,
which includes the power to vote or direct the voting of the security. The
person is also deemed to be a beneficial owner of any security of which that
person has a right to acquire beneficial ownership within 60 days. Under the
Securities and Exchange Commission rules, more than one person may be deemed to
be a beneficial owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he or she may not have any pecuniary
beneficial interest. Except as noted below, each person has sole voting and
investment power.
The percentages below are calculated based on 22,603,444 shares of Common Stock
and 20,000 shares of Preferred Stock (10,000 Series A and 10,000 Series B) which
are issued and outstanding as of October 31, 2007. Each share of preferred stock
has voting rights equivalent to the number of common shares they are entitled to
upon conversion. Fully converted percentages are based upon Series A preferred
shares converted into common shares at an exchange ratio of 4,400 common shares
for each Series A share; and, Series B converted into common at an exchange
ratio of 4,641.38 common shares per Series B share.
Unless otherwise indicated, the business address of individuals listed below is
c/o 9801 Westheimer, Suite 302, Houston, TX 77042
- ---------------------------------------------------------------------------------------------------------------------
Common and Preferred Stock
- ---------------------------------------------------------------------------------------------------------------------
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
Percent
Name and Address of Common Stock Percent of Preferred Percent of of fully
Beneficial Owner Common Stock Preferred Converted
Common
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
Naved Jafry(1) (2) 0 - 6,248 31.2% 25.0%
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
Richard M. Greenwood 3,449,427 15.3% 978 4.9% 7.0%
(2) (3) (4)
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
C. Kevin Moore (2) (3) 0 - 5,350 26.8% 21.4%
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
Amir Pirzada (3) 0 - 2,564 12.8% 10.3%
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
All Officers and Directors 3,649,427 16.1% 15,602 78.0% 65.6%
as a Group
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
Alfred L. Oglesby (4) 12,565,017 55.6% 628 3.1% 13.6%
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
- ---- ------------------------------ ----------------- --------------- --------------- --------------- ---------------
(1) Mr. Jafry is beneficial owner of preferred shares owned by Naved Jafry
Holdings, LLC
(2) Indicates a Director of the Company.
14
(3) Indicates an Officer of the Company
(4) ALO Investments owns 628 shares of Series A Preferred shares and 628
of Series B Preferred shares. Mr. Oglesby and Mr. Greenwood are
partners in ALO Investments and in the table above have each been
credited with beneficial ownership of 50% of the Series A and Series B
shares held by ALO Investments.
The issuer is not aware of any person who owns of record, or is known
to own beneficially, five percent or more of the outstanding securities of any
class of the issuer, other than as set forth above.
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Officers.
The following table sets forth the names, ages, and positions with BLUESTAR for
the directors and officers of BLUESTAR as of October 31, 2007.
NAME AGE POSITIONS AND OFFICES
- ------------------------------------------------------------------
Naved Jafry 28 Chairman of the Board of Directors
Richard M. Greenwood 60 President, CEO, Director
C. Kevin Moore 60 Executive Vice President, CFO, Treasurer,
Director
Amir Pirzada 38 Director of Operations
Ronald M. Hall 67 Director
Wallace J. Rutland 66 Director
Each director and executive officer holds office until the next annual meeting
of shareholders or until his successor has been duly elected and qualified. The
following is a brief account of the director's and executive officer's education
and business experience, and any other directorships held in reporting
companies.
Naved Jafry Chairman of the Board of Directors
Mr. Jafry graduated from Bishop School in India with a major in organizational
commerce. Mr. Jafry has over ten years of diverse management experience. He is
former Vice-President of Acquisitions for Abbasali Group of Bombay, India, a
property development and construction company. He was a key executive for Gem
Key International, a diamond and jewelry marketing company based in Bangkok,
Thailand. Mr. Jafry was a founding partner in Marakenelo Hotel Group with
operations in Gaborone, Botswana, South Africa. He was responsible for the
acquisition and development of hotel projects from inception through the initial
public offering (IPO) on the Botswana Stock Exchange. Beginning in 2004 he has
also been a gas station investor in Houston, Texas.
Richard M. Greenwood President, CEO and Director
Mr. Greenwood has over 25 years of management experience in the consumer and
financial services industry, including senior executive positions at some of the
nation's largest financial institutions. He held various treasury-related
positions at Citibank, where he was Treasurer for the USA consumer business and
the bank's European and African consumer banking group, representing businesses
15
in sixteen countries. Greenwood was also the CFO of California Federal Bank and
Valley National Bank. As CEO of Bank Plus/Fidelity Federal Bank, he implemented
a recapitalization and turnaround of the bank. Mr. Greenwood served as President
& CEO of Predictive Data, Inc., a privately held company, from 1999 - 2000, and
was President & CEO of Hagenuk CPS/USA, a privately held manufacturer and
distributor of Web phones and smart card systems and technologies from 2000 -
2002. From 2002 until joining ALO Investments, LLC, he was involved in the
formation of several start-up ventures to commercialize an Internet-enabled
video telephone device ("Webphone"); this included serving as a director and
President of BICO, Inc., a Pennsylvania corporation, from November 2004 until
August 2006. Since then, Mr. Greenwood has been a partner in ALO Investments,
LLC, a Texas limited liability company.
