UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 333-157360
WELLTEK INCORPORATED
(Exact name of registrant as specified in its charter)
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Nevada
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98-0610431
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1030 North Orange Avenue, Ste. 105,
Orlando, FL 32801
(Address of principal executive offices)
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(407) 704-8950
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(407) 367-0950
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(Registrant’s telephone number)
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(Registrant’s former telephone number)
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Securities registered under Section 12(b) of the Exchange Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.00001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Date File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Section 232.405 of the chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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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. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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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 126-2 of
the act): Yes
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No
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There was no trading market for the Registrants voting stock on the last business day of the
Registrant’s most recently completed second fiscal quarter.
As of March 31, 2010, there were 86,258,828 shares of the Registrant’s $0.00001 par value
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
WELLTEK INCORPORATED
FORM 10-K — FOR THE YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
2
PART I
This Annual Report on
Form 10-K
includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company has based these forward-looking statements on the Company’s
current expectations and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us and the Company’s
subsidiaries that may cause the Company’s actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In many cases, you can
identify forward-looking statements by terminology such as “anticipate,” “estimate,” “believe,”
“continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,”
“objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and other
similar words. However, the absence of these words does not mean that the statements are not
forward-looking. Factors that might cause or contribute to a material difference include, but are
not limited to, those discussed elsewhere in this Annual Report, including the section entitled
“Risk Factors” and the risks discussed in the Company’s other Securities and Exchange Commission
filings. The following discussion should be read in conjunction with the Company’s audited
Consolidated Financial Statements and related Notes thereto included elsewhere in this report.
ITEM 1.
BUSINESS
Forward Looking Statements
Statements in this current report on Form 8-K may be “forward-looking statements.”
Forward-looking statements include, but are not limited to, statements that express our intentions,
beliefs, expectations, strategies, predictions or any other statements relating to our future
activities or other future events or conditions. These statements are based on current
expectations, estimates and projections about our business based, in part, on assumptions made by
management. These statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results
may, and are likely to, differ materially from what is expressed or forecasted in the
forward-looking statements due to numerous factors, including those described above and those risks
discussed from time to time in this prospectus, including the risks described under “Risk Factors,”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this
current report and in other documents which we file with the Securities and Exchange Commission. In
addition, such statements could be affected by risks and uncertainties related to our ability to
raise any financing which we may require for our operations, competition, government regulations
and requirements, pricing and development difficulties, our ability to make acquisitions and
successfully integrate those acquisitions with our business, as well as general industry and market
conditions and growth rates, and general economic conditions. Any forward-looking statements speak
only as of the date on which they are made, and we do not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the date of this current report.
Merger Transaction
Effective on November 12, 2009 (the “Closing Date”), pursuant to an Agreement and Plan of
Merger dated September 1, 2009 (the “Merger Agreement”), between Pharmacity Corporation (currently
known as Welltek Incorporated, “Welltek”), WI Acquisition, Inc., a Florida corporation and
wholly-owned subsidiary of the Welltek (“WI Acquisition”), and MedX Systems, Inc., a Florida
corporation (“MedX Systems”), MedX Systems merged with and into WI Acquisition, with WI Acquisition
surviving the merger, and became a wholly-owned subsidiary of Welltek (the “Merger”). The
acquisition of MedX Systems through the Merger is treated as a reverse acquisition for accounting
purposes, and the business of MedX Systems became the business of Welltek as a result thereof.
Welltek conducts its business operations through the following two operating subsidiaries: MedX
Limited, an English and Wales corporation (“Limited”) and Pure Healthy Back, Inc., a Florida
corporation (“PHB”).
3
Prior to the Merger, and in anticipation thereof, Welltek filed a certificate of amendment
with the Nevada secretary of state changing its name from Pharmacity Corporation to Welltek
Incorporated, increasing its authorized common stock from 75 million shares to 200 million shares,
and effecting a 40-1 forward split of its common stock.
References to “Welltek”, the “Company”, “we”, “us”, “our” and similar words refer to Welltek
and its wholly-owned subsidiary, WI Acquisition, Inc., and its wholly-owned subsidiaries PHB and
majority owned subsidiary Limited, unless the context otherwise requires. WI Acquisition, Inc. is
often referred to herein as Welltek.
Overview
Welltek is a global health, fitness and wellness company that provides solutions to help
address some of the world’s most pressing and costly health challenges—obesity and chronic neck
and back pain. Welltek is led by a highly accomplished team of business, healthcare and technology
professionals who agree that there is a clear and unprecedented confluence of market dynamics and
consumer trends creating extraordinary, high growth opportunities for Exercise Science-based
products, technologies and services. In this regard, Welltek has established two complementary
business strategies designed to best leverage the strength and reputational reach of the world
famous MedX
®
brand to extend and enhance Welltek’s industry leadership, and, in turn,
support Welltek’s entry into two high growth niche markets within the global health, fitness and
wellness industry.
To accomplish this mission, Welltek established two distinct business units — all of which
provide for the strategic integration of MedX-branded equipment into their operating platforms;
apply proven Exercise Science-based principles and instruction; and feature strong organic growth
potential through tactical replication and scaling. At present, Welltek’s operating divisions
include:
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MedX Limited:
the manufacturer and distributor of MedX’s line of
medical and fitness equipment.
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Pure HealthyBack:
a company engaged in building a national network of
medical back and neck rehabilitation centers offering managed care
companies, self-insured employer groups and federal government
agencies a proprietary program which will substantially reduce spine
treatment costs and get patients out of the formal healthcare system.
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Operating Subsidiaries
MedX Limited
History of MedX
An entity affiliated with Welltek acquired the rights to the MedX line of medical and fitness
equipment from MedX Corporation in June 2008. Those rights are now held by MedX Limited, a majority
owned subsidiary of Welltek.
The MedX equipment was developed by Arthur Jones. Jones, who died in 2007, was a legendary
U.S. entrepreneur and founder/inventor of Nautilus
®
fitness equipment. Jones earned
worldwide distinction as one of the most influential figures in the field of Exercise Science and
as the “Father of Modern Exercise.” In his autobiography, “...And God Laughs,” he claimed that over
$80 million — and much of his personal fortune — was invested in the research and development of
MedX’s revolutionary machines.
In fact, Jones is credited for pioneering an entirely new category in the Fitness Equipment
sector: Medical Exercise Technology, which combines functional testing and resistance exercise
necessary to restore and enhance health. MedX’s very first medical lumbar machine was unveiled to
rave reviews in October 1987 at a major medical meeting held in New York City, known as the
“Challenge of the Lumbar Spine.” Since that time, the medical MedX Lumbar Extension and MedX
Cervical Extension machines
have been subjected to extensive multi-site clinical studies conducted at various orthopedic
clinics around the country. Further, MedX machines have undergone independent testing and
evaluation by research teams fluent in Exercise Science at the University of Florida (UF) and the
University of California San Diego (UCSD), among other leading academic research institutions
around the world.
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MedX’s innovative medical exercise machines have succeeded in providing the healthcare
industry with the very first tools capable of producing specific and accurate tests for assessing
functional ability, as well as the finest source of rehabilitative exercise. Over the past 23
years, more than 75 articles have been published in peer-reviewed medical journals by many
authorities in the global medical community confirming MedX machines’ ability to materially
decrease chronic spine-related pain issues, restore spinal function, improve quality of life and
independence, and decrease or eliminate the need for ongoing spinal care or pain management — even
after multiple failed attempts at other forms of treatment (to include surgical intervention).
As a result, MedX has succeeded in building a “Who’s Who” customer base comprised of
professional sports teams; colleges and universities — both domestic and abroad; government
agencies, including but not limited to every branch of the U.S. Armed Forces, CIA, Department of
Energy, Secret Service, FBI and the Veterans Administration (numerous locations); Fortune 500
companies, such as General Motors and Tyson Foods; and hundreds of medical rehabilitation hospitals
and leading wellness centers throughout North America and around the world.
Restructuring
Since acquiring the MedX equipment line, MedX Limited’s management has adopted lean
manufacturing principles and practices and has upgraded the software and electronics on the
existing line of medical exercise machines. In addition, new customer service protocols have been
implemented and quality control standards and practices have been established. MedX Limited now
meets ISO 9001 and ISO 13485 quality standards and its machines have been granted CE Marks, giving
the company free rein to market MedX solutions to customers in European Union countries and other
countries around the world that recognize the CE Mark approval process. More importantly, MedX
Limited has plans to unveil MedX’s next generation, modular-designed line of patented medical
exercise equipment featuring several innovations in system design, functionality and user benefits.
How MedX Works
Chronic neck and back pain can stem from a variety of sources and problems. Extensive research
suggests that one source is significant weakness of the low back musculature. Most people with
chronic pain learn to compensate with abnormal postures and movements, which compounds the problem
over time. MedX eliminates these abnormal postures and movements, isolating the neck or low back
musculature.
MedX rehabilitation is so effective because it truly isolates and strengthens specific areas
of the spine. By training specific movements and not allowing abnormal compensations, the patient
not only regains needed strength, but also learns to move their spine properly again. Even if a
patient’s spinal disc has a bulge or herniation, it still responds to movement and correct movement
is essential to restoring disc health.
MedX products achieve training efficiency through resistance curves matched to tested and
proven strength profiles. They operate at a very low level of friction using bio-mechanical
precision and offer a choice of resistance in two-pound increments, ensuring a weight that is just
right thus promoting rapid and steady progress. The precision of MedX training makes it much more
effective than conventional strength training.
The
MedX Lumbar Extension Machine
provides functional testing and spinal therapy. A unique
method of pelvic stabilization provides true isolation of the deep muscles of the lumbar spine
(erector spinae and multifidus). Weakness in these muscle groups has been associated with chronic
low back pain
and susceptibility to future back injuries. There are many devices and exercises which claim
to strengthen the spine, but they have been disproved with scientific testing.
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The
MedX Cervical Extension Machine
is similar to the
MedX Lumbar Machine
in that it isolates
the deep musculature that normally stabilizes the spine. Because the cervical spine must support
the weight of the head, strength deficits in this area often lead to chronic neck pain and
headaches. The isometric test can be performed every three degrees through a 126 degree range of
motion. Typically a minimum of three and a maximum of seven points are tested.
MedX has proven its efficacy because of its unique methods of muscle isolation and the ability
to custom tailor the exercise range of motion, resistance and repetition to the individual needs of
the patient. This leads to fewer flare ups of symptoms and a much easier rehabilitation process.
In the mid-1990’s, researchers and educators from the University of Florida, the University of
California at San Diego, Syracuse University and Indiana University, along with numerous practicing
clinicians throughout the country utilizing MedX equipment in their orthopedic rehabilitation
programs, composed a “MedX Utilization Steering Committee” that sought to clarify issues related to
appropriate usage, CPT coding and billing of rehabilitation services using MedX equipment. Their
published consensus stated, “Medical research has documented that individuals suffering from a
variety of spinal disorders respond positively to a specific progressive resistance exercise
rehabilitation program using MedX equipment. A typical outcome from this therapeutic approach
includes improved muscular strength and endurance, increased joint mobility, enhanced physical
functioning and a reduction in pain.”
All MedX machines are backed by a five year warranty on moving parts and a ten-year warranty
on the frame, and require virtually no maintenance other than cleaning
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MedX’s exercise versions of
its medical machines, created in 2002, were branded the
Core Spinal Fitness System
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In
less than 20 minutes, twice a week, these five machines can help reduce or eliminate back pain by
focusing on strength, stability, flexibility and endurance of the body’s core, providing a solid
foundation for whole-body strength.
Sampling of Published MedX Research
MedX equipment has been the subject of more than 75 peer-reviewed articles published in
leading medical journals by many of the world’s top clinicians and orthopedic rehabilitation
experts. To provide some perspective on the depth and breadth of the studies focused on MedX
technology, the following sampling of published research is provided:
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Can Spinal Surgery Be Prevented by Aggressive Strengthening Exercise?
