WELLSTAR
INTERNATIONAL, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
JANUARY
31, 2009 AND 2008
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
JANUARY
31, 2009 AND 2008
CONTENTS
|
PAGE
|
|
|
CONSOLIDATED
BALANCE SHEET
|
F-3,
F-4
|
|
|
CONSOLIDATED
STATEMENT OF OPERATIONS
|
F-5
|
|
|
CONSOLIDATED
STATEMENT OF CHANGES IN
STOCKHOLDERS’
EQUITY (DEFICIT)
|
F-6
|
|
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
F-7
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENT
|
F-8
to
F-25
|
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
January 31
2009
(Unaudited)
|
|
|
July
31
2008
(Audited)
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
178,086
|
|
|
$
|
25,560
|
|
Prepaid
Expenses
|
|
|
16,125
|
|
|
|
40
|
|
Rent
Refund Receivable
|
|
|
1,580
|
|
|
|
1,580
|
|
Total
Current Assets
|
|
|
195,791
|
|
|
|
27,180
|
|
Fixed
Assets:
|
|
|
|
|
|
|
|
|
Imaging
Equipment
|
|
|
837,874
|
|
|
|
837,874
|
|
Office
Equipment and Fixtures
|
|
|
154,884
|
|
|
|
154,540
|
|
Subtotal
|
|
|
992,758
|
|
|
|
992,414
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated Depreciation
|
|
|
474,403
|
|
|
|
374,414
|
|
Net
Fixed Assets
|
|
|
518,355
|
|
|
|
618,000
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets:
|
|
|
|
|
|
|
|
|
Covenant
Not To Compete
|
|
|
20,000
|
|
|
|
20,000
|
|
Manufacturing
and Distribution Agreement
|
|
|
700,000
|
|
|
|
700,000
|
|
Subtotal
|
|
|
720,000
|
|
|
|
720,000
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated Amortization
|
|
|
416,463
|
|
|
|
352,304
|
|
Net
Intangible Assets
|
|
|
303,537
|
|
|
|
367,696
|
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Loan
Acquisition Cost (net of amortization of $231,805 @ 10/31/08 and $216,861
@ 7/31/08)
|
|
|
57,108
|
|
|
|
80,664
|
|
Software
and Manuals (net of amortization of $104,080
|
|
|
26,666
|
|
|
|
35,975
|
|
@
10/31/08 and $99,425 @ 7/31/08)
|
|
|
|
|
|
|
|
|
Security
Deposit
|
|
|
4.525
|
|
|
|
4,525
|
|
Total
Other Assets
|
|
|
88,299
|
|
|
|
121,164
|
|
Total
Assets
|
|
$
|
1,105,982
|
|
|
$
|
1,134,040
|
|
See
Accompanying Notes to Consolidated Financial Statements
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
LIABILITIES LESS
SHAREHOLDERS’ DEFICIT
|
|
January
31
2009
(Unaudited)
|
|
|
July
31
2008
(Audited)
|
|
Current
Liabilities:
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
671,555
|
|
|
$
|
699,295
|
|
Accrued
Expenses
|
|
|
2,455,050
|
|
|
|
1,915,925
|
|
Note
& Loan Payable - Other
|
|
|
29,912
|
|
|
|
13,000
|
|
Note
& Loan Payable - Officer
|
|
|
69,680
|
|
|
|
-
|
|
Notes
Payable
|
|
|
750,000
|
|
|
|
750,000
|
|
Derivative
Instrument Liability - Loan
|
|
|
401,581
|
|
|
|
374,952
|
|
Derivative
Instrument Liability - Convertible Notes
|
|
|
2,886,686
|
|
|
|
2,525,027
|
|
Convertible
Debt
|
|
|
1,499,866
|
|
|
|
530,452
|
|
Total
Current Liabilities
|
|
|
8,764,330
|
|
|
|
6,808,651
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities:
|
|
|
|
|
|
|
|
|
Convertible
Debt
|
|
|
38,015
|
|
|
|
85,499
|
|
Derivative
Instrument Liability - Convertible Notes
|
|
|
4,500,900
|
|
|
|
5,841,505
|
|
Derivative
Instrument Liability - Warrants
|
|
|
98,114
|
|
|
|
1,153,454
|
|
Total
Long-Term Liabilities
|
|
|
4,637,029
|
|
|
|
7,080,458
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
13,401,359
|
|
|
|
13,889.109
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficit:
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
Authorized
1,000,000,000 Shares, par value .001 per
|
|
|
|
|
|
|
|
|
Share
Issued Shares, 519,940,017 - Outstanding Shares, 518,440,017 (10/31/08)
and 460,040,217 (7/31/08)
|
|
|
1,148,705
|
|
|
|
460,041
|
|
Paid
in Surplus
|
|
|
1,318,878
|
|
|
|
1,098,260
|
|
Retained
Earnings (Deficit)
|
|
|
(14,762,960
|
)
|
|
|
(14,313,370
|
)
|
Total
Shareholders' Deficit
|
|
|
(12,295,377
|
)
|
|
|
(12,755,069
|
)
|
Total Liabilities Less
Stockholder's
Deficit
|
|
$
|
1,105,982
|
|
|
$
|
1,134,040
|
|
See
Accompanying Notes to Consolidated Financial Statements
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
|
Three
Months January 31,
|
|
Six
Months January
31,
|
|
Income:
|
|
|
2009
|
|
|
2008
|
|
2009
|
|
|
2009
|
|
Revenue from Medical
Imaging
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
Cost of Sales
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
-0-
|
|
Gross
Profit
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
512,795
|
|
|
689,042
|
|
|
939,039
|
|
|
|
1,085,481
|
|
Selling,
General and Administrative
|
|
|
95,342
|
|
|
110,370
|
|
|
197,014
|
|
|
|
202,876
|
|
Depreciation
and Amortization
|
|
|
608,137
|
|
|
799,412
|
|
|
1,136,053
|
|
|
|
1,288,357
|
|
Total
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(608,137
|
)
|
|
(799,412
|
)
|
|
(1,136,053
|
)
|
|
|
(1,288,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expense (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
(3
|
)
|
|
(1,415
|
)
|
|
(62
|
)
|
|
|
(1,851
|
)
|
Interest
Expense
|
|
|
128,272
|
|
|
119,514
|
|
|
