UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-29981

 

TRISTAR WELLNESS SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		91-2027724
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
720 SW Washington Street, Suite 200 Portland, OR		97205
(Address of principal executive offices)		(Zip Code)

 

(971) 223-1027

Registrant’s telephone number, including area code

 

________________________________________

(Former address, if changed since last report)

 

________________________________________

(Former fiscal year, if changed since last report)

 

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 x No ¨

 

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 x No ¨

  

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

 

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ­­­¨ No ¨

 

Applicable only to corporate issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 17, 2015, there were 27,996,715 shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

TRISTAR WELLNESS SOLUTIONS, INC.

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
ITEM 1	Financial Statements			4
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk			21
ITEM 4	Controls and Procedures			21
PART II – OTHER INFORMATION
ITEM 1	Legal Proceedings			23
ITEM 1A	Risk Factors			23
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds			23
ITEM 3	Defaults Upon Senior Securities			23
ITEM 4	Mine Safety Disclosures			23
ITEM 5	Other Information			23
ITEM 6	Exhibits			24

 

2

 

PART I – FINANCIAL INFORMATION

 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.

 

3

 

ITEM 1 Consolidated Financial Statements

 

The unaudited condensed consolidated interim financial statements of registrant for the three months and six months ended June 30, 2015 and 2014 are below. The unaudited condensed consolidated interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.

 

TRISTAR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollars in thousands)

 

		June 30,				December, 31
		2015				2014
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	497			$	189
Accounts receivables, net			457				652
Receivable from related party			-				1
Prepaid expenses and other			160				141
Inventories, net			635				814
Total current assets			1,749				1,797
Non-current assets
Accounts receivables, net of current portion			41				41
Property and equipment, net			325				312
Intangible assets, net			738				782
Other non-current assets			122				137
Total non-current assets			1,226				1,272
TOTAL ASSETS		$	2,975			$	3,069
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses		$	3,131			$	2,450
Accounts payable and accrued expenses due to related parties			1,794				1,839
Short-term notes (net of debt discount $405 and $12 as of June 30, 2015 and December 31, 2014, respectively)			1,760				588
Short-term notes (in default)			3,744				3,744
Short-term notes - related party (net of debt discount $10 and $0 as of June 30, 2015 and December 31, 2014, respectively)			345				200
Short-term notes - (in default) related party			4,100				4,100
Convertible notes			652				671
Convertible notes (in default)- related party			230				230
Deferred revenue			-				48
Derivative liability			962				270
Total current liabilities			16,718				14,140
TOTAL LIABILITIES			16,718				14,140
STOCKHOLDERS' DEFICIT
Convertible preferred stock, $0.001 par value; 10,000,000 shares authorized; 5,621,667 and 5,621,667 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively			6				6
Common stock; $0.0001 par value; 50,000,000 shares authorized; 27,546,715 and 24,221,715 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively			3				2
Additional paid-in capital			20,701				20,055
Other comprehensive gain			276				182
Accumulated deficit			(34,729	)			(31,316	)
TOTAL STOCKHOLDERS' DEFICIT			(13,743	)			(11,071	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	2,975			$	3,069

 

See accompanying unaudited notes to the condensed consolidated interim financial statements.

 

4

 

TRISTAR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (unaudited)

(dollars in thousands)

 

		For the three months ended June 30,								For the six months ended June 30,
		2015				2014				2015				2014
Sales revenue		$	782			$	1,224			$	1,927			$	2,527
Cost of Goods Sold			372				844				770				1,882
Gross profit			410				380				1,157				645
Continuing operations
Operating expenses:
General and administrative			836				967				1,601				1,692
Sales, marketing and development expenses			466				676				1,009				1,403
Amortization on intangible assets			22				22				44				42
Total operating expenses			1,324				1,665				2,654				3,137
Loss from operations			(914	)			(1,285	)			(1,497	)			(2,492	)
Other income and (expenses)
Interest expense			(631	)			(951	)			(1,160	)			(1,503	)
Gain on sale of assets and liabilities			1				-				33				-
Change in fair value of derivative liability			(183	)			289				(692	)			(1,510	)
Other expenses			61				12				(97	)			-
Total other income (expenses)			(752	)			(650	)			(1,916	)			(3,013	)
Net loss			(1,666	)			(1,935	)			(3,413	)			(5,505	)
Other comprehensive gain (loss)
Foreign currency translation gain (loss)			(50	)			63				94				24
Total comprehensive loss		$	(1,716	)		$	(1,872	)		$	(3,319	)		$	(5,481	)
Loss per share		$	(0.06	)		$	(0.08	)		$	(0.13	)		$	(0.24	)
Diluted loss per share		$	(0.06	)		$	(0.08	)		$	(0.13	)		$	(0.24	)
Weighted average common shares outstanding			26,763,748				23,041,715				25,558,870				22,563,814
Diluted weighted average common shares outstanding			26,763,748				23,041,715				25,558,870				22,563,814

 

See accompanying unaudited notes to the condensed consolidated interim financial statements

 

5

 

TRISTAR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (unaudited)

(dollars in thousands)

 

		For the six months ended June 30,
		2015				2014
Cash flows from operating activities:
Loss for the period from continuing operations		$	(3,413	)		$	(5,505	)
Adjustments to reconcile net profit/loss from continuing operations to net cash provided by operating activities:
Depreciation expenses			49				135
Change in fair value of derivative liability			692				1,510
Amortization of debt discount			109				871
Intangible asset amortization			44				42
Issuance of warrants for services			11				-
Imputed interest on note payable			35				21
Changes in operating assets and liabilities:
Accounts receivables			195				81
Accounts receivables- Related Party			1				-
Inventory			179				30
Prepaid expenses			(19	)			24
Accounts payable and accruals			781				286
Other non-current assets			15				-
Other receivables			-				54
Deferred revenue			(48	)			(192	)
Accounts payable and accrued expenses - related party			(45	)			415
Net cash used in operating activities from continuing operations			(1,414	)			(2,228	)
Cash flow from investing activities:
Purchase of property plant and equipment			(62	)			(28	)
Net cash provided by (used in) investing activities			(62	)			(28	)
Cash flow from financing activities:
Proceeds from issuance of short-term notes			1,595				1,564
Proceeds from issuance of short-term convertible notes - related party			-				230
Rrepayment of short-term notes- related party			(55	)			-
Proceeds from issuance of convertible notes			-				330
Proceeds from issuance of common stock			150				-
Net cash generated from financing activities from continuing operations			1,690				2,124
Cumulative translation adjustment			94				24
Net change in cash			308				(108	)
Cash and cash equivalent, beginning			189				193
Cash and cash equivalent, ending		$	497			$	85
Supplemental schedule of non-cash activities
Issuance of warrants in conjunction with promissory notes		$	512			$	845
Increase in additional paid in capital on extinguishment of debt		$	213			$	-
Debt discount due to embedded derivative liabilities within convertible debentures issued		$	-			$	282
Conversion of notes payable to common stock		$	19			$	8