C. Kevin Moore, CPA Executive Vice-President, Chief Financial Officer, Secretary
and Director
Mr. Moore is a Graduate of the State University of New York with a major in
Accounting and Finance, and is a Certified Public Accountant in Texas. He is
former Vice-President Finance of TexKy Resources Limited, from 1995 - 1997 a
company established as a power generation and operating company for project
development in the Middle East regions. Mr. Moore in 1985 was founder of Kebert
Energy Systems, Inc., a company engaged in consulting and development and
marketing of business application software directly related to the energy sector
industries. Mr. Moore was for six years from 1978 was Vice-President Finance for
an independent oil and gas exploration and production company. As a CPA, Mr.
Moore worked nine years from 1969 as an Audit Manager for the international
public accounting firm of Price Waterhouse.
Amir Pirzada - Director of Operations
Mr. Pirzada has a Bachelor of Business Administration in Accounting from Texas
Southern University. Mr. Pirzada has since 1992 fifteen years experience in the
gas station and convenient store industry, having owned retail chains. Mr.
Pirzada is also a real estate investor and owns an investment company called
Ayra Properties & Investments, which acquires business properties for the oil
and gas industry. He previously worked in accounting for Houston Airport Systems
and The City of Houston Revenue Control department
Ronald M. Hall, B.S., ChE, MBA, J.D. - Director
Mr. Hall has a law degree from South Texas College, and has obtained a Masters
in Business Administration from the University of Houston and a Bachelors degree
in Chemical Engineering from Texas A&M University. Since 1997 has owned a
private Texas law firm. He is former President from 1994 - 1997 of a provider of
data management solutions to the process industries. Mr. Hall was President &
Owner of a technical marketing company from 1990 - 1994. Mr. Hall was also
President/owner 1974 - 1990 of a marketing and consulting company with
specialization in computers and the technical industries. Previously, Mr. Hall
managed a heat exchanger manufacturing plant.
Wallace J. Rutland
Wallace Rutland is a licensed Real Estate Broker and Attorney. Mr. Rutland
has focused primarily on resolution of repossessed assets, foreclosures, and
bankruptcies, both from the standpoint of the creditor and the debtor. He
has over 30 years experience in the field of distressed real estate. He has
served as a consultant for a number of financial institutions throughout the
US as well as Europe. Mr. Rutland is also a certified Mediator. Over the
past 5 years he has worked in these areas on various projects as an
independent specialist.
16
Audit Committee Financial Expert.
The Board of Directors has not established an audit committee and does not have
an audit committee financial expert. The Board of Directors will identify an
independent director to assume the chairmanship of the Audit Committee prior to
its next fiscal year end.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires officers and
Directors of BLUESTAR and persons who own more than ten percent of a registered
class of BLUESTAR's equity securities to file reports of ownership and changes
in their ownership with the Securities and Exchange Commission, and forward
copies of such filings to BLUESTAR. During the most recent fiscal year, each of
the directors, officers, and beneficial owners of more than ten percent of the
equity securities of BLUESTAR have filed such forms on a timely basis with the
exception of the initial report on Form 3 of Richard M. Greenwood which was not
filed timely.
Code of Ethics.
BLUESTAR has not adopted a Code of Ethics and anticipates that one will be
adopted before the end of this fiscal quarter.
EXECUTIVE COMPENSATION
The Chief Executive Officer of BLUESTAR has not received cash compensation
during the last three fiscal years. We have not paid any other executive officer
in excess of $100,000 (including salaries and benefits) during the fiscal years
ended September 30, 2006, 2005, and 2004. Richard M. Greenwood, the current CEO
received 3,449,427 shares of BLUESTAR common stock earned as a result of
performing services for the Company and as a success bonus for the closing the
Zeon acquisition on October 31, 2007.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 30, 2007 the Company entered into a Consulting Agreement with Richard M.
Greenwood to replace a prior 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. The Company has issued 2,499,427 shares to Mr. Greenwood in full payment
of the consulting portion of the agreement, and 1,000,000 in full payment of the
bonus for closing the acquisition of an operating business. All obligations of
the Company to Mr. Greenwood under this agreement have been discharged.
On June 30, 2007 Bluestar agreed to an Amended and Restated Consulting and
Indemnity Agreement with Alfred Oglesby, the majority shareholder of the Company
prior to the Zeon acquisition and still greater than a ten percent shareholder,
to replace an earlier 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 March 31, 2006, the scope of Mr. Oglesby's obligation to assume Bluestar
17
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 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. The Company has issued 2,035,017 shares in
full payment of its obligations to Mr. Oglesby for rent and other services and
1,000,000 shares under the indemnity portion of the agreement. The issuance of
shares to Mr. Greenwood and Mr. Oglesby fully discharges all of the Company's
obligations arising prior to the Zeon acquisition.
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 $750,000 in additional capital to the Company on terms acceptable to the
Company.
ALO received 2,450,000 shares of Zeon common stock from Zeon in exchange for
providing consulting services to Zeon's management regarding the development of
Zeon's business. The shares of Zeon common stock were converted into 628 shares
of Series A convertible preferred stock and 628 shares of Series B preferred
stock. These are convertible, respectively into 2,763,200 and 2,914,785 shares
of common stock under the same terms and at the same time as other Series A and
Series B shares.
