-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QflCqrTQhyc1tLYfohlncO5m4Za8K6nQ28Lvpk/h16DxrOkOFDXfwKUrm3j1r4II RtX83PZ0w5R0pFrklXLAFw== 0001231742-04-000353.txt : 20040517 0001231742-04-000353.hdr.sgml : 20040517 20040517153102 ACCESSION NUMBER: 0001231742-04-000353 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUETORCH, INC. CENTRAL INDEX KEY: 0001084133 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 521146119 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 814-00633 FILM NUMBER: 04812120 BUSINESS ADDRESS: STREET 1: 12607 HIDDENCREEK WAY STREET 2: UNIT S CITY: SERRITOS STATE: CA ZIP: 90703 BUSINESS PHONE: 562-623-4040 MAIL ADDRESS: STREET 1: 12607 HIDDENCREEK WAY STREET 2: UNIT S CITY: SERRITOS STATE: CA ZIP: 90703 FORMER COMPANY: FORMER CONFORMED NAME: AUSSIE APPAREL GROUP LTD DATE OF NAME CHANGE: 20021101 FORMER COMPANY: FORMER CONFORMED NAME: MEDEX CORP DATE OF NAME CHANGE: 20020816 FORMER COMPANY: FORMER CONFORMED NAME: MERCURY SOFTWARE DATE OF NAME CHANGE: 19991109 10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: March 31, 2004 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 000-3084133 BLUETORCH, INC. --------------- (Exact name of registrant as specified in its charter) Nevada 90-0093439 - ---------------------------- ------------------------ (State of Incorporation) (I.R.S. Employer I.D.) 12607 Hidden Creek Way, Suite S Cerritos, CA 90703 Telephone (562) 623-4040 (Address and telephone number of principal executive offices and principal place of business) 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 a period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of May 6, 2004, the registrant had a total of 237,505,252 shares of common stock issued and outstanding.
BLUETORCH, INC, BALANCE SHEET MARCH 31, 2004 DECEMBER 31, 2003 ---------------- ------------------- ASSETS Investment in Portfolio Companies . . . . . . . . . . . . . . . $ 853,959 $ 559,405 Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,748 517 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,557 - ---------------- ------------------- $ 988,264 $ 559,922 ================ =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . $ 47,961 $ 106,156 Deposits Payable. . . . . . . . . . . . . . . . . . . . . . . . - - Loans payable, related parties. . . . . . . . . . . . . . . . . 14,000 26,000 ---------------- ------------------- Total current liabilities . . . . . . . . . . . . . . . 61,961 132,156 ---------------- ------------------- STOCKHOLDERS' EQUITY: Preferred Series B, $.001 par value; 190,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . 190 480 Preferred Series C, $.001 par value; 10,000,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000 Common Stock, $.001 par value;950,000,0000 shares authorized; 226,705,252 and 190,372,632 shares outstanding at March 31, 2004 and December 31, 2003 respectively . . . . . . 90,610 54,277 Common stock subscriptions receivable . . . . . . . . . . . . . (112,500) (112,500) Additional Paid in Capital. . . . . . . . . . . . . . . . . . . 6,702,262 5,844,055 Deficit accumulated during the development stage. . . . . . . . (5,764,259) (5,368,546) ---------------- ------------------- Total stockholders' equity. . . . . . . . . . . . . . . 926,303 427,766 ---------------- ------------------- $ 988,264 $ 559,922 ================ ===================
BLUETORCH, INC, STATEMENT OF OPERATIONS FOR THE FOR THE THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 2004 MARCH 31, 2003 ---------------- ---------------- INCOME . . . . . . . . . . . . . . $ - $ - ---------------- ---------------- EXPENSES - general and administrative . . . (395,713) (419,151) ---------------- ---------------- Total expenses . . . . . (395,713) (419,151) ---------------- ---------------- NET LOSS . . . . . . . . . . . . . $ (395,713) $ (419,151) ================ ================ BASIC AND DILUTED - loss per share (0.00) (0.01) ================ ================ WEIGHTED AVERAGE COMMON SHARES - basic and diluted. . . . . . . . 215,886,652 33,884,253 ================ ================
BLUETORCH, INC, SCHEDULE OF INVESTMENTS DESCRIPTION PERCENT FAIR COMPANY OF BUSINESS OWNERSHIP COST VALUE AFFILIATION Unboxed Distribution, Inc.. . . Extreme Sports 100% $727,698 $727,698 (1) Yes Apparel Total Sports Distribution, Inc. Extreme Sports 100% $126,261 $126,261 (1) Yes Apparel (1) Fair value determined by the Company's Board of Directors based on the actual cost of investment. See also Note 2 for further explanation on the Company's methods of determining fair values.