 

See accompanying unaudited notes to the condensed consolidated interim financial statements

 

6

 

TRISTAR WELLNESS SOLUTIONS, INC. AND SUBSIDIARIES

Unaudited Notes to the Condensed Consolidated Financial Statements

(dollars in 000’s except per share)

 

1. The Company

 

TriStar Wellness Solutions, Inc. (“the Company”) was incorporated on August 28, 2000 in the state of Nevada under the name “Quadric Acquisitions”. From the date of its incorporation through April 27, 2012, the Company had several name changes and different business plans all under prior management that is no longer with the Company. On April 27, 2012, the Company underwent a change of control transaction and changed its business plan. On January 7, 2013, the Company changed its name from Biopack Environmental Solutions, Inc. to TriStar Wellness Solutions, Inc. with the State of Nevada, and such change was effected with FINRA on January 18, 2013. The Company conducts its current operations under the name TriStar Wellness Solutions, Inc. All of the Company’s operations are conducted through its wholly-owned subsidiary, HemCon Medical Technologies Inc., an Oregon corporation (“HemCon”), and involve the development, marketing and sale of HemCon’s advanced wound care products.

 

2. Summary of Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on April 15, 2015.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2014. All intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

In preparing financial statements in conformity with U.S. GAAP, management is required 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, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions include valuing equity securities in share-based payment arrangements, estimating the fair value of equity instruments upon issuance, and estimating the useful lives of depreciable assets and whether impairment charges may apply.

 

7

  

Recently Issued Accounting Pronouncements

 

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU 2015-03 is effective for the interim and annual periods ending after December 15, 2015. The Company does not expect any material impact from adoption of this guidance on the Company's condensed consolidated financial statements.

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers: Topic606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues, when promised goods or services are transferred to customers, in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is currently evaluating the impact of our pending adoption of ASU 2014-09 on its consolidated financial statements.

 

3. Liquidity and Going Concern

 

The Company's unaudited condensed consolidated interim financial statements are prepared using accounting principles generally accepted in the United States of America (GAAP) 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 revenue sufficient to cover its operating costs and allow it to continue as a going concern. In addition, as of June 30, 2015, the Company had an accumulated deficit of $34,729, and had incurred a net loss for the six months ended June 30, 2015 of $3,413 and had negative working capital of $14,969. Funding has been provided by related parties as well as new investors committed to make it possible to maintain, expand, and ensure the advancement of the TriStar Wellness products.

 

The consolidated financial statements for the fiscal year ended December 31, 2014 states that because the Company has suffered recurring operating losses from operations, there is substantial doubt about the Company’s ability to continue as a going concern. A “going concern” opinion indicates that the consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

4. Inventories

 

Inventories, net consist of the following at June 30, 2015 and December 31, 2014 (in thousands):

 

		June 30,				December 31,
		2015				2014
Raw materials		$	225			$	157
Work in Progress			381				178
Finished Goods			29				479
		$	635			$	814

 

Reserve for obsolescence was approximately $186 and $227, as of June 30, 2015 and December 31, 2014, respectively.

 

8

  

5. Property and Equipment

 

Property and equipment consist of the following at June 30, 2015 and December 31, 2014 (in thousands):

 

		Estimates Useful Life			June 30,				December 31,
		(Years)			2015				2014
Manufacturing Equipment		7-10			$	290			$	290
Leasehold Improvements		7				48				-
Office Furniture and Equipment		3-7				135				121
Computer Equipment and Software		1-5				23				23
						496				434
Less: Accumulated Depreciation, amortization and impairments						(171	)			(122	)
					$	325			$	312

 

Depreciation expense was approximately $49 and $135, for the six months ended June 30, 2015 and 2014, respectively.

 

6. Loans Payable

 

		June 30,				December 31,
		2015				2014
Short-term notes (net of debt discount $405 and $12 as of June 30, 2015 and December 31, 2014, respectively)			1,760				588
Short-term notes (in default)			3,744				3,744
Short-term notes - related party (net of debt discount $10 and $0 as of June 30, 2015 and December 31, 2014, respectively)			345				200
Short-term notes - (in default) related party			4,100				4,100
		$	9,949			$	8,632
Convertible notes			652				671
Convertible notes (in default)- related party			230				230
		$	882			$	901

 

Promissory Notes

 

First Quarter 2015 Activities

 

During the quarter ended March 31, 2015, the Company issued promissory notes (the “Notes”) to a third party, in the principal amount of $510. The Notes has an interest rate of 18% per annum, simple interest and is due on or before September 30, 2015. In connection with the Note, the Company issued warrants to purchase 1,020,000 shares of our common stock at an exercise price of $0.20 per share. The relative fair value of the warrants compared to the debt was recorded as a component of stockholders’ equity with the offset recorded as a discount on the promissory notes and included as a component of promissory notes in the accompanying condensed consolidated balance sheet as of March 31, 2015. The fair value of the warrants was determined using the Black-Scholes model with the following assumptions: risk free interest rate – 1.3% - 1.7%, volatility – 77.5% - 80.8%, expected term – 4 years, expected dividends– N/A. The debt discounts related to the warrants are being amortized over a 0.8 year period (through maturity) on a straight-line basis. The Company also recorded 6% accrued facility fees in aggregate for approximately $31 in connection with the Notes. The accrued loan fees is due on September 30, 2015. The Company recorded a $95 discount at issuance, and of the $95 discount recorded at issuance the portion relating to the detachable warrants of $64 was credited to additional paid in capital and the $31 loan fee described above was credited to accrued expense.

 

9

  

During the quarter ended March 31, 2015, the Company issued promissory note (the “Note”) to a third party, in the principal amount of $90. The Note has an interest rate of 18% per annum, simple interest and is due on or before September 30, 2015. In connection with the Note, the Company issued warrants to purchase 180,000 shares of our common stock at an exercise price of $0.20 per share. The relative fair value of the warrants compared to the debt was recorded as a component of stockholders’ equity with the offset recorded as a discount on the promissory notes and included as a component of promissory notes in the accompanying condensed consolidated balance sheet as of March 31, 2015. The fair value of the warrants was determined using the Black-Scholes model with the following assumptions: risk free interest rate – 1.5%, volatility – 80.2%, expected term – 4 years, expected dividends– N/A. The debt discounts related to the warrants are being amortized over a 0.6 year period (through maturity) on a straight-line basis. The Company also recorded 6% accrued loan fees in aggregate for approximately $5 in connection with the Notes. The accrued facility fees is due on September 30, 2015. The Company recorded an $18 discount at issuance, and of the $18 discount recorded at issuance the portion relating to the detachable warrants of $12 was credited to additional paid in capital and the $6 facility fee described above was credited to accrued expense.