A Prospective Study of Cervical and Lumbar Patients
; Archives of
Physical Medicine & Rehabilitation; January 1999, Volume 80, Number 1;
Brian W. Nelson, MD., David M. Carpenter, MS, Thomas E. Dreisinger,
PhD; Michelle Mitchelle, PTA; Charles E. Kelly, MD; Joseph A. Wegner,
MD
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Study Outcomes and Clinical Relevance
: 46 of
the 60 participants completed the program.
At an average of 16 months after completion,
38 patients were available for follow-up,
while eight patients could not be located or
contacted. Of these 38 patients, only three
required surgery after completing the
program. Patients who were informed they
required back or neck surgery had a 92%
chance of avoiding surgery with aggressive
spinal strengthening on the MedX medical
machines.
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Can Exercise Therapy Improve the Outcome of Microdiscectomy?
Spine;
June 2000, Volume 15, Number 25; Dolan P, Greenfield; K, Nelson; RJ,
Nelson IW; Department of Anatomy, University of Bristol, United
Kingdom
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Study Outcomes & Clinical Relevance:
A
four-week postoperative exercise program can
improve pain, disability and spinal function
in patients who undergo microdiscectomy. A
brief course of active-based therapy
provided long-term (up to one year) benefits
to patients following microdiscectomy. These
exercise-induced benefits augmented the
outcomes provided by surgery. The authors
expound on the long term de-conditioning
that likely precedes surgery. A follow-up
study should thus include a pre-surgical
exercise group. If properly applied,
aggressive spinal strengthening performed
pre-surgically may have not only improved
surgical outcomes, but helped many patients
avoid surgery altogether—as previous
research has suggested.
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Restorative Exercise for Clinical Low Back Pain (A Prospective
Two-Center Study With One-Year Follow Up);
Spine; November 1999,
Volume 24, Number 9; Scott Leggett, MS, Vert Mooney, MD, Leonard N.
Matheson, PhD; Brian Nelson, MD; Ted Dreisinger, PhD; Jill Van
Zytveld, BA and L. Vie, BA
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tudy Outcomes & Clinical Relevance
: A
combined study between Physicians Neck and
Back Clinic (PNBC) and the University of
California at San Diego, using similar
exercise-only protocols, were able to
achieve comparable excellent results with
comparable spine patients. Health care
reutilization was dramatically reduced at
both clinics to almost identical levels,
thus validating the results of each. In the
year after completion of treatment, only 12%
of PNBC patients needed to re-enter the
health care system for spinal problems.
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A Preliminary Report on the Effect of Measured Strength Training in
Adolescent Idiopathic Scoliosis:
Journal of Spinal Disorders, 2000,
Volume 13, Number 2, Vert Mooney, Jennifer Gulick, Robert Pozos ; US
Spine & Sport Center, Worldwide Clinical Trials, and San Diego State
University
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Study Outcomes & Clinical Relevance
: The
authors studied 12 adolescent patients with
scoliosis (10 girls and 2 boys) who were 11
to 16 years old and had curvatures ranging
from 20 to 60 degrees. When tested on the
MedX Rotary Torso Machine, both sides were
unequal in their torso rotation strength in
all patients. These asymmetries were correct
completely with torso rotation, which was
associated with significant strength gains.
Strength gains ranged from 12% to 40%. A 16
year old girl with a 60 degree lumbar curve
progressed and had surgery. None of the
remaining patients progressed and 4 of the
12 had decreases in their curvatures from 20
to 28 degrees. These results are equal to or
better than 23 hour per day bracing. None of
the patients used braces during this study.
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The Role of Anticipation and Fear of Pain in the Persistence of
Avoidance Behavior in Patients with Chronic Low Back Pain;
Spine; May
2000 Volume 25, Number 9; Al-Obaidi SM; Nelson RM; Al-Awadhi S;
Al-Shuwaie N; Department of Physical Therapy, Kuwait University,
Faculty of Allied Health Sciences and Nursing, Sulaibikhat, Kuwait
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Study Outcomes & Clinical Relevance:
The
results of this study strongly support the
hypothesis that spinal physical capacity in
chronicity is not explained solely by the
sensory perception of pain. The anticipation
of pain and the fear-avoidance belief about
physical activities were the strongest
predictors of the variation in physical
performance. This study utilizing MedX
technology reveals that the fear of pain can
be as functionally debilitating as pain
itself. MedX is a perfect solution for
defusing fear of movement because treatment
can occur in a very restricted
range-of-motion with minimal resistance.
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Pure HealthyBack
Pure HealthyBack uses MedX medical machines and scientifically-proven rehabilitative exercise
protocols to help patients resolve chronic back and neck pain—ailments that afflict an estimated
80% of all adult Americans and costs the U.S. healthcare system as much as $100 billion every year.
The program provides non-surgical treatment and has documented success in improving spinal function
and significantly reducing symptoms to patients that have tried and failed a number of other spine
treatment solutions.
Treatment is directed by staff physicians and administered by exercise physiologists and
athletic trainers. The protocols emphasize aggressive muscle strengthening to restore function and
promote patient independence so the patient does not reenter the healthcare system. Pure
HealthyBack’s patient-centric approach presents a fundamental change in the way healthcare services
are delivered. Our mission revolves around improving the quality of life for our patients, getting
patients out of the formal healthcare system
thereby preventing recurring costs and unnecessary procedures and surgeries associated with
chronic back and neck pain.
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The program has been developed to substantially reduce managed care and self insured
companies’ spine treatment costs. Current methods for treating chronic back and neck pain have
significant shortcomings, including escalating costs, expensive-unnecessary-unproven treatments and
procedures, and increasing surgical rates. These issues have resulted in ever escalating costs
causing payers and self-insured employers to actively seek innovative solutions that improve
outcomes, control costs and hold patients and providers accountable. The cost to complete the
program is $4,500 compared to surgery which, in total, can cost in excess of $100,000.
Pure HealthyBack is seeking to develop programs with managed care and self insured companies.
The programs would be implemented with patients that have cost the payer’s more than $10,000 per
year in layered medical costs from other medical interventions or prior to surgery, and would last
for one year. The case rate for the program is estimated to be $4,500 per patient. These programs
could be expanded nationally to the thousands of patients that have been on a medical
merry-go-round and not found lasting relief.
Our Industry and Prevailing Market Opportunities
General Health and Wellness
In the 19th and 20th centuries, two health revolutions that influenced mortality rates were
the control of infectious disease through health protective measures and the fight against
non-communicable disease through behavior modification. The third health revolution began in 1986
with the introduction of the Ottawa Charter for Health Promotion during a conference of the World
Health Organization, where it was agreed that empowerment of individuals, communities and entire
societies is the key factor in promoting health.
Today, human wellness is generally associated with good nutrition, dietary supplements,
physical fitness and mental fitness. The wellness concept is centered on the idea that the mind,
body, spirit, community and environment are inter-related and inter-dependent. Moreover, consumers
are starting to realize the extent of pro-active control that they can have on their health and
well-being.
In 2003, the global market for herbals, supplements, functional foods and other natural
products was more than US $160 billion. The World Bank predicted the market would increase to US
$200 billion by the year 2010.
After closely analyzing burgeoning opportunities in the space, noted global economist and
acclaimed author Paul Zane Pilzer confirmed that “more millionaires will be created in the Wellness
industry than in Real Estate in the 80’s or the Internet boom of the 90’s.” Pilzer’s bestsellers,
“
The Next Trillion”
and “
The Wellness Revolution
,” identify an emerging Wellness industry that by
2010 will occupy an additional one-seventh, or “next trillion,” of the global economy.
The growth in health and wellness industry has generated demand in related technology and is
promoting a great deal of consolidation in a wide range of scientific fields including
biotechnology, life sciences, medical treatment and others — much of which is adding fuel to the
proverbial fire now known as “Wellness.”
We’re Getting Older and Smarter
All data sources are in agreement that the populations of western countries will continue to
age as we move further into the 21
st
century. Life expectancy at birth in 1900 was 48
years for men and 51 years for women. This changed to 66 and 72 years by 1950. By 2003, life
expectancy had increased to 74 years and 80 years for men and women, respectively. Projections for
the year 2050 reach the ages of 80 and 84.
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Because we are living longer, consumer attitudes towards health and quality of life is rapidly
evolving — as a consequence, so, too, are behavior and purchasing patterns. Former focus on
treating diseases and illnesses has given way to prevention and the pro-active pursuit of fuller,
more productive lives and healthier lifestyles.
This dramatic shift is resulting in an unprecedented wellness trend that has gone from being a
minority fad just 50 years ago to a global mass movement challenging existing standards for
industries ranging from healthcare to housing; tourism to finance; nutrition to personal beauty
products; and entertainment to transportation, among dozens more. More importantly, formerly
obscure market niches are now fast emerging as industry category killers attracting billions of
dollars in global investment. By way of example, consider that the overall organic food market has
been growing at an average rate of 20% per year since 1997, reaching $40 billion worldwide in 2007
(source: National Marketing Institute).
Pleasure and health are no longer contradictory impulses, but rather are united in a vision of
a better, healthier future. According to a study by Accenture, entitled “
Accent on the Future
,” the
future wellness concept will likely be broadened towards values such as self-management, life
balance, learning ability and maturity. Moreover, the World Health Organization reports that
actively enhancing mental and physical wellness will be one of the most important healthcare issues
for many years to come.
Chronic Orthopedic-Related Pain Issues and Disorders
In a 2006 industry research report, Frost & Sullivan stated that the cost of the impact of
orthopedic-related disorders to the U.S. economy is valued at $254 billion, and this will only
increase as the baby boomer generation continues to age. Each year, three out of every five
injury-related physician visits are linked to the musculoskeletal system. Resulting treatment areas
include the use of drugs, implants and devices to address problems with the hip, spine, ankle,
foot, hand, wrist, shoulder and elbow.
Arthritis, chronic joint symptoms and other orthopedic-related disorders affect one in three
American adults, while one out of every two women and one out of every eight men older than the age
of 50 will have an osteoporosis-related fracture in their lifetime. Although the risk of arthritis
rises with age, its reach is beyond that of the aged population — more than one-half of the 40
million Americans who suffer from arthritis are currently under the age of 65, which costs over $4
billion in lost income, productivity and healthcare (source: National Institute of Neurological
Disorders and Stroke). Such reach renders arthritis as one of the most prevalent chronic health
problems and the nation’s leading cause of disability among people over the age of 15. Indeed,
arthritis — second only to heart disease as a cause of work disability — limits everyday
activities such as walking, dressing, and bathing for more than 7 million Americans. The result:
almost 40 million physician visits and more than half a million hospitalizations per annum.
(source: Frost & Sullivan)
By 2020, the number of individuals over the age of 50 is expected to double, sparking an even
greater need for care. It is this inevitable trend that is driving the industry — the North
American orthopedic market was worth US $23.7 billion for full-year 2003, and an average annual
growth rate of 8.4% will drive this market to US $41.7 billion by 2009 (source: Business
Communications Company).
Pain — the Nation’s #1 Disability
As we age, neck and back pain becomes extremely common. These conditions affect not only
physical health, but social and even economic well being, as well, disrupting simple daily tasks,
routines, leisure activities and employment.
Seventy to 85% percent of adults in the US have back pain at some time in their lifetime. Five
million Americans are partially disabled by back problems, and another two million are so severely
disabled, they cannot work. Low back pain accounts for 93 million workdays lost every year and
costs over $5 billion in healthcare. (source: National Institute of Neurological Disorders and
Stroke).
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In the year 2001, the National Hospital Ambulatory Medical Care Survey showed that 13,707,000
people visited their doctors to deal with a case of back pain. A similar study performed in Canada
reflected that between 30% and 40% of all work absences were due to workers suffering from back
pain.
Medical research shows that the majority of patients with chronic spinal pain are
significantly “deconditioned.” Weakness of the musculature of the spine can lead to many conditions
such as herniated discs, facet syndrome and degenerative joint disease. To provide lasting relief
from chronic neck and back pain, the spinal structures and supporting tissue must be actively
reconditioned through isolated strengthening exercises. Until MedX developed its patented restraint
systems, there was never an effective way to isolate and strengthen the muscles of the spine.
