Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
(Mark
One)
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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
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For
the quarterly period ended March 31, 2010
or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission File Number:
333-152959
BLUESTAR
FINANCIAL GROUP, INC.
(Exact
name of registrant as specified in its charter)
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NEVADA
(State
or other jurisdiction of
Incorporation
or organization)
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51-0665952
(I.R.S.
Employer
Identification
No.)
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7377
E. Doubletree Ranch Rd., Suite 200
Scottsdale,
AZ 85258
(Address, including zip code, of
principal executive offices)
(480) 463-4246
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
1
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting company
þ
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|||
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(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
The total
number of shares of common stock outstanding as of April 30, 2010, was
35,405,588.
2
BLUESTAR
FINANCIAL GROUP, INC.
FORM
10-Q
INDEX
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3
ITEM
1. FINANCIAL STATEMENTS
4
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Condensed
Consolidated Financial Statements
For the
quarter ended March 31, 2010
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Condensed
Consolidated Financial Statements
For the
quarter ended March 31, 2010
CONTENTS
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Page(s)
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||
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Condensed
Consolidated Balance Sheets as of March 31, 2010 (unaudited) and June 30,
2009
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F-1
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Condensed
Consolidated Statements of Operations for the three and nine months ended
March 31, 2010 and 2009 and the period from August 22, 2008 (Inception) to
March 31, 2010 (unaudited)
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F-2
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Condensed
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for
the period from August 22, 2008 (Inception) to March 31, 2010
(unaudited)
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F-3
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Condensed
Consolidated Statements of Cash Flows for the nine months ended March 31,
2010 and 2009 and the period from August 22, 2008 (Inception) to March 31,
2010 (unaudited)
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F-4
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Notes
to the Condensed Consolidated Financial Statements
(unaudited)
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F-5-12
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BLUESTAR
FINANCIAL GROUP, INC.
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||||||||
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(A
Development Stage Company)
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||||||||
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Condensed
Consolidated Balance Sheets
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||||||||
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March
31, 2010
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June
30, 2009
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|||||||
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(Unaudited)
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||||||||
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ASSETS
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||||||||
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Current
assets
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||||||||
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Cash
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$ | 144,483 | $ | 21,889 | ||||
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Related
party receivable
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70,000 | - | ||||||
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Other
current assets
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18,394 | 1,000 | ||||||
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Total
current assets
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232,877 | 22,889 | ||||||
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Capitalized
software costs
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16,000 | - | ||||||
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Intangible
assets
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40,000 | - | ||||||
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Total
assets
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$ | 288,877 | $ | 22,889 | ||||
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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||||||||
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Current
liabilities
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||||||||
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Accounts
payable and accrued liabilities
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$ | 19,865 | $ | - | ||||
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Short
term note payable--related party
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37,500 | - | ||||||
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Related
party payables
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15,400 | 88,992 | ||||||
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Total
current liabilities
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72,765 | 88,992 | ||||||
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Stockholders'
equity (deficit)
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||||||||
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Common
stock, $.001 par value; 60,000,000 shares authorized; 35,405,588 and
1,000,000 (pre-reverse merger) issued and outstanding at March 31, 2010
and June 30, 2009, respectively.
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35,406 | 1,000 | ||||||
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Additional
paid in capital
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1,104,628 | - | ||||||
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Deficit
accumulated during the development stage
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(923,922 | ) | (67,103 | ) | ||||
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Total
stockholders' equity (deficit)
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216,112 | (66,103 | ) | |||||
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Total
liabilities and stockholders' equity (deficit)
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$ | 288,877 | $ | 22,889 | ||||
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See
accompanying notes to financial statements
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F-1
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BLUESTAR
FINANCIAL GROUP, INC.
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(A
Development Stage Company)
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Condensed
Consolidated Statements of Operations (unaudited)
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||||||||||||||||||||
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For
the period from August 22, 2008 (inception) to March 31,
2010
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Three
months ended March 31,
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Nine
months ended March 31,
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|||||||||||||||||||
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2010
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2009
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2010
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2009
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Revenue
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$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
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Operating
expenses
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||||||||||||||||||||
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Professional
fees
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66,502 | 27,983 | 155,864 | 27,983 | 200,464 | |||||||||||||||
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Commissions
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27,500 | - | 50,000 | - | 50,000 | |||||||||||||||
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Expense
of reverse merger
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620,040 | - | 620,040 | - | 620,040 | |||||||||||||||
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General
and administrative
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14,503 | 3,878 | 21,628 | 12,944 | 46,181 | |||||||||||||||
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Total
operating expenses
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728,545 | 31,861 | 847,532 | 40,927 | 916,685 | |||||||||||||||
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Other
income (expense)
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||||||||||||||||||||
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Interest
income
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3,000 | - | 4,394 | 50 | 6,444 | |||||||||||||||
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Interest
expense
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(10,488 | ) | - | (13,681 | ) | - | (13,681 | ) | ||||||||||||
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Total
other income (expense)
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(7,488 | ) | - | (9,287 | ) | 50 | (7,237 | ) | ||||||||||||
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Net
loss
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$ | (736,033 | ) | $ | (31,861 | ) | $ | (856,819 | ) | $ | (40,877 | ) | $ | (923,922 | ) | |||||
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Basic
and diluted loss per common share
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$ | (0.04 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.01 | ) | $ | (0.12 | ) | |||||
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Weighted
average shares outstanding
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18,834,843 | 3,000,000 | 13,448,333 | 3,000,000 | 7,944,463 | |||||||||||||||
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See
accompanying notes to financial statements
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F-2
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BLUESTAR
FINANCIAL GROUP, INC.
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(A
Development Stage Company)
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Condensed
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
(unaudited)
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Deficit
Accumulated during the development stage
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Total
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|||||||||||||||||||
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Common
Stock
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||||||||||||||||||||
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Shares
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Amount
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APIC
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||||||||||||||||||
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Balance,
August 22, 2008 (Inception)
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1,000,000 | $ | 1,000 | $ | - | $ | - | $ | 1,000 | |||||||||||
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Net
loss for the year ended June 30, 2009
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- | - | - | (67,103 | ) | (67,103 | ) | |||||||||||||
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Balance,
June 30, 2009
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1,000,000 | 1,000 | - | (67,103 | ) | (66,103 | ) | |||||||||||||
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Common
stock issued for cash
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4,000,000 | 4,000 | - | - | 4,000 | |||||||||||||||
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Common
stock issued for intangible assets
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1,500,000 | - | 40,000 | - | 40,000 | |||||||||||||||
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Common
stock issued in debt conversion
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683,197 | 513,681 | - | - | 513,681 | |||||||||||||||
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Effect
of reverse merger
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26,766,391 | (484,731 | ) | 571,044 | - | 86,313 | ||||||||||||||
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Common
stock issued to seller of the public shell
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1,456,000 | 1,456 | 493,584 | - | 495,040 | |||||||||||||||
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Net
loss for the 9 months ended March 31, 2010
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- | - | - | (856,819 | ) | (856,819 | ) | |||||||||||||
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Balance,
March 31, 2010
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36,405,588 | $ | 36,406 | $ | 1,104,628 | $ | (991,025 | ) | $ | 150,009 | ||||||||||
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See
accompanying notes to financial statements
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F-3
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BLUESTAR
FINANCIAL GROUP, INC.