 

During the quarter ended March 31, 2015, the Company issued promissory notes to several third parties, in the principal amount of $95. The notes have effective interest rate of 30% per annum, simple interest and were due on September 30, 2015.

 

On March 3, 2015, the Company entered into a promissory note modification agreement (the “Modified Note”) with John Linderman, one of the Company’s largest shareholders, to replace the original promissory note (the “Old Note”), which was issued on May 6, 2013 with principal of $50. The Old Note had an interest rate of 18% per annum, simple interest, and is currently past due. As of March 2, 2015, the Company has recorded $18 accrued interest related to the Old Note, and this past accrued unpaid interest was settled for $12 per Modified Note. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a gain on extinguishment of debt of $6 in the equity. The Modified Note is due on March 1, 2016, with interest rate of 18% per annum. On March 4, 2015, the Company paid back $10, and the outstanding principal and accrued interest as of March 31, 2015 were $40 and $13, respectively.

 

On March 3, 2015, the Company entered into a promissory note modification agreement (the “Modified Note”) with James Barickman, one of the Company’s largest shareholders, to replace the original promissory note (the “Old Note”), which was issued on May 6, 2013 with principal of $50. The Old Note had an interest rate of 18% per annum, simple interest, and is currently past due. As of March 2, 2015, the Company has recorded $18 accrued interest related to the Old Note, and this past accrued unpaid interest was settled for $12 per Modified Note. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a gain on extinguishment of debt of $6 in the equity. The Modified Note is due on March 1, 2016, with interest rate of 18% per annum. On March 4, 2015, the Company paid back $10, and the outstanding principal and accrued interest as of March 31, 2015 were $40 and $13, respectively.

 

On March 3, 2015, the Company entered into a promissory note agreement (the “Note”) with NorthStar Consumer Products, LLC, one of the largest shareholders and an entity controlled by John Linderman and James Barickman, to settle the outstanding accounts payable of $381 with principal of $180 promissory note. The Note is due on September 2, 2017, with interest rate of 18% per annum. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a gain on extinguishment of debt of $201 in the equity. The outstanding accrued interest is $2 as of March 31, 2015.

 

During the quarter ended March 31, 2015, the Company recorded total amortization on debt discount of $25.

 

Second Quarter 2015 Activities

 

During the quarter ended June 30, 2015, the Company issued promissory notes (the “Notes”) to a third party, in the principal amount of $200. The Notes has an interest rate of 18% per annum, simple interest and is due on or before November 30, 2015. In connection with the Note, the Company issued warrants to purchase 800,000 shares of our common stock at an exercise price of $0.10 per share. The relative fair value of the warrants compared to the debt was recorded as a component of stockholders’ equity with the offset recorded as a discount on the promissory notes and included as a component of promissory notes in the accompanying condensed consolidated balance sheet as of June 30, 2015. The fair value of the warrants was determined using the Black-Scholes model with the following assumptions: risk free interest rate – 1.50% - 1.58%, volatility – 77.003% - 78.42%, expected term – 4 years, expected dividends– N/A. The debt discounts related to the warrants are being amortized over a 0.6 year period (through maturity) on a straight-line basis. The Company also recorded 6% accrued facility fees in aggregate for approximately $12 in connection with the Notes. The accrued loan fees is due on November 30, 2015. The Company recorded a $71 discount at issuance, and of the $71 discount recorded at issuance the portion relating to the detachable warrants of $59 was credited to additional paid in capital and the $12 loan fee described above was credited to accrued expense.

 

10

  

On June 8, 2015, the Company issued a promissory note (the “Note”) to a third party, in the principal amount of $700. The Note has effective interest rate of 35% per annum, simple interest and is due on June 30, 2016. In connection with this promissory note, the Company issued 280,000 shares of common stock on July 6, 2015. The fair value of the common stock to the debt were recorded as a component of stockholders’ equity with the offset recorded as a discount on the promissory note and included as a component of promissory notes in the accompanying consolidated balance sheet as of June 30, 2015. The fair value of the common stock was based on the stock price on the issuance date on the market. The debt discounts related to the common stock are being amortized over the term of the promissory notes on a straight-line basis. The Company also recorded 35% accrued facility fees in aggregate for approximately $245 in connection with the Note. The accrued loan fees is due on June 30, 2016. The Company recorded a $328 discount at issuance, and of the $328 discount recorded at issuance the portion relating to the detachable common stock of $83 was credited to additional paid in capital and the $245 loan fee described above was credited to accrued expense.

 

During the quarter ended June 30, 2015, the Company paid back principal amount of $8 and $8 to James Barickman and John Linderman, for the debt issued during the quarter ended March 31, 2015

 

During the quarter ended June 30, 2015, the Company recorded total amortization on debt discount of $83. The outstanding accrued interest is $2,264 as of June 30, 2015.

 

As of June 30, 2015, the company had $8,074 with past due maturities. $4,330 is related party to entities controlled by Mr. Fredrick Voight, one of our former officers and a former member of our Board of Directors. The company is working with the respective parties to extend the maturity dates of these notes.

 

7. Stockholders’ Equity

 

Diluted Shares

 

There were 405,000 shares of Series A, 1,000,000 shares of Series B and no shares of Series C outstanding as of June 30, 2015. Each share of A,B & C Preferred converts into five shares of common stock. Preferred A,B & C are convertible into 7,025,000. Each share of Preferred D is convertible into twenty five shares of common stock. Convertible preferred stock was considered anti-dilutive for the three months and six months ended June 30, 2015 and 2014, due to net losses. As of June 30, 2015, there are 4,216,667 Series D Convertible Preferred Shares which are convertible into 105,416,675 of common shares. Total preferred convertible is 112,441,675 common shares. All Series D Convertible Preferred Stock voting rights are on an “as converted to common stock” basis. Dividends are not mandatory. If declared by the Board Series D Preferred Stock shall have preference over common stock and equal to other series of preferred stock. As of June 30, 2015, there are 14,476,600 warrants which are convertible into one share of common stock with a weighted average exercise price of $1.07. In addition, convertible debt of $652 as of June 30, 2015 is convertible into 45,730,153 shares of the Company’s common stock.

 

Common Stock Issued for Cash

 

During the six months ended June 30, 2015, the Company issued 3,325,000 shares of common stock for approximately $150 in cash and $19 from a convertible debt instrument. The shares were issued to third parties.