A recent study by the American College of Sports Medicine shows that seven of the top ten
fitness predictions for 2008 indicated emphasis on good back health, including an increase in core
training to strengthen the muscles around the spine, to include regularly practicing Pilates and
yoga; functional fitness training to mimic movements involved in daily living while properly
aligned; and special programs for elder Americans to improve strength and balance.
Medical and Fitness Exercise Equipment
According to a May 2008 industry report by Koncept Analytics, health awareness, an aging
population, need for time-efficient workout, increased government support and corporate fitness
programs are some of the major factors driving the global fitness equipment market. Participation
rates for all types of fitness equipment continue to be strong, and product innovation is also
promoting solid participation trends. While growth of the home fitness market is expected to remain
slow compared to the commercial fitness and sports medicine markets.
Fewer than 100 manufacturers of fitness equipment operate in the U.S., yet enjoy combined
annual sales of more than $3 billion. Aside from MedX, key industry players include Technogym, Icon
Health & Fitness, Nautilus, Life Fitness, Precor and Cybex.
Popular products include motorized treadmills, stationary bikes, stair climbers, rowing
machines and elliptical ‘cross trainers’ collectively called aerobic exercisers; and weightlifting
machines (strength training) and traditional weightlifting equipment (free weights and benches).
The two major market segments for fitness equipment are the home and the institutional
exercise equipment market, which includes health clubs, corporation, musculoskeletal rehab clinics,
apartment complexes and hotels.
Mind/Body Exercise and Personal Fitness Instruction
As more health-conscious people have joined the Wellness movement, the expanding market has
provided entre to specialized gyms and personal fitness studios focused on specific wellness needs
of consumers.
The health club industry, in general, has seen a major growth surge in recent years, pumping
$17.6 billion into the U.S. economy in 2006, according to the International Health, Racquet &
Sports Club Association. Moreover, about 42.7 million Americans had memberships to a health club in
2006, which compared to less than 26 million just ten years prior.
The U.S. Bureau of Labor Statistics has cited reasons for this dynamic growth that include the
fact that employers are recognizing the benefits of fitness and health and are adding preventative
health care programs to their corporate benefits packages; baby boomers, in general, are focused on
staying fit; and parents are more concerned with childhood obesity in view of reduced physical
education programs being available in public schools.
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However, in the last decade — and particularly following the tragic events of 9-11, the U.S.
saw a significant rise in the number of people turning to alternative health practices, thus
promulgating the explosion of yoga and Pilates studios in nearly every city in America.
Employees
We presently have 20 employees.
Corporate Offices
Our principal offices are located at 1030 N. Orange Avenue, Suite 105, Orlando, Florida 32801.
Our telephone number is 407-704-8950 and our fax number is 407-704-8951. We currently operate a
corporate website that can be found at www.welltekinc.com (the information on the website does not
form a part of this prospectus).
ITEM 1A.
RISK FACTORS
If any of the following risks actually occur, our results of operations, cash flows and the
value of our shares could be negatively impacted. Although we believe that we have identified and
discussed below the key risk factors affecting our business, there may be additional risks and
uncertainties that are not presently known that may adversely affect our performance or financial
condition.
We are a development stage company with no operating history and no revenues, and you have no basis
on which to evaluate our ability to achieve our business objective.
Prior to the Merger we were an inactive shell corporation. We have generated no revenues,
completed no business combinations and have had no active trading in our securities. We have
commenced business operations as a result of the Merger with MedX Systems. Welltek has been
operating for less than 2 years.
We are dependent upon our Management for the operating of the Company
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We are dependent upon the services of the Officers and Directors to determine and implement
our overall focus and strategy. There can be no assurance that management’s experience will be
sufficient to successfully achieve our business objectives. All decisions regarding the management
of our affairs will be made exclusively by our Officers and Directors. In the event these persons
are ineffective, our business and results of operation would likely be adversely affected.
Welltek may not be able to compete successfully against current and future competitors
.
A large number of companies currently compete with Welltek in the marketplace. Many
competitors have far greater capital, marketing and other resources than we do. Furthermore, we
cannot assure you that these or other companies will not develop new or enhanced products that are
more effective than any that MedX currently has or will develop in the future. Welltek’s three
major competitors are Nautilus, Cybex and LifeFitness.
Welltek must successfully develop and market new and existing products.
While Welltek is pleased about the type and quality of product offerings made to date by MedX,
it cannot be sure the products will continue to be commercially viable. Therefore, Welltek must
develop and introduce new products and product enhancements to continue to sustain itself as a
business, and there can be no assurances that Welltek will be able to adequately develop or market
its current or new product offerings, or that any such activity will result in sufficient revenues.
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Future litigation and administrative actions may result in significant costs.
We are not currently engaged in any material litigation. In the event that any litigation is
instituted against us as a result of our products, services, or the assets we have acquired, our
financial condition and results of operation may be adversely affected. Welltek has not received
full clearance from the FDA of all of its product offerings, in fact there is a pending unresolved
FDA Warning Letter on file that specifies a number of deficiencies within the MedX medical
equipment product lines, and we will have to move quickly and effectively to resolve these issues.
If these issues are not quickly and adequately resolved, there is a chance that we could be
subjected to administrative action or censure by the FDA, which could result in Welltek having to
cease manufacturing or delivery of some of its new product lines.
Welltek may not be able to enforce or protect its intellectual property rights, which may harm its
ability to compete and adversely affect its business. If Welltek is unsuccessful in protecting and
maintaining its intellectual property, its competitive position would be harmed.
The ability of Welltek to enforce its patents, together with its other intellectual property,
is subject to general litigation risks, as well as uncertainty as to the enforceability of its
intellectual property rights in various countries. Welltek have numerous provisional and full
patents on our existing products, and it plans to file applications as appropriate for patents
covering new products as they are developed. However, the patents Welltek owns, or in which it has
rights, may not be sufficiently broad to protect its position against competitors, or may not
otherwise provide it with competitive advantages. Welltek’s patents may not prevent other companies
from developing functionally equivalent products or from challenging the validity or enforceability
of its patents. When Welltek seeks to enforce its rights, it may be subject to claims that the
intellectual property right is invalid, is otherwise not enforceable or is licensed to the party
against whom it is asserting a claim. All patents are subject to requests for re-examination by
third parties. When such requests for re-examination are granted, some or all claims may require
amendment or cancellation. If Welltek is unable to enforce its intellectual property rights, or
patent claims are altered or cancelled through re-examination, its competitive position would be
harmed.
Welltek may be subject to claims of infringement of third-party intellectual property rights, which
could adversely affect its business.
From time to time, third parties may assert against Welltek or its patent or other
intellectual property rights to technologies that are important to its business. Welltek may be
subject to intellectual property infringement claims from individuals and companies who have
acquired or developed patent portfolios for the purpose of developing competing products, or for
the sole purpose of asserting claims against it. Any claims that Welltek’s products or processes
infringe the intellectual property rights of others, regardless of the merit or resolution of such
claims, could cause it to incur significant costs in responding to, defending and resolving such
claims, and may divert the efforts and attention of management and technical personnel away from
its business. As a result of any such intellectual property infringement claims, Welltek could be
required to:
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pay material damages for third-party infringement claims;
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discontinue manufacturing, using or selling the infringing products,
technology or processes;
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develop non-infringing product or modify products so that it is
non-infringing, which could be time consuming and costly or may not be
possible; or
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license rights from the third-party claiming infringement for which
the license may not be available on commercially reasonable terms or
at all.
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The occurrence of any of the foregoing could result in unexpected expenses or require Welltek
to reassess its assets, which would likely reduce the value of its assets and increase expenses. In
addition, if Welltek alters or discontinues its production of affected items, its revenue could be
negatively impacted.
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Potential future financings could involve a dilution of the interests of the shareholders of the
company upon the issuance of additional shares of common stock and/or other securities.
We may engage in future financings over the next several years. There can be no assurances
that such financing will ever be completed, but any such financing could involve a dilution of the
interests of our shareholders upon the issuance of additional shares of common stock and/or other
securities. To the extent we need additional financing in the immediate or near future to implement
our business plan, attaining such additional financing may not be possible, or if additional
capital may be otherwise available, the terms on which such capital may be available may not be
commercially feasible or advantageous to us or our shareholders.
Our officers and directors will have significant voting power and may take actions that may not be
in the best interests of other shareholders.
Our officers and directors, principal stockholders and their affiliates will control in excess
of a majority of our voting securities. If these stockholders act together, they will be able to
exert significant control over our management and affairs requiring stockholder approval, including
approval of significant corporate transactions. This concentration of ownership may have the effect
of delaying or preventing a change in control and might adversely affect the market price of the
Common Stock. This concentration of ownership may not be in the best interests of all of our
stockholders.
We do not anticipate paying dividends in the foreseeable future, and the lack of dividends may have
a negative effect on the stock price.
We currently intend to retain future earnings to support operations and to finance expansion
and, therefore, do not anticipate paying any cash dividends on our capital stock in the foreseeable
future.
Our articles of incorporation, our by-laws and Nevada law contain provisions that could discourage,
delay or prevent a change in control or management.
Our articles of incorporation and by-laws and Nevada law contain provisions, which could
discourage, delay or prevent a third-party from acquiring shares of our common stock or replacing
members of our Board of Directors. These provisions include:
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limitations on the ability of shareholders to remove directors;
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authorization for our Board of Directors to adopt, amend or repeal our by-laws;
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limitations on the ability of shareholders to call special meetings of shareholders; and
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The limitation on the ability of shareholders to call a special meeting, to act by written
consent and to remove directors may make it difficult for shareholders to remove or replace the
Board of Directors should they desire to do so. These provisions could also delay or prevent a
third-party from acquiring us, which could cause the market price of our common stock to decline.
We did not obtain an opinion from an unaffiliated third party as to the fair market value of MedX
Limited or the fairness of the transaction to our stockholders and, as such, our stockholders are
relying solely on the judgment of our board of directors.
We did not obtain an opinion from an unaffiliated third party that the price we paid to
acquire MedX Limited was fair to our stockholders. Accordingly, our stockholders relied solely on
the judgment of our board of directors. None of our directors is a business valuation expert, an
independent public accountant or an investment banker.
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Our internal control over financial reporting may have weaknesses or inadequacies that may be
material.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to perform an evaluation of our
internal control over financial reporting and our auditor to attest to such evaluation on an annual
basis. As a result of our acquisition of MedX Limited, ongoing compliance with these requirements
is expected to be expensive and time-consuming and may negatively impact our results of operations.
We cannot make any
assurances that material weaknesses in our internal control over financial reporting will not
be identified in the future. If any material weaknesses are identified in the future, we may be
required to make material changes in our internal control over financial reporting, which could
negatively impact our results of operations. In addition, upon such occurrence, our management may
not be able to conclude that our internal control over financial reporting is effective or our
independent registered public accounting firm may not be able to attest that our internal control
over financial reporting was effective. If we cannot conclude that our internal control over
financial reporting is effective or if our independent registered public accounting firm is not
able to attest that our internal control over financial reporting is effective, we may be subject
to regulatory scrutiny, and a loss of public confidence in our internal control over financial
reporting, which may cause the value of our common stock to decrease.
Welltek is not currently profitable and may never become profitable.
Sales for the year of 2009 were $2,541,012 compared to sales of $2,201,868 for the year of
2008. Loss from operations for the year of 2009 was $1,386,730 with net loss of $1,723,218 compared
to a net loss from operations for the year of 2008 of $2,136,885 and net loss of $2,188,157. As
Welltek increases its marketing efforts and production capability it may incur additional operating
losses for the foreseeable future and may never achieve or maintain profitability. Welltek may
experience negative cash flow for the foreseeable future as it funds its operating losses and
capital expenditures. As a result, Welltek will need to generate significant revenues in order to
achieve and maintain profitability. Welltek may not be able to generate significant increased
revenues or achieve profitability in the future. The failure to achieve or maintain profitability
could negatively impact the value of Welltek common stock and investors would in all likelihood
lose all or a portion of their investment. If Welltek is not able to generate revenues sufficient
to fund its operations through product sales or if it is not able to raise sufficient funds through
investments by third parties, it could result in its inability to continue as a going concern and,
as a result, our investors would lose their entire investment.