BLUETORCH, INC, STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION ON AUGUST 26, 2002 THROUGH MARCH 31, 2004 Series A Series B Series C Common Stock Preferred Stock Preferred Stock Preferred Stock Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ At inception on August 26, 2002, as restated for effect of reverse merger with Aussie Apparel (see Note 1 ). . . . . . . . . . . . - $ - - $ - - $ - 97,500,000 $ 1,000 Shares issued in connection with merger with Aussie Apparel, October 29, 2002 (see Note 1 ). . . . - - 610,000 610 39,590,430 2,639 Shares issued for acquisition of tradenames . . . . . . . . . . . . 400,000 1,058,824 31,500,000 2,100 Net loss December, 31 2002. . . . . . . - - - - - - --------- ------------ --------- ------ ------------ -------- Balance at December 31, 2002. . . . . . 400,000 1,058,824 610,000 610 - - 168,590,430 5,739 Shares issued for compensation, compensation, services and deferred offering costs 10,000,000 10,000 6,191,873 4,963 Shares issued to a foreign entity for resale, and recorded on balance sheet as stock subscription receivable 750,000 50 Shares issued in connection with conversion of convertible debentures 525,000 35 Creation of stock option / deferred Compensation plan Shares issued in connection with rescission of employee stock options 682,147 682 Shares issued in connection with stock subscription 18,545,818 18,321 Rescission of stock option/deferred compensation plan Issuance of convertible debenture, with beneficial conversion feature Shares issued in connection with conversion of series B preferred stock (130,000) (130) 5,087,364 5,087 Shares issued in settlement of notes payable 18,200,000 18,200 Warrants issued in connection with license/ option purchase agreement Shares cancelled in connection with rescission of trademark acquisition. . . . . . . . (400,000) (1,058,824) (31,500,000) (2,100) Shares issued as settlement expense in relation to rescission trademark acquisition 3,300,000 3,300 Net loss December 31, 2003 Balance at December 31, 2003. . . . . . - $ - 480,000 $ 480 10,000,000 $10,000 190,372,632 $54,277 Shares issued in connection with stock subscription 22,500,000 22,500 Shares issued in connection with conversion of series B preferred stock (260,000) (260) 12,165,953 12,166 Shares issued in connection with interest and penalties on conversion of series B preferred stock 1,666,667 1,667 Series B preferred stock redeemed (30,000) (30) Net loss March 31, 2004 Balance at March 31, 2004 . . . . . . . - - 190,000 $ 190 10,000,000 $10,000 226,705,252 $90,610
BLUETORCH, INC, STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION ON AUGUST 26, 2002 THROUGH MARCH 31, 2004 (CONTINUED) Deficit accum- Less stock Stock Add- ulated Total sub- Less defer- options Treasury itional during the stock- scription red offering /deferred stock paid-in development holders' receivable cost comp'sation receivable capital stage equity ---------- ---- ----------- ---------- ------- ----- ------ At inception on August 26, 2002, as restated for effect of reverse merger with Aussie Apparel (see Note 1 ). . . . . . . . . $ - $ - $ - $ - $ - $ - $ 1,000 Shares issued in connection with merger with Aussie Apparel, October 29, 2002 (see Note 1 ) 2,711 - 5,960 Shares issued for acquisition of tradenames 4,722,900 5,783,824 Net loss December, 31 2002 - (136,061) (136,061) -------- -------- ---------- -------- ------- -------- --------- Balance at December 31, 2002. . . - - - - 4,725,611 (136,061) 5,654,723 Shares issued for compensation services, and deferred offering costs 1,164,900 1,179,863 Shares issued to a foreign - entity for resale, and recorded on balance sheet as stock subscription receivable . . . . . . . . . . (112,500) 112,450 - Shares issued in connection - with conversion of convertible debentures 78,715 78,750 Creation of stock option/ deferred compensation plan (2,784,600) 2,784,600 - - Shares issued in connection - with rescission of employee stock options 47,068 47,750 Shares issued in connection - with stock subscription 641,492 659,813 Rescission of stock - option/deferred compensation plan 2,784,600 (380,250) 2,404,350 Issuance of convertible - debenture with beneficial conversion feature 8,000 8,000 Shares issued in connection with conversion of series B preferred stock (4,957) - Shares issued in settlement of notes payable 479,300 497,500 Warrants issued in connection with license/ option purchase agreement 418,326 418,326 Shares cancelled in connection with rescission of trademark acquisition - (4,722,900) (5,783,824) Shares issued as settlement expense in relation to rescission of trademark - 491,700 495,000 acquisition Net loss December 31, 2003 (5,232,485) (5,232,485) -------- -------- ---------- -------- ---------- -------- --------- Balance at December 31, 2003. . . $(112,500) $ - $ - $ - $ 5,844,055 $(5,368,546) $ 427,766 Shares issued in connection with stock subscription 841,750 864,250 Shares issued in connection with conversion of series B preferred stock (11,906) - Shares issued in connection with interest and penalties on conversion of series B preferred stock 58,333 60,000 Series B preferred stock redeemed (29,970) (30,000) Net loss March 31, 2004 (395,713) (395,713) -------- -------- ---------- -------- ------- -------- --------- Balance at March 31, 2004 . . . . $(112,500) - $ - $ - $ 6,702,262 (5,764,259) 926,303
BLUETORCH, INC, STATEMENT OF CASH FLOWS FOR THREE MONTHS ENDED MARCH 31 2004 2003 ---------- ---------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(395,713) $(419,151) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES - Costs associated with issuing preferred and Common stock at a discount . . . . . . . . . . . . . . . 124,250 - Legal expense associated with Series B conversion . . . . 2,950 - Shares issued for settlement of interest on Series B. . . 50,000 - Stock Issued for employee compensation/services . . . . . - 124,750 Stock Issued for debt conversion costs. . . . . . . . . . - 78,750 CHANGES IN OPERATING ASSETS AND LIABILITIES: (INCREASE) DECREASE IN ASSETS - Deposits . . . . . . . . . . . . . . . . . . . . . . . . (5,557) - INCREASE (DECREASE) IN LIABILITIES: Accounts payable . . . . . . . . . . . . . . . . . . . . (58,195) 177,179 Loans Payable. . . . . . . . . . . . . . . . . . . . . . (12,000) - Deposits payable . . . . . . . . . . . . . . . . . . . . - (10,000) Preferred Series B shares to be issued . . . . . . . . . - 47,896 ---------- ---------- Total adjustments. . . . . . . . . . . . . . . . . . 101,448 418,575 ---------- ---------- Net cash used for operating activities . . . . . . . (294,265) (576) CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES - Payments advanced to investments in portfolio investments (294,554) - ---------- ---------- Net cash provided (used) for investing activities. . (294,554) - CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES - Proceeds from issuance of common stock . . . . . . . . . . 747,050 - Purchase of Series B . . . . . . . . . . . . . . . . . . . (30,000) - ---------- ---------- Net cash provided (used) for investing activities. . 717,050 - NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . 128,231 (576) CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . 517 912 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . $ 128,748 $ 336 ========== ========== SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES - Shares issued for settlement of interest on Series B $50,000 ========= Conversion of 260,000 shares of Preferred Series B into 12,165,953 of Common Stock
NOTES TO THE FINANCIAL STATEMENTS (1) Description of Business ORGANIZATION AND BUSINESS: Mercury Software, a Nevada corporation, was incorporated on January 29, 1997 and its name was changed to Medex Corp. on June 24, 2002. Aussie Apparel Group Ltd. ("Aussie Apparel" or "the Company"), a Nevada corporation, was incorporated on August 26, 2002. In October 2002, Medex Corp. issued an aggregate of 6,500,000 (pre-stock split) shares of its common stock to the shareholders of the Company in connection with the merger of the Company with Medex Corp., whose name was then changed to "Aussie Apparel Group Ltd" on October 21, 2002. Since the shareholders of the Company became the controlling shareholders of MedEx after the exchange, the Company was treated as the acquirer for accounting purposes. Accordingly, the financial statements as presented here are the historical financial statements of the Company and include the transactions of Medex only from the date of acquisition, using reverse merger accounting. The Company's name was changed to Bluetorch, Inc. effective November 3, 2003 On June 19, 2003, the Company became a "Business Development Company" ("BDC") pursuant to applicable provisions of the Investment Company Act of 1940. Until June 19, 2003 the Company was a development stage enterprise under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 7. Upon commencing their operations as a BDC, the Company no longer qualified under the guidelines of SFAS No. 7. Based on the Company's integration and management