 

Detachable Warrants

 

During the six months ended June 30, 2015, the Company issued Promissory Notes containing 2,100,000 detachable Warrants. The detachable Warrants were valued at approximately $0.085 per warrant using the Black-Scholes model at June 30, 2015. The relative fair value of the detachable Warrants compared to the debt of approximately $512 was recorded as a component of stockholders’ equity and accrued expenses with the offset recorded as a discount on the promissory notes and included as a component of promissory notes in the accompanying condensed consolidated balance sheet as of June 30, 2015. The fair value of the warrants was determined using the Black-Scholes model with the following assumptions: risk free interest rate – 1.3% - 1.7%, volatility – 77.5% - 80.8%, expected term – 4 years, expected dividends– N/A. The debt discount related to the warrants are being amortized over a nine month period (through maturity) on a straight-line basis.

 

11

  

8. Related Party Transactions

 

Consulting Agreements

 

On January 6, 2014 the Company entered into a revised consulting agreement with Chord Advisors, LLC ("Chord"). David Horin, the Company's Chief Financial Officer has a significant equity partnership stake in Chord. Currently the agreement is on a month to month basis. The Company has agreed to pay Chord a monthly consulting fee of approximately $13 for Mr. Horin's services and services of his firm and 50,000 warrants upon the consummation of a financing transaction in excess of $2 million with an exercise price equal to the exercise price of such warrants in a financing transaction. The Company incurred $38 and $38 for the three months ended June 30, 2015 and 2014, respectively. The Company incurred $75 and $75 for the six months ended June 30, 2015 and 2014, respectively, and has an account payable balance related to this agreement of $224 as of June 30, 2015.

 

Accounts Payable and Accrued Expenses

 

As of June 30, 2015, the Company owed Daystar Funding LP $50, Chord Advisors $224 and Rivercoach $72. Daystar Funding LP and Rivercoach are controlled by Mr. Fredrick Voight, one of our former officers and a former member of our Board of Directors.

 

Related Party Notes

 

On March 3, 2015, the Company entered into a promissory note modification agreement (the “Modified Note”) with John Linderman, one of the Company’s largest shareholders, to replace the original promissory note (the “Old Note”), which was issued on May 6, 2013 with principal of $50. The Old Note had an interest rate of 18% per annum, simple interest, and is currently past due. As of March 2, 2015, the Company has recorded $18 accrued interest related to the Old Note, and this past accrued unpaid interest was settled for $12 per Modified Note. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a gain on extinguishment of debt of $6. The Modified Note is due on March 1, 2016, with interest rate of 18% per annum. The outstanding principal and accrued interest as of June 30, 2015 were $33 and $14, respectively.

 

On March 3, 2015, the Company entered into a promissory note modification agreement (the “Modified Note”) with James Barickman, one of the Company’s largest shareholders, to replace the original promissory note (the “Old Note”), which was issued on May 6, 2013 with principal of $50. The Old Note had an interest rate of 18% per annum, simple interest, and is currently past due. As of March 2, 2015, the Company has recorded $18 accrued interest related to the Old Note, and this past accrued unpaid interest was settled for $12 per Modified Note. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a gain on extinguishment of debt of $6. The Modified Note is due on March 1, 2016, with interest rate of 18% per annum. On March 4, 2015, the Company paid back $10, and the outstanding principal and accrued interest as of June 30, 2015 were $33 and $14, respectively.

 

On March 3, 2015, the Company entered into a promissory note agreement (the “Note”) with NorthStar Consumer Products, LLC, one of the largest shareholders and an entity controlled by John Linderman and James Barickman, to settle the outstanding accounts payable of $355 with principal of $180 promissory note. The Note is due on September 2, 2017, with interest rate of 18% per annum. The modification was accounted for as a debt extinguishment in accordance with ASC 470. As a result of the modification, the Company recorded a gain on extinguishment of debt of $175. The outstanding accrued interest is $11 as of June 30, 2015.

 

As of June 30, 2015, the Company owed to Daystar Funding, LP $4,330 and accrued interest of $1,405. Daystar Funding LP and is controlled by Mr. Fredrick Voight, one of our former officers and a former member of our Board of Directors.

 

As of June 30, 2015, the company had $4,330 with past due maturity dates to related party to entities by controlled by Mr. Fredrick Voight, one of our former officers and a former member of our Board of Directors. The company is working with the respective parties to extend the maturity dates of these notes..

 

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9. Intangible Assets, Net

 

For the six months ended June 30, 2015, intangible assets consisted primarily of patents, customer lists, non-compete arrangements and a trade name. Patents, customer lists, non-compete arrangements and a trade name acquired in business combinations under the purchase method of accounting are recorded at fair value net of accumulated amortization since the acquisition date. The intangible assets are amortized over their estimated useful life which is 4 to 16 years.

 

The amortization expense for the six months ended June 30, 2015 and 2014 was $44 and $42, respectively.

 

										Amortized as of								Balance as of
		Life in								June 30,				December 31,				June 30,				December 31,
Description		Years				Price				2014				2014				2014				2014
Patents			12			$	336			$	60			$	46			$	276			$	290
Customer list			14				198				32				25				166				173
Trade name			16				266				29				22				237				244
Non-compete agreement			4				127				68				52				59				75
						$	927			$	189			$	145			$	738			$	782

 

10. Litigation

 

The Company recognizes a liability for a contingency when it is probable that liability has been incurred and when the amount of loss can be reasonably estimated. When a range of probable loss can be estimated, the Company accrues the most likely amount of such loss, and if such amount is not determinable, then the Company accrues the minimum of the range of probable loss. As of June 30, 2015, there was no litigation against the Company and therefore the litigation accrual was zero.

 

11. Fair Value Measurements

 

The Company has adopted the provisions of ASC 820 which defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 provides guidance on how to measure certain financial assets and financial liabilities at fair value. The requirement to measure an asset as liability at fair value is determined under the U.S. GAAP.

 

Certain of the Company’s assets and liabilities are considered to be financial instruments and are required to be measured at fair value in the consolidated balance sheets. Certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, short-term debt and deferred revenue are measured at cost, which approximates fair value due to the short-term maturity of these instruments. Derivative liabilities are measured at fair value. 

 

The Company measures fair value basis based on the following key objectives: 

 

	·	Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date;
	·	A three-level hierarchy (“Valuation Hierarchy”) which prioritizes the use of observable pricing data (Level 1 and Level 2 inputs as defined below) over unobservable pricing data (Level 3 inputs as defined below) is used in measuring value; and
	·	The Company’s creditworthiness is considered when measuring the fair value of liabilities.