The Company has issued two promissory notes payable to Alfred Oglesby. The first
note is in the amount of $238,432 and was originally issued March 1, 2007 in
exchange for cash advanced by Mr. Oglesby to the Company in prior years. The
promissory note bears interest at the rate of ten percent per annum and is
payable in twenty equal quarterly installments of $16,441.83 each commencing
December 1, 2007. The Company may make payments in common stock in lieu of cash
at a conversion rate equal to the current trading price discounted by fifty
percent if the Company elects to make payments in stock. If Mr. Oglesby elects
to take payments in stock the conversion rate is equal to eighty percent of the
current trading price. The terms of the note were amended and restated as of
October 31, 2007 to provide the Company the right to make payments in stock in
lieu of cash. No payments of principal or interest have been made on this note.
The second note was issued to Mr. Oglesby March 1, 2007 in payment of deferred
compensation in the amount of $300,000. This note also bears interest at the
rate of ten percent per annum and provided for payment on demand, subject to
certain limitations of time. The principal balance owed under this note has been
reduced to $260,000 by a principal payment of $40,000 made prior to the Zeon
acquisition. The note was amended and restated as of October 31, 2007 to provide
for a guaranty by Mr. Naved Jafry secured by a pledge of Mr. Jafry's Series A
and Series B shares. The repayment terms were also changed and now permit the
Company to elect making a payment in common stock at current market rates
18
discounted by fifty percent in lieu of making a cash payment if the Company
determines making a cash payment would be unreasonably disruptive of its
business.
The seven fuel stations managed by Zeon prior to the acquisition were originally
managed by a business owned by Amir Pirzada, our Director - Operations. Mr.
Pirzada has assigned the management agreements to Zeon. We and Mr. Pirzada are
undertaking to replace these agreements before the end of this year with direct
management agreements between the station owner and Bluestar.
DESCRIPTION OF SECURITIES
We are authorized to issue 50,000,000 shares consisting of 40,000,000 shares of
common stock, par value $0.001 per share and 10,000,000 shares of preferred
stock, par value $0.01 per share. The following statements relating to our
capital stock are summaries and do not purport to be complete. Reference is made
to the more detailed provisions of, and such statements are qualified in their
entirety by reference to, our Amended and Restated Articles of Incorporation,
which is annexed as Exhibit 3.1 to Form 8-K filed with the Securities and
Exchange Commission on November 1, 2007 which is incorporated herein by
reference.
Common Stock
Our Articles of Incorporation authorize the issuance of 40,000,000 shares of
common stock. On October 31, 2007 there were 22,603,444 shares of common stock
outstanding. The Company has called a Special Meeting of Shareholders to vote on
amendments to the Amended and Restated Articles of Incorporation to, among other
things, increase the authorized number of common shares from 40,000,000 to
200,000,000 shares.
BLUESTAR has outstanding warrants to purchase 1,000,000 shares of its common
stock for $0.50 per share until March 17, 2009.
BLUESTAR does not have any outstanding options.
Preferred Stock
Our Articles of Incorporation authorizes the issuance of 10,000,000 shares of
Preferred stock. On October 31, 2007 there were 20,000 shares of preferred stock
outstanding. These shares were issued as part of the Amended and Restated
Agreement and Plan of Reorganization dated October 30, 2007. Under the
Agreement, the Company will be obligated to issue approximately 44,000,000
shares of the Company's common stock at conversion of 10,000 shares of Series A
preferred stock and approximately 46,413,776 shares of the Company's common
stock at conversion 10,000 shares of Series B preferred stock. The Company would
not have enough authorized shares of common stock to accommodate the conversion
without the increase in authorized shares. The availability of additional
authorized but unissued shares will be achieved by effectuating an increase in
the number of authorized shares of common stock from 40,000,000 to 200,000,000
shares. This step is necessary, in the judgment of the Board of Directors, in
order to (i) complete the Zeon Fuel merger, (ii) raise additional capital and
(iii) carry out the Company's business objectives.
The Series A and Series B preferred stock vote as a single class along with the
common stock, and are convertible at the ratio of 4,400 shares of common stock
for each share of Series A and 4,641.38 shares of common for each share of
Series B. Each share of Series A and Series B stock have the same number of
votes as the number of common shares into which they convert. The Series A
converts upon shareholder approval of the increase in authorized common shares.
The Series B converts upon the later to occur of the shareholder approval of the
increase in authorized common shares or the first anniversary of closing the
Zeon acquisition.
The Board of Directors of the Company believes that it is advisable and in the
Company's best interest to increase the authorized common stock in order to have
available additional authorized but unissued shares of common stock in an amount
19
adequate to provide for the Company's future needs and to have sufficient
authorized common stock to issue approximately 90,400,000 shares of the
Company's common stock to Zeon Fuel, Inc. shareholders upon conversion of
preferred shares issued to former Zeon shareholders pursuant to the Agreement.
The Company has called a Special Meeting of Shareholders to, among other things,
increase the number of common shares from 40,000,000 to 200,000,000 and increase
the authorized number of preferred shares from 10,000,000 to 20,000,000.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Our common stock is currently quoted on the over the counter market Pink Sheets
under the symbol "BLSH" and has traded under that symbol since August 20, 2004.
Prior to August 20, 2004, our common stock was traded under the symbol "TAUR."