250,124
|
|
|
|
227,075
|
|
Derivative
Instrument (Income) Expense, Net
|
|
|
108,900
|
|
|
122,400
|
|
|
217,800
|
|
|
|
182,400
|
|
Non-Registration
Penalties
|
|
|
1,616,582
|
|
|
(3,783,355
|
)
|
|
(1,154,325
|
)
|
|
|
(2,333,761
|
)
|
Total
Other Expenses (Income)
|
|
|
1,853,751
|
|
|
(3,542,856
|
)
|
|
(686,463
|
)
|
|
|
(1,926,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before Provision for Taxes
|
|
|
(2,461,888
|
)
|
|
2,743,444
|
|
|
(449,590
|
)
|
|
|
637,780
|
|
Provision for Taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
Net
Income (Loss)
|
|
$
|
(2,461,888
|
)
|
$
|
2,743,444
|
|
$
|
(449,590
|
)
|
|
$
|
637,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share,
Basic and Diluted
|
|
$
|
.0
|
|
$
|
.02
|
|
$
|
(-)
|
|
|
$
|
(-)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares
Outstanding,
Basic and Diluted
|
|
|
697,103,141
|
|
|
175,496,901
|
|
|
509,756,411
|
|
|
|
149,868,232
|
|
See
Accompanying Notes to Consolidated Financial Statements
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CHANGES IN
STOCKHOLDERS’
EQUITY (DEFICIT)
FOR
THE SIX MONTHS ENDED JANUARY 31, 2009
|
|
Common Stock
|
|
|
Additional
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 1, 2008
|
|
|
460,040,217
|
|
|
$
|
460,041
|
|
|
$
|
1,098,260
|
|
|
$
|
(14,313,370
|
)
|
|
$
|
(12,755,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Issued to Consultants and Others for Services and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
66,176,450
|
|
|
|
66,176
|
|
|
|
335,196
|
|
|
|
|
|
|
|
401,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of
Debentures
|
|
|
435,400,000
|
|
|
|
435,400
|
|
|
|
(271,040
|
)
|
|
|
|
|
|
|
164,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Issued for Cash
|
|
|
203,200,000
|
|
|
|
203,200
|
|
|
|
140,350
|
|
|
|
|
|
|
|
343,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Stock Donated
|
|
|
(16,112,500
|
)
|
|
|
(16,112
|
)
|
|
|
16,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) for the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(449,590)
|
|
|
|
(449,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2009
|
|
|
1,148,704,167
|
|
|
$
|
1,148,705
|
|
|
$
|
1,318,878
|
|
|
$
|
(14,762,960
|
)
|
|
$
|
(12,295,377
|
)
|
See
Accompanying Notes to Consolidated Financial Statements
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Three
Month Ended January 31,
|
|
Cash
Flows from Operating Activities:
|
|
2009
|
|
|
2008
|
|
Net
Income Loss
|
|
$
|
(449,590
|
)
|
|
$
|
637,780
|
|
Adjustments
to Reconcile Net Loss to Net Cash used in Operating
Activities:
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
197,014
|
|
|
|
202,876
|
|
Services
Paid in Stock
|
|
|
385,247
|
|
|
|
65,382
|
|
Derivative
Instrument (Income) Expense, Net
|
|
|
(1,154,325
|
)
|
|
|
(2,333,761
|
)
|
Delinquent
Registration Penalty
|
|
|
217,800
|
|
|
|
182,400
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Increase
(Decrease) In:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
-
|
|
|
|
50,000
|
|
Prepaid
Expenses
|
|
|
40
|
|
|
|
12,244
|
|
Accounts
Payable
|
|
|
(27,740
|
)
|
|
|
52,713
|
|
Accrued
Expenses
|
|
|
554,282
|
|
|
|
335,648
|
|
Net Cash Used
in Operating Activities
|
|
|
(277,272
|
)
|
|
|
(794,718
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of Equipment and Software
|
|
|
(344
|
)
|
|
|
(45.525
|
)
|
Net
Cash Used in Investing Activities
|
|
|
(344
|
)
|
|
|
(45.525
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Payments
of Financing Costs
|
|
|
-
|
|
|
|
(35,000
|
)
|
Proceeds
from Issuance of Convertible Notes
|
|
|
-
|
|
|
|
815,000
|
|
Note
Payable - Officer
|
|
|
59,680
|
|
|
|
-
|
|
Note
Payable - Other
|
|
|
16,912
|
|
|
|
-
|
|
Issuance
of Stock for Cash
|
|
|
343,550
|
|
|
|
-
|
|
Net
Cash Provided by Financing Activities
|
|
|
430,142
|
|
|
|
780,000
|
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash
|
|
|
152,526
|
|
|
|
(60,243
|
)
|
|
|
|
|
|
|
|
|
|
Cash
at Beginning of Period
|
|
|
25,560
|
|
|
|
64,791
|
|
Cash
at End of Period
|
|
$
|
178,086
|
|
|
$
|
4,548
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid for Interest
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid for Taxes
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
See
Accompanying Notes to Consolidated Financial Statements
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR
THE THREE MONTHS ENDED JANUARY 31, 2009 AND 2008
Supplemental
Disclosure of Non-Cash Investing and Financing Activities:
1.
|
During
the six months ended January 31, 2009, convertible debentures in the
amount of $164,360 were converted into 435,400,000 shares of Common
Stock.
|
2.
|
66,176,450
shares of Common Stock was issued for services rendered in the six months
ended January 31, 2009. The amount was
$401,372.
|
3.
|
During
the six months ended January 31, 2009, two officer/stockholders donated
16,112,500 shares of the Company stock they owned to the
Company. This transaction has no effect on
cash.