There is not now, and there may not ever be an active market for shares of our common stock
.
Trading of our common stock is conducted on the “OTCBB”. In general, there has been very
little trading activity in shares of Welltek common stock. The small trading volume will likely
make it difficult for our stockholders to sell their shares as and when they choose. Furthermore,
small trading volumes are generally understood to depress market prices. As a result, you may not
always be able to resell shares of our common stock publicly at the time and prices that you feel
are fair or appropriate.
Our common stock is subject to the “penny stock” rules of the SEC, which may make it more difficult
for stockholders to sell the common stock.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the
purposes relevant to us, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person’s account for transactions in penny stocks; and
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the broker or dealer receive from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be purchased.
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In order to approve a person’s account for transactions in penny stocks, the broker or dealer
must:
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obtain financial information and investment experience objectives of the person; and
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make a reasonable determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock market, which, in
highlight form:
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sets forth the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to
the transaction.
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Disclosure also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the broker-dealer and
the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements
have to be sent disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The regulations applicable to penny stocks may severely affect the market liquidity for the
common stock and could limit an investor’s ability to sell the common stock in the secondary
market.
As an issuer of “penny stock,” the protection provided by the federal securities laws relating to
forward looking statements does not apply to us.
Although federal securities laws provide a safe harbor for forward-looking statements made by
a public company that files reports under the federal securities laws, this safe harbor is not
available to issuers of penny stocks. As a result, we do not have the benefit of this safe harbor
protection in the event of any legal action based upon a claim that the material provided by us
contained a material misstatement of fact or was misleading in any material respect because of our
failure to include any statements necessary to make the statements not misleading. Such an action
could hurt our financial condition.
Stockholders may have difficulty trading and obtaining quotations for our common stock.
Our common stock trades on a limited basis, and the bid and asked prices for our common stock
on the Over-the-Counter Bulletin Board may fluctuate widely in the future. As a result, investors
may find it difficult to dispose of, or to obtain accurate quotations of the price of, our
securities. This severely limits the liquidity of our common stock, and would likely reduce the
market price of our common stock and hamper our ability to raise additional capital.
The market price of our common stock is likely to be highly volatile and subject to wide
fluctuations.
Dramatic fluctuations in the price of our common stock may make it difficult to sell our
common stock. The market price of our common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to a number of factors, some of which are beyond our
control. Such factors include:
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dilution caused by our issuance of additional shares of common stock
and other forms of equity securities, in connection with future
capital financings to fund our operations and growth, to attract and
retain valuable personnel and in connection with future strategic
partnerships with other companies;
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variations in our quarterly operating results;
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announcements that our revenue or income are below or that costs or
losses are greater than analysts’ expectations;
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the general economic slowdown;
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sales of large blocks of our common stock by stockholders;
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announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments; and
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fluctuations in stock market prices and volumes;
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These and other factors, and the impact of these risks, singly or in the aggregate, may result
in material adverse changes to the market price of our common stock and/or our results of
operations and financial condition.
We are subject to Sarbanes-Oxley and the reporting requirements of federal securities laws, which
can be expensive
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As a public reporting company, we are subject to Sarbanes-Oxley and, accordingly, are subject
to the information and reporting requirements of the Securities Exchange Act of 1934 and other
federal securities laws. The costs of compliance with Sarbanes-Oxley, of preparing and filing
annual and quarterly reports, proxy statements and other information with the SEC, furnishing
audited reports to our Stockholders, and other legal, audit and internal resource costs attendant
with being a public reporting company will cause our expenses to be higher than if we were
privately held.
Impact of corporate governance laws
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Changing laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating
uncertainty for public companies. We are required to invest significant management time and
financial resources to comply with both existing and evolving standards for public companies, which
will lead to increased general and administrative expenses and a diversion of management time and
attention from revenue generating activities to compliance activities.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal executive office is located in Orlando, Florida where we lease approximately
4,371 square feet of office space for our corporate headquarters. Monthly lease payments are
approximately $8,146 and the lease term expires June 31, 2012.
In addition, MedX Limited utilizes a 110,000 square foot production facility in Ocala, Florida
where it manufactures MedX products.
Our headquarters and manufacturing facility are suitable for their respective uses and are, in
general, adequate for our present needs. Said properties are subject to various federal, state, and
local statutes and ordinances regulating their operations. Management does not believe that
compliance with such statutes and ordinances will materially affect Welltek’s business, financial
condition, or results of operations.
ITEM 3.
LEGAL PROCEEDINGS
Our Company is involved in various claims and legal actions arising in the ordinary course of
business. We maintain reserves for identified claims within our financial statements. We cannot be
assured that the ultimate disposition of these claims will not be in excess of the reserves
established. Additionally, we maintain liability and umbrella liability insurance policies that
provide protection against claims up to various limits of liability. These limits are intended to
be sufficient to reasonably protect the Company against claims. In the opinion of our management,
the ultimate disposition of all known matters will not have a materially adverse effect on our
consolidated financial position, results of operations or liquidity.
ITEM 4.
(REMOVED AND RESERVED)
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PART II
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ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market Information
Our securities are quoted on the OTC Bulletin Board under the trading symbol “WTKN.OB”. From
our inception until December 31, 2009, there were limited transactions in our common stock. The
high and low closing bid price for the Company’s common stock on the OTCBB during the quarter ended
March 31, 2010 was $0.30 and $0.08 respectively.
Holders
As of March 31, 2010, there are 86,258,828 shares of our Common Stock outstanding, held of
record by 122 persons. We have 1,813,273 common stock warrants outstanding and 6,847,138 common
stock options outstanding.
Dividends
We have never declared or paid any dividends on our common stock. Any determination to pay
dividends in the future will be at the discretion of our Board of Directors and will be dependent
upon our results of operations, financial condition, capital requirements, contractual restrictions
and other factors deemed relevant by the Board of Directors. The Board of Directors is not expected
to declare dividends or make any other distributions in the foreseeable future, but instead intends
to retain earnings, if any, for use in business operations.
ITEM 6.
SELECTED FINANCIAL DATA
Not Required.
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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This discussion is intended to further the reader’s understanding of our Company’s financial
condition and results of operations and should be read in conjunction with our consolidated
financial statements and related notes included elsewhere herein. This discussion also contains
forward-looking statements. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of the risks and uncertainties set forth elsewhere in
this Annual Report and in our other SEC filings. Readers are cautioned not to place undue reliance
on any forward-looking statements, which speak only as of the date hereof.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Principles of Consolidation
The consolidated financial statements include the accounts of Welltek, Limited, and PHB. All
significant intercompany accounts and transactions have been eliminated in consolidation.
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Management Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those estimates. Significant
estimates during the periods include the provision for doubtful accounts, provision for product
returns, evaluation of obsolete inventory, and the useful life of long-term assets, such as
property, plant and equipment.
Revenue Recognition
Welltek recognizes product revenue, net of estimated sales discounts, returns and allowances,
in accordance with Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial
Statements” which established that revenue can be recognized when persuasive evidence of an
arrangement exists, the product has been shipped, all significant contractual obligations have been
satisfied, the fee is fixed or determinable and collection is reasonably assured. Revenue is
recorded when equipment is delivered to Welltek’ customers.
Cash and Cash Equivalents
For the purposes of reporting cash flows, Welltek considers all highly liquid investments
purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
In the normal course of business, Welltek provides credit to its customers, performs credit
evaluations of these customers and maintains reserves for potential credit losses, which, when
realized, have been within the range of management’s allowance for doubtful accounts. Welltek
establishes an allowance for uncollectible accounts receivable based on historical experience and
any specific customer collection issues that Welltek has identified. As of December 31, 2009 the
allowance for doubtful accounts is valued at $5,000.
Inventories
Inventories are stated at the lower of cost or market, with cost being determined by the first
in, first-out (FIFO) method. Inventories consist of raw materials and supplies, sub-assemblies, and
finished goods. Welltek writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market conditions. Welltek writes down inventory
during the period in which such products are considered no longer effective. Welltek has reserved
approximately $30,000 for inventory obsolescence as of December 31, 2009.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets, which range from three to seven
years.
Welltek leases certain equipment under capital leases. The economic substance of the leases is
such that Welltek financing the acquisition of the assets through the lease terms, and accordingly,
they are recorded as property and equipment and capital lease obligations. These assets are being
depreciated on the straight-line method over the term of the leases. Amortization on the capital
leases is included in depreciation expense.
Long-lived Assets
Long-lived assets used are reviewed for impairment whenever events or changes in circumstances
indicate the related carrying amount may not be recoverable. When required, impairment losses on
assets
used are recognized based on the excess of the asset’s carrying amount over the fair value of
the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
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Intangible Assets
Welltek accounts for intangible assets in accordance with SFAS No. 142 “Goodwill and Other
Intangible Assets”. Generally, intangible assets with indefinite lives, and goodwill, are no longer
amortized; they are carried at lower of cost or market and subject to annual impairment evaluation,
or interim impairment evaluation if an interim triggering event occurs, using a new fair market
value method. Intangible assets with finite lives are amortized over those lives, with no
stipulated maximum, and an impairment test is performed only when a triggering event occurs. Such
assets are amortized on a straight-line basis over the estimated useful life of the asset.
Stock-Based Compensation
Currently, Welltek does sponsor a stock option plan or the equivalent. Additionally, Welltek
has issued common stock or the equivalent for employee compensation or consultant services for the
periods presented.
Advertising
Welltek expenses advertising costs as they are incurred.
Product Warranties
Estimated costs related to product warranties are accrued at the time the equipment is sold.
In estimating its future warranty obligations, Welltek considers various relevant factors,
including Welltek stated warranty policies and practices, the historical frequency of claims and
the cost to replace or repair its products under warranty. Welltek has accrued $10,000 in product
liability claims for the period ended December 31, 2009.
Comprehensive Income (Loss)
Welltek has no components of other comprehensive income (loss). Accordingly, net income (loss)
equals comprehensive income (loss) for the periods presented.
Income Taxes
Welltek accounts for income taxes under Statement of Financial Accounting Standards (“SFAS”)
No. 109, “Accounting for Income Taxes”. Deferred income tax assets and liabilities are determined
based upon differences between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances are established when it is more likely than not that the
deferred tax assets will not be realized.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the reporting period. Diluted net income (loss)
per share is computed similarly to basic net income (loss) per share except that it includes the
potential dilution that could occur if dilutive securities were exercised. For the periods
presented, Welltek did not have any outstanding dilutive securities, and, accordingly, diluted net
income (loss) per share equals basic net income (loss) per share.
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Fair Value of Financial Instruments
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosures of
information about the fair value of certain financial instruments for which it is practicable to
estimate the value. For purposes of this disclosure, the fair value of a financial instrument is
the amount at which the instrument could be exchanged in a current transaction between willing
parties other than in a forced sale or liquidation.
The carrying amounts of Welltek financial instruments, including cash, accounts receivable,
accounts payable and accrued liabilities, approximate fair value because of their short maturities.
The carrying amount of capital lease obligations approximate fair values based on that their
interest rates are at prevailing market rates.
RESULTS OF OPERATIONS
Welltek Comparison of Three Months Ended December 31, 2009 and 2008
Revenues decreased to $446,061 for the three months ended December 31, 2009 from $545,585 for
the comparable 2008 period, representing a decrease of 18.2%. This decrease is attributed to lower
domestic sales due to difficulties in customers obtaining financing. Operating loss decreased to
($522,755) for the three months ended December 31, 2009 from ($1,982,352) for the comparable 2008
period, representing a change of 73.6%. This change is primarily attributed to a$1,089,604 decrease
in general and administrative expenses.