The Pink Sheets is a quotation medium where NASD member broker/dealers can
publish their quotations through an electronic quotation service. Our common
stock is only traded on a limited or sporadic basis and should not be deemed to
constitute an established public trading market. There is no assurance that
there will be liquidity in the common stock.
The Corporation's common stock is neither listed on NASDAQ or any stock
exchange, nor quoted on the OTCBB; bids and offers are not centrally collected.
The company's common stock trades under the symbol BLSH.
On October 31, 2007, there were more than 1,400 holders of record of BLUESTAR's
common stock.
BLUESTAR has not declared or paid any cash dividends on its common stock nor
does it anticipate paying any in the foreseeable future. Furthermore, BLUESTAR
expects to retain any future earnings to finance its operations and expansion.
The payment of cash dividends in the future will be at the discretion of its
Board of Directors and will depend upon its earnings levels, capital
requirements, any restrictive loan covenants and other factors the Board
considers relevant.
BLUESTAR has no equity compensation plans currently in place.
LEGAL PROCEEDINGS
Neither Zeon nor BLUESTAR are involved in any pending litigation, nor are we
aware of any pending or contemplated proceedings against us. We know of no legal
proceedings pending or threatened, or judgments entered against any of our
directors or officers in their capacity as such.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
RECENT SALES OF UNREGISTERED SECURITIES
On October 31, 2007 the Company issued a total of 20,000 shares of preferred
stock, 10,000 each of Series A and Series B convertible preferred, to the
selling shareholders of Zeon. These shares were issued as consideration for the
acquisition of all of the outstanding common stock of Zeon and were issued under
Section 4(2) of the Securities Act of 1933 as amended. In addition, including
20
the 5,087,310 shares of common stock which were previously reported as issued in
the company's periodic reports on Form 10-QSB and Form 10-KSB, the Company has
issued a total of 8,252,940 shares of common stock from June 30, 2007 through
October 31, 2007 in payment for services or settlement of claims against the
Company.. The above shares include amounts issued to Mr. Oglesby and Mr.
Greenwood reported elsewhere in this Current Report on Form 8-K. None of these
shares were registered and none were issued for cash consideration. All such
shares were issued under Section 4(2) of the Securities Act of 1933.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our bylaws provide that directors and officers (and any person who acted at our
request as an officer or director) shall be indemnified by us against all
expenses and liabilities reasonably incurred in connection with services for us
or on our behalf if they acted in good faith and in a manner they reasonably
believed to be in the best interests of the corporation; but no indemnification
shall be made in respect of any claim, issue, or matter as to which they have
been adjudged to be liable for negligence or misconduct in the performance of
their duty to the corporation, unless and only to the extent that the court in
which such action or suit was brought determines upon application that, despite
the adjudication of liability, but in view of all circumstances of the case,
they are fairly and reasonably entitled to indemnification for such expenses
which such court deems proper.
SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
The disclosure set forth above under Item 2.01 (Completion of Acquisition or
Disposition of Assets) is hereby incorporated by reference into this Item 3.02.
As more fully discussed above in Item 2.01, On August 14, 2006, BLUESTAR
consummated its acquisition of Zeon. Such acquisition was consummated pursuant
to and in accordance with the Amended and Restated Agreement and Plan of
Reorganization dated October 30, 2007 by and between the Corporation, Zeon and
Zeon Global Energy, Inc. (a wholly owned subsidiary of Bluestar Health, Inc.).
As a result of the closing, in exchange for 10,000 shares of Series A
convertible preferred stock and 10,000 shares of Series B convertible preferred
stock, the equivalent of approximately 90,400,000 shares of the Corporation's
common stock after its conversion. Such issuance once conversion occurs
represents 80% of the issued and outstanding shares of BLUESTAR.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT
ITEM 5.01 - CHANGES IN CONTROL OF REGISTRANT
The disclosure set forth above under Item 2.01 (Completion of Acquisition or
Disposition of Assets) is hereby incorporated by reference into this Item 5.02.
ITEM 5.02 - DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS
Pursuant to the terms of the Amended and Restated Agreement and Plan of
Reorganization with respect to the acquisition of Zeon completed October 31,
2007:
The following four additional directors were appointed to the board of
directors of Bluestar Health, Inc. effective October 31, 2007:
21
o Naved Jafry, Chairman
o C. Kevin Moore
o Ronald M. Hall
o Wallace Rutland
The following new executive officers were appointed effective October 31,
2007:
o C. Kevin Moore, Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
o Amir Pirzada, Director - Operations
Item 5.06 Change in Shell Company Status.
The disclosure set forth above under Item 2.01 (Completion of Acquisition or
Disposition of Assets) is hereby incorporated by reference into this Item 5.06.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
(i) Audited financial statements of Zeon Fuel, Inc. for the period from
October 1, 2006 (Inception) to December 31, 2006
(b) Pro Forma Financial Information:
(i) Unaudited Pro Forma Consolidated Balance Sheet as at June 30th , 2007
(c) Exhibits.
The following documents are being filed herewith by BLUESTAR as exhibits to
this Current Report on Form 8-K:
Exhibit Number Descripition
- -------------- ------------
2.1 Amended and Restated Agreement and Plan of Reorganization
dated October 30, 2007 between Bluestar Health, Inc. and
Zeon Fuel, Inc.