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(A
Development Stage Company)
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Condensed
Consolidated Statements of Cash Flows (unaudited)
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||||||||||||
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For
the period from August 22, 2008 (inception) to March 31,
2010
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||||||||||||
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Nine
months ended March 31,
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2010
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2009
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Cash
flows from operating activities
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Net
loss
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$ | (856,819 | ) | $ | (40,877 | ) | $ | (923,922 | ) | |||
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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||||||||||||
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Issuance
of common stock for interest
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13,681 | - | 13,681 | |||||||||
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Issuance
of common stock for reverse merger
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495,040 | - | 495,040 | |||||||||
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Cost
of reverse merger
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125,000 | - | 125,000 | |||||||||
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Changes
in operating assets and liabilities:
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||||||||||||
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Other
current assets
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(3,394 | ) | (25,620 | ) | (3,394 | ) | ||||||
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Accounts
payable and accrued liabilities
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19,275 | - | 19,275 | |||||||||
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Net
cash used in operating activities
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(207,217 | ) | (66,497 | ) | (274,320 | ) | ||||||
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Cash
flows from investing activities
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||||||||||||
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Payment
for reverse merger
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(50,000 | ) | (50,000 | ) | ||||||||
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Software
development costs
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(16,000 | ) | - | (16,000 | ) | |||||||
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Note
receivable--related party
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(70,000 | ) | - | (70,000 | ) | |||||||
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Net
cash used in investing activities
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(136,000 | ) | - | (136,000 | ) | |||||||
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Cash
flows from financing activities
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||||||||||||
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Proceeds
from borrowings
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500,000 | - | 500,000 | |||||||||
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Related
party payables
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(1,689 | ) | 75,000 | 87,303 | ||||||||
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Repayments
of borrowings--related party
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(37,500 | ) | - | (37,500 | ) | |||||||
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Proceeds
from sale of stock
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5,000 | - | 5,000 | |||||||||
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Net
cash provided by financing activities
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465,811 | 75,000 | 554,803 | |||||||||
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Net
change in cash
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122,594 | 8,503 | 144,483 | |||||||||
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Cash
at beginning of period
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21,889 | - | - | |||||||||
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Cash
at end of period
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$ | 144,483 | $ | 8,503 | $ | 144,483 | ||||||
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Supplemental
cash flow information:
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||||||||||||
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Cash
paid for interest
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$ | - | $ | - | $ | - | ||||||
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Cash
paid for income taxes
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$ | - | $ | - | $ | - | ||||||
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Supplemental
disclosure of non-cash investing and financing activities:
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||||||||||||
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Conversion
of notes payable into common stock
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$ | 500,000 | $ | - | $ | 500,000 | ||||||
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Stock
issued for subscription receivable
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$ | - | $ | 1,000 | $ | - | ||||||
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Stock
issued for intangible asset
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$ | 40,000 | $ | - | $ | 40,000 | ||||||
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Effect
of merger recapitalization
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$ | 85,313 | $ | - | $ | 85,313 | ||||||
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Reverse
acquisition financed with debt
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$ | 75,000 | $ | - | $ | 75,000 | ||||||
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See
accompanying notes to financial statements
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||||||||||||
F-4
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
1 – Nature of Business
BlueStar
Financial Group, Inc. (“BSFG” or the “Company”) was incorporated in the
state of Nevada on July 12, 2002 under the same name. The Company’s founder
initially intended to establish a management and consulting business. The board
of directors of the Company subsequently decided that the Company should pursue
other opportunities and a change of control of the Company occurred on October
30, 2007. No business was conducted by the Corporation from inception on July
12, 2002 until a change of control occurred on October 30, 2007.
On March
30, 2010, the Company acquired all of the outstanding common stock of YouChange,
Inc. (“YouChange”) in a reverse acquisition transaction (The “Acquisition”). The
reverse acquisition was completed pursuant to the Agreement and Plan of Merger
(The “Acquisition Agreement”) dated as of March 15, 2010. Subsequent
to the acquisition, YouChange continued as the surviving entity.
The
unaudited condensed consolidated financial statements presented herein have been
prepared in accordance with accounting principals generally accepted in the
United Sates of America for interim financial information and in accordance with
the instructions to Form 10-Q. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In our opinion, the accompanying condensed consolidated
financial statements include all adjustments necessary for a fair presentation
of such condensed consolidated financial statements. Such necessary
adjustments consist of normal recurring items and the elimination of all
significant intercompany balances and transactions.
These
interim condensed consolidated financial statements should be read in
conjunction with the Company’s June 30, 2009 financial statements filed on Form
8-K/A. Interim results are not necessarily indicative of results for
a full year.
BSFG
acquired all 7,183,197 of the issued and outstanding shares of YouChange’s
common stock in exchange for 21,549,588 shares of BSFG Common
Stock. The YouChange stockholders received 3 shares of BSFG common
stock for each share of YouChange common stock. Additionally,
1,456,000 shares of BSFG common stock were issued to the sellers of
BSFG.
These
figures included 2,049,588 shares of BSFG Common Stock issued to the former note
holders of YouChange whereby the $500,000 principal amount of secured
convertible promissory notes plus accrued interest of $13,681was converted into
683,197 shares of YouChange common stock immediately prior to the
acquisition.
For
accounting purposes, YouChange is the acquirer in the reverse transaction, and
consequently the assets and liabilities and the historical operations reflected
in the financial statements are those of YouChange and are recorded at the
historical cost basis of YouChange. All shares and per share data
prior to the acquisition have been restated to reflect the stock issuance as a
recapitalization of YouChange.
The
Company currently has limited operations and, in accordance with ASC 915 “Development Stage Entities,”
is considered a Development Stage Company. The Company has been in
the development stage since its formation. The Company has devoted substantially
all of its efforts to business planning and development. Additionally, the
Company has allocated a substantial portion of its time and investment in
bringing its product to the market, and the raising of capital.
F-5
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
2 – Significant Accounting Policies
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash
All
highly liquid investments with an original maturity of three months or less are
considered to be cash equivalents. The Company maintains cash and cash
equivalent balances at a financial institution that is insured by the Federal
Deposit Insurance Corporation for deposits up to $250,000. The
Company had no uninsured cash as of March 31, 2010 or June 30,
2009.
Income
taxes
The
Company accounts for income taxes under ASC 740 "Income Taxes" which codified
SFAS 109, "Accounting for
Income Taxes" and FIN 48 “Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109.”
Under the asset and liability method of ASC 740, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under ASC 740, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period the
enactment occurs. A valuation allowance is provided for certain deferred tax
assets if it is more likely than not that the Company will not realize tax
assets through future operations.
Fair Value of Financial
Instruments
The
Company's financial instruments as defined by FASB ASC 825-10-50 include cash,
trade accounts receivable, and accounts payable, accrued expenses and notes
payable. All instruments are accounted for on a historical cost
basis, which, due to the short maturity of these financial instruments,
approximates fair value at March 31, 2010.
FASB ASC
820 defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. ASC 820 establishes a three-tier fair
value hierarchy which prioritizes the inputs used in measuring fair value as
follows:
Level 1.
Observable inputs such as quoted prices in active markets;
Level 2.
Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and
F-6
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
2 - Significant Accounting Policies (continued)
Level 3.
Unobservable inputs in which there is little or no market data, which requires
the reporting entity to develop its own assumptions.
The
Company does not have any assets or liabilities measured at fair value on a
recurring basis at March 31, 2010 or June 30, 2009. The Company did not have any
fair value adjustments for assets and liabilities measured at fair value on a
nonrecurring basis during the periods ended March 31, 2010 and June 30,
2009.
Impairment of Long Lived
Assets
FASB ASC
360 “Property, Plant and Equipment” codified SFAS No. 144 prescribes accounting
and reporting standards for impairment of long lived assets held for
use. Impairment losses are to be recognized when the carrying amount
of a long lived asset is not recoverable or exceeds it fair market
value. The Company evaluates its long lived assets, including
intangible assets, for impairment whenever events or changes in circumstances
indicate that a carrying value may not be recoverable. The Company
uses estimates of future cash flows over the remaining useful life of a long
lived asset or asset group to determine the recoverability of the
asset. These estimates only include the net cash flows directly
associated with and that are expected to arise as a direct result of the use and
eventual disposition of the asset or asset group. At the reporting dates, there
was no impairment to any of the Company’s long lived assets.