strategies, the Company will operate on a non-consolidated basis. Operations of the portfolio companies will be reported at the subsidiary level and only the appreciation or impairment of these investments will be included in the Company's financial statements. CONDENSED FINANCIAL STATEMENTS The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position as of March 31,2004, and the results of operations and cash flows for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United Sates of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2003, audited financial statements. The results of operations for the periods ended March 31, 2004 and 2003 are note necessarily indicative of the operating results for the full years. GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. As of March 31, 2004, the Company has generated no revenues and has incurred losses totaling $5,764,259 for the period from August 26, 2002 (inception) through March 31, 2004. As March 31, 2004 the Company has working capital of $72,344 but the loss since inception raises substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management plans to take the following steps that it hopes will be sufficient to provide Bluetorch with the ability to continue in existence: REVENUE On September 8, 2003 the Company's subsidiary, Unboxed, signed an agreement to license (with an option to purchase in 2006) the Bluetorch trademark for apparel and certain other product categories. Unboxed began shipment to retail of Bluetorch branded apparel in the first quarter of 2004 with a limited product line of domestically produced young men's embroidered and/or screened t-shirts and sweatshirts. In the second quarter of 2004, Unboxed will begin shipment to retail of similar apparel product in the junior's side. In the second half of 2004, Unboxed will ship a dramatically broader Bluetorch apparel line (as compared to first half of 2004) as the Company will include foreign sourced product in young men's and junior's including wovens, knits and denim. Bluetorch Inc. has been working to acquire additional trade names. On October 21,2003 the Company's other subsidiary, Total Sports finalized an agreement to license (with an option to purchase) the True Skate Apparel ("TSABrand") trademark. Total Sports will begin began shipping TSABrand apparel to retailers in April 2004. This product line being shipped in the second quarter of 2004 is limited as Total Sports inherited this product line upon licensing the brand. Management feels that the TSABrand being shown to retailers for delivery starting July 2004 is a broader, more fashion correct product line. Total Sports will also look to broaden the distribution of where TSABrand has been historically sold. In addition to the core shops that have carried TSABrand since 1991, Total Sports is planning to expand the brand's presence into better department stores and upper-end sporting goods retailers. Total Sports will also start generating revenue as a result of its licensing agreement for the Airwalk trademark in apparel. This agreement allows Total Sports to begin shipping to retailers starting in July of 2004. Management is projecting the Airwalk label to generate the largest percentage of revenue in 2004 from its portfolio of brands despite being limited to six months of shipments in 2004. On March 6th, 2004 Unboxed signed a letter of intent with Dome Exchange Pty. for the licensing rights of Aztec Rose for the North American territory. Unboxed in now working on completing a definitive agreement in order to ship initial product for the spring 2005 season rather than the Holiday 2004 season as originally projected. FINANCING On June 19, 2003, Bluetorch Inc. filed an Offering Circular that authorizes the Company to raise up to $3,000,000 via sale of its common stock. Through March 31,2004 the Company has raised $1,812,185 against this limit, and an additional $270,000 through May 6, 2004. These sums include both cash proceeds and conversion of debt. This leaves $917,815 that Bluetorch management will continue to pursue from the equity markets. Part of this will be pursued through an agreement that Bluetorch entered into in October 2003 with an Investment Agreement pursuant to which the investment advisor agreed to purchase $1,800,000 of the Company's common stock over a one year period ending October 2004. Management will also endeavor to utilize debt financing (receivables and /or inventory financing) to create additional working capital. CONCLUSION Management is projecting