10.1 Amended and Restated Promissory Note for $300,000 from
Bluestar Health, Inc. to Alfred Oglesby, amended effective
October 31, 2007.
10.2 Amended and Restated Promissory Note for $238,432 from
Bluestar Health, Inc. to Alfred Oglesby, amended effective
October 31, 2007.
99.1 Press Release Dated November 1, 2007 regarding acquisition
of Zeon Fuel, Inc.
22
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 hereunto duly authorized.
BLUESTAR HEALTH, INC.
(Registrant)
Date: November 6, 2007 By: /s/ Richard M. Greenwood
--------------------------------
Richard M. Greenwood
President and
Chief Executive Officer
BLUESTAR HEALTH. INC.
23
ZEON FUEL, INC.
(A DEVELOPMENT STAGE COMPANY)
================================================
REPORT ON AUDIT OF
FINANCIAL STATEMENTS
Period from October 12, 2006 (Inception)
to December 31, 2006
ZEON FUEL, INC.
(A DEVELOPMENT STAGE COMPANY)
Table of Contents
Independent Auditors' Report 25
Balance Sheet 26
Statement of Operations 27
Statement of Cash Flows 28
Statement of Stockholders' Equity 29
Notes to Financial Statements 30 to 37
24
Period From October 12, 2006 (Inception) To December 31, 2006
---------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Zeon Fuel, Inc.
(A Development Stage Company)
Houston, Texas
We have audited the accompanying balance sheet of Zeon Fuel, Inc. (the
"Company") as of December 31, 2006, and the related statements of operations,
shareholder's equity, and cash flows for the period from October 12, 2006
(Inception) through December 31, 2006. These financial statements are the
responsibility of Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Zeon Fuel, Inc. as of December
31, 2006, and the results of its operations and its cash flows for the period
from October 12, 2006 (Inception) through December 31, 2006, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, the Company's absence of
established operations, and the need to raise additional financing in order to
execute its 2007 Plan, raises substantial doubt about its ability to continue as
a going concern. (Management's plans as to these matters are also described in
Note 2.) The 2006 financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ LBB & ASSOCIATES LTD., LLP
- ----------------------------------
LBB & ASSOCIATES LTD., LLP
HOUSTON, TEXAS
OCTOBER 22, 2007
25
Zeon Fuel, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 2006
ASSETS
Current assets
Cash $ 400
--------
Total current assets 400
--------
TOTAL ASSETS $ 400
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Total current liabilities --
--------
Total liabilities --
--------
Shareholder's equity
Common stock, $0.001 par value, 100,000,000 shares
authorized, 725,000 issued and outstanding. 725
Additional paid in capital 9,675
Deficit accumulated during the development stage (10,000)
--------
Total shareholder's equity 400
--------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 400
========
The accompanying notes are integral to these financial statements
26
Zeon Fuel, Inc.
(A Development Stage Company)
Statement of Operations
For the period from October 12, 2006 (Inception) to December 31, 2006
Revenues $ --
---------
Expenses
General and administrative 10,000
---------
Total expenses 10,000
---------
Loss from operations (10,000)
Net loss $ (10,000)
=========
Weighted average number of shares outstanding, basic and diluted 725,000
=========
Basis and diluted loss per common share $ (0.01)
=========
The accompanying notes are integral to these financial statements
27
Zeon Fuel, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the period from October 12, 2006 (Inception) to December 31, 2006
Cash flows from operating activities
Net loss $(10,000)
Adjustments to reconcile net deficit to cash used by operations:
Founder shares issued for services 10,000
--------
Net cash flows used in operating activities --
--------
Cash flows from investing activities --
--------
Net cash flows used in investing activities --
--------
Cash flows from financing activities
Contributed capital 400
--------
Net cash flows provided by financing activities 400
--------
Net increase in cash 400
Cash at inception --
--------
Cash, end of period $ 400
========
Supplemental cash flow information:
Cash paid for interest $ --
========
Cash paid for taxes $ --
========
The accompanying notes are integral to these financial statements
28
Zeon Fuel, Inc.
(A Development Stage Company)
Statement of Shareholder's Equity For
the period from October 12, 2006 (Inception) to December 31, 2006
Additional Total
Common Stock Paid-in Accumulated Shareholder's
Shares Amount Capital Deficit Equity
-------- -------- -------- -------- --------
Cash contribution -- $ -- $ 400 $ -- $ 400
Founders shares issued for
services 725,000 725 9,275 -- 10,000
Net loss -- -- -- (10,000) (10,000)
-------- -------- -------- -------- --------
Balance, December 31, 2006 725,000 $ 725 $ 9,675 $(10,000) $ 400
======== ======== ======== ======== ========
The accompanying notes are integral to these financial statements
29
Zeon Fuel, Inc.
Notes to Financial Statements
December 31, 2006
Note 1: Organization
Zeon Fuel, Inc. was incorporated on October 12, 2006 in the State of Texas, with
a primary business objective involving the distribution of diesel fuels and
gasoline, and the operation of retail convenience stores. Our objective is to
introduce and encourage use of environmentally friendly bio-fuels, primarily
bio-diesel, while ensuring our customer's preferences are addressed. We intend
to brand the "Zeon" name, products & services in the marketplace.