|
4.
|
During
the six months ended January 31, 2008, stock purchase warrants exercisable
for 35,000,000 shares of Common Stock were issued in connection with a
closing on $815,000 of convertible notes had no cash
effect.
|
5.
|
7,682,142
shares of Common Stock was issued for services rendered. The
amount was $65,382 in the six months ended January 31,
2008.
|
6.
|
During
the six months ended January 31, 2008, convertible debentures in the
amount of $161,117 were converted into 101,274,500 shares of Common
Stock.
|
7.
|
During
the six months ended January 31, 2008, the Company acquired software for
cameras in the amount of $300,000, which was not paid for, as such, has no
effect on cash in this period.
|
See
Accompanying Notes to Consolidated Financial Statements
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENT
AS
OF JANUARY 31, 2009
(UNAUDITED)
NOTE
1 Summary of
Significant Accounting Policies and Organization
|
a)
|
Organization and Recent Company
History
|
Wellstar
International, Inc. (the “Company”) was incorporated December 15, 1997, under
the laws of the State of Nevada. Through its wholly owned subsidiary,
Trillennium Medical Imaging, Inc. (“TMI”), it is developing and licensing the
use of advanced thermal imaging technology.
|
b)
|
Principles
of Consolidation
|
The
consolidated financial statements include the accounts of Wellstar
International, Inc. and its wholly owned subsidiary, Trillennium Medical
Imaging, Inc. (collectively, the “Company”).
|
c)
|
Interim
Condensed Consolidated Financial
Statements
|
The
consolidated financial statements as of and for the six months ended January 31,
2009 and 2008 are unaudited. In the opinion of management, such
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) necessary for the fair presentation of the
consolidated financial position and the consolidated results of
operations. The consolidated results of operations for the six months
ended January 31, 2009 and 2008 are not necessarily indicative of the results to
be expected for the full year. The consolidated balance sheet
information as of July 31, 2008 was derived from the audited consolidated
financial statements included in the Company’s annual report Form 10-KSB for the
year ended July 31, 2008. The interim consolidated financial
statements should be read in conjunction with that report.
d)
Revenue
Recognition
The
Company recognizes revenues utilizing the accrual method of
accounting. More specifically, the Company enters into licensing
agreements for its advanced thermal imaging technology. Under the
licensing agreements, the Company supplies the camera equipment, related
software and training for each facility. Once the facility is
operational, the licensing agreement provides for a fixed fee monthly fee for
the use of the camera. Accordingly, the revenue is recognized in the
month that the camera is in use at the customer’s facility, which represents the
Company’s right to receive the fixed fee. The Company’s revenue
recognition policy is in compliance with the provisions of EITF
00-21.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENT
AS
OF JANUARY 31, 2009
(UNAUDITED)
NOTE
1 Summary of
Significant Accounting Policies and Organization
(cont’d)
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying
notes. Although these estimates are based on management’s knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
f)
Cash
For the
purpose of the Statement of Cash Flows, cash is defined as balances held in
corporate checking accounts and money market accounts.
g)
Income (Loss) Per
Share
Basic and
diluted net income (loss) per common share for the six months ended January 31,
2009 and 2008 are computed based upon the weighted average number of common
shares outstanding. The assumed conversion of Common Stock
equivalents was not included in the computation of diluted Income (loss) per
share because the assumed conversion and exercise would be anti-dilutive due to
the net Income (loss) incurred. Based on the conversion formula in
the Agreements (see Note 2 and 3) on the conversion of its convertible notes
would have resulted in the issuance of additional common shares in the amount of
77,728,682,692, on January 31, 2009.
h)
Stock Based
Compensation
Stock
based compensation will be valued in accordance with SFAS 123(R) under the Fair
Valued based method. Compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period which
is usually the vesting period. Transactions with non-employees shall
be accounted for based on the Fair Value of the consideration received or Fair
Value of the equity installments issued, whichever is more reliably
measurable.
|
i)
|
Derivative
Instruments
|
In
connection with the sale of debt or equity instruments, we may sell options or
warrants to purchase our Common Stock. In certain circumstances,
these options or warrants may be classified as derivative liabilities, rather
than as equity. Additionally, the debt or equity instruments may
contain embedded derivative instruments, such as conversion options, which in
certain circumstances may be required to be bifurcated from the associated host
instrument and accounted for separately as a derivative instrument
liability.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENT
AS
OF JANUARY 31, 2009
(UNAUDITED)
NOTE
1 Summary of
Significant Accounting Policies and Organization
(cont’d)
|
i)
|
Derivative Instruments
(cont’d)
|
The
identification of, and accounting for, derivative instruments is
complex. Our derivative instrument liabilities are re-valued at the
end of each reporting period, with changes in the fair value of the derivative
liability recorded as charges or credits to income, in the period in which the
changes occur. For options, warrants and bifurcated conversion
options that are accounted for as derivative instrument liabilities, we
determine the fair value of these instruments using the Black -Scholes option
pricing model. That model requires assumptions related to the
remaining term of the instrument and risk-free rates of return, our current
Common Stock price and expected dividend yield, and the expected volatility of
our Common Stock price over the life of the option.