Gross profit increased to $165,489 for the three months ended December 31, 2009 from
($205,184) for the comparable 2008 period, representing an increase of 180.7%. The increase in
gross profit is directly attributed to the decrease in manufacturing personnel.
Operating expenses decreased to $688,244 for the three months ended December 31, 2009 from
$1,777,158 for the comparable 2008 period, representing a decrease of 61.3%. This decrease is
attributed to a decrease of $1,089,604 in general and administrative expenses.
Interest Expense increased to $337,000 for the three months ended December 31, 2009 from
$1,435 for the comparable 2008 period. The increase is primarily attributed to the $426,815
increase in notes payable.
As a result of the above changes, net loss was ($859,755) for the three months ended December
31, 2009 from ($2,030,297) for the comparable 2008 period, representing a change of 57.7%. This
change is primarily attributed to decreases in non-cash stock compensation and general and
administrative expenses.
Welltek Comparison of Twelve Months Ended December 31, 2009 and 2008
Revenues increased to $2,541,012 for the twelve months ended December 31, 2009 from $2,201,868
for the comparable 2008 period, representing an increase of 15.4%. This increase is attributed to
higher international sales for the period. Operating loss decreased to ($1,386,730) for the twelve
months ended December 31, 2009 from ($2,136,885) for the comparable 2008 period, representing a
change of 35.1%. This change is primarily attributed to a decrease in salaries at the MedX
manufacturing facility.
Gross profit increased to $1,257,630 for the twelve months ended December 31, 2009 from
$586,099 for the comparable 2008 period, representing an increase of 114.6%. This increase is
attributed to higher revenues and a significantly decreased direct payroll cost in 2009.
Operating expenses decreased to $2,644,360 for the twelve months ended December 31, 2009 from
$2,722,984 for the comparable 2008 period, representing a decrease of 2.9%. This decrease is
attributed to a decrease in general and administrative expense.
20
Interest Expense increased to $336,488 for the twelve months ended December 31, 2009 from
$4,752 for the comparable 2008 period. The increase is primarily attributed to the $426,815
increase in notes payable.
As a result of the above changes, net loss was ($1,723,218) for the twelve months ended
December 31, 2009 from ($2,188,157) for the comparable 2008 period, representing a change of 21.2%.
This change is primarily attributed to decreases in non-cash stock compensation and a reduction in
salaries.
Liquidity and Capital Resources
As of December 31, 2009, Welltek had cash on hand in the amount of $34,270. As of December 31,
2009, Welltek’s current assets were $342,530 and its current liabilities were $1,588,560, which
resulted in a working capital deficiency of $1,246,030. As of December 31, 2009, Welltek had total
assets of $707,305 and total liabilities of $1,588,560. If Welltek is unable to generate sufficient
cash from operations, it will need to find alternative sources of capital in order to continue its
operations, such as a public offering or private placement of securities, or loans from its
officers or others.
Off Balance Sheet Arrangements
Welltek has no off balance-sheet arrangements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Required.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements required by this Item are included at the end of this report
beginning on Page F-1 as follows:
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Index to Financial Statements
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F-2
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F-3
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F-4
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F-5
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F-6
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F-7
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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None.
ITEM 9A(T).
CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, as required by paragraph (b) of Rule 13a-15 and 15d-15 of the
Exchange Act under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of
December 31, 2009.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31, 2009.
21
Management’s Annual Report on Internal Control over Financial Reporting.
We are responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule
15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of,
our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our
principal accounting and financial officer), and effected by our board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and our
directors; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
Our internal control system was designed to provide reasonable assurance to our management and
board of directors regarding the preparation and fair presentation of published financial
statements. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management used the criteria set
forth in the Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on management’s assessment, we believe that,
as of December 31, 2009, our internal control over financial reporting is effective.
Change in Internal Controls
During the quarter ended December 31, 2009, there were no changes in our internal control over
financial reporting that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Report of the Company’s Independent Registered Public Accounting Firm
This annual report on Form 10-K does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s independent registered public
accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit
the Company to provide only management’s report in this annual report.
ITEM 9B.
OTHER INFORMATION
Not
Applicable.
22
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our board of directors manages our business and affairs. Under our Articles of Incorporation
and Bylaws, the Board will consist of not less than one nor more than thirteen directors.
Currently, our Board consists of two directors. The names, ages, positions and dates appointed of
our current directors and executive officers are set forth below.
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Name
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Age
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Position
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Appointed
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Randy Lubinsky
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58
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C.E.O., Chairman and Director
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November 12, 2009
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Mark Szporka
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54
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C.F.O., Secretary, and Director
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November 12, 2009
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Randy Lubinsky, Chief Executive Officer and Chairman of the Board.
Mr. Lubinsky has over 34
years experience as a business builder, healthcare entrepreneur and investment banker. He has
successfully built businesses from the start-up phase in the healthcare and real estate industries,
and has assisted several public companies in implementing roll-up strategies. He co-founded Quest
Capital Partners, LC in 1998 with Mr. Szporka. Quest Capital Partners, LC provided the initial
capital to PainCare Holdings, Inc. in July 2000 and Mr. Lubinsky served as Chief Executive Officer
and Director of PainCare Holdings, Inc. until Fall 2008. Prior to founding Quest, he was President
of Ivanhoe Consolidated Group, a healthcare company which was acquired by publicly-traded Medical
Industries of America. He also assisted Medical Industries of America in implementing its active
acquisition strategy and served as Chief Executive Officer of its Air Ambulance division. From 1994
to 1998, Mr. Lubinsky was founding Director and Chief Executive Officer of Pain Rehabilitation
Network, a medical management company which owned or managed 40 medical practices. From 1987 until
1994, he was Chief Executive Officer of Medical Equity, Inc., an investment banking and management
company focused on the healthcare industry. During this period, Mr. Lubinsky also founded MedX
West, Inc., a distributor of medical equipment. From 1981 to 1987, Mr. Lubinsky served as President
and Chief Executive Officer of Florida Equity Group, a real estate development and mortgage banking
entity. Prior to founding Florida Equity Group, he served as Senior Vice President of real estate
lending for American Savings of Miami, a New York Stock Exchange company. Mr. Lubinsky received a
BA degree in finance from Florida International University.
Mark Szporka, Chief Financial Officer, Secretary and Director.
Mr. Szporka has in excess of 29
years experience as an investment banker, chief financial officer and strategic planner. During
this time he has completed in excess of 150 transactions including mergers & acquisitions,
corporate joint ventures, initial public offerings, equity and debt private placements, real estate
financings and strategic plans. He co-founded Quest Capital Partners, LC in 1998 with Mr. Lubinsky.
Quest Capital Partners, LC provided the initial capital to PainCare Holdings, Inc. in July 2000 and
Mr. Szporka served as Chief Financial Officer and Director of PainCare Holdings, Inc. until the
Fall 2008. From 1995 to 1998, Mr. Szporka was a principal of a private investment company and
during this period served as Chief Financial Officer of Carpet Barn, Inc., a $40 million public
floor covering company. Prior to 1995, Mr. Szporka served as Managing Director of AMI Holding
Corporation, Inc., a healthcare company, where he also served as Chief Financial Officer of all
affiliates. Prior to joining AMI, Mr. Szporka was Managing Director of Corporate Finance Consulting
for Arthur Andersen & Co. where he established and managed investment banking practices for
middle-market companies in Detroit, Boston and Philadelphia. Mr. Szporka was Managing Director at
Security Pacific Merchant Bank with overall nationwide responsibility for investment banking
services for real estate and hospitality companies. Previously, he served as Vice President in the
investment banking divisions of Paine Webber and E.F. Hutton. In addition, he was Director of
Strategic Planning at Joseph E. Seagram & Sons. Mr. Szporka received a MBA from the University of
Michigan and a BBA from the University of Notre Dame. He is a Certified Public Accountant
(non-active) in New York.
23
Code of Conduct and Ethics
The Company has adopted a Code of Business Conduct and Ethics for all of its directors,
officers and employees. The Company’s Code of Business Conduct and Ethics is available on the
Company’s
website at www.welltekinc.com
.
To date, there have been no waivers under the Company’s Code of
Business Conduct and Ethics. The Company will disclose future amendments to its Code of Business
Conduct and Ethics and will post any waivers, if and when granted, under its Code of Business
Conduct and Ethics on the Company’s website at www.welltekinc.com.
Compliance With Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company
under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during
twelve months ended December 31, 2009, the Company is not aware of any person that failed to file
on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of
the Exchange Act during the year ended December 31, 2009.
ITEM 11.
EXECUTIVE COMPENSATION
Summary Compensation Table
Welltek was formed in January 2009, and therefore has no compensation information for 2008 or
2007.
The predecessor to Welltek was formed in 2008, and therefore has no compensation information
for 2007. The following table sets forth the aggregate compensation paid or accrued by Welltek to
its Principal Executive Officer, Principal Financial Officer and certain other executive officers,
(the Named Executive Officers”) as of December 31, 2009.
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Non-Equity
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Nonqualified
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Option
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Incentive Plan
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Deferred
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Current Officers
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Salary
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Bonus
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Stock
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Awards
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Compensation
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Compensation
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All Other
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Total
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Name & Principal Position
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Year
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($)
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($)
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($)
(1)
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($)
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($)
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Earnings ($)
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Compensation ($)
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($)
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Randy Lubinsky
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2008
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0
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(1)
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0
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52,575
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52,575
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0
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0
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0
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105,150
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CEO, Chairman & Director
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2009
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143,315
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36,216
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179,531
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Mark Szporka
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2008
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0
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(1)
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0
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52,575
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52,575
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0
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0
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0
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105,150
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CFO, Secretary & Director
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2009
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143,315
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27,216
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170,531
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(1)
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Mr. Lubinsky and Mr. Szporka waived all salary to which they were entitled in 2008 and 2009.
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Options
Welltek was formed in January 2009, and therefore did not have any options outstanding as of
December 31, 2008. In connection with the Merger, Welltek assumed all outstanding options of the
acquired company, including options entitling Randy Lubinsky to purchase 1,353,189 shares of common
stock, and entitling Mark Szporka to purchase 1,353,189 shares of our common stock. All such
options were issued and outstanding on December 31, 2009 (as adjusted for the 40-1 forward split of
our common stock).
Employment Arrangements with Named Executive Officers and Post-Employment Compensation
Welltek did not have any employment agreements prior to the Merger. In connection with the
Merger, Welltek assumed the following Welltek employment agreements.
On November 1, 2008, Welltek entered into an employment agreement with Randy Lubinsky, to
serve as Chief Executive Officer. The term of the agreement is 5 years, and Mr. Lubinsky has the
right to extend the agreement for an additional 3 year term thereafter. Pursuant to the agreement
Mr. Lubinsky is to
receive a base salary of $275,000 per year, and a discretionary bonus, payable quarterly at
the discretion of the Board, in an amount up to 150% of the base salary paid to employee in the
prior quarter. Under the agreement Mr. Lubinsky will receive a car allowance, a country club
membership, and other standard benefits. The agreement contains non-competition provisions,
non-interference provisions, and a confidentiality clause. The agreement also provides for certain
payments to be made to Mr. Lubinsky should certain events occur within 2 years of a change of
control.
24
On November 1, 2008, Welltek entered into an employment agreement with Mark Szporka, to serve
as Chief Financial Officer. The term of the agreement is 5 years, and Mr. Szporka has the right to
extend the agreement for an additional 3 year term thereafter. Pursuant to the agreement Mr.
Szporka is to receive a base salary of $250,000 per year, and a discretionary bonus, payable
quarterly at the discretion of the Board, in an amount up to 150% of the base salary paid to
employee in the prior quarter. Under the agreement Mr. Szporka will receive a car allowance, a
country club membership, and other standard benefits. The agreement contains non-competition
provisions, non-interference provisions, and a confidentiality clause. The agreement also provides
for certain payments to be made to Mr. Szporka should certain events occur within 2 years of a
change of control.
Compensation of the Board of Directors
Members of our Board do not currently receive compensation for their service to the Company.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(
a)
Equity Compensation Plan
The following table sets forth information, as of December 31, 2009, with respect to the
Company’s compensation plans under which equity securities are authorized for issuance.