Earnings Per Share
Information
FASB ASC
260, “Earnings Per
Share” provides for calculation of "basic" and "diluted" earnings per
share. Basic earnings per share includes no dilution and is computed
by dividing net income (loss) available to common shareholders by the weighted
average common shares outstanding for the period. Diluted earnings
per share reflect the potential dilution of securities that could share in the
earnings of an entity similar to fully diluted earnings per
share. Basic and diluted loss per share were the same, at the
reporting dates, as there were no common stock equivalents
outstanding.
Software Development
Costs
FASB ASC
350 “Intangibles—Goodwill and Other”, subtopic 40 “Internal-Use Software”
codified SOP 98-1 and prescribes accounting and reporting standards for software
developed for use internally and not for sale or for research and development.
The costs of developing internal–use software are to be evaluated during three
stages of the development project. The stages are Preliminary Project
Stage, Application Development Stage and Post-Implementation Stage. Only costs
associated with the Application Development Stage are
capitalized. Development costs associated with the other two stages
are expensed as incurred. Capitalizable costs include fees paid to
third parties to develop the software during the application development stage,
payroll costs for employees directly associated with the development project for
time spent working directly on the development project, and interest costs
incurred while developing the project.
F-7
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
2 - Significant Accounting Policies (continued)
Software Development Costs
(continued)
The
Company capitalizes costs incurred in the application development stage and has
incurred $16,000 in capitalized software development costs for the nine months
March 31, 2010.
Going
concern
The
Company's financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The Company has not yet established an ongoing
source of revenues sufficient to cover its operating costs and allow it to
continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the Company obtaining adequate capital to
fund operating losses until it becomes profitable. If the Company is
unable to obtain adequate capital, it could be forced to cease
operations.
In order
to continue as a going concern, the Company will need, among other things,
additional capital resources. Management's plans to obtain such
resources for the Company include (1) obtaining capital from management and
significant stockholders sufficient to meet its minimal operating expenses, and
(2) as a last resort, seeking out and completing a merger with an existing
operating company. However, management cannot provide any assurances that the
Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
Recently Issued
Standards
ASC 105,
“Generally Accepted Accounting Principles” (ASC 105) (formerly Statement of
Financial Accounting Standards No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162)” reorganized by topic existing accounting
and reporting guidance issued by the Financial Accounting Standards Board
("FASB") into a single source of authoritative generally accepted accounting
principles ("GAAP") to be applied by nongovernmental entities. All guidance
contained in the Accounting Standards Codification ("ASC") carries an equal
level of authority. Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. Accordingly, all other
accounting literature will be deemed "non-authoritative". ASC 105 is effective
on a prospective basis for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company has implemented the
guidance included in ASC 105 as of July 1, 2009. The implementation of this
guidance changed the Company's references to GAAP authoritative guidance but did
not impact the Company's financial position or results of
operations.
F-8
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
2 - Significant Accounting Policies (continued)
Recently Issued Standards
(continued)
ASC 855,
“Subsequent Events”
(ASC 855) (formerly Statement of Financial Accounting Standards No. 165, Subsequent Events) includes
guidance that was issued by the FASB in May 2009, and is consistent with current
auditing standards in defining a subsequent event. Additionally, the guidance
provides for disclosure regarding the existence and timing of a company's
evaluation of its subsequent events. ASC 855 defines two types of subsequent
events, "recognized" and "non-recognized". Recognized subsequent events provide
additional evidence about conditions that existed at the date of the balance
sheet and are required to be reflected in the financial statements.
Non-recognized subsequent events provide evidence about conditions that did not
exist at the date of the balance sheet but arose after that date and, therefore;
are not required to be reflected in the financial statements. However, certain
non-recognized subsequent events may require disclosure to prevent the financial
statements from being misleading. This guidance was effective prospectively for
interim or annual financial periods ending after June 15, 2009. The Company
implemented the guidance included in ASC 855 as of June 30, 2009. The effect of
implementing this guidance was not material to the Company's financial position
or results of operations.
The
Company refers to FASB ASC 605-25 “Multiple Element Arrangements”
in recognizing revenue from agreements with multiple deliverables. This
statement provides principles for allocation of consideration among its
multiple-elements, allowing more flexibility in identifying and accounting for
separate deliverables under an arrangement. The EITF introduces an estimated
selling price method for valuing the elements of a bundled arrangement if
vendor-specific objective evidence or third-party evidence of selling price is
not available, and significantly expands related disclosure requirements. This
standard is effective on a prospective basis for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010. Alternatively, adoption may be on a retrospective basis, and early
application is permitted. The Company does not expect the adoption of this
statement to have a material effect on its consolidated financial statements or
disclosures.
In
August 2009, the FASB issued Accounting Standards Update No. 2009-05,
“Measuring Liabilities at Fair Value,” (“ASU 2009-05”). ASU 2009-05 provides
guidance on measuring the fair value of liabilities and is effective for the
first interim or annual reporting period beginning after its issuance. The
Company’s adoption of ASU 2009-05 did not have a material effect on its
disclosure of the fair value of its liabilities.
In
September 2009, the FASB issued ASC Update No. 2009-12, “Fair Value Measurements and
Disclosures (Topic 820): Investments in Certain Entities that Calculate Net
Asset Value per Share (or Its Equivalent)” (ASC Update No. 2009-12). This
update sets forth guidance on using the net asset value per share provided by an
investee to estimate the fair value of an alternative investment. The amendments
in this update are effective for interim and annual periods ending after
December 15, 2009 with early application permitted. The Company does not expect
that the implementation of ASC Update No. 2009-12 will have a material effect on
its financial position or results of operations.
F-9
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
2 - Significant Accounting Policies (continued)
Recently Issued Standards
(continued)
ASC Topic
810, “Consolidation”
was amended in June 2009, by Statement of Financial Accounting Standards
No. 167, Amendments to FASB
Interpretation No. 46(R) ("Statement No. 167"). Statement No. 167 amends
FASB Interpretation No. 46R, Consolidation of Variable Interest
Entities an interpretation of ARB No. 51 ("FIN 46R") to require an
analysis to determine whether a company has a controlling financial interest in
a variable interest entity. This analysis identifies the primary beneficiary of
a variable interest entity as the enterprise that has a) the power to direct the
activities of a variable interest entity that most significantly impact the
entity's economic performance and b) the obligation to absorb losses of the
entity that could potentially be significant to the variable interest entity or
the right to receive benefits from the entity that could potentially be
significant to the variable interest entity. The statement requires an ongoing
assessment of whether a company is the primary beneficiary of a variable
interest entity when the holders of the entity, as a group, lose power, through
voting or similar rights, to direct the actions that most significantly affect
the entity's economic performance. This statement also enhances disclosures
about a company's involvement in variable interest entities. Statement No. 167
is effective as of the beginning of the first annual reporting period that
begins after November 15, 2009. The Company does not expect the
adoption of Statement No. 167 to have a material impact on its financial
position or results of operations.
In June
2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of
Financial Assets an amendment of FASB Statement No. 140 ("Statement No.
166"). Statement No. 166 revises FASB Statement of Financial Accounting
Standards No. 140, Accounting
for Transfers and Extinguishment of Liabilities a replacement of FASB Statement
125 ("Statement No. 140") and requires additional disclosures about
transfers of financial assets, including securitization transactions, and any
continuing exposure to the risks related to transferred financial assets. It
also eliminates the concept of a "qualifying special-purpose entity", changes
the requirements for derecognizing financial assets, and enhances disclosure
requirements. Statement No. 166 is effective prospectively, for annual periods
beginning after November 15, 2009, and interim and annual periods thereafter.
Although Statement No. 166 has not been incorporated into the Codification, in
accordance with ASC 105, the standard shall remain authoritative until it is
integrated. The Company does not expect the adoption of Statement No. 166 will
have a material impact on its financial position or results of
operations.
Note
3 – Common Stock
The
authorized common stock of the company consists of 60,000,000 shares of common
stock with a par value of $.001. In connection with the Acquisition,
the Company issued 21,549,588 shares of its common stock in exchange for all of
the common stock of YouChange.