The
Company will provide for income taxes based on the provisions of Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
No. 109 (“SFAS No. 109"), “Accounting for Income Taxes”, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements and
tax returns in different years. Under this method, deferred income
tax assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse.
|
k)
|
Concentration of Credit
Risk
|
Financial
instruments which potentially subject the Company to concentrations of credit
risk consists of a checking account with a financial institution in excess of
insured limits. There was no excess above insured limits at January
31, 2009. The Company does not anticipate non-performance by the
financial institution.
|
l)
|
Fair Value of Financial
Instruments
|
Carrying
amounts of certain of the Company’s financial instruments, including cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value because of their short maturities.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENT
AS
OF JANUARY 31, 2009
(UNAUDITED)
NOTE
1 Summary of
Significant Accounting Policies and Organization
(cont’d)
m)
Equipment
Imaging
and office equipment are recorded at cost and depreciated on the straight line
method with an estimated life of five (5) years. Imaging equipment is
at the customers facility where the equipment is used or stored by the Company
until placed in use. The Company retains title to the imaging
equipment while it is at the customers location. Depreciation expense
for the six months ended January 31, 2009 and 2008 were $99,989 and $87,916,
respectfully.
n)
Intangible Assets
Loan
acquisition costs are stated at cost and relate to the costs of acquiring the
convertible notes (see Note 2) and to obtaining the $400,000 Note Payable (see
Note 3). Amortization is provided for under the straight line method
over three (3) years, which is the term of the convertible notes and six months
for the original term of the Note Payable. Total amortization for the six months
ended January 31, 2009 and 2008 were $23,556 and $22,269,
respectfully.
Software
and manuals, Covenant Not To Compete and Manufacturing & Distribution
Agreement acquired in the acquisition of Micro Health Systems, Inc. (See Note 3)
with cost of $80,000, $20,000 and $700,000 respectively are being amortized over
a 24 month period for the software and the Covenant and 5 ½ years for the
manufacturing and distribution agreement. The total amortization expense for the
six months ended January 31, 2009 and 2008 were $73,469 and $92,692,
respectfully.
Estimates
of future cash flows used to test recoverability of long-lived assets shall be
based on the existing service potential of the asset or asset group at the date
it is tested. The testing will be done annually prior to July 31
st
, the
Company’s fiscal year end.
Management,
in reviewing the value, is of the opinion that its carrying values of its
imaging equipment are not higher than fair value to sell. It also is
of the opinion that it’s exclusive Mikron Manufacture and Distribution Agreement
which is at a carrying value of 50% of its cost three years ago, is a low
value. Current tests of its imaging equipment are currently under way
by a major medical facility and management is of the opinion the tests will
yield positive results to effect future revenue and cash flow.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENT
AS
OF JANUARY 31, 2009
(UNAUDITED)
NOTE
1 Summary of
Significant Accounting Policies and Organization
(cont’d)
p)
|
Derivative
Instruments
|
Because
of the limited trading history of our Common Stock, we have estimated the future
volatility of our Common Stock price based on not only the history of our stock
price but also the experience of other entities considered comparable to
us. The identification of, and accounting for, derivative instruments
and the assumptions used to value them can significantly affect our financial
statements.
q)
|
Registration
Rights Agreements
|
In
connection with the sale of debt or equity instruments, we may enter into
Registration Rights Agreements. Generally, these Agreements require
us to file registration statements with the Securities and Exchange Commission
to register common shares that may be issued on conversion of debt or preferred
stock, to permit re-sale of common shares previously sold under an exemption
from registration or to register common shares that may be issued on exercise of
outstanding options or warrants.
The
Agreements usually require us to pay penalties for any time delay in filing the
required registration statements, or in the registration statements becoming
effective, beyond dates specified in the Agreement. These penalties
are usually expressed as a fixed percentage, per month, of the original amount
we received on issuance of the debt or preferred stock, common shares, options
or warrants. We account for these penalties as a contingent liability
and not as a derivative instrument. Accordingly, we recognize the
penalties when it becomes probable that they will be incurred. Any
penalties are expenses over the period to which they relate.
NOTE
2 Convertible
Notes
On
October 31, 2005, the Company entered into a Securities Purchase Agreement with
AJW Partners, LLC and its related entities for the sale of $3,000,000 of 8%
secured convertible notes, each advance is evidenced by a note which is due
three years from the date of the advance, and for stock purchase warrants
exercisable for a total of 5,000,000 shares of Common Stock each
issuance of warrants expiring on the fifth anniversary from the date of
issue. The warrants are issued at the time funds are advanced at
1,666,667 per $1 million advanced. The notes are convertible, at the
holder’s option, into shares of Common Stock, in whole or in part, at any time
after the original issue date. No interest shall be due and payable
for any month in which the Company’s stock trading price is greater than $0.1125
for each trading day of the month.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENT
AS
OF JANUARY 31, 2009
NOTE
2 Convertible Notes
(cont’d)
The
number of shares of Common Stock issuable upon a conversion is to be determined
by dividing the outstanding principal amount of the notes to be converted, plus
related accrued interest, by the conversion price. The conversion
price in effect on any conversion date will be at the selling stockholder’s
option, at the lower of (i) $0.12 or (ii) a 40% discount to the average of the
three lowest intraday trading prices for the Common Stock on a principal market
for the twenty trading days preceding, but not including, the conversion date
for all notes except a discount of 67.50% relates to stock conversions for the
convertible debentures dated April 22, 2008, June 12, 2008 and August 29,
2008. The total shares at January 31, 2009 were
71,453,974,359.
The stock
purchase warrants have an exercise price of $0.50 per share.
The
Company has closed on the entire $3,000,000 of convertible notes contemplated by
the Securities Purchase Agreement and issued stock purchase warrants exercisable
for 5,000,000 shares of Common Stock in connection therewith. The
dates of the advance of the funds of $1 million each were October 31, 2005 and
January 20, 2006 and $500,000 each on July 25, 2006 and August 8, 2006. The
stock registration was effective August 4, 2006.
On
November 30, 2006, the Company entered into an additional securities purchase
agreement with AJW Partners, LLC and its related entities for the sale of
$400,000 of 8% secured convertible notes due November 30, 2009, and for stock
purchase warrants of 4,000,000 shares of Common Stock exercisable at anytime at
$.08 per share, expiring on the seventh anniversary from the date of issue,
November 30, 2013.
The funds
were advanced on November 30, 2006, in the amount of $392,500, less a $7,500
charge as a loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of Common Stock, in whole or in part, at any time after the original issue
date.
No
interest shall be due on any payable for any month in which the Company’s stock
trading price is greater than $.0775 for each trading day of the
month. The notes are secured by all the assets and intellectual
property of the Company.