 

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The valuation hierarchy used in measuring fair value is defined as follows: 

 

	·	Level 1 inputs are observed inputs such as quoted prices for identical instruments inactive markets;
	·	Level 2 inputs are inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments inactive markets or quoted prices for identical or similar instruments in markets that are not active; and
	·	Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs are unobservable. Level 3 requires significant management judgment or estimation.

 

All items measures at fair value are required to be classified and disclosed as a Level 1, 2 or 3 asset or liability based on the inputs used to measure for value of an asset or liability in its entirety. An asset or liability classified as Level 1 is measured by quoted prices in active markets for identical instruments. An asset or liability classified as Level 2 is measured using significant observable inputs and an asset or liability classified as Level 3 is measured using significant unobservable inputs.

 

The following tables classify the Company’s liabilities measured at fair value on a recurring basis (primarily reflecting an increase in stock price per share) into the fair value as of June 30, 2015 and December 31, 2014 (in thousands):

 

June 30, 2015

 

Description		Level 1				Level 2				Level 3
Derivative liability - conversion options		$	-			$	-			$	962

 

December 31, 2014

 

Description		Level 1				Level 2				Level 3
Derivative liability - conversion options		$	-			$	-			$	270

 

There were no transfers between Level 1, 2 or 3 during the six months ended June 30, 2015.

 

The following table presents changes in Level 3 liabilities measured at fair value from the period ended December 31, 2014 through June 30, 2015. Both observable and unobservable inputs are used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

Balance as of December 31, 2014		$	270
Change in fair value of derivative liability - conversion option			692
Balance - June 30, 2015		$	962

____________

* The Notes contain an embedded conversion feature that the Company has determined is a derivative requiring bifurcation in accordance with the provisions of ASC 815.

 

12. Subsequent Events

 

The Company issued 450,000 common shares of stock to in relation to a debt instrument.

 

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ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q of TriStar Wellness Solutions, Inc. for the period ended June 30, 2015 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this annual report. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.

 

We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risk factors listed in this filing, as well as any cautionary language in this annual report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: our ability to successfully obtain financing for product acquisition; changes in product strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel.

 

Overview

 

We were incorporated on August 28, 2000 in the state of Nevada under the name “Quadric Acquisitions”. From the date of our incorporation through April 27, 2012, we had several name changes and different business plans all under prior management that is no longer with the company. On April 27, 2012, we underwent a change of control transaction and changed our business plan. On January 7, 2013, we changed our name from Biopack Environmental Solutions, Inc. to TriStar Wellness Solutions, Inc. with the State of Nevada, and such change was effected with FINRA on January 18, 2013. We conduct our current operations under the name TriStar Wellness Solutions, Inc. On May 6, 2013 TWSI purchased HemCon Medical Technologies, Inc. (HemCon) gaining entry into the advanced wound care sector.

 

We are focused on providing best of breed solutions of advanced wound care products to the worldwide professional healthcare industry. The HemCon platform enables TWSI to execute a strong professional medical focus on advanced wound care products to support improved medical outcomes. We believe we have entered the market uniquely aligned to important underlying factors that are redefining how care givers and patients engage in managing advanced wound care.

 

TriStar Wellness Solutions, Inc. (TWSI, us or TriStar) through HemCon’s advanced wound care solutions is focused on bringing new technologies to patients that address both traumatic and chronic therapeutic healthcare opportunities based on a combination of superior science, product development and market positioning worldwide. Each of our products is designed to improve medical outcomes through superior and proven technologies. Our innovative products and technologies exclusively focus in the projected worldwide $23 billion wound care sector.

 

	·	Wound care treatment products focused on superior hemostasis and infection control technology targeting a wide range of professional medical (e.g., interventional cardiology, surgery, dialysis, post-procedure recovery), trauma, military and first responders applications. The company has developed FDA approved products targeted to specific procedures within the broad global professional wound care markets.
	·	Research and Development programs on-going in underserved wound treatment markets.

 

15

  

Results of Operations for the Three Months Ended June 30, 2015 and 2014

 

Summary of Results of Operations (in thousands)

 

		For the three months ended June 30,
		2015				2014
Sales revenue		$	782			$	1,224
Cost of Goods Sold			372				844
Gross profit			410				380
Continuing operations
Operating expenses:
General and administrative			836				967
Sales, marketing and development expenses			466				676
Amortization on intangible assets			22				22
Total operating expenses			1,324				1,665
Loss from operations			(914	)			(1,285	)
Other income and (expenses)
Interest expense			(631	)			(951	)
Gain on sale of assets and liabilities			1				-
Change in fair value of derivative liability			(183	)			289
Other expenses			61				12
Total other income (expenses)			(752	)			(650	)
Net loss			(1,666	)			(1,935	)
Other comprehensive gain (loss)
Foreign currency translation gain (loss)			(50	)			63
Total comprehensive loss		$	(1,716	)		$	(1,872	)

  

Operating Loss

 

We had an operating loss of approximately $914 for the three months ended June 30, 2015, compared to an operating loss of approximately $1,285 for the three months ended June 30, 2014. This difference was driven by a decrease in our sales, marketing and development expenses of approximately $210 and a decrease in general and administrative costs of $131.

 

Revenue

 

Our revenue from the three months ended June 30, 2015 was $782 compared to $1,224 for the three months ended June 30, 2014. Our revenue was primarily derived from the operations of our subsidiary, HemCon. The decrease in revenue was a result of the timing of government orders which are highly dependent of certain outside factors.

 

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Cost of Goods Sold

 

Our cost of goods sold for the three months ended June 30, 2015 were $372, compared to $844 for the same period in 2014. The cost of goods sold for the three months ended June 30, 2015 relate to the revenues generated from HemCon. HemCon’s cost of goods sold amounted to approximately $372 or approximately 47% of HemCon’s revenue for the three months ended June 30, 2015. Our cost of goods sold decreased significantly for the three months ended June 30, 2015 compared to June 30, 2014, primarily due to our transition from in-house manufacturing of our HemCon products to utilizing outsourced, third-party manufacturers. This transition began in December 2014 and was completed during the second quarter of 2015.

 

General and Administrative Expenses

 

General and administrative expenses were $836 for the three months ended June 30, 2015, compared to $967 for the three months ended June 30, 2014. Our primary general and administrative expenses for the period in 2015, $134 from professional fees related to TriStar such as audit, marketing and legal fees, and $702 related to salaries, occupancy cost, utilities, etc. attributable to HemCon.

 

Sales, Marketing and Development Expenses

 

Our expenses related to sales, marketing and development were $466 for the three months ended June 30, 2015, compared to $676 for the three months ended June 30, 2014. The vast majority of our sales, marketing and development expenses for both periods related to our HemCon operations. Our sales, marketing and development expenses were lower in 2015 compared to 2014 due to greater utilization of partnership distribution channels in 2015 compared with direct selling, and we did not utilize retail over-the-counter advertising in 2015 like we did in 2014.