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Number of
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Number of Securities
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Securities to
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Remaining Available
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be Issued
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Weighted-Average
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for Future Issuance
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Upon Exercise
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Exercise Price of
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Under Equity
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of Outstanding
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Outstanding
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Compensation Plan
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Options, Warrants
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Options, Warrants
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(Excluding Securities
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Plan Category
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and Rights
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and Rights
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Reflected in Column)
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Equity compensation plans approved
by security holders
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6,847,138
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$
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0.11
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9,391,134
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Equity compensation plans not
approved by security holders
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1,813,273
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$
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0.13
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0
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8,660,411
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$
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0.11
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9,391,134
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(
b)
Security Ownership
The following table sets forth information known to us, as of December 31, 2009, relating to
the beneficial ownership of shares of common stock by: (i) each person who is known by us to be the
beneficial owner of more than 5% of our outstanding common stock; (ii) each director; (iii) each
executive officer; and (iv) all executive officers and directors as a group. Under securities laws,
a person is considered to be the beneficial owner of securities owned by him (or certain persons
whose ownership is attributed to him) or securities that can be acquired by him within 60 days,
including upon the exercise of options, warrants or convertible securities. We determine a
beneficial owner’s percentage ownership by assuming that options, warrants and convertible
securities that are held by the beneficial owner and which are exercisable within 60 days, have
been exercised or converted. We believe that all persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as being
owned by them. Unless otherwise indicated, the address of each beneficial owner in the table set
forth below is care of Welltek Incorporated, 1030 North Orange Avenue, Suite 105, Orlando, Florida
32801. The percentages in the following table are based upon 85,783,828 shares outstanding as of
December 31, 2009.
25
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Amount and Nature of
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Name of Beneficial Owner
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Beneficial Ownership
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Percent of Class
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Randy Lubinsky, C.E.O. and Chairman of the Board
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15,923,667
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(1)
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18.6
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%
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Mark Szporka, C.F.O., Secretary and Director
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15,977,794
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(2)
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18.6
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%
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Richard and Noelle Siegel
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5,412,757
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6.3
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%
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James Byrd, Jr.
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5,954,033
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(3)
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6.9
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%
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Executive Officers and Directors as a Group:
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31,901,461
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37.2
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%
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1.
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Includes options to purchase 1,353,189 shares of common stock at $0.09 per share.
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2.
|
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Includes options to purchase 1,353,189 shares of common stock at $0.09 per share.
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3.
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Includes options to purchase 541,276 shares of common stock at $0.28 per share; and 1,623,827 shares of common stock held by the
James S. Byrd, Jr. SEP IRA.
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ITEM 13.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
In connection with the Merger, (i) we issued Mr. Lubinsky 14,570,478 shares of our common
stock, and assumed an option entitling Mr. Lubinsky to purchase an additional 1,353,189 shares of
our common stock; and (ii) we issued Mr. Szporka 14,624,605 shares of our common stock, and assumed
an option entitling Mr. Szporka to purchase an additional 1,353,189 shares of our common stock
As of December 31, 2009, Quest Capital Partners, LC, an entity controlled by Mr. Lubinsky and
Mr. Szporka had a note payable in the amount of $7,745.77.
Board Independence and Committees
We have elected to use the independence standards of the NYSE AMEX Equities Exchange in our
determination of whether the members of our Board are independent. Based on the foregoing, we have
concluded that neither Mr. Lubinsky nor Mr. Szporka is independent. The Board has not established
any committees. The services typically provided by an audit committee, nominating committee, and
compensation committee, are currently provided by our full Board.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows what Jewitt, Schwartz, Wolfe & Associates billed for the audit and
other services for the year ended December 31, 2009 and for the year ended December 31, 2008,
respectively.
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|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
12/31/ 2009
|
|
|
12/31/08
|
|
|
Audit Fees
|
|
$
|
22,500
|
|
|
$
|
15,000
|
|
|
Audit-Related Fees
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
|
All Other Fees
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Total
|
|
$
|
22,500
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
26
Audit Fees
—This category includes the audit of the Company’s annual financial
statements, review of financial statements included in the Company’s Form 10-Q Quarterly Reports
and services that are normally provided by the independent auditors in connection with engagements
for those years.
Audit-Related Fees
—N/A
Tax Fees
—N/A
Overview
—The Company’s Audit Committee, reviews, and in its sole discretion
pre-approves, our independent auditors’ annual engagement letter including proposed fees and all
audit and non-audit services provided by the independent auditors. Accordingly, all services
described under “Audit Fees,” “Audit-Related Fees,” and “Tax Fees” were pre-approved by our
Company’s Audit Committee. The Audit Committee may not engage the independent auditors to perform
the non-audit services proscribed by law or regulation. The Company’s Audit Committee may delegate
pre-approval authority to a member of the Board of Directors, and authority delegated in such
manner must be reported at the next scheduled meeting of the Board of Directors.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a)
Financial Statements
The Financial Statements required by this Item are included at the end of this report
beginning on Page F-1 as follows:
|
|
|
|
|
|
|
Index to Financial Statements
|
|
|
|
|
|
Reports of Independent Registered Public Accounting Firms
|
|
|
F-2
|
|
|
Consolidated Balance Sheets As of December 31, 2009 and 2008
|
|
|
F-3
|
|
|
Consolidated Statements of Operations For The Years Ended December 31, 2009 and 2008
|
|
|
F-4
|
|
|
Consolidated Statements of Stockholders’ Equity For The Years Ended December 31, 2009 and 2008
|
|
|
F-5
|
|
|
Consolidated Statements of Cash Flows For The Years Ended December 31, 2009 and 2008
|
|
|
F-6
|
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
b)
Exhibits
The following exhibits are filed with this Form 10-K or incorporated herein by reference to
the document set forth next to the exhibit listed below:
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
|
|
3.1
|
(i)
|
|
Articles of Incorporation (2)
|
|
|
|
|
|
|
|
3.1
|
(ii)
|
|
Certificate of Amendment to Articles of Incorporation, filed November 12, 2009 (1)
|
|
|
|
|
|
|
|
|
3.2
|
|
|
Bylaws (2)
|
|
|
|
|
|
|
|
|
10.1
|
|
|
Agreement and Plan of Merger, dated September 1, 2009 (3)
|
27
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
|
|
10.2
|
|
|
Employment Agreement with Randy Lubinsky, dated November 1, 2008 (1)
|
|
|
|
|
|
|
|
|
10.3
|
|
|
Employment Agreement with Mark Szporka, dated November 1, 2008 (1)
|
|
|
|
|
|
|
|
|
10.4
|
|
|
Welltek Incorporated 2008 Equity Incentive Plan (1)
|
|
|
|
|
|
|
|
|
21
|
|
|
Subsidiaries (1)
|
|
|
|
|
|
|
|
|
31.1
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
31.2
|
|
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
32.1
|
|
|
Certification of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the
purposes of Section 18 of the Securities Exchange Act of 1934, as amended or
otherwise subject to the liability of that section. Further, this exhibit shall
not be deemed incorporated by reference into any other filing under the Security
Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)
|
|
|
|
|
|
|
|
|
32.2
|
|
|
Certification of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the
purposes of Section 18 of the Securities Exchange Act of 1934 as amended or
otherwise subject to the liability of that section. Further, this exhibit shall
not be deemed incorporated by reference into any other filing under the Security
Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)
|
|
|
|
|
|
(1)
|
|
Incorporated by reference from the Form 8-K filed by the Company on November 18, 2009
|
|
|
|
(2)
|
|
Incorporated by reference from the Form S-1 filed by the Company on February 17, 2009
|
|
|
|
(3)
|
|
Incorporated by reference from the Form 8-K filed by the Company on September 15, 2009
|
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Orlando, FL, on April 29, 2010.
|
|
|
|
|
|
|
Dated: April 29, 2010
|
WELLTEK INCORPORATED
|
|
|
|
By:
|
/s/ Randy Lubinsky
|
|
|
|
|
Randy Lubinsky
|
|
|
|
|
Chief Executive Officer
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual
Report on Form 10-K has been signed by the following persons in the capacities indicated:
|
|
|
|
/s/ Randy Lubinsky
Randy Lubinsky
Chief Executive Officer, Chairman of the Board and Director
(Principal Executive Officer)
|
|
April 29, 2010
|
|
|
|
|
/s/ Mark Szporka
Mark Szporka
Chief Financial Officer, Secretary and Director
(Principal Financial Officer and Principal Accounting
Officer)
|
|
April 29, 2010
|
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
WellTek, Inc.
We have audited the accompanying consolidated balance sheets of WellTek, Inc. as of December 31,
2009 and 2008 and the related consolidated statements of operations, changes in stockholders’
deficit, and cash flows from June 8, 2008 (inception) through December 31, 2008 and for the year
ended December 31, 2009. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of WellTek, Inc. as of December 31, 2009 and 2008 and the
results of its operations and its cash flows from June 8, 2008 (inception) through December 31,
2008 and for the year ended December 31, 2009 in conformity with accounting principles generally
accepted in the United States of America.