During
the three months prior to the Acquisition, YouChange issued 1,500,000 shares of
its common stock to a related party in exchange for certain intangible assets
related to the YouChange domain. This transaction was valued at
$40,000. As part of the Acquisition, YouChange issued 683,197 shares
of its common stock to convert $500,000 in convertible notes plus $13,681 of
accrued interest. The debt and interest was converted at a rate of
1.33 shares of YouChange common stock per dollar of debt and accrued
interest.
F-10
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
3 – Common Stock (continued)
In
conjunction with the Acquisition, the Company issued 1,456,000 shares of its
common stock as partial compensation for the purchase of the BSFG public
shell. The shares were valued at $.34 per share which was the closing
trade price on March 30, 2010. The amount of this transaction,
$495,040, was expensed as an acquisition cost.
Note
4 – Notes Receivable-Related Party
YouChange
has entered into a non-binding letter of intent to purchase a company for cash
and stock. In addition, on November 19, 2009, YouChange entered into
an agreement to lend $50,000 to the target company with a July 19, 2010 extended
maturity date, bearing interest at 24% per annum. The note is secured
by the inventory and other assets of the target company. On March 30,
2010 YouChange loaned an additional $20,000 to the target company bringing the
total note receivable due to $70,000.
Note
5 – Capitalized Software Development
YouChange
has entered the application development stage of its proprietary business
platform. We have contracted with a software development team to
create this business platform and web-based interface. The costs
associated with the application development stage of the business platform are
being capitalized per YouChange accounting policy. Capitalized costs
incurred for the nine month periods ending March 31, 2010 and 2009 were $16,000
and $0, respectively.
Note
6 – Short Term Notes Payable—Related Party
On
January 1, 2010, YouChange entered into a $75,000 note with a related party to
purchase a public shell company. In the event the payments are not
made timely, the note bears interest at 9% which interest can be paid in cash or
in shares of the company’s common stock at a conversion rate of $.05 per
share. The note matures on June 30, 2010. The first
payment of $37,500 was paid when due on April 1, 2010.
Note
7 – Related Party Payables
Since
inception, shareholders of the Company have advanced a total of $15,400 to fund
operations. The loans carry a 0% interest rate and are due on demand and as such
are included in current liabilities. This included $1,500 advanced
during the nine months ended March 31, 2010. Imputed interest as been considered
but was determined to be immaterial to the financial statements and as such is
not included herein.
Note
8 – Provision for Income Taxes
At March
31, 2010, the Company had incurred a net operating loss during the development
stage of approximately $923,900 which is available to offset future federal and
state taxable income through December 31, 2029 and 2014, respectively. The
Company has established a valuation allowance equal to the full amount of the
deferred tax assets approximating $366,000 due to the uncertainty of the
utilization of the operating losses in future periods.
F-11
BLUESTAR
FINANCIAL GROUP, INC.
(A
Development Stage Company)
Unaudited
Notes to Condensed Consolidated Financial Statements
Note
8 – Provision for Income Taxes (continued)
The
Company has no tax positions at March 31, 2010 for which the ultimate
deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility.
The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the
period from August 22, 2008 (inception) to March 31, 2010, the Company
recognized no interest and penalties. The Company had no accruals for
tax related interest and penalties at March 31, 2010.
The
reported amount of income tax benefit that would result from applying domestic
federal and state statutory rates is not reflected in the financial statements
due to the valuation allowance which offsets the tax benefit in its
entirety.
The tax
year ended June 30, 2009 remains subject to examination.
Note
9 – Related Party Transactions
On March
30, 2010, YouChange agreed to lend an additional $20,000 to Feature Marketing,
Inc. (“FM”). YouChange is currently under an LOI to purchase FM for
cash and stock. This $20,000 is added to the $50,000 note currently
in place with FM. The note bears interest at 24% and the maturity
date has been extended to July 19, 2010.
During
the nine months ended March 31, 2010, the Company paid $77,500 to two of its
officers as professional fees.
Note
10 – Subsequent events
The
Company has evaluated subsequent events from the balance sheet date through June
4, 2010. There have been no subsequent events to
disclose.
F-12
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
SPECIAL
NOTE: This section
contains statements that constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. The words “expect,” “estimate,”
“anticipate,” “predict,” “believe,” and similar expressions and variations
thereof are intended to identify forward-looking statements. Such
forward-looking statements include statements regarding, among other things,
(a) our projected sales and profitability, (b) our growth strategies,
(c) anticipated trends in our industry, (d) our future financing
plans, (e) our anticipated needs for working capital and (f) the
benefits related to ownership of our common stock. This information may involve
known and unknown risks, uncertainties, and other factors that may cause our
actual results, performance, or achievements to be materially different from the
future results, performance, or achievements expressed or implied by any
forward-looking statements for the reasons, among others, described within the
various sections of this Form 10-Q/A. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this Form 10-Q/A will in fact occur as projected. We undertake no
obligation to release publicly any updated information about forward-looking
statements to reflect events or circumstances occurring after the date of this
Form 10-Q/A or to reflect the occurrence of unanticipated
events. For
a discussion of risk factors affecting our business and prospects, see
“Part II — Item 1A
— Risk Factors.” This
section should be read in conjunction with “Part I —
Item 1 — Financial Statements.”
Overview
The
following discussion should be read in conjunction with the information
contained in the financial statements of BlueStar Financial Group (“BSFG” or “
the Company”) and the notes which form an integral part of the financial
statements which are attached hereto.
The
financial statements mentioned above have been prepared in conformity with
accounting principles generally accepted in the United States of America and are
stated in United States dollars.
BSFG was
founded in 2002 as a development stage company, focused on providing small
ticket item leasing to small and middle market companies primarily within the
hospitality, spa, and resort communities. The plan concentrated on leasing
equipment, such as small computer systems, personal computers, workstations,
computer peripheral equipment, mainframe computers, CAE/CAD/CAM equipment,
energy equipment, general purpose plant/office equipment, graphic processing
equipment, audio/visual equipment, laundry items, and health and spa
equipment. With the economic downturn these targeted industries were
impacted hardest forcing the board of BSFG to make a substantial change in
strategy to enhance shareholder equity and leverage the knowledge of the
existing leasing business and network already established.
After
careful consideration it became clear there could be great benefit to the
economic downturn resulting in the liquidation of non-performing leases and used
equipment available through our network. It was further concluded
that much of this excess equipment and used electronics from both small to
middle market companies and individual consumers was classified as “eWaste” and
presented negative environmental impact. This problem was growing and
very few viable solutions have made it to market leaving a substantial void in
this highly visible and very anticipated “Green Tech” sector. It was
decided that to fully exploit and leverage this new market opportunity BSFG
would need to expand the board and management team and begin an immediate search
for a company with experience, relationships and leadership, focused in this
newly defined sector of “Green Tech.” The board was successful in
locating, and has now acquired, YouChange, Inc. (“YouChange”), a company that
had the attributes desired. The YouChange management team will lead and execute
this new direction that will focus on the eWaste challenge by launching the
youchange.com platform that will include paying and providing reward points to
businesses and consumers for their used electronics, refurbishing and recycling
through established and certified strategic partners and generating revenue from
the sales and re-commerce of these products as well as licensing fees for
proprietary data.