the majority of 2004's revenue to be created in the second half of 2004 due to the quadrupling of the collective product lines as compared to the collective first half product line. Management is anticipating that the cash generated from the projected revenue combined with cash raised from a combination of equity and debt financing will allow Bluetorch and its subsidiaries Unboxed and Total Sports to continue to grow their operations and revenues. (2) Investments: On August 21, 2003, the Company formed Unboxed for the purpose of owning and operating the Bluetorch license agreement. In October 2003, the Company formed Total Sports for the purpose of owning and operating the True Skate Apparel brand ("TSABrand),". Unboxed and Total Sports are wholly-owned subsidiaries ("Investments")of the Company and are focused on providing apparel to the action sports area, including surfing, wakeboarding, and skateboarding. The Investments plan to develop high tech garments for athletes and participants in these sports as well as designing more casual lifestyle clothing aimed at a wider range of consumers. The portfolio companies plan to begin manufacturing and marketing under various brand names and will market apparel to high end sporting goods stores, mid-tier department stores, as well as specialty chains. The TSABrand name, will be marketed to specialty shops and to high end sporting goods and specialty chains. As required by the SEC's Accounting Series Release ("ASR") 118, the investment committee of the Company is required to assign a fair value to all investments. To comply with Section 2(a)(41) of the Investment Company Act and Rule 2a-4 under the Investment Company Act, it is incumbent upon the board of directors to satisfy themselves that all appropriate factors relevant to the value of securities for which market quotations are not readily available have been considered and to determine the method of arriving at the fair value of each such security. To the extent considered necessary, the board may appoint persons to assist them in the determination of such value, and to make the actual calculations pursuant to the board's direction. The board must also, consistent with this responsibility, continuously review the appropriateness of the method used in valuing each issue of security in the company's portfolio. The directors must recognize their responsibilities in this matter and whenever technical assistance is requested from individuals who are not directors, the findings of such individuals must be carefully reviewed by the directors in order to satisfy themselves that the resulting valuations are fair. No single standard for determining "fair value .in good faith" can be laid down, since fair value depends upon the circumstances of each individual case. As a general principle, the current "fair value" of an issue of securities being valued by the board of directors would appear to be the amount which the owner might reasonably expect to receive for them upon their current sale. Methods which are in accord with this principle may, for example, be based on a multiple of earnings, or a discount from market of a similar freely traded security, or yield to maturity with respect to debt issues, or a combination of these and other methods. Some of the general factors which the directors should consider in determining a valuation method for an individual issue of securities include: 1) the fundamental analytical data relating to the investment, 2) the nature and duration of restrictions on disposition of the securities, and 3) an evaluation of the forces which influence the market in which these securities are purchased and sold. Among the more specific factors which are to be considered are: type of security, financial statements, cost at date of purchase, size of holding, discount from market value of unrestricted securities of the same class at time of purchase, special reports prepared by analysis, information as to any transactions or offers with respect to the security, existence of merger proposals or tender offers affecting the securities, price and extent of public trading in similar securities of the issuer or comparable companies, and other relevant matters. The board has arrived at the following valuation method for its investments. Where there is not a readily available source for determining the market value of any investment, either because the investment is not publicly traded, or is thinly traded, and in absence of a recent appraisal, the value of the investment shall be based on the following criteria: 1. Total amount of the Company's actual investment ("AI"). This amount shall include all loans, purchase price of securities, and fair value of securities given at the time of exchange. 