On March
26, 2007, the Company entered into an additional securities purchase agreement
with AJW Partners, LLC and its related entities for the sale of $165,000 of 8%
secured convertible notes due March 26, 2010, and for stock purchase warrants of
1,000,000 shares of Common Stock exercisable at anytime at $.03 per share,
expiring on the seventh anniversary from the date of issue, March 26,
2014.
The funds
were advanced on March 26, 2007, in the amount of $150,000, less a $15,000
charge as a loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of Common Stock, in whole or in part, at any time after the original issue
date.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
2 Convertible Notes
(cont’d)
No
interest shall be due or any payable for any month in which the Company’s stock
trading price is greater than $.0775 for each trading day of the
month. The notes are secured by all the assets and intellectual
property of the Company.
On May
30, 2007, the Company entered into an additional securities purchase agreement
with AJW Partners, LLC and its related entities for the sale of $435,000 of 8%
secured convertible notes due May 30, 2010, and for stock purchase warrants of
10,000,000 shares of Common Stock exercisable at anytime at $.02 per share,
expiring on the seventh anniversary from the date of issue, May 30,
2014.
The funds
were advanced on May 30, 2007, in the amount of $415,000, less a $20,000 charge
as a loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of Common Stock, in whole or in part, at any time after the original issue
date. No interest shall be due or any payable for any month in
which the Company’s stock trading price is greater than $.0775 for each trading
day of the month. The notes are secured by all the assets and
intellectual property of the Company.
On
October 12, 2007, the Company entered into an additional securities purchase
agreement with AJW Partners, LLC and its related entities for the sale of
$175,000 of 8% secured convertible notes due October 12, 2010, and for stock
purchase warrants of 15,000,000 shares of common stock exercisable at anytime at
$ .0001 per share expiring on the seventh anniversary from the date of issue
October 12, 2014.
The funds
were advanced on October 12, 2007 in the amount of $170,000, less a $5,000
charge as loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of common stock, in whole or in part, at any time after the original issue
date. No interest shall be due or payable for any month in which the
Company’s stock trading price is greater than $ .0775 for each trading day of
the month. The notes are secured by all the assets and intellectual
property of the Company.
On
November 15, 2007, the Company entered into an additional securities purchase
agreement with AJW Partners, LLC and its related entities for the sale of
$325,000 of 8% secured convertible notes due November 15, 2010, and for stock
purchase warrants of 10,000,000 shares of common stock exercisable at anytime at
$ .0001 per share expiring on the seventh anniversary from the date of issue
November 15, 2014.
The funds
were advanced on November 15, 2007 in the amount of $310,000, less a $15,000
charge as loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of common stock, in whole or in part, at any time after the original issue
date.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
2 Convertible Notes
(cont’d)
No
interest shall be due or payable for any month in which the Company’s stock
trading price is greater than $ .0775 for each trading day of the
month. The notes are secured by all the assets and intellectual
property of the Company.
On
December 14, 2007, the Company entered into an additional securities purchase
agreement with AJW Partners, LLC and its related entities for the sale of
$315,000 of 8% secured convertible notes due December 14, 2010, and for stock
purchase warrants of 10,000,000 shares of common stock exercisable at anytime at
$ .0001 per share expiring on the seventh anniversary from the date of issue
December 14, 2014.
The funds
were advanced on December 14, 2007 in the amount of $300,000, less a $15,000
charge as loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of common stock, in whole or in part, at any time after the original issue
date. No interest shall be due or payable for any month in which the
Company’s stock trading price is greater than $ .0775 for each trading day of
the month. The notes are secured by all the assets and intellectual
property of the Company.
On
December 31, 2007, the Lender issued the Company a new note for all accrued
unpaid interest. The Lender applied all of its conversions from
convertible notes into stock to the principal of its original note issued
October 31, 2005.
The
Company which had been applying the conversions to interest first then principal
made this adjustment to be in agreement with the Lender and will apply all
conversion to principal beginning January 1, 2008. The Callable
Secured Convertible Note dated December 31, 2007 in the amount of $427,759.61
bears interest at 2% per annum, payable quarterly. The note is due
December 31, 2010. All of the terms are identical to the above notes,
including the conversion options.
On April
22, 2008, the Company entered into an additional securities purchase agreement
with AJW Partners, LLC and its related entities for the sale of $190,000 of 8%
secured convertible notes due April 22, 2011, and for stock purchase warrants of
20,000,000 shares of common stock exercisable at anytime at $ .0001 per share
expiring on the seventh anniversary from the date of issue April 22,
2015.
The funds
were advanced on April 22, 2008 in the amount of $185,000, less a $5,000 charge
as loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of common stock, in whole or in part, at any time after the original issue
date. No interest shall be due or payable for any month in which the
Company’s stock trading price is greater than $.0775 for each trading day of the
month. The notes are secured by all the assets and intellectual
property of the Company.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
2 Convertible Notes
(cont’d)
On June
12, 2008, the Company entered into an additional securities purchase agreement
with AJW Partners, LLC and its related entities for the sale of $135,000 of 8%
secured convertible notes due June 12, 2011.
The funds
were advanced on June 12, 2008 in the amount of $105,000, less a $20,000 charge
as loan acquisition cost, amortized over the loan period of 36
months. The notes are convertible, at the holders option, into shares
of common stock, in whole or in part, at any time after the original issue
date. No interest shall be due or payable for any month in which the
Company’s stock trading price is greater than $.0775 for each trading day of the
month. The notes are secured by all the assets and intellectual
property of the Company.
On August
29, 2008, AJW Partners, LLC and its related entities (the Lender) issued the
Company a new Note for all accrued unpaid interest from January 1, 2008 through
August 29, 2008. The accrued interest has been reclassified to a
convertible note payable. The Callable Secured Convertible Note,
dated August 29, 2008, in the amount of $235,113.84, bears interest at 2% per
annum, payable quarterly. The Note is due on August 29,
2011. The conversion price is the average of the three (3) lowest
trading prices in the 20 days prior to conversion (before the conversion date)
X
32.5% = conversion
price. All other terms are identical with the other
Note.