   

Amortization of Intangible Assets

 

During the three months ended June 30, 2015, we had $22 in amortization of intangible assets primary related to patents, non-compete agreements and customer lists acquired in the HemCon acquisition. We had a comparable expense of $22 for the three months ended June 30, 2014.

 

Interest Expense

 

We had interest expense $631 for the three months ended June 30, 2015, compared to $951 for the three months ended June 30, 2014. During the three months ended June 30, 2015 interest expense primarily related to interest on debt instruments and the amortization of debt discount on promissory notes and warrants issued in connection with the acquisition of HemCon.

 

Change in Fair Value of Derivatives

 

During the three months ended June 30, 2015 and 2014 we recognized a non-cash loss (gain) on derivative liabilities of $183 and $(289), respectively, due primarily to the change in fair value of the conversion option on convertible debt which was recorded as a derivative liability.

 

Other Expenses

 

During the three months ended June 30, 2015 and 2014 we recognized a foreign currency transaction loss of $61 and $12, respectively.

 

17

 

Results of Operations for the Six Months Ended June 30, 2015 and 2014

 

Summary of Results of Operations (in thousands)

 

		For the six months ended June 30,
		2015				2014
Sales revenue		$	1,927			$	2,527
Cost of Goods Sold			770				1,882
Gross profit			1,157				645
Continuing operations
Operating expenses:
General and administrative			1,601				1,692
Sales, marketing and development expenses			1,009				1,403
Amortization on intangible assets			44				42
Total operating expenses			2,654				3,137
Loss from operations			(1,497	)			(2,492	)
Other income and (expenses)
Interest expense			(1,160	)			(1,503	)
Gain on sale of assets and liabilities			33				-
Change in fair value of derivative liability			(692	)			(1,510	)
Other expenses			(97	)			-
Total other income (expenses)			(1,916	)			(3,013	)
Net loss			(3,413	)			(5,505	)
Other comprehensive gain (loss)
Foreign currency translation gain (loss)			94				24
Total comprehensive loss		$	(3,319	)		$	(5,481	)

 

Operating Loss

 

We had an operating loss of approximately $1,497 for the six months ended June 30, 2015, compared to an operating loss of approximately $2,492 for the six months ended June 30, 2014. This difference was largely attributable to a decrease in our cost of goods sold of approximately $1,112 (which led to a gross profit of $1,157 for the period), and a decrease in our sales, marketing and development expenses of approximately $394 resulted primarily from closing the office and operations in Westport, CT. The decrease in operating for the period ended June 30, 2015 was largely due our transition from in-house manufacturing of our HemCon products to utilizing outsourced, third-party manufacturers and to a reduction of sales and marketing expenses related to the historical TriStar wellness products.

 

18

  

Revenue

 

Our revenue from the six months ended June 30, 2015 was $1,927 compared to $2,527 for the six months ended June 30, 2014. Our revenue was primarily derived from the operations of our subsidiary, HemCon. Revenue from HemCon amounted to approximately $1,927 for the six months ended June 30, 2015. The decrease in revenue was a result of the timing of government orders which are highly dependent of certain outside factors. During the prior period we received $673 for government sales. During the current period we received $339 for government sales.

 

Cost of Goods Sold

 

Our cost of goods sold for the six months ended June 30, 2015 were $770, compared to $1,882 for the same period in 2014. The cost of goods sold for the six months ended June 30, 2015 relate to the revenues generated from HemCon. HemCon’s cost of goods sold amounted to approximately $770 or approximately 40% of HemCon’s revenue for the six months ended June 30, 2015. Our cost of goods sold decreased significantly for the six months ended June 30, 2015 compared to June 30, 2014, primarily due to our transition from in-house manufacturing of our HemCon products to utilizing outsourced, third-party manufacturers. This transition began in December 2014 and was completed in the second quarter of 2015.

 

General and Administrative Expenses

 

General and administrative expenses were $1,601 for the six months ended June 30, 2015, compared to $1,692 for the six months ended June 30, 2014. Our primary general and administrative expenses for the period in 2015 were $213 from professional fees related to TriStar such as audit, marketing and legal fees, and $1,388 related to salaries, occupancy cost, utilities, etc. attributable to HemCon.

 

Sales, Marketing and Development Expenses

 

Our expenses related to sales, marketing and development were $1,009 for the six months ended June 30, 2015, compared to $1,403 for the six months ended June 30, 2014. The vast majority of our sales, marketing and development expenses for both periods related to our HemCon operations. Our sales, marketing and development expenses were lower in 2015 compared to 2014 due to greater utilization of partnership distribution channels in 2015 compared with direct selling, and we did not utilize retail over-the-counter advertising in 2015 like we did in 2014.

 

Amortization of Intangible Assets

 

During the six months ended June 30, 2015, we had $44 in amortization of intangible assets primary related to patents, non-compete agreements and customer lists acquired in the HemCon acquisition. We had a comparable expense of $42 for the six months ended June 30, 2014.

 

Interest Expense

 

We had interest expense $1,160 for the six months ended June 30, 2015, compared to $1,503 for the six months ended June 30, 2014. During the three months ended June 30, 2015 interest expense primarily related to the amortization of debt discount on promissory notes and warrants issued in connection with the acquisition of HemCon.

 

Change in Fair Value of Derivatives

 

During the six months ended June 30, 2015 and 2014 we recognized a non-cash loss on derivative liabilities of $692 and $1,510, respectively, due primarily to the change in fair value of the conversion option on convertible debt which was recorded as a derivative liability.

 

19

  

Gain on sale of assets and liabilities

 

During the six months ended June 30, 2015, we received $33 cash from sale of fixed assets in 2015.

 

Other Expenses

 

During the six months ended June 30, 2015 and 2014 we recognized a foreign currency transaction loss of $97 and $0, respectively.

 

Liquidity and Capital Resources for Six Months Ended June 30, 2015 and 2014

 

Introduction

 

During the six months ended June 30, 2015 and 2014, because of our operating losses, we did not generate positive operating cash flows. Our cash and cash equivalents as of June 30, 2015 was $497. Due to our monthly cash burn rate we have significant short term cash needs. These needs are being satisfied through proceeds from the sales of our securities and the issuance of convertible notes. We currently do not believe we will be able to satisfy our cash needs from our revenues for some time.