These accompanying financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2, the Company’s need to
seek new sources or methods of financing or revenue to pursue its business strategy, raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans
as to these matters are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Jewett, Schwartz, Wolfe & Associates
Hollywood, Florida
April 27, 2010
F-2
WELLTEK, INC
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
ASSETS
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
34,270
|
|
|
$
|
—
|
|
|
Accounts receivable, net
|
|
|
194,386
|
|
|
|
272,120
|
|
|
Prepaid expenses
|
|
|
16,654
|
|
|
|
27,146
|
|
|
Inventories, net
|
|
|
97,220
|
|
|
|
271,222
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
342,530
|
|
|
|
570,488
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment-net
|
|
|
264,775
|
|
|
|
380,959
|
|
|
Investment in shell
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
707,305
|
|
|
$
|
951,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
$
|
—
|
|
|
$
|
8,134
|
|
|
Accounts payable
|
|
|
387,086
|
|
|
|
598,728
|
|
|
Accrued expenses
|
|
|
396,059
|
|
|
|
109,692
|
|
|
Warranty and obsolescence provision
|
|
|
40,000
|
|
|
|
40,000
|
|
|
Customer deposits
|
|
|
54,142
|
|
|
|
87,407
|
|
|
Current portion capital lease payable
|
|
|
23,355
|
|
|
|
40,336
|
|
|
Notes payable
|
|
|
577,918
|
|
|
|
151,103
|
|
|
Due to related party
|
|
|
110,000
|
|
|
|
105,182
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,588,560
|
|
|
|
1,140,582
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,588,560
|
|
|
|
1,140,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
Common stock, $.00001 par value, 200,000,000 shares authorized,
85,783,828 and 54,239,146 shares issued and outstanding at
December 31, 2009 and December 31, 2008, respectively
|
|
|
858
|
|
|
|
523
|
|
|
Treasury stock
|
|
|
(120,000
|
)
|
|
|
(120,000
|
)
|
|
Additional paid in capital
|
|
|
3,149,262
|
|
|
|
2,118,499
|
|
|
Accumulated deficit
|
|
|
(3,911,375
|
)
|
|
|
(2,188,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(881,255
|
)
|
|
|
(189,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
707,305
|
|
|
$
|
951,447
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-3
WELLTEK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009 AND
THE PERIOD FROM JUNE 8, 2008 (INCEPTION) THROUGH DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From June 8, 2008
|
|
|
|
|
Twelve Months Ended
|
|
|
(inception) through
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,541,012
|
|
|
$
|
2,201,868
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,283,382
|
|
|
|
1,615,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,257,630
|
|
|
|
586,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling expense
|
|
|
288,391
|
|
|
|
379,555
|
|
|
General and administrative
|
|
|
2,240,249
|
|
|
|
2,275,848
|
|
|
Depreciation
|
|
|
115,720
|
|
|
|
67,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,644,360
|
|
|
|
2,722,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,386,730
|
)
|
|
|
(2,136,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
(46,520
|
)
|
|
Interest expense
|
|
|
(336,488
|
)
|
|
|
(4,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,723,218
|
)
|
|
$
|
(2,188,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
63,759,960
|
|
|
|
45,913,035
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
71,518,245
|
|
|
|
51,410,849
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-4
WELLTEK, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE PERIOD JUNE, 2008 (INCEPTION)
THROUGH DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
Common Stock $.00001 par
|
|
|
Treasury
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Shareholders’
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Stock
|
|
|
Paid in Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BEGINNING BALANCE AT JUNE 2008
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
239,000
|
|
|
$
|
—
|
|
|
$
|
239,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Founders
|
|
|
39,365,453
|
|
|
|
394
|
|
|
|
|
|
|
|
(394
|
)
|
|
|
—
|
|
|
|
(0
|
)
|
|
Merger
|
|
|
427,028
|
|
|
|
4
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
0
|
|
|
Cash
|
|
|
7,139,424
|
|
|
|
71
|
|
|
|
|
|
|
|
858,281
|
|
|
|
—
|
|
|
|
858,352
|
|
|
Consulting
|
|
|
5,377,097
|
|
|
|
54
|
|
|
|
|
|
|
|
591,250
|
|
|
|
|
|
|
|
591,304
|
|
|
Employee options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
359,915
|
|
|
|
—
|
|
|
|
359,915
|
|
|
Warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
70,451
|
|
|
|
—
|
|
|
|
70,451
|
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
(120,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
(120,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(2,188,157
|
)
|
|
|
(2,188,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDING BALANCE AT DECEMBER 31, 2008
|
|
|
52,309,002
|
|
|
$
|
523
|
|
|
$
|
(120,000
|
)
|
|
$
|
2,118,499
|
|
|
$
|
(2,188,157
|
)
|
|
$
|
(189,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Founders
|
|
|
3,988,952
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
40
|
|
|
Merger
|
|
|
16,160,000
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
162
|
|
|
Cash
|
|
|
4,276,077
|
|
|
|
43
|
|
|
|
|
|
|
|
533,169
|
|
|
|
—
|
|
|
|
533,212
|
|
|
Consulting
|
|
|
1,823,768
|
|
|
|
18
|
|
|
|
|
|
|
|
150,079
|
|
|
|
|
|
|
|
150,097
|
|
|
Finance Charges
|
|
|
7,226,028
|
|
|
|
72
|
|
|
|
|
|
|
|
337,000
|
|
|
|
|
|
|
|
337,072
|
|
|
Employee options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
10,515
|
|
|
|
—
|
|
|
|
10,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(1,723,218
|
)
|
|
|
(1,723,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDING BALANCE AT DECEMBER 31, 2009
|
|
|
85,783,827
|
|
|
$
|
858
|
|
|
$
|
(120,000
|
)
|
|
$
|
3,149,262
|
|
|
$
|
(3,911,375
|
)
|
|
$
|
(881,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-5
WELLTEK, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2009 AND
THE PERIOD FROM JUNE 8, 2008 (INCEPTION) THROUGH DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From June 8, 2008
|
|
|
|
|
|
|
|
|
(inception) through
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,723,218
|
)
|
|
$
|
(2,188,157
|
)
|
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
115,720
|
|
|
|
67,581
|
|
|
Stock based compensation
|
|
|
10,515
|
|
|
|
359,915
|
|
|
Stock issued for consulting services
|
|
|
150,079
|
|
|
|
591,250
|
|
|
Stock issued for finance charges
|
|
|
337,000
|
|
|
|
—
|
|
|
Warranty and obsolesence provisions
|
|
|
—
|
|
|
|
40,000
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
77,734
|
|
|
|
(272,120
|
)
|
|
Prepaid expenses
|
|
|
10,492
|
|
|
|
(27,145
|
)
|
|
Inventories, net
|
|
|
174,002
|
|
|
|
(271,222
|
)
|
|
Accounts payable and accrued expenses
|
|
|
75,481
|
|
|
|
707,226
|
|
|
Customer deposits
|
|
|
(33,265
|
)
|
|
|
87,407
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(805,460
|
)
|
|
|
(905,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activity:
|
|
|
|
|
|
|
|
|
|
Purchase of shell corporation
|
|
|
(100,000
|
)
|
|
|
(448,540
|
)
|
|
Cash received in acquisition in excess of cash paid
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activity
|
|
|
(100,000
|
)
|
|
|
(448,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from related party loan
|
|
|
4,818
|
|
|
|
105,182
|
|
|
Payment of related party loan
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds from notes payable
|
|
|
426,815
|
|
|
|
151,103
|
|
|
Proceeds from the sale of common stock
|
|
|
533,212
|
|
|
|
859,600
|
|
|
Proceeds from issue of warrants
|
|
|
—
|
|
|
|
70,451
|
|
|
Proceeds from initial capital contribution
|
|
|
—
|
|
|
|
239,000
|
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
(120,000
|
)
|
|
Proceeds from capital lease
|
|
|
—
|
|
|
|
70,214
|
|
|
Proceeds from subscription receivable
|
|
|
—
|
|
|
|
—
|
|
|
Payment of capital lease
|
|
|
(16,981
|
)
|
|
|
(29,878
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
947,864
|
|
|
|
1,345,672
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
42,404
|
|
|
|
(8,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year
|
|
|
(8,134
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
34,270
|
|
|
$
|
(8,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
$
|
10,515
|
|
|
$
|
359,915
|
|
|
|
|
|
|
|
|
|
|
Stock issued for consulting services
|
|
$
|
150,079
|
|
|
$
|
591,250
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-6
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 1 — NATURE OF BUSINESS
WellTek, Inc., (the “Company”) is a Nevada C Corporation that was established in November 2003.
The Company is headquartered in Orlando, Florida and operates as a holding company with majority
ownership of MedX Limited, whose primary operations include the manufacturing and marketing of high
quality medical, rehabilitation and exercise equipment, sold throughout the world. On September
15, 2008, the Company established a new entity, Pure Healthy Back, Inc., which is engaged in
building a national network of medical rehabilitation centers offering managed care companies,
self-insured employers and federal government agencies rehabilitation programs for the back and
neck.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which assumes
the Company will realize its assets and discharge its liabilities in the normal course of business.
As reflected in the accompanying financial statements, the Company has an accumulated deficit of
$3,991,375 at December 31, 2009. The Company’s ability to continue as a going concern is dependent
upon its ability to generate future profitable operations and/or obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business operations when they
come due. Management’s plan includes obtaining additional funds by equity financing; however, there
is no assurance of additional funding being available. These circumstances raise doubt about the
Company’s ability to continue as a going concern. The accompanying financial statements do not
include any adjustments that might arise as a result of this uncertainty.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying audited consolidated financial statements of the Company, and the notes thereto
have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial statements prepared
in accordance with accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to such rules and regulations.
Principles of Consolidation
The consolidated financial statements include the accounts of WellTek, Inc., MedX Limited and Pure
Healthy Back. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Management Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Significant estimates during
the periods include the provision for doubtful accounts, provision for product returns, evaluation
of obsolete inventory, and the useful life of long-term assets, such as property, plant and
equipment.
F-7
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
Codification
In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of
Financial Accounting Standards (SFAS) No. 168, “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162”.
SFAS No. 168 made the FASB Accounting Standards Codification (the Codification) the single source
of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except
for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority
of federal securities laws, which are sources of authoritative accounting guidance for SEC
registrants. The Codification is meant to simplify user access to all authoritative accounting
guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a
consistent structure; its purpose is not to create new accounting and reporting guidance. The
Codification supersedes all existing non-SEC accounting and reporting standards and was effective
for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts;
instead, it will issue Accounting Standards Updates (ASU). The FASB will not consider ASUs as
authoritative in their own right; these updates will serve only to update the Codification, provide
background information about the guidance, and provide the bases for conclusions on the change(s)
in the Codification.
Revenue Recognition
The Company recognizes product revenue, net of estimated sales discounts, returns and allowances,
in accordance with ASC 600 Revenue which establishes that revenue can be recognized when persuasive
evidence of an arrangement exists, the product has been shipped, all significant contractual
obligations have been satisfied, the fee is fixed or determinable and collection is reasonably
assured. Revenue is recorded when equipment is delivered to the Company’s customers.
Cash and Cash Equivalents
:
For the purposes of reporting cash flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
In the normal course of business, the Company provides credit to its customers, performs credit
evaluations of these customers and maintains reserves for potential credit losses, which, when
realized, have been within the range of management’s allowance for doubtful accounts. The Company
establishes an allowance for uncollectible accounts receivable based on historical experience and
any specific customer collection issues that the Company has identified. As of December 31, 2009
and 2008, the allowance for doubtful accounts is valued at $3,313 and $4,600, respectively.
F-8
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
Inventories
Inventories are stated at the lower of cost or market, with cost being determined by the first in,
first-out (FIFO) method. Inventories consist of raw materials and supplies, sub-assemblies, and
finished goods. The Company writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market conditions. The Company writes down
inventory during the period in which such products are considered no longer effective. The Company
has reserved approximately $10,000 for inventory obsolescence as of December 31, 2009 and 2008.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets, which range from three to seven years.
The Company leases certain equipment under capital leases. The economic substance of the leases is
such that the Company is financing the acquisition of the assets through the lease terms, and
accordingly, they are recorded as property and equipment and capital lease obligations. These
assets are being depreciated on the straight-line method over the term of the leases. Amortization
on the capital leases is included in depreciation expense.
Long-lived Assets
Long-lived assets used are reviewed for impairment whenever events or changes in circumstances
indicate the related carrying amount may not be recoverable. When required, impairment losses on
assets used are recognized based on the excess of the asset’s carrying amount over the fair value
of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell.
Intangible Assets
The Company accounts for intangible assets in accordance with ASC 350 Intangibles — Goodwill and
Other. Generally, intangible assets with indefinite lives, and goodwill, are no longer amortized;
they are carried at lower of cost or market and subject to annual impairment evaluation, or interim
impairment evaluation if an interim triggering event occurs, using a new fair market value method.
Intangible assets with finite lives are amortized over those lives, with no stipulated maximum, and
an impairment test is performed only when a triggering event occurs. Such assets are amortized on a
straight-line basis over the estimated useful life of the asset.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718 Compensation — Stock
Compensation. The ASC provides that instruments that were originally issued as employee
compensation and then modified, and that modification is made to the terms of the instrument
solely to reflect an equity restructuring that occurs when the holders are no longer
employees, then no change in the recognition or the measurement (due to a change in
classification) of those instruments will result if both of the following conditions are met:
(a). There is no increase in fair value of the award (or the ratio of intrinsic value to the
exercise price of the award is preserved, that is, the holder is made whole), or the anti-dilution
provision is not added to the terms of the award in contemplation of an equity restructuring;
and (b). All holders of the same class of equity instruments (for example, stock options) are
treated in the same manner.
F-9
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
Advertising
The Company expenses advertising costs as they are incurred. Advertising expenses for the periods
ending December 31, 2009 and 2008 was not material.
Product Warranties
Estimated costs related to product warranties are accrued at the time the equipment is sold. In
estimating its future warranty obligations, the Company considers various relevant factors,
including the Company’s stated
warranty policies and practices, the historical frequency of claims and the cost to replace or
repair its products under warranty. The Company has accrued $40,000 in product liability claims
for the period ended December 31, 2009 and 2008.
Comprehensive Income (Loss)
The Company has no components of other comprehensive income (loss). Accordingly, net income (loss)
equals comprehensive income (loss) for the periods presented.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740 Income Taxes. Deferred income tax
assets and liabilities are determined based upon differences between financial reporting and tax
basis of assets and liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances are established when
it is more likely than not that the deferred tax assets will not be realized.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the reporting period. Diluted net income (loss) per
share is computed similarly to basic net income (loss) per share except that it includes the
potential dilution that could occur if dilutive securities were exercised. For the periods
presented, the Company did not have any outstanding dilutive securities, and, accordingly, diluted
net income (loss) per share equals basic net income (loss) per share.