5
On March
15, 2010, BSFG, a Nevada corporation and its wholly owned subsidiary BlueStar
Acquisition Corporation (“Merger Sub”) entered into an Agreement and Plan of
Merger (the “Merger Agreement”) with YouChange, Inc., an Arizona
corporation (“YouChange”). A copy of the Merger Agreement was filed
as an exhibit to a Form 8-K that was filed on March 22, 2010
The
Merger Agreement and the acquisition agreed to therein (the “Acquisition”), was
closed on March 30, 2010. At the closing, YouChange merged into
Merger Sub, with YouChange as the surviving entity. BSFG acquired all
7,183,197 of the issued and outstanding shares of YouChange from YouChange
shareholders in exchange for 21,549,591 shares of BSFG Common
Stock. YouChange shareholders received 3 shares of BSFG commons stock
for each share of YouChange common stock. These figures included
2,049,591 shares of BSFG Common Stock issued to the former note holders of
YouChange whereby the $500,000 principal amount of secured convertible
promissory notes plus accrued interest of $13,681was converted into 683,197
shares of YouChange common stock immediately prior to the Merger. There are no
agreements among the former YouChange shareholders regarding their holdings of
the Company’s Common Stock. In conjunction with the merger, 1,456,000
shares were issued as part of the purchase price for the BSFG public
shell. As a result of the Merger there are a total of 35,405,588
shares of BSFG common stock issued and outstanding of which the former YouChange
shareholders hold 64%
Under
provisions of the Merger Agreement, Paul Voorhees, a director of BSFG tendered
his resignation and no successor has yet been appointed. The
Pre-closing officers and directors of BSFG will be officers and directors of
BSFG until their resignation or removal. The Pre-closing officers and
directors of YouChange will be officers and directors of YouChange until their
resignation or removal.
The
acquisition of YouChange under the Merger Agreement was intended to qualify as a
tax deferred reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended, and to be accounted for on a purchase basis. Jeffrey I.
Rassás is a director of the Company and Richard A. Papworth is both a director
and an executive officer of the Company. Both men held executive
officer positions with YouChange and Mr. Rassás was the sole director of
YouChange. Mr. Rassás, indirectly through the Hayjour Family Limited
Partnership, an Arizona limited partnership, and Mr. Papworth directly held
shares of YouChange common stock and received shares of the Company’s Common
Stock as a result of the Merger.
The
summary of the Merger Agreement set forth above does not purport to be a
complete statement of the terms of the Merger Agreement. The summary
is qualified in its entirety by reference to the full text of the Merger
Agreement which was filed as an Exhibit to Form 8-K filed March 22, 2010 and
incorporated herein by reference.
YouChange
was incorporated in the state of Arizona on August 22, 2008 under the same name.
It was organized as a green tech venture to purchase used consumer electronics,
then refurbish and resell them. It is also an e-waste company to
responsibly recycle end of use consumer electronics.
YouChange
has realized no revenues from its planned business purpose and, accordingly, is
considered to be in its development stage as defined in Accounting Standards
Codification 915, “Development
Stage Entities” The Company has devoted substantially all of its efforts
to business planning and development. Additionally, the Company has allocated a
substantial portion of its time and investment in bringing its product to the
market, and the raising of capital.
Customers
YouChange
has not yet commenced active operations. We have a letter of intent
to acquire a company, which is a related party, that has operated in the
electronics reCommerce industry for 17 years. We are actively
involved in the due diligence process and anticipate closing the transaction in
the quarter ending June 30, 2010. The consideration for the
acquisition is a combination of cash and stock.
6
Competition
The
market for refurbishment and recycling of electronics is highly
competitive. There are a few new companies in this area of
reCommerce. We believe the principal competitive factors in the
electronics reCommerce business include name recognition, price, product
knowledge, reputation, timely delivery, ease in product processing and drop-off
and customer service. Quality and product availability are key to
success in this industry. Competitors include Gazelle.com and
YouRenew.com.
Intellectual
Property
YouChange
is currently developing the software for its proprietary operating
platform. We also intend, subject to available funds among other
factors, to pursue not only the development of additional intellectual
properties but also its proactive acquisition when we identify opportunities to
strengthen our proprietary position.
Government
Regulation
Our
operations are in material compliance with applicable environmental laws and
regulations. Our business plan to enter the Green Tech and e-Waste sectors
for the collection, refurbishment (to factory condition) and reCommerce of
otherwise obsolete electronic devices may require governmental approvals for the
recycling process of electronics containing certain e-Waste and periodic
governmental reviews of our ongoing operations for disposition of obsolete
electronic devices through these recycling centers. The time for such
regulatory reviews is not clearly known at this time. If we are
unable to meet the regulatory requirements for establishing these recycling
facilities or, on an ongoing basis, meet the regulatory requirements for
continued operations, we will not be able to continue offering recycling
services and will not generate revenues for the recycled
materials. Even if we receive such regulatory approval, such approval
may impose limitations on the indicated uses for which we may market our
recycling services, which may limit our ability to generate significant revenues
on recycled products and services. Moreover, it is possible that other
developments, such as increasingly strict environmental laws and regulations and
enforcement policies, and claims for damages to property or persons resulting
from our operations, could result in substantial costs and liabilities to us. We
currently believe that changes in environmental laws and regulations will not
have a material adverse effect on our financial position, results of operations
or cash flows in the near term.
Plan
of Operation
As of the
end of March 31, 2010, we had $144,000 of cash on hand and a note receivable and
other current assets of $88,000. We have accounts payable
of $20,000 and notes payable of $37,500. Over the next twelve months we estimate
in order to maintain reporting company status as defined under the ’34 Act we
will require cash for expenses which include bookkeeping, accounting,
professional fees, and filing fees. We must raise cash to cover these
expenses and implement our business plan. We estimate that we must
raise a minimum of $0.5 million in order to continue our proposed business and
maintain our status as a reporting company for the next 90 to 120
days.
The
Company’s ability to commence operations is entirely dependent upon the proceeds
to be raised. If BSFG does not raise at least $1.5 million, it will
be unable to establish a base of operations, without which it will be unable to
execute its current business plan and generate any significant revenues in the
future. The Company will need to raise additional capital by issuing
capital stock in exchange for cash in order to continue as a going concern.
There are no formal or informal agreements to attain such financing. BSFG
cannot assure any investor that, if needed, sufficient financing can be obtained
or, if obtained, that it will be on reasonable terms. Without realization
of additional capital, it would be unlikely that operations would continue and
any investment made by an investor would be lost in its entirety.
7
On August
12, 2008 BFSG filed a registration statement on Form S-1, which was deemed
effective August 21, 2008 registering 5,000,000 shares to be sold to the public
at a price of $0.03 per share. As of the fourth quarter 2008 the
offering was filled and total proceeds raised were $150,000. During
the quarters ended December 31, 2009 and March 31, 2010, YouChange raised
$500,000 through the issuance of a convertible debt instrument. The
notes bore interest at the rate of 12% and were converted into YouChange common
stock at the rate of 1.33 shares per dollar of debt plus accrued
interest. On March 30, 2010, as part of the Acquisition, the debt and
accrued interest of $513,681 was converted to 683,197 (pre-reverse merger)
shares of YouChange common stock.
BSFG
management does not expect to incur research and development costs within the
next twelve months. BSFG currently does not own any significant plant or
equipment that it would seek to sell in the near future.
The
Company has not paid for expenses on behalf of any director. Additionally,
BSFG believes that this policy shall not materially change within the next
twelve months.
Employees
Currently,
the Company believes the services provided by its officers and directors appears
sufficient at this time. Our officers and directors do not have an
employment agreement with us. We presently do not have pension, health, annuity,
insurance, profit sharing or similar benefit plans; however, we may adopt such
plans in the future. There are presently no benefits available to any
employee.
Investment
Policies
BSFG does
not have an investment policy at this time. Any excess funds it has
on hand will be deposited in interest bearing notes such as term deposits or
short term money instruments. There are no restrictions on what the directors
are able to invest. Presently BSFG does not have any excess
funds to invest.
Since we
have had very minimal business activity, it is the opinion of management that
the most meaningful financial information relates primarily to current liquidity
and solvency. As at March 31, 2010, we had $144,000 cash on hand, a
note receivable and other current assets of $88,000 and liabilities of
$73,000. The Company will require cash injections of approximately
$0.5 million to enable the Company to meet its anticipated expenses over the
next four to six months relative to the current acquisition which is under an
LOI and the execution of our operating plan. Unless we raise additional funds
within the next 90 to 120 days, we will be faced with a working capital
deficiency that may result in the failure of our business, resulting in a
complete loss of any investment made into the Company. Our future
financial success will be dependent on the success of obtaining
capital. This capital may not be available to us on acceptable terms,
if at all.