 

Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2015 compared to December 31, 2014, respectively, are as follows (in thousands):

 

		June 30, 2015				December 31, 2014				Change
Cash and Cash Equivalents		$	497			$	189			$	308
Total Current Assets			1,749				1,797				(48	)
Total Assets			2,975				3,069				(94	)
Total Current Liabilities			16,718				14,140				2,578
Total Liabilities		$	16,718			$	14,140			$	2,578

 

Our total assets decreased by $48 as of June 30, 2015 compared to December 31, 2014. At June 30, 2015, we had $308 more in cash and cash equivalents, offset by $195 less in accounts receivable, net, $179 less in inventories, net, and slightly less in non-current assets, compared to the same period in 2014.

 

Our current liabilities increased by $2,595, as of June 30, 2015 as compared to December 31, 2014. A large portion of this increase was due to an increase in our short terms notes, and derivative liabilities.

 

In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

 

Cash Requirements

 

We had cash and cash equivalents available as of June 30, 2015 of $479 and $189 as of December 31, 2014. We have significant short term cash needs. These needs are being satisfied through proceeds from the sales of our securities and the issuance of convertible notes. We currently do not believe we will be able to satisfy our cash needs from our revenues for some time.

 

20

  

Sources and Uses of Cash

 

Operations

 

We had net cash used in operating activities of $1,414 for the six months ended June 30, 2015, as compared to $2,228 for the six months ended June 30, 2014. For the six months ended June 30, 2015, the net cash used in operating activities consisted primarily of our net loss of $3,413, adjusted primarily by the amortization of debt discount of $109, gain on change in fair value of derivative liability of $692, depreciation expenses of $49, intangible asset amortization of $44, imputed note interest on note payable of $35, accounts payable and accruals of $781, and inventory of $179, accounts receivable of $195 other non-current assets $15 offset by prepaid expenses of $19, deferred revenue of $48, accounts payable and accrued expenses – related party of $45.

 

Investing

 

We had net cash used in investing activities of $62 for the six months ended June 30, 2015, as compared to net cash used in investing activities of $28 for the six months ended June 30, 2014. Our net cash used in investing activities for the six months ended June 30, 2015, related entirely to the purchase of property plant and equipment.

 

Financing

 

Our net cash provided by financing activities for the six months ended June 30, 2015 was $1,690, compared to $2,124 for the six months ended June 30, 2014. For the period in 2015, our financing activities consisted of $1,595 from proceeds from issuance of short terms notes and $150 from proceeds from issuance of common stock, offset by $55 from repayment of short-term notes-related party. For the period in 2014, our financing activities consisted of $1,564 from proceeds from issuance of short terms notes, $230 from proceeds from issuance of short term convertible notes – related party, and $330 from issuances of convertible debt.

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

ITEM 3 Quantitative and Qualitative Disclosures about Market Risk

 

As a smaller reporting company, we are not required to provide the information required by this Item.

   

ITEM 4 Controls and Procedures

 

(a) Evaluation of Disclosure Controls Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-l5(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2015. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2015, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.

 

21

    

(b) Management’s Report on Internal Controls over Financial Reporting

 

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-l5(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, management believes that, as of June 30, 2015, the Company’s internal control over financial reporting was ineffective based on the COSO criteria, due to the following material weaknesses listed below.

 

Insufficient segregation of duties in our finance and accounting functions due to limited personnel. We internally performed all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. Due to the fact these duties were performed by limited personnel, a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC.

 

Insufficient corporate governance policies. Our corporate governance activities and processes are not always formally documented.

 

These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.

 

When we are financially able, we intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies and we intend to consider the results of our remediation efforts and related testing as part of our next assessment of the effectiveness of our internal control over financial reporting.

 

(c) Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during the period ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 (d) Officer’s Certifications

 

Appearing as an exhibit to this Quarterly Report on Form 10-Q are “Certifications” of our Chief Executive and Financial Officer. The Certifications are required pursuant to Sections 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section of the Quarterly Report on Form 10-Q contains information concerning the Controls Evaluation referred to in the Section 302 Certifications. This information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

 

22

 

PART II – OTHER INFORMATION

 

ITEM 1 Legal Proceedings

 

On December 8, 2014, Barry Starkman filed a Demand for Arbitration before the American Arbitration Association against TriStar Wellness Solutions, Inc. and HemCon Medical Technologies, Inc. Mr. Starkman was TriStar’s Sr. Vice President of Operations and HemCon’s President and Chief Executive Officer from May 2013 through February 2014 pursuant to an Employment Agreement. Mr. Starkman claims that TriStar and HemCon impermissibly terminated him for cause and breached the Employment Agreement. He has asserted claims for breach of contract, promissory estoppel and violation of the Connecticut Wage Statute. He claims damages for breach of contract and promissory estoppel (which is essentially similar to the breach of contract claim) as well as double damages and attorneys’ fees under the Connecticut Wage Statute. His total base claim asserted is for $600,000. On January 5, 2015, HemCon and TriStar filed its Response to the Demand along with a Counterclaim against Starkman. In the Response to the Demand and in the Counterclaim, HemCon and TriStar deny the allegations in Mr. Starkman’s Demand for Arbitration and assert that Mr. Starkman was properly terminated for cause and is not entitled to any further payment under his Employment Agreement or any additional wages under the Connecticut Wage Statute. The Counterclaim asserts claims for approximately $800,000 for breach of the Employment Agreement as a result of obtaining unauthorized health benefits and engaging in unauthorized outside business activities. The parties have been, and continue to, conduct discovery. The parties’ witness and exhibit lists are due June 4, 2015 and an arbitration hearing is scheduled for October 20 and 21, 2015 in Westport, Connecticut before Hon. Beverly Margolis.

 

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

 

ITEM 1A Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

During the six months ended June 30, 2015, we issued the following unregistered securities:

 

During the six months ended June 30, 2015, we agreed to issue an aggregate of 950,000 shares of our common stock for approximately $150,000 in cash to several third parties. The company also issued 2,375,000 share following the conversion of a debt instrument. The shares were issued on May 12, 2015. The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933. The investors were sophisticated, familiar with our operations, and there was no solicitation.

 

During the six months ended June 30, 2015, we issued warrants to purchase 1,200,000 shares of common stock at an exercise price of $0.20 per share. These warrants were issued in connection with certain non-convertible promissory notes we issued to certain third parties in exchange for loans totaling $600,000. The issuance of the warrants was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933. The investors were sophisticated, familiar with our operations, and there was no solicitation.

 

ITEM 3 Defaults Upon Senior Securities

 

During the period covered by this report there were no events which are required to be reported under this Item.

 

ITEM 4 Mine Safety Disclosures

 

During the period covered by this report there were no events which are required to be reported under this Item.

 

ITEM 5 Other Information

 

We are aware of the litigation filed by the Securities and Exchange Commission against Frederick Alan Voight, one our former officers and a former member of our Board of Directors (SEC v. Voight et al, Civil Action No. 4:15-cv-02218 (S.D. Tx. Filed August 3, 2015). We are, and will continue to, monitor the situation to determine any impact the litigation may have on us and our required disclosure.