Our product offering will be petroleum based diesel and gasoline as well as
bio-fuels such as ethanol blends and bio-diesel blends. We plan on controlling
the market distribution of fuels by the acquisition and operation of retail
diesel/gasoline outlets as well as entering into "fuel contracts" which will
give Zeon control over the fuel pumps at the location where the contract is in
place. The fuels delivered to the customer are purchased from various terminals
and refineries based upon cost and location of our customer.
Note 2: Summary of Significant Accounting Policies
Basis of presentation
- ---------------------
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles"). The Company's fiscal year will end
on December 31st.
Development Stage Enterprise
- ----------------------------
As of December 31, 2006, the Company had not commenced its principal operations.
As such, it is considered a development stage enterprise. The Company's
accompanying financial statements are presented in accordance with the
provisions of SFAS No. 7 for a development stage enterprise. All costs related
to the formation of the business incurred as of December 31, 2006 have been
expensed. All revenue and expense transactions have been recognized under the
same methods as for an operating stage enterprise.
Going Concern
- -------------
Management is in the process of commencing its principal operations and will
require the infusion of outside capital in order to commence these operations.
Additional discussion of their ongoing commencement efforts and fundraising can
be found in Note 5: Subsequent Events.
Estimates
- ---------
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. By their nature, these estimates and judgments are subject to
an inherent degree of uncertainty.
30
Note 2: Summary of Significant Accounting Policies (Continued)
Estimates (Continued)
- ---------------------
We review our estimates on an on-going basis, including those related to sales
allowances, the allowance for doubtful accounts, inventories and related
reserves, long-lived assets, income taxes, litigation and stock-based
compensation. We base our estimates on our historical experience, knowledge of
current conditions and our beliefs of what could occur in the future considering
available information. Actual results may differ from these estimates, and
material effects on our operating results and financial position may result.
We believe the following critical accounting policies involve our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Cash and cash equivalents
- -------------------------
The Company considers all highly liquid investments with original maturities of
90 days or less to be cash equivalents. The Company maintains its cash balances
primarily in one financial institution, which, at times, may exceed federally
insured limits. The Company has not experienced any losses in such accounts and
believes it not exposed to any significant credit risk on cash and cash
equivalents.
Revenue Recognition
- -------------------
We recognize revenue from the sale of fuel and retail products when the
following fundamental criteria are met: persuasive evidence that an arrangement
exists; the products and services have been delivered; selling prices are fixed
and determinable and not subject to refund or adjustment; and collection of
amounts due is reasonably assured. Delivery to our wholesale fuel customers
occurs when goods are shipped and title and risk of loss transfer to the
customer, in accordance with the terms specified in the arrangement with the
customer.
Our retail segment operations include sales of all transportation fuels and
convenience store merchandise through our company operated retail sites. In
addition to transportation fuels, our company operated convenience stores sell
snacks, candy, beer, fast foods, cigarettes, convenience items and fountain
drinks. All retail sales are final, and revenue is recognized at the time of the
transaction, as all previously described criteria are deemed to be met. We
record revenues on a gross basis on lease or lease operations wherein we are
responsible to account for the purchase and sale volumes of diesel and gasoline.
Revenue recognition is deferred in all instances where the earnings process is
incomplete. We provide for sales returns and allowances in the same period as
the related revenues are recognized. We base these estimates on our experience
or the specific identification of an event necessitating a reserve.
Accounts Receivable
- -------------------
We perform ongoing credit evaluations of our customers and adjust credit limits
based upon payment history and the customer's current credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain an allowance
for doubtful accounts if required based upon our historical experience and any
specific customer collection issues that we have identified.
31
Note 2: Summary of Significant Accounting Policies (Continued)
Inventories
- -----------
We state our inventories at the lower of cost, using the first-in, first-out
method on an average costs basis, or market. We seek to purchase and maintain
raw materials at sufficient levels to meet lead times based on forecasted
demand. If forecasted demand exceeds actual demand, we may provide an allowance
for excess or obsolete quantities on hand. We also review our inventories for
changes in the market prices of fuel and provide reserves as deemed necessary.
If actual market conditions are less favorable than those projected by
management, additional inventory reserves may be required.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Significant renewals and betterments are
capitalized while maintenance and repairs are charged to expense as incurred.
Leasehold improvements are amortized on the straight-line basis over the lesser
of their estimated useful lives or the term of the related lease.
We continually monitor and review long-lived assets, including fixed assets,
goodwill and intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of any such asset may not be
recoverable. The determination of recoverability is based on an estimate of the
cash flows expected to result from the use of an asset and its eventual
disposition. If the sums of the cash flows are less than the carrying value, we
recognize an impairment loss, measured as the amount by which the carrying value
exceeds the fair value of the asset.
Accounting for Income Taxes
- ---------------------------
We account for income taxes under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under this
method, we determine deferred tax assets and liabilities based upon the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income.
The tax consequences of most events recognized in the current year's financial
statements are included in determining income taxes currently payable. However,
because tax laws and financial accounting standards differ in their recognition
and measurement of assets, liabilities, equity, revenues, expenses, gains and
losses, differences arise between the amount of taxable income and pre-tax
financial income for a year and between the tax bases of assets or liabilities
and their reported amounts in the financial statements. Because it is assumed
that the reported amounts of assets and liabilities will be recovered and
settled, respectively, a difference between the tax basis of an asset or a
liability and its reported amount on the balance sheet will result in a taxable
or a deductible amount in some future years when the related liabilities are
settled or the reported amounts of the assets are recovered. We then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and unless we believe that recovery is more likely than not, we must
establish a valuation allowance.