See
Paragraph 2 of this note related to the terms of conversion. The
total shares at January 31, 2009, included in Paragraph 2 above, includes all
additional convertible notes.
All notes
include a Registration Rights Agreement. The Company was required to
register additional shares in relation to all the additional agreements listed
above, this was not done. There is a penalty of 2% per month of the
note amount, a penalty of $913,374 was accrued through January 31,
2009.
In
connection with the aforementioned issuance of the $1,000,000 of convertible
notes, on October 31, 2005, the Company granted a first priority security
interest in all the assets of the Company. The issuance of
convertible notes resulted in conversion features being accounted for as
embedded derivative liabilities in accordance with EITF00-19 and SFAS 133 (see
Note 4). The note holder’s have converted notes of $872,952 into
760,748,200 shares of Common Stock as of January 31, 2009. The
balance of the notes are $4,927,758, at January 31, 2009. Interest due of
$193,982 is included in Accrued Expenses.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
2 Convertible Notes
(cont’d)
The
classification as short-term and long-term derivative instrument
liabilities-convertible notes, derivative instrument liabilities warrants and
convertible debt is based upon the due date of the notes and the date the
warrants expire. Some of the notes have passed their due dates and
others are due within one year; these are shown as current liabilities, the
other are shown as long-term liabilities. The warrants are shown as
long-term as the expiration dates are over one year.
NOTE
3 Notes
Payable
|
a)
|
The
Company has borrowed $150,000 from an unrelated individual. The
Note is dated August 1, 2005. The outstanding balance of the
loan shall bear monetary interest at the fixed rate of six percent (6%)
simple, non-compounding interest payable in arrears per
annum.
|
The
outstanding balance of principal and interest is due and payable on demand on or
after August 1, 2006. All payments shall apply first to interest
accrued and then principal. The Company may prepay all or part
without a pre-payment penalty. The loan was not paid on August 1,
2006 and was extended under the same terms by mutual
agreement. Interest due of $31,975 is included in Accrued
Expenses.
Default
shall occur upon (1) failure to make payment on the note or transfer of stock
when due, (2) Company institutes bankruptcy or solvency proceedings or make an
assignment for the benefit of creditors.
Note
Payable - Current
|
|
$
|
150,000
|
|
|
b)
|
The
Company has entered into a loan agreement with an unrelated
individual. The note is dated October 11, 2005. The
note provides for a total loan of $400,000, the Company received $190,000
by October 31, 2005. The balance of $210,000 was subsequently
received on November 29, 2005. The note bears interest at a
fixed rate of 8%, plus the prevailing variable margin rate charged to the
lender. As of January 31, 2009, the margin rate was
7.625%. The lender was paid a loan acquisition cost on December
5, 2005, in Common Stock of 1 million
shares.
|
The cost
was recorded at market value at the date of the loan which was $ .12 per share,
for a total of $120,000. The outstanding balance of principal and
accrued interest was due and payable on April 11, 2006. The note has
been extended to February 28, 2007 by addendum under the current terms and
interest is being accrued. The addendum was signed on November 11,
2006. In consideration of the waiver and extension, the Company, with
the signing, paid the lender $20,000. The lender was also issued
additional warrants to purchase 400,000 shares of common stock, 200,000 at $0.10
per share and 200,000 at $0.20 per share, which expire on February 28, 2008. As
of January 31, 2009, the note has not been paid.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
3 Notes Payable
(cont’d)
At
January 31, 2009, $202,372 of interest expense is included in Accrued
Expenses. As security for the loan, the Company has pledged all of
its tangible and intangible assets. Commencing on January 1, 2006,
the Company shall establish an escrow account and shall deposit 25% of all
proceeds generated by the thermal imaging cameras purchased with $210,000 of
proceeds from the loan. The funds shall remain in escrow for use in
paying all sums due to the lender. To January 31, 2009, no funds have
been put into escrow.
In
addition, the lender has the option to convert the loan into fully registered,
unsecured Common Stock of the Company at a conversion price on the day of
conversion, minus 40%. The total shares at January 31, 2009 were
6,274,708,333. The lender shall have the right to convert on the prepayment date
or the due date, whichever occurs first. The issuance of the notes
and warrants resulted in conversion features being accounted for as embedded
derivative liabilities in accordance with EITF00-19 and FASB 133
(see
Note 4
).
Balance
due at January 31, 2009
|
|
$
|
400,000
|
|
|
c)
|
On
December 21, 2005, the Company completed the purchase of certain assets of
Micro Health Systems, Inc. (“MHS”) under a definitive
agreement.
|
Total
consideration paid by the Company was $600,000, plus 2,000,000 shares of
Restricted Common Stock. The Company paid $400,000 at
closing. A promissory note was executed for $200,000 with interest at
8% per annum. $100,000 is due with accrued interest on or before the 180
th
day
following the date of the Note which is June 19, 2006, with the balance of
principal and interest due and payable on or before the 365
th
day
following the date of the note.
The
2,000,000 shares of Restricted Common Stock were issued on December 21, 2005 and
priced at the market price of $ .10 per share for a total value of
$200,000. The cost was allocated as follows:
Mikron
Manufacturing Distribution Agreement
|
|
|
|
Customer
List and Intangible Assets
|
|
$
|
700,000
|
|
Tangible
Assets
|
|
|
80,000
|
|
Covenant
Not-To-Compete
|
|
|
20,000
|
|
Total
|
|
$
|
800,000
|
|
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
3 Notes Payable
(cont’d)
In
addition, 1,500,000 shares of Restricted Common Stock are being held in escrow
as security for the note payable of $200,000. These shares have been
shown as issued but not outstanding. The Company is in default on
$200,000 of the Note Payable and interest of $4,000 which was due June 19, 2006
on the first $100,000 of notes due. Due to the default, the interest
charged from June 19, 2006 is 18% on the $200,000 Note
Payable. Interest expense of $96,486 is included in Accrued
Expenses.