Our
financial statements contained herein have been prepared on a going concern
basis, which assumes that we will be able to realize our assets and discharge
our obligations in the normal course of business. We incurred a net loss for the
period from the inception of our business on August 22, 2008 to March 31, 2010
of approximately $924,000. We did not earn any revenues during the
aforementioned period.
Critical
Accounting Policies
Our discussion and
analysis of its financial condition and results of operations, including the
discussion on liquidity and capital resources, are based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, management re-evaluates
its estimates and judgments. The going concern basis of presentation
assumes we will continue in operation throughout the next fiscal year and into
the foreseeable future and will be able to realize our assets and discharge our
liabilities and commitments in the normal course of business. Certain
conditions, discussed below, currently exist which raise substantial doubt upon
the validity of this assumption. The financial statements do not include any
adjustments that might result from the outcome of the
uncertainty. More information on our significant accounting policies
is disclosed in the notes to the financial statements in Part I, Item
1.
8
Our
intended business activities are dependent upon our ability to obtain third
party financing in the form of debt and equity and ultimately to generate future
profitable business activity. As of March 31, 2010, we have not generated
revenues, and have experienced negative cash flow from minimal activities. We
may look to secure additional funds through future debt or equity financings.
Such financings may not be available or may not be available on terms acceptable
to BSFG.
Recently
Issued Accounting Pronouncements
For
information on recently issued accounting pronouncements see the footnote
disclosure in Part I, Item 1
Trends
We are a
development stage business and have not generated any revenue and have no
prospects of generating any revenue in the foreseeable future. There
can be no guarantee or assurance that management will be successful in
developing the proposed business of the Company. Investors must be
aware that failure to do so would result in a complete loss of any investment
made into the Company
Limited
Operating History; Need for Additional Capital
There is
no historical financial information about us upon which to base an evaluation of
our performance as a business. We are a development stage company and have not
generated any revenues since our formation on August 22, 2008. We
require immediate additional capital in order to continue as a going
concern. If we are unable to secure approximately $1.5 million,
including $500,000 over the course of the next 90 to 120 days so that we can
close the current acquisition that is under an LOI, our business will fail and
any investment made into the Company would be lost in its
entirety. We cannot guarantee we will be successful in our business
activities or in any activity that management directs the
business. Our business is subject to risks inherent in the
establishment of a new business enterprise, including limited capital resources,
and possible cost overruns due to price and cost increases in
services.
Results
of Operations – Since inception to March 31, 2010.
For the
nine months ended March 31, 2010, we had a net loss of $857,000 and an
accumulated loss since inception of $924,000. We have not
generated any revenue from operations since inception. These amounts
include the issuance on March 30, 2010 of 1,456,000 shares of our common stock
valued at $495,000 which were issued to the sellers of the BSFG public shell
plus cash and a note totaling $125,000 for a total cost to purchase the shell of
$620,000. Otherwise, our accumulated loss from our date of
inception represents various expenses incurred with organizing the company,
undertaking audits, professional and consultant fees, including payments to our
officers, and general office expenses.
Balance
Sheet as of March 31, 2010 and June 30, 2009.
We ended
March 31, 2010 and Fiscal 2009 with $144,000 and $22,000 of cash, respectively,
and $88,000 and $1,000 in a note receivable and other current assets,
respectively. A receivable of $15,000 at March 31, 2010 relates to
the dispute with Delos Stock Transfer--See Part I, Item 3—Legal
Proceedings. We ended March 31, 2010 and Fiscal 2009 with
$73,000 and $89,000 in payables, respectively. Total shares issued
outstanding, as at March 31, 2010 and the end of Fiscal 2009, were 35,405,588
and 1,000,000 (pre-reverse merger), respectively.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MAKET
RISK
We
believe that there have been no significant changes in our market risk exposures
for the three months ended March 31, 2010.
9
ITEM
4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure
Controls and Procedures
Based on
their evaluation as of March 31, 2010, our Chief Executive Officer and Principal
Accounting Officer has concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) were not effective at a reasonable assurance level to ensure
that
the
information required to be disclosed by us in this quarterly report on Form
10-Q/A was (i) recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and regulations and (ii) accumulated and
communicated to our management, being Chief Executive Officer and Chief
Accounting Officer, to allow timely decisions regarding required
disclosure.
ITEM
4T. CONTROLS AND PROCEDURES
(b) Changes in Internal
Controls
There
were no changes in our internal control over financial reporting during the
quarter ended March 31, 2010 that have materially affected, or
are likely to materially affect our internal control over financial
reporting. Our management, being Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls and procedures
or our internal controls over financial reporting will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, will be
detected.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
There are
no legal proceedings to which BSFG is a party or is subject. There is
a currently a dispute between BSFG and Delos Stock Transfer
(“DST”). DST provided the escrow account and acted as escrow agent
for the investor funds relating to the recent registered offering completed by
BSFG. BSFG believes DST misappropriated approximately $15,000 from
this escrow account. BSFG is considering legal action against DST if
this dispute is not resolved in a timely manner.
ITEM
1A—RISK FACTORS (These factors are related to the business activity of YouChange
as a result of the Merger)
There are
many risk factors that affect our business and results of operations, some of
which are beyond our control. The following is a description of some of the
important risk factors that may cause our actual results in future periods to
differ substantially from those we currently expect or desire.
RISKS
RELATED TO OUR FINANCIAL RESULTS
We
have limited cash resources, an accumulated deficit, are not currently
profitable and expect to incur significant expenses in the near
future.
As of
March 31, 2010, we had a working capital of approximately
$160,000. This amount consists of cash of $144,000 and current assets
of $88,000, accounts payable and accrued current liabilities of
$73,000. We have incurred a substantial net loss for the period from
our inception in August 2008 to March 31, 2010, and are currently experiencing
negative cash flow. We expect to continue to experience negative cash flow and
operating losses through 2010 at the earliest and possibly
thereafter. As a result, we will need to generate significant
revenues to achieve profitability.
10
We
may fail to become and remain profitable or we may be unable to fund our
continuing losses, in which case our business may fail.
We are
focused on product development and have not generated any revenue to
date. We do not believe we will begin earning revenues from
operations until the latter part of calendar year 2010 as we transition from a
development stage company. We have incurred operating losses since
our inception. Our net loss for the nine months ended March 31, 2010
and for fiscal year ended June 30, 2009 was $857,000 and $67,000,
respectively. As of March 31, 2010, we had an accumulated deficit of
$924,000.
We
will be required to raise additional capital to fund our
operations. If we cannot raise needed additional capital in the
future, we will be required to cease operations.
Based on
our current plans, we believe our existing financial resources, and interest
earned thereon, will not be sufficient to meet our operating expenses and
capital requirements. We will need additional capital within the next 90 days to
sustain our operations in the near term and estimate that we will require
approximately $1.5 million over the next 12 months in order to finance the
development of our business plan and fund operating expenses. We plan
to seek such additional funding through private placements offerings of our
securities.
You
should be aware that in the future:
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we
may not obtain additional financial resources when necessary or on terms
favorable to us, if at all; and
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any
available additional financing may not be
adequate.
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If we
cannot raise additional funds when needed, or on acceptable terms, we will not
be able to begin development or implementation of our business
plan. We require substantial working capital to fund our
operations. Since we do not expect to generate significant revenues
in the foreseeable future, in order to fund operations, we will be completely
dependent on additional debt and equity financing arrangements. There
is no assurance that any financing will be sufficient to fund our capital
expenditures, working capital and other cash requirements even for the immediate
future. No assurance can be given that any such additional funding
will be available or that, if available, can be obtained on terms favorable to
us. If we are unable to raise needed funds on acceptable terms, we
will not be able to develop or implement our business plan, take advantage of
any future opportunities or respond to competitive pressures or unanticipated
requirements. A material shortage of capital will require us to take
drastic steps such as reducing our level of operations, or seeking an
acquisition partner. If cash is insufficient, we will not be able to
continue operations.