 

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ITEM 6 Exhibits

 

Item No.		Description
(3)		Articles of Incorporation and Bylaws
3.1		Articles of Incorporation (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)
3.2		Bylaws (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)
3.3		Certificate of Amendment of Articles of Incorporation (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)
3.4		Articles of Merger (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)
3.5		Certificate of Designation (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)
3.6		Articles of Merger filed with the Secretary of State of Nevada on November 21, 2006 effective on November 26, 2006 (incorporated by reference from our Current Report on Form 8-K filed on November 28, 2006)
3.7		Articles of Merger filed with the Secretary of State of Nevada on February 21, 2007 effective on February 26, 2007 (incorporated by reference from our Current Report on Form 8-K filed on February 27, 2007)
3.8		Certificate of Correction filed with the Secretary of State of Nevada on June 27, 2007 (incorporated by reference from our Annual Report on Form 10-KSB filed on April 15, 2009)
3.9		Certificate of Designation filed with the Secretary of State of Nevada on July 27, 2007 (incorporated by reference from our Annual Report on Form 10-KSB filed on April 15, 2009)
3.10		Certificate of Change filed with the Secretary of State of Nevada on June 6, 2009 (incorporated by reference from our Current Report on Form 8-K filed on June 11, 2009)
3.11		Certificate of Designation for Series D Convertible Preferred Stock filed with the Secretary of State of Nevada on June 19, 2012 (incorporated by reference from our Annual Report on Form 10-K filed on April 16, 2013)
3.12		Certificate of Amendment to Articles of Incorporation filed with the Secretary of State of Nevada on August 29, 2012 (incorporated by reference from our Annual Report on Form 10-K filed on April 16, 2013)
3.13		Certificate of Amendment to Articles of Incorporation filed with the Secretary of State of Nevada on January 7, 2013 (incorporated by reference from our Annual Report on Form 10-K filed on April 16, 2013)

(10)		Material Contracts
10.1		Agreement for the Purchase of Preferred Stock (the “Agreement”) with Rockland Group, LLC dated April 27, 2012 (incorporated by reference from our Current Report on Form 8-K filed on May 11, 2012)
10.2		License and Asset Option Purchase Agreement with NorthStar Consumer Products, LLC dated June 25, 2012 (incorporated by reference from our Current Report on Form 8-K filed on July 2, 2012)
10.3		Agreement for the Purchase of Preferred Stock with Rockland Group, LLC dated June 29, 2012 (incorporated by reference from our Current Report on Form 8-K filed on July 2, 2012)
10.4		Subsidiary Acquisition Option Agreement with Xinghui Ltd. dated April 25, 2012 (incorporated by reference from our Current Report on Form 8-K filed on November 30, 2012)
10.5		Marketing and Development Services Agreement with InterCore Energy, Inc. dated July 11, 2012 (incorporated by reference from our Current Report on Form 8-K filed on November 30, 2012)
10.6		Purchase and Assignment of Rights Agreement with RWIP, LLC dated July 11, 2012 (incorporated by reference from our Current Report on Form 8-K filed on November 30, 2012)
10.8		Asset Purchase Agreement with Northstar Consumer Products, LLC, dated February 4, 2013 (incorporated by reference from our Current Report on Form 8-K filed on February 19, 2013)
10.9		Asset Purchase Agreement with HLBC Distribution Company, Inc., dated February 12, 2013 (incorporated by reference from our Current Report on Form 8-K filed on February 19, 2013)
10.10		Employment Agreement with John R. Linderman dated February 1, 2013 (incorporated by reference from our Current Report on Form 8-K filed on February 19, 2013)

 

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10.11		Employment Agreement with James Barickman dated February 1, 2013 (incorporated by reference from our Current Report on Form 8-K filed on February 19, 2013)
10.12		Employment Agreement with Fredrick A. Voight dated February 1, 2013 (incorporated by reference from our Current Report on Form 8-K filed on February 19, 2013)
10.13		Employment Agreement with Michael S. Wax dated February 1, 2013 (incorporated by reference from our Current Report on Form 8-K filed on February 19, 2013)
10.14		Exclusive Manufacturing, Marketing and Distribution Definitive License Agreement with Argentum Medical, LLC dated March 7, 2013 (incorporated by reference from our Current Report on Form 8-K filed on March 14, 2013)
10.15		Order Confirming Debtor’s Fifth Amended Plan of Reorganization and Plan of Reorganization in In re HemCon Medical Technologies, Inc. filed May 6, 2013 (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.16		Agreement for Purchase and Sale of Stock entered into by and between TriStar Wellness Solutions, Inc. and HemCon Medical Services, Inc. dated April 18, 2013 (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.17		Employment Agreement with Barry Starkman (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.18		Employment Agreement with Simon McCarthy (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.19		Promissory Note with DayStar Funding, LP dated May 6, 2013 (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.20		Promissory Note with Lawrence K. Ingber Trust, dated June 14, 1980, as amended and restated March 6, 2006, dated May 6, 2013 (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.21		Promissory Note with James Barickman dated May 6, 2013 (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.22		Promissory Note with John Linderman dated May 6, 2013 (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.23		Promissory Note with James Linderman dated May 6, 2013 (incorporated by reference from our Current Report on Form 8-K filed on May 13, 2013)
10.24		Stock Exchange Agreement with M&K Family Limited Partnership dated July 11, 2013 (incorporated by reference from our Current Report on Form 8-K filed on August 1, 2013)
10.25		Stock Exchange Agreement with Northstar Consumer Products, LLC, dated July 11, 2013 (incorporated by reference from our Current Report on Form 8-K filed on August 1, 2013)
10.26		Stock Exchange Agreement with Rivercoach Partners, LP dated July 11, 2013 (incorporated by reference from our Current Report on Form 8-K filed on August 1, 2013)

(31)		Rule 13a-14(a)/15d-14(a) Certifications
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer (filed herewith).
(32)		Section 1350 Certifications
32.1		Section 1350 Certification of Chief Executive Officer (filed herewith).
32.2		Section 1350 Certification of Chief Accounting Officer (filed herewith).
101.INS **		XBRL Instance Document
101.SCH **		XBRL Taxonomy Extension Schema Document
101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **		XBRL Taxonomy Extension Label Linkbase Document
101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

___________  

* Filed herewith. 

**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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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.

 

	TriStar Wellness Solutions, Inc. a Nevada corporation
Dated: August 19, 2015	By:	/s/ Michael Wax
		Michael Wax
	Its:	Interim Chief Executive Officer

 

 

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