On
November 28, 2006, the Company received a letter due to the default, giving it
ten (10) days to pay the note and accrued interest or the 1,500,000 shares held
in escrow will be issued to the shareholder of Micro Health Systems,
Inc. As of January 31, 2009 and through December 12, 2008 nothing has
transpired.
Balance
due at October 31, 2008
|
|
$
|
200,000
|
|
d)
|
The
Company has borrowed $10,000 from an unrelated company. The
Note is dated April 14, 2008, and was due on July 15, 2008 (maturity
date). The Note has an interest rate of 15% per
annum. Per the terms of the Note, the Company is in default as
it failed to pay the principal and interest due upon the maturity
date. In an event of default, Lender by notice given to
Borrower may declare the unpaid principal and accrued interest owing upon
this notice to be immediately payable. The Company (Borrower)
has not received any demand for payment from the Lender as of January 31,
2009. The Note is included as a current liability in Note and
Loan Payable - Other, in the amount of $10,000. The note was
paid on full in February 2, 2009.
|
e)
|
The
Company has borrowed $16,912 from an unrelated party. The note
is dated January 16, 2009, and was due on February 16, 2009 (maturity
date). The note has an interest rate of 12% per annum. Per the
terms of the note, the Company is in default as it failed to pay the
principal and interest due upon the maturity date. In the event
of default, the lender, by notice given to the borrower, may declare the
unpaid principal and accrued interest owing to be paid. The
Company (borrower) has not received any demand for payment as of March 5,
2009. The note is included as a current liability in Notes and
Loans Payable - Other in the amount of
$16,912.
|
f)
|
On
December 3, 2008, the President of the Company issued Promissory Notes to
AJW Partners, LLC, and related entities, in the amount of $57,500. $50,000
was loaned to the Company and $7,500 was paid as Loan Acquisition
Costs. The Notes bear no interest unless and until an event of
default occurs, as specified in the Notes. The Notes are due
December 31, 2009. The $50,000 is included as a Current
Liability in Note and Loan Payable -
Officer.
|
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
4 Derivative
Financial Instrument Liabilities
We use
the Black-Scholes option pricing model to value options and warrants, and the
embedded conversion option components of any bifurcated embedded derivative
instruments that are recorded as derivative liabilities. See Note 1,
related to embedded derivative instruments accounting policy.
In
valuing the options and warrants and the embedded conversion option components
of the bifurcated embedded derivative instruments, at the time they were issued
and at January 31, 2009, we used the market price of our Common Stock on the
date of valuation, an expected dividend yield of 0% and the remaining period to
the expiration date of the options or warrants or repayment date of the
convertible debt instrument. All options, warrants and conversion
options can be exercised by the holder at any time.
Because
of the limited historical trading period of our Common Stock, the expected
volatility of our Common Stock over the remaining life of the options and
warrants has been estimated at 123%, based on a review of the historical
volatility and of entities considered by management as
comparable. The risk-free rates of return used ranged from 0.12% to
1.80%, based on constant maturity rates published by the U.S. Federal Reserve,
applicable to the remaining life of the options or warrants.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
4 Derivative
Financial Instrument Liabilities (cont’d)
At
January 31, 2009, the following derivative liabilities related to Common Stock
options and warrants and embedded derivative instruments were outstanding (see
Notes 2 and 3):
Issue
Date
|
Expiry Date
|
|
No.
of
Warrants
|
|
Issued To
|
|
Exercise
Price
Per
Share
|
|
|
Value
- Issue
Date
|
|
|
Value
- Jan. 31, 2009
|
|
10/11/05
|
04/11/06
|
|
|
1,000,000
|
|
Thompson
|
|
$
|
.50
|
|
|
$
|
41,526
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/19/06
|
02/18/08
|
|
|
200,000
|
|
Thompson
|
|
$
|
.10
|
|
|
|
3,845
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/19/06
|
02/18/08
|
|
|
200,000
|
|
Thompson
|
|
$
|
.20
|
|
|
|
2,276
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/31/05
|
10/31/10
|
|
|
1,666,667
|
|
AJW
Partners
|
|
$
|
.50
|
|
|
|
169,629
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/20/06
|
01/20/11
|
|
|
1,666,667
|
|
AJW
Partners
|
|
$
|
.50
|
|
|
|
81,321
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
07/25/06
|
07/25/11
|
|
|
833,333
|
|
AJW
Partners
|
|
$
|
.50
|
|
|
|
146,197
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/04/06
|
08/04/11
|
|
|
833,333
|
|
AJW
Partners
|
|
$
|
.50
|
|
|
|
102,816
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/30/06
|
11/30/13
|
|
|
4,000,000
|
|
AJW
Partners
|
|
$
|
.08
|
|
|
|
158,741
|
|
|
|
2,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/26/07
|
03/26/14
|
|
|
1,000,000
|
|
AJW
Partners
|
|
$
|
.03
|
|
|
|
25,433
|
|
|
|
811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/30/07
|
05/30/14
|
|
|
10,000,000
|
|
AJW
Partners
|
|
$
|
.02
|
|
|
|
163,409
|
|
|
|
9,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/12/07
|
10/12/14
|
|
|
15,000,000
|
|
AJW
Partners
|
|
$
|
.0001
|
|
|
|
179,353
|
|
|
|
23,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I1/15/07
|
11/15/10
|
|
|
10,000,000
|
|
AJW
Partners
|
|
$
|
.0001
|
|
|
|
39,649
|
|
|
|
15,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/14/07
|
12/14/10
|
|
|
10,000,000
|
|
AJW
Partners
|
|
$
|
.0001
|
|
|
|
24,000
|
|
|
|
15,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/22/08
|
04/22/15
|
|
|
20,000,000
|
|
AJW
Partners
|
|
$
|
.0001
|
|
|
|
17,540
|
|
|
|
31,266
|
|
Fair
value of derivative instrument liabilities for warrants
|
|
|
|
|
|
$
|
1,155,735
|
|
|
$
|
98,114
|
|
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
4 Derivative
Financial Instrument Liabilities (cont’d)
Issue Date
|
Due
Date
|
|
Note
Amount
|
|
Instrument
|
Exercise
|
|
|
|
|
Value - Jan.