Our
purposes in entering into the agreement and plan of merger with YouChange is to
pursue our new business plan but no assurance can be made that we can
successfully implement our new business plan.
In the
fall of 2009 we made the decision to reposition the company and focus our
business on the Green Tech and e-Waste sectors. YouChange has
developed a comprehensive business plan and plan of operations, including paying
and providing reward points to businesses and consumers, for the collection,
refurbishment (to factory condition) and reCommerce of otherwise surplus,
end-of-life and obsolete electronic devices through acquired or established
refurbishment centers and certified recycling e-Waste partners. Revenue is
expected to be generated from the sales and re-commerce of these
products as well as licensing fees for proprietary data. In addition,
electronic products and devices determined to be at the end of their useful life
will be responsibly recycled through strategic recycling
partners. YouChange has conducted research and analysis of these
sectors and believes that significant opportunities exist to build a successful
business in the Green Tech and e-Waste sectors. Although YouChange is
only beginning operation of its business plan in the Green Tech and e-Waste
sectors, the company has developed a business concept that should allow BSFG to
more quickly build a business in the Green Tech and e-Waste sectors and will be
led by a management team with experience and existing relationships in the
electronic and environmental sustainability sectors. Although no
assurances can be made that this strategy will be successful, we believe the
acquisition of YouChange is in our best interests and the best interests of our
shareholders.
11
We
have insufficient capital to implement our repositioned business
plan.
Although
we have taken steps to reposition the company and focus our business on the
Green Tech and e-Waste sectors with the closing of the Acquisition, we currently
have no ability to fund the development and implementation of the entire
business plan. We currently have no revenue so we expect to rely on
external sources of capital through the issuance of debt and/or equity
securities in private placement offerings to provide funding of our
business. We expect to initiate such actions to obtain additional
capital to fund our business following the closing of the
Acquisition. No assurances can be made that we will be successful in
obtaining additional funding on terms and conditions that are acceptable to
us.
We
have deferred, and may continue to defer, payment of some of our obligations,
which may adversely affect our ability to obtain goods and services in the
future.
We
estimate that we will require approximately $1.5 million to carry out our
business plan and meet our expenses for the next 12 months and will require $0.5
million of that to satisfy our immediate obligations over the next 90 to 120
days. Our immediate obligations primarily include only professional
fees related to the audit and review by our auditors of our financial
statements, payment for services rendered by our officers, legal expense
associated with the Acquisition, and so forth. Until such time, if at
all, as we receive adequate funding, we intend to defer payment of all other
obligations that are capable of being deferred. Such deferment has
resulted in the past, and may result in the future, in some vendors demanding
cash payment for their goods and services in advance, and other vendors refusing
to continue to do business with us, which may adversely affect our ability to
obtain goods and services in the future, or to do so on favorable
terms.
We
will need to take significant additional actions to secure required facilities
and establish processes for our business plan and expect to incur losses during
such period.
Because
we have not yet begun implementation of our repositioned business in the Green
Tech and e-Waste sectors, we have to take additional actions to secure
electronic refurbishment centers and recycling facilities as well as build the
infrastructure necessary to implement the operational processes for the
business. In addition, to compete effectively, any future products or
services must be easy to use, cost-effective and economical to deliver, as the
case may be, on a commercial scale. We may not achieve any of these
objectives.
Our
operating expenses are unpredictable, which may adversely affect our business,
operations and financial condition.
As a
result of our limited operating history, because of the emerging nature of the
markets in which we will compete and the lack of implementation of our
repositioned business in the Green Tech and e-Waste sectors, our financial data
is of limited value in planning future operating expenses. Our
historical financial performance is all based upon basic start-up costs and is
not reflective in any way of the financial requirements of our repositioned
business in the Green Tech and e-Waste sectors. To the extent our
operating expenses precede or are not rapidly followed by increased revenue, our
business, results of operations and financial condition may be materially
adversely affected. Our expense levels will be based in part on our
expectations concerning future revenues. The size and extent of our
revenues, if any, are wholly dependent upon the choices and demand of
individuals for our products and services, which are difficult to forecast
accurately. We may be unable to adjust our operations in a timely
manner to compensate for any unexpected shortfall in
revenues. Further, business development and marketing expenses may
increase significantly as we expand our operations.
RISKS
RELATED TO OUR BUSINESS
If
our plan is not successful or management is not effective, the value of our
common stock may decline.
As a
corporate entity, we have had nominal operations since inception until
recently. As a result, we are a development stage company with a
limited operating history that makes it impossible to reliably predict future
growth and operating results.
12
Our
business and prospects for the collection, refurbishment (to factory condition)
and reCommerce of otherwise surplus, obsolete electronic and end-of-life devices
must be considered in light of the risks and uncertainties frequently
encountered by companies in their early stages of development. In particular, we
have not demonstrated that we can:
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build
or acquire the infrastructure necessary to implement the operational
processes for the business in the Green Tech and e-Waste sectors for the
collection, refurbishment (to factory condition) and reCommerce of
otherwise obsolete electronic
devices;
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secure
electronic refurbishment centers and recycling facilities necessary for
our planned business operations;
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obtain
the regulatory approvals necessary for recycling electronic products and
devices determined to be at the end of their useful
life;
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educate
consumers about our programs and services in the Green Tech and e-Waste
sectors and effectively tap consumers behavior and appeal to consumers to
utilize our services and facilities for the collection, refurbishment (to
factory condition) and reCommerce of otherwise obsolete electronic
devices;
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establish
many of the business functions necessary to operate, including sales,
marketing, administrative and financial functions, and establish
appropriate financial controls; or
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respond
effectively to competitive pressures and alternative options for consumers
to dispose of or discard otherwise obsolete electronic
devices.
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We cannot
be sure that we will be successful in meeting these challenges and addressing
these risks and uncertainties. If we are unable to do so, our
business will not be successful.
If
we do not obtain or maintain government regulatory approval for our services, we
cannot offer our services and we will not generate revenues.
Our
business plan to enter the Green Tech and e-Waste sectors for the collection,
refurbishment (to factory condition) and reCommerce of otherwise obsolete
electronic devices may require governmental approvals for the establishment of
our electronic refurbishment centers and recycling facilities and periodic
governmental reviews of our ongoing operations for disposition of obsolete
electronic devices. The time for such regulatory reviews is not
clearly known at this time. If we are unable to meet the regulatory
requirements for establishing these facilities or on an ongoing basis, meet the
regulatory requirements for continued operations, we will not be able to
continue offering our services and will not generate revenues. Even
if we receive such regulatory approval, such approval may impose limitations on
the indicated uses for which we may market our services, which may limit our
ability to generate significant revenues.
Our
lack of commercial marketing, sales and distribution may prevent us from
successfully commercializing our services, which would adversely affect our
level of future revenues, if any.
Our
business plan to enter the Green Tech and e-Waste sectors for the collection,
refurbishment (to factory condition) and reCommerce of otherwise obsolete
electronic devices is untested and unproven. We have no experience in the
marketing and sales in the Green Tech and e-Waste sectors including services for
the collection, refurbishment (to factory condition) and reCommerce of otherwise
obsolete electronic devices to date. We may not successfully arrange
for the establishment of electronic refurbishment centers and recycling
facilities and this could prevent us from commercializing our services or limit
our profitability from any such proposed services.
13
The
consumer marketplace may not accept and utilize our services, the effect of
which would prevent us from successfully commercializing any proposed services
and adversely affect our level of future revenue, if any.