32
Note 2: Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation
- ------------------------
We account for stock-based compensation in accordance with SFAS No. 123R,
"Share-Based Payment." SFAS 123R requires that we account for all stock-based
compensation transactions using a fair-value method and recognize the fair value
of each award as an expense, generally over the service period. The fair value
of stock options is based upon the market price of our common stock at the grant
date.
Research and Development Expenditures
- -------------------------------------
Research and development expenditures are expensed as incurred.
Note 3: Income Taxes
Income tax provision is as follows for the year ended December 31, 2006:
Federal expense - current $ 3,400
Change in valuation allowance (3,400)
----------
Income tax provision $ --
----------
Net deferred tax assets and liabilities and the related tax effects at December
31, 2006, consist of the following:
Deferred tax asset
--------------------------------
Net operating loss carry-forward $ 3,400
Valuation allowance (3,400)
----------
Total deferred tax asset - current $ --
----------
Note 4: Commitments and Contingencies
Office Lease
- ------------
We lease office and facility space at a cost of $3,250 a month which leases
expires February 2008 and it is assumed will be extended for a thirty-six month
period.
Litigation
- ----------
In the ordinary course of business we are a claimant and/or a defendant in
various minor legal proceedings. We do not believe that the outcome of these
legal proceedings, individually or in the aggregate, will have a materially
adverse effect on our financial condition, results of operations or cash flows.
Note 5: Subsequent Events (Unaudited)
Bluestar Merger
- ---------------
On February 26, 2007, the Corporation's board of directors passed resolutions to
approve the merger of Zeon Fuel, Inc. with Bluestar Health, Inc. ("Bluestar").
Bluestar is an inactive company with common stock currently quoted on the over
the counter market Pink Sheets under the symbol "BLSH".
33
The merger will open access to certain capital markets. Under the proposed
arrangement, as modified, Zeon shareholders will receive, in exchange for their
shares in Zeon, 20,000 shares of convertible preferred stock of the Bluestar,
which shares are convertible into an approximate 88,000,000 common shares of
Bluestar then representing approximately 80% of the issued and outstanding
shares of common stock after the transaction. Because the shareholders of Zeon
become majority shareholders of Bluestar as a result of this transaction, it is
expected that it will be accounted for as a reverse-merger and Zeon will be
deemed the accounting acquirer.
The name of Bluestar will be changed to Zeon Global Energy, Inc. and Zeon Fuel,
Inc. will continue as a wholly-owned subsidiary. We anticipate the transaction
will be final prior to December 31, 2007.
Commencement of Operations
- --------------------------
During the first quarter of 2007, we initiated our business model with the
purchase of bio-diesel, the blending the product with purchased petroleum diesel
and, ultimately, the delivery of a B20 bio-diesel product to the marketplace.
This confirmed the first phase of our process model. During the first quarter
2007, we recorded revenues of approximately $536,000 and incurred a net loss of
approximately $59,000.
During the second quarter of 2007 we initiated the second phase of our model and
contracted for the operation of seven retail locations for both petroleum
products and convenience store operations. We further sub leased the actual
operations to licensed third party companies on a zero profit basis for our
company. This process allowed our management hands-on review to confirm our
process and control methodologies. During the quarter ended June 30, 2007, we
recorded revenues of approximately $7.7 million, resulting in a net income of
approximately $5,000. We will initiate company owned operations immediately
following consummation of the Zeon merger.
Equity Transactions
- -------------------
During the first quarter of 2007 we issued additional common shares for services
to bring the outstanding share count to 39,000,000 of $.001 par value.
During the third quarter of 2007, the Company changed its number of authorized
shares as follows: authorized common stock increased to 200,000,000 from
100,000,000, authorized 10,000,000 shares of a newly created Series A Preferred
stock class, and authorized 10,000,000 shares of a newly created Series B
Preferred stock class.
Note 5: Subsequent Events (Unaudited) (Continued)
Borrowings
- ----------
On March 21, 2007 we borrowed via a promissory $100,000 which is due including
interest at 12% one year from date of borrowing. The loan is secured by an
obligation to issue 2,000,000 shares of common stock of Bluestar Health, Inc.
upon closing of the Bluestar merger.
34
The following is a summary of unaudited combined pro-forma financial data at
June 30, 2007 and for the six month period then ended for the combination of the
Company and Zeon. The pro-forma financial data is presented as if the
acquisition of Zeon had occurred on January 1, 2007. The data is presented for
informational purposes and is not necessarily indicative of either the future
results of operations or the results of operations that would have occurred if
the merger had been consummated on any date. You should read the following
unaudited pro-forma financial data along with other financial information and
disclosures contained elsewhere in this information statement.
This pro forma financial data should be read in conjunction with a review of
Bluestar Health, Inc. Form 10-KSB filed for the year ended September 30, 2006
and Forms 10-QSB filed for the periods ended December 31, 2006, March 31, 2007
and June 30, 2007.