F-10
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
ACCOUNTING STANDARDS UPDATES
In August 2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10, “Fair
Value Measurements and Disclosures—Overall”. The update provides clarification that in
circumstances, in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or more of the techniques
provided for in this update. The amendments in this ASU clarify that a reporting entity is not
required to include a separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the liability and also clarifies that both a quoted
price in an active market for the identical liability at the measurement date and the quoted price
for the identical liability when traded as an asset in an active market when no adjustments to the
quoted price of the asset are required are Level 1 fair value measurements. The guidance provided
in this ASU is effective for the first reporting period, including interim periods, beginning after
issuance. The adoption of this standard did not have a material impact on the Company’s
consolidated financial position and results of operations.
In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures
(Topic 820) — Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures —
Overall”, to permit a
reporting entity to measure the fair value of certain investments on the basis of the net asset
value per share of the investment (or its equivalent). This ASU also requires new disclosures, by
major category of investments including the attributes of investments within the scope of this
amendment to the Codification. The guidance in this Update is effective for interim and annual
periods ending after December 15, 2009. Early application is permitted. The Company is in the
process of evaluating the impact of this standard on its consolidated financial position and
results of operations. The adoption of this standard is not expected to have a material impact on
the Company’s consolidated financial position and results of operations.
In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple
Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services (deliverables) separately rather
than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25,
“Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in
multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for
determining the selling price of a deliverable, which is based on: (a) vendor-specific objective
evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual
method of allocation and requires that arrangement consideration be allocated at the inception of
the arrangement to all deliverables using the relative selling price method and also requires
expanded disclosures. The guidance in this update is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. The adoption of this standard is not expected to have a material
impact on the Company’s consolidated financial position and results of operations.
Other ASUs not effective until after December 31, 2009, are not expected to have a significant
effect on the Company’s consolidated financial position or results of operations.
F-11
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 3 — FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820 Fair Value Measurements and Disclosures defines fair value as the price that would be
received upon sale of an asset or paid upon transfer of a liability in an orderly transaction
between market participants at the measurement date and in principal or most advantageous market
for that asset or liability. The fair value should be calculated based on assumptions that market
participants would use in pricing the asset or liability, not on assumptions specific to the
entity. In addition, the fair value of liabilities should include consideration of non-performance
risk, including the Company’s own credit risk.
In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value
and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs
into three levels based on the extent to which inputs used in measuring fair value are observable
in the market. Each fair value measurement is reported in one of three levels, which is determined
by the lowest level input that is significant to the fair value measurement in its entirety. These
levels are:
|
|
•
|
|
Level 1 — inputs are based upon unadjusted quoted prices for identical instruments
traded in active markets.
|
|
|
•
|
|
Level 2 — inputs are based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not active,
and model-based valuation techniques for which all significant assumptions are observable
in the market or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
|
|
|
•
|
|
Level 3 — inputs are generally unobservable and typically reflect management’s
estimates of assumptions that market participants would use in pricing the asset or
liability. The fair values are therefore determined using model-based techniques that
include option pricing models, discontinued cash flow models, and similar techniques.
|
The Company’s financial asset carried at fair value as of December 31, 2009 is the investment in
the shell corporation. Although the Company made the initial investment in cash the investment’s
fair value will need to be re-measured on an annual basis. This re-measurement will be based upon
the estimation of equity and debt positions at year end. Due to these facts the Company valued the
financial asset using a Level 3 input.
The carrying amounts and fair values of the Company’s financial instruments at December 31, 2009
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Shell Corporation
|
|
$
|
100,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
$
|
100,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-12
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Shell Corporation
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the beginning and ending balances for the Company’s assets
measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3):
|
|
|
Description
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
—
|
|
|
Cumulative effect of the change in accounting
principal, January 1, 2009
|
|
|
—
|
|
|
Change in fair value included in operations
|
|
|
100,000
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
100,000
|
|
|
|
|
|
|
The carrying amounts of the Company’s other financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, approximate fair value because of their short
maturities. The carrying amount of capital lease obligations approximate fair values based on that
their interest rates are at prevailing market rates.
NOTE 4 — INVENTORIES
Inventories consist of raw materials and supplies, sub-assemblies, and finished goods. The Company
maintains an inventory of $97,220 and $271,222 at December 31, 2009 and 2008.
NOTE 5 — PROPERTY AND EQUIPMENT, NET
Property and equipment as of December 31 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Computers and Software
|
|
$
|
11,010
|
|
|
$
|
11,010
|
|
|
Manufacturing machinery and equipment
|
|
|
14,250
|
|
|
|
15,000
|
|
|
Furniture and Fixtures
|
|
|
422,530
|
|
|
|
422,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated deprecation
|
|
|
(183,016
|
)
|
|
|
(67,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
264,775
|
|
|
$
|
380,959
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2009 was $115,720 and $67,581 respectively.
F-13
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 6 — NOTES PAYABLE
At December 31, 2009 and 2008, Notes Payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
15% Secured Notes
|
|
$
|
400,000
|
|
|
$
|
0
|
|
|
10% Notes
|
|
|
50,000
|
|
|
|
0
|
|
|
10% Notes
|
|
|
95,000
|
|
|
|
45,000
|
|
|
Other
|
|
|
32,918
|
|
|
|
106,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
577,918
|
|
|
$
|
151,103
|
|
|
|
|
|
|
|
|
|
15% Secured Notes
The 15% Secured Notes were originated in July 2009, bear interest at a rate of 15% and were due in
six months. The noteholders also received 600,000 shares of common stock. The maturity date of
these notes has since been extended until May 15, 2010. For these extensions, the noteholders
received an additional 1,300,000 shares of common stock. The Secured Notes have a first lien on
all of the assets of the company.
10% Notes
The 10% Notes were originated at varying dates in 2009. The Notes were for a period of one year.
The maturity of these notes has since been extended until June 30, 2010.
NOTE 7 — CAPITAL LEASE OBLIGATIONS
The Company has multiple capital lease obligations for certain manufacturing equipment. The
leases, which mature at various periods through 2009, require total monthly payments ranging up to
$5,419.01. Such obligations are collateralized by the leased equipment. Interest on such
obligations ranges between 6.7% to 14.6%. All obligations are collateralized by the lease
equipment.
F-14
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
Future payments of the capital lease obligations are as follows:
|
|
|
|
|
|
|
Year Ending December 31, 2009
|
|
|
|
|
Total minimum lease payments
|
|
|
40,336
|
|
|
Less amount representing interest
|
|
|
(16,981
|
)
|
|
Present value of net minimum lease payments
|
|
$
|
23,355
|
|
NOTE 8 — CONCENTRATIONS
Financial instruments
— Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and accounts
receivable.
The Company maintains its cash in demand deposit accounts which, at times may exceed federally
insured limits. The Company has not experienced any losses in such accounts. The Company believes
it is not exposed to any significant credit risk in cash.
Concentrations of credit risk with respect to accounts receivable are limited due to the large
number of customers comprising the Company’s customer base and their dispersion across different
geographic locations. The Company generally does not require collateral from its customers.
NOTE 9 — COMMITMENTS AND CONTINGENCIES
The Company leases its corporate office facility. Monthly payments of $8,100 are due under this
lease until August 2010.
NOTE 10 — EQUITY
On July 1, 2008, 880,000 stock options with a purchase price of $0.50 per share were granted to
management and employees of the Company. These options vested immediately upon grant. On July 25,
2008, 100,000 stock options with a purchase price of $1.50 per share were granted as part of a
consulting agreement. These options vested immediately upon grant. On July 31,2008, 300,000 stock
options with a purchase price of $1.00 per share were granted to an employee of the company.
100,000 of these options vested immediately with 100,000 vesting on the 1
st
and
2
nd
anniversary of the grant date. On December 31, 2008, 265,000 stock options with a
purchase price of $0.50 per share were granted to management and employees of the Company. These
options vested immediately upon grant. Based on the assumptions noted above, the fair market value
of the options issued was valued at $492,647.
F-15
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
On May 6, 2009, 270,638 stock options with a purchase price of $0.09 per share were granted to an
employee of the company. These options vested immediately upon grant. Based on the assumptions
noted above, the fair market value of the options issued was valued at $10,515.
On July 1, 2008, the Company adopted a stock-based compensation plan. Under this plan, stock
options may be granted to employees, officers, consultants or others who provide services to the
Company.
The Black-Scholes method option pricing model was used to estimate fair value as of the date of
grant using the following assumptions:
|
|
|
|
|
|
|
Risk-Free
|
|
|
2.24
|
%
|
|
Expected volatility
|
|
|
108.9
|
%
|
|
Forfeiture Rate
|
|
|
0.0
|
%
|
|
Expected life
|
|
5 Years
|
|
For the years ended December 31, 2009 and 2008, $10,515 and $359,915 of general and administrative
expenses was attributed to compensation expense associated with these options. In addition, for
the years ended December 31, 2009 and 2008, $150,079 and $591,250 of general and administrative
expenses was attributed to stock based compensation for common shares awarded to consultants.
The Company affected a 40 to 1 forward split of its common stock during November 2009.
F-16
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 11 — EARNINGS PER SHARE
Basic earnings per share is computed on the basis of the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share is computed on the basis of
the weighted average number of shares of common stock plus the effect of dilutive potential common
shares outstanding during the period using the treasury stock method. Dilutive potential common
shares include outstanding stock options and stock awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available
for common
shareholders
|
|
$
|
(859,755
|
)
|
|
$
|
(2,030,297
|
)
|
|
$
|
(1,723,218
|
)
|
|
$
|
(2,188,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
outstanding shares
of common stock
|
|
|
80,397,152
|
|
|
|
49,630,753
|
|
|
|
63,759,960
|
|
|
|
45,913,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of
employee stock
options, awards and
warrants
|
|
|
8,119,135
|
|
|
|
6,350,968
|
|
|
|
7,758,285
|
|
|
|
5,497,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and
common stock
equivalents
|
|
|
88,516,287
|
|
|
|
55,981,721
|
|
|
|
71,518,245
|
|
|
|
51,410,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 12 — INCOME TAXES
The provision (benefit) for income taxes from continued operations for the year ended December 31,
2009 and 2008 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(588,975
|
)
|
|
$
|
(726,974
|
)
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
|
Tax (benefit) from the decrease in valuation
allowance
|
|
|
(588,975
|
)
|
|
|
726,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes, net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
The difference between income tax expense computed by applying the federal statutory corporate
tax rate and actual income tax expense is as follows:
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
34.0
|
%
|
|
Decrease in valuation allowance
|
|
|
(0.0
|
)%
|
|
Other
|
|
|
0.0
|
%
|
|
Valuation allowance
|
|
|
(34.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
|
|
|
Deferred income taxes result from temporary differences in the recognition of income and expenses
for financial reporting purposes and for tax purposes. The tax effect of these temporary
differences representing deferred tax assets and liabilities result principally from the following:
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
588,975
|
|
|
$
|
726,974
|
|
|
Non-current
|
|
|
|
|
|
|
—
|
|
|
Less: valuation allowance
|
|
|
(588,975
|
)
|
|
|
(726,974
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Non-current
|
|
|
—
|
|
|
|
—
|
|
|
Less: valuation allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax
liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
F-18
WELLTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
The Company has a net operating loss carryforward of approximately $2,727,133 available to offset
future taxable income through 2019.
The net increase in valuation allowance during the period ended December 31, 2009 and 2008 was
$588,975 and $726,974.
NOTE 13 — SUBSEQUENT EVENTS
In accordance with the guidance offered in ASC Topic 855, formerly SFAS 165 — “Subsequent Events”,
the Company has evaluated its activities from December 31, 2009 through April 27, 2010 the date the
financial statements were issued, and determined that there were no reportable subsequent events.
F-19
Grafico Azioni WellTek (CE) (USOTC:WTKN)
Storico
Da Mag 2024 a Giu 2024
Grafico Azioni WellTek (CE) (USOTC:WTKN)
Storico
Da Giu 2023 a Giu 2024