Our
ability to market and commercialize our services for the collection,
refurbishment (to factory condition) and reCommerce of otherwise obsolete
electronic devices depends on the acceptance of such services by
consumers. We have a consumer rewards based program planned but will
also need to develop commercialization initiatives designed to increase
awareness about us and our services to consumers of electronic devices in
locations where our refurbishment centers and recycling facilities will
be located. Currently, we have not developed any such
initiatives. Without success in these areas, we may not be able to
successfully commercialize any proposed products or generate
revenue.
Product
liability exposure on refurbished electronic devices may expose us to
significant liability or costs which would adversely impact our future operating
results and divert funds from the operation of our business.
We face
an inherent business risk of exposure to product liability and other claims and
lawsuits in the event that the recycle and reCommerce of refurbished electronic
devices is alleged to have resulted in adverse effects. We may not be
able to avoid significant liability exposure. We may not have
sufficient insurance coverage, and we may not be able to obtain sufficient
coverage at a reasonable cost. An inability to obtain product
liability insurance at acceptable costs or to otherwise protect against
potential product liability claims could prevent or inhibit the
commercialization of our services.
A product
liability claim could hurt our financial performance. Even if we avoid liability
exposure, significant costs could be incurred that could hurt our financial
performance.
We
may fail to protect adequately our proprietary processes, which would allow
competitors to take advantage of our concept development efforts, the effect of
which could adversely affect any competitive advantage we may have.
We have
not sought any patent or other intellectual property protection of our business
plan process for the collection, refurbishment (to factory condition) and
reCommerce of otherwise obsolete electronic devices. Our success may
depend in part on our ability to obtain such patent protection and other
intellectual property protection for our business processes, preserve our trade
secrets and operate without infringing the proprietary rights of third
parties. Our long-term success largely depends on our ability to
market technologically competitive processes and services. If we fail
to obtain or maintain these protections, we may not be able to prevent third
parties from using our proprietary rights.
We also
rely upon trade secrets, proprietary know-how and continuing technological
innovation to remain competitive. We protect this information with reasonable
security measures, including the use of confidentiality agreements with our
employees, consultants and corporate collaborators. It is possible that these
individuals will breach these agreements and that any remedies for a breach will
be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.
Our
proprietary technology may not be enforceable and the proprietary technology of
others may prevent us from commercializing services, which would adversely
affect our level of future revenues, if any.
Although
we believe our proprietary technology may have some protection, the failure to
obtain meaningful patent protection on our business processes may greatly
diminish the value of our potential services and business
processes. No assurances can be made that any patent protection of
our business processes is achievable.
We also
rely upon non-patented trade secrets and know how, and others may independently
develop substantially equivalent trade secrets or know how. We also
rely on protecting our proprietary technology in part through confidentiality
agreements with our current and former corporate collaborators, employees,
consultants and certain contractors.
14
These
agreements may be breached, and we may not have adequate remedies for any such
breaches. Litigation may be necessary to defend against claims of
infringement, to enforce our patents or to protect trade
secrets. Litigation could result in substantial costs and diversion
of management efforts regardless of the results of the litigation. An
adverse result in litigation could subject us to significant liabilities to
third parties, require disputed rights to be licensed or require us to cease
using certain technologies.
Our
planned business plan could infringe on the intellectual property rights of
others, which may cause us to engage in costly litigation and, if not
successful, could cause us to pay substantial damages and prohibit us from
offering our services. Because patent applications in the United
States are not publicly disclosed until the patent application is published or
the patent is issued, applications may have been filed which relate to services
similar to those offered by us. We may be subject to legal proceedings and
claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual property
rights of third parties.
If our
potential products violate third-party proprietary rights, we cannot assure you
that we would be able to arrange licensing agreements or other satisfactory
resolutions on commercially reasonable terms, if at all. Any claims
made against us relating to the infringement of third-party propriety rights
could result in the expenditure of significant financial and managerial
resources and injunctions preventing us from providing services. Such
claims could severely harm our financial condition and ability to
compete.
In
addition, if another party claims the same subject matter or subject matter
overlapping with the subject matter that we have claimed in a United States
patent application or patent, we may decide or be required to participate in
interference proceedings in the USPTO in order to determine the priority of
invention. Loss of such an interference proceeding would deprive us
of patent protection sought or previously obtained and could prevent us from
commercializing our products. Participation in such proceedings could
result in substantial costs, whether or not the eventual outcome is
favorable. These additional costs could adversely affect our
financial results.
Failure
to comply with environmental laws or regulations could expose us to significant
liability or costs which would adversely impact our operating results and divert
funds from the operation of our business which would have a material adverse
effect on our business.
We may be
required to incur significant costs to comply with current or future
environmental laws and regulations related to the collection, refurbishment (to
factory condition) and reCommerce of otherwise obsolete electronic devices as
well as the recycling of electronic products and devices determined to be at the
end of their useful life. We are subject to federal, state and local
laws and regulations governing the use, manufacture, storage, handling and
disposal of these materials and some waste products. Although we
believe that our safety procedures for handling and disposing of these materials
will comply with the standards prescribed by these laws and regulations, the
risk of contamination or injury from these materials cannot be completely
eliminated. In the event of an incident, we could be held liable for
any damages that result, and any liability could exceed our
resources. Current or future environmental laws or regulations may
have a material adverse effect on our operations, business and
assets.
We
depend on the continued services of our executive officers and the loss of a key
executive could severely impact our operations.
The
execution of our present business plan depends on the continued services of
Jeffrey Rassás and Richard A. Papworth. We currently do not maintain
any key-man insurance policies on the lives of these gentlemen. We
have not entered into employment agreements with either men, and the loss of any
of their service would be detrimental to us and could have a material adverse
effect on our business, financial condition and results of
operations.
Our
executive officers, directors and principal shareholders control our business
and may make decisions that are not in the best interests of the non-principal
shareholders.
Our
officers, directors and principal shareholders, and their affiliates, in the
aggregate, own a substantial portion of the outstanding shares of our Common
Stock. As a result, such persons, acting together, have the ability to
substantially influence all matters submitted to our shareholders for approval,
including the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets, and to control our management
and affairs.
15
Accordingly,
such concentration of ownership may have the effect of delaying, deferring or
preventing a change in control or discouraging a potential acquirer from making
a tender offer or otherwise attempting to obtain control of our business, even
if such a transaction would be beneficial to other shareholders.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF
PROCEEDS
On March
15, 2010, BlueStar Financial Group, Inc. a Nevada corporation (“BSFG”) and its
wholly owned subsidiary BlueStar Acquisition Corporation (“Merger Sub”) entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with
the Company.
The
Merger Agreement and the acquisition agreed to therein, was closed on March 30,
2010. At the closing, the Company merged into Merger Sub, with the
Company as the surviving entity. BSFG acquired all 7,183,197 of the
issued and outstanding shares of the Company’s common stock in exchange for
21,549,588 shares of BSFG Common Stock. The Company’s stockholders
received 3 shares of BSFG commons stock for each share of YouChange common
stock. Additionally, 1,456,000 shares of BSFG common stock were
issued to the sellers of BSFG.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
Agreement and Plan of Merger as disclosed in the 8-K/A filing dated May 19, 2010
which is incorporated herein by reference.
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
(a) (3) Exhibits
The
following exhibits are included as part of this report by
reference:
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3.1
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Articles
of Incorporation (incorporated by reference from BSFG’s Registration
Statement on Form S-1 filed on August 12, 2008, Registration No.
333-152959)
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3.2
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By-laws
(incorporated by reference from BSFG’s Registration Statement on Form S-1
filed on August 21, 2008 Registration No. 333-152959)
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31.1
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8650
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER
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32.1
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CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
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16
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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BLUESTAR
FINANCIAL GROUP, INC.
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Date:
June 7, 2010
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By:
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/s/ Richard A.
Papworth
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Richard
A. Papworth
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Chief
Executive Officer
(Principal
Executive Officer and Principal Accounting Officer)
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17