Bluestar Health, Inc.
(Combined with Zeon Fuel, Inc.)
Pro-forma Balance Sheet
Zeon Fuel, Zeon Fuel,
Combined Inc. Inc.
June 30, June 30, December 31,
2007 2007 2006
---- ---- ----
Assets (Unaudited) (Unaudited)
Current Assets:
Cash $ 50,573 $ 50,508 $ 400
Accounts receivable 92,622 92,622 --
----------- ----------- -----------
Total current assets 143,195 143,130 400
Property, plant and equipment, at cost 52,150 52,150 --
Accumulated depreciation (5,220) (5,220) --
----------- -----------
Property, plant & equipment, net 46,930 46,930 --
----------- ----------- -----------
Total Assets $ 190,125 $ 190,060 $ 400
=========== =========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 204,694 $ 50,500 $ --
Accrued expenses 36,714 3,333 --
Short term debt 409,326 -- --
----------- ----------- -----------
Total current liabilities 650,734 53,833 0
Long term debt 289,106 100,000 --
----------- -----------
Shareholders' Equity:
Common stock 14,001 39,000 $ 725
Preferred stock 200 -- --
Additional paid in capital 261,265 61,825 9,675
Accumulated deficit (1,025,181) (64,598) (10,000)
----------- ----------- -----------
Total Shareholders' Equity (749,715) 36,227 400
----------- ----------- -----------
Total Liabilities and Shareholders'
Equity $ 190,125 $ 190,060 $ 400
=========== =========== ===========
The accompanying notes are integral to these financial statements
35
Bluestar Health, Inc.
(Combined with Zeon Fuel, Inc.)
Pro-forma Statement of Operations
Zeon Fuel, Inc.
Combined Combined Inception
Six Months Three Months Oct. 31, 2006
Ended Ended Thru
June 30, March 31, December 31,
2007 2007 2006
---- ---- ----
(Unaudited) (Unaudited)
Operating revenues $ 7,772,412 $ 536,677 $ --
------------- ------------- -------------
Total revenues 7,772,412 536,677 0
Costs and expenses:
Cost of sales 7,543,146 550,908 --
General and administrative expenses 773,632 434,305 10,000
Depreciation and amortization expense 5,220 2,610 --
------------- ------------- -------------
Total costs and expenses 8,321,998 987,823 10,000
Operating income (loss) (549,586) (451,146) (10,000)
Interest and debt expense 26,993 9,257 --
------------- ------------- -------------
Net loss $ (576,579) $ (460,403) $ (10,000)
============= ============= =============
Weighted average shares outstanding:
Basic (combined after merger) 14,000,504 14,000,504 725,000
============= ============= =============
Diluted 104,414,280 104,414,280 104,414,280
============= ============= =============
Net Loss per share:
Basic & Diluted $ (0.01) $ (0.01) $ (0.01)
============= ============= =============
The accompanying notes are integral to these financial statements
36
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL INFORMATION
1. Basis of Presentation
On October 31, 2007, the Zeon Fuel, Inc. completed a reverse merger with
Bluestar Health, Inc., (Bluestar) a Colorado corporation, in accordance with the
provisions set forth in the Amended and Restated Agreement and Plan of
Reorganization dated October 30, 2007. BLUESTAR acquired one hundred (100%)
percent of the Zeon's outstanding common stock in exchange for 10,000 shares of
BLUESTAR Series A and 10,000 shares of Series B Preferred Stock. Upon
shareholder approval of increasing the number of authorized shares of BLUESTAR
common stock, each of the Series A shares will be converted to 4,400 shares of
BLUESTAR common stock and each of the Series B shares will convert to 4,641.38
shares of BLUESTAR common stock on the latter of shareholder approval of
increasing the number of BLUESTAR authorized shares or the first anniversary of
the merger.
As a result of the closing the shareholders of will own the equivalent of
approximately 90,400,000 shares of the Corporation's common stock after Series A
and Series B conversion. Each share of Series A and Series B has been given
voting rights equivalent to the corresponding number of common shares
represented after conversion. Such issuance when converted will represent 80% of
the then issued and outstanding shares of BLUESTAR. Upon approval of Bluestar
shareholders Bluestar will change its name to Zeon Global Energy, Inc. as well
as amend our articles of incorporation to increase the number of authorized
common shares from 40,000,000, to 200,000,000, and the authorized preferred
shares from 10,000,000 to 20,000,000.
The unaudited combined pro-forma balance sheet has been prepared in accordance
with accounting principles generally accepted in the United States of America,
which gives effect to the reverse merger of BLUESTAR and Zeon as if the
acquisition occurred on January 1, 2007.
As BLUESTAR HEALTH, Inc. qualifies as a shell company, pro-forma statements of
operations are not presented.
The unaudited combined pro-forma financial statements are prepared for
informational purposes only and are not necessarily indicative of future results
or of actual results that would have been achieved had the reverse merger of
BLUESTAR HEALTH, Inc. and Zeon Fuel, Inc. been consummated as of the date
specified above.
2. Pro Forma Adjustments
[1] Record issuance of 10,000 shares of Series A and B preferred stock par
value $.01.
[2] To offset BLUESTAR HEALTH, Inc.'s deficit at December 31, 2006 to the
extent of available paid in capital in connection with reverse merger.
37