31, 2009
|
|
10/11/05
|
04/11/06
|
|
$
|
400,000
|
|
Loan
|
Various
|
|
$
|
370,189
|
|
|
$
|
401,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/31/05
|
10/31/08
|
|
|
1,000,000
|
|
Convertible
Notes
|
Various
|
|
|
2,681,204
|
|
|
|
134,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/20/06
|
01/20/09
|
|
|
1,000,000
|
|
Convertible
Notes
|
Various
|
|
|
1,363,058
|
|
|
|
1,051,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
07/25/06
|
07/25/09
|
|
|
500,000
|
|
Convertible
Notes
|
Various
|
|
|
791,994
|
|
|
|
590,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/04/06
|
08/04/09
|
|
|
500,000
|
|
Convertible
Notes
|
Various
|
|
|
616,127
|
|
|
|
596,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/30/06
|
11/30/09
|
|
|
400,000
|
|
Convertible
Notes
|
Various
|
|
|
523,047
|
|
|
|
514,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/26/07
|
03/26/10
|
|
|
165,000
|
|
Convertible
Notes
|
Various
|
|
|
274,500
|
|
|
|
225,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/30/07
|
05/30/10
|
|
|
435,000
|
|
Convertible
Notes
|
Various
|
|
|
825,801
|
|
|
|
611,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/12/07
|
10/12/10
|
|
|
175,000
|
|
Convertible
Notes
|
Various
|
|
|
711,289
|
|
|
|
258,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/15/07
|
11/15/10
|
|
|
325,000
|
|
Convertible
Notes
|
Various
|
|
|
465,052
|
|
|
|
485,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/14/07
|
12/14/07
|
|
|
315,000
|
|
Convertible
Notes
|
Various
|
|
|
631,254
|
|
|
|
474,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/07
|
12/31/10
|
|
|
427,760
|
|
Convertible
Notes
|
Various
|
|
|
894,835
|
|
|
|
647,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/22/08
|
04/22/11
|
|
|
190,000
|
|
Convertible
Notes
|
Various
|
|
|
569,394
|
|
|
|
604,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/12/08
|
06/12/11
|
|
|
135,000
|
|
Convertible
Notes
|
Various
|
|
|
555,374
|
|
|
|
432,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/29/08
|
08/29/11
|
|
|
235,114
|
|
Convertible
Notes
|
Various
|
|
|
875,919
|
|
|
|
761,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of bifurcated embedded derivative instrument
liabilities
|
|
$
|
12,149,037
|
|
|
$
|
7,889,167
|
|
|
|
|
|
|
|
|
|
|
Total
derivative financial instruments
|
|
$
|
13,304,772
|
|
|
$
|
7,887,281
|
|
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
5 Accrued
Expenses
The
following are the components of Accrued Expenses:
|
|
January 31, 2009
|
|
|
July 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penalties -
Registrations
|
|
$
|
913,374
|
|
|
$
|
695,574
|
|
Interest on
Debt
|
|
|
524,898
|
|
|
|
512,488
|
|
Payroll and Payroll
Taxes
|
|
|
1,001,409
|
|
|
|
682,133
|
|
Professional
Fees
|
|
|
14,169
|
|
|
|
24,530
|
|
Accrued Trade
Payables
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
$
|
2,455,050
|
|
|
$
|
1,915,925
|
|
NOTE
6 Stockholders’ Equity
(Deficit)
During
the six months ended January 31, 2009, the Company issued the following shares
of restricted common stock for services rendered; for Public Relations/Marketing
services 45,900,000 shares, at market value, for computer software design
3,500,000 shares at 70% of market value and for unreimbursed expenses 8,050,000
shares at 70% of market value, for legal fees 5,726,458 and financial consulting
4,000,000 at market value. The total was recorded as common stock
$66,176 and additional paid-in capital of $335,196. The total of
$401,372 is reflected as an expense in the Statement of Operations.
NOTE
7 Derivative
Instruments Income, Net
Derivative
instruments income of $1,154,325 represents the net unrealized (non-cash) change
during the six months ended January 31, 2009, in the fair value of our
derivative instrument liabilities related to certain warrants and embedded
derivatives in our convertible debt that have been bifurcated and accounted for
separately.
NOTE
8 Going
Concern
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business.
As
reflected in the accompanying consolidated financial statements, the Company had
a net loss of $(449,590) after derivative instrument income of
$1,154,325, and a loss from operations of ($1,136,053) and
a negative cash flow from operations of $277,272 for the six months
ended January 31, 2009, negative working capital of $8,568,539 and a
stockholders’ deficiency of $12,295,377 at January 31, 2009.
WELLSTAR
INTERNATIONAL, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF JANUARY 31, 2009
NOTE
8 Going Concern
(cont’d)
The
ability of the Company to continue as a going concern is dependent on the
Company’s ability to raise additional funds and implement its business
plan. The accompanying consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Management’s
plans include the raising of additional capital through private or public
transactions and implementation of its business and marketing plan to increase
revenues.
NOTE
9 Lease
Agreement
On July
17, 2007, Trillenium Medical Imaging, Inc., a wholly owned subsidiary, entered
into a lease agreement with an unrelated party for a facility in New York
City. The lease replaced a prior lease in the same
facility. The lease is for a period of one year with a monthly rent
of $4,435. The lease expires July 16, 2009. The Company
incurred a rent expense of approximately $26,210 for the six months ended
January 31, 2009. Future rental payments under the lease for the year
ended July 31, 2009 is $26,610.
NOTE
10 Subsequent
Events
AJW
Partners, LLC and related entities converted a portion of their notes (See Note
2) into 532,500,000 shares of Common Stock during the period February 1, 2009
through March 5, 2009.