2. Total revenues for the preceding twelve months ("R"). 3. Earnings before interest, taxes and depreciation ("EBITD") 4. Estimate of likely sale price of investment ("ESP") 5. Net assets of investment ("NA") 6. Likelihood of investment generating positive returns (going concern). The estimated value of each investment shall be determined as follows: - - Where no or limited revenues or earnings are present, then the value shall be the greater of the investment's a) net assets, b) estimated sales price, or c) total amount of actual investment. - - Where revenues and/or earnings are present, then the value shall be the greater of one time (1x) revenues or three times (3x) earnings, plus the greater of the net assets of the investment or the total amount of the actual investment. - - Under both scenarios, the value of the investment shall be adjusted down if there is a reasonable expectation that the Company will not be able to recoup the investment or if there is reasonable doubt about the investments ability to continue as a going concern. The Company's Board of Directors has determined the carrying value of it's Investment Portfolio, in accordance with the Company's valuation policy, at March 31,2004 to be the actual investment. The investment Unboxed should be valued at $727,698 as of March 31,2004 comprised of the following: Warrants issued and cash paid to acquire the licensing rights of $418,326 and $45,000 respectively, inventory of $26,635, sales commission draws paid of $1,500 and advances from Bluetorch of $236,237. As of March 31,2004, Total Sports has been valued at $126,261 comprised of the following: cash paid to acquire the licensing rights of $54,000, inventory of $25,000, sales commission draws paid of $1,500 and advances from Bluetorch of $45,761. (3) Equity During the three months ended March 31, 2004, the Company issued 17,166,667 shares of common stock for cash per its Offering Circular. The shares were sold at below market value and accordingly a stock discount expense of $124,250 has been recognized on the accompanying financial statements. (4) Subsequent Events EQUITY TRANSACTIONS Subsequent to March 31, 2004 and through May 6, 2004 the Company has issued 10,800,000 common shares in exchange for $270,000. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS This information statement contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements relate to future events or to our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "predicts," "should," "expects," "plans," "anticipates," "believes," "estimates," "potential," or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. There are a number of factors that could cause our actual results to differ materially from these indicated by such forward-looking statements. These factors include but are not limited to economic conditions generally and in the industries in which Bluetorch, Inc may participate; competition within Bluetorch, Inc.'s chosen industry, including competition from much larger competitors; technological advances and failure by Bluetorch, Inc. to successfully develop business relationships. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, we do not assume responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this information statement to conform such statements to actual results. The foregoing management's discussion and analysis should be read in conjunction with the Company's financial statements and the notes herein. CRITICAL ACCOUNTING POLICY AND ESTIMATES Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management will evaluate its estimates and judgments, including those related to revenue recognition, accrued expenses, financial operations, and contingencies and litigation. Management will base its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying value of the assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, such as the deferred tax asset valuation. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. LIQUIDITY AND CAPITAL RESOURCES We had cash totaling $128,748 as of March 31, 2004. Our other assets were security deposits of $5,557 for the Company's headquarters in Cerritos California and investment in portfolio companies of $853,959; total assets at March 31, 2004 were $988,264. At March 31, 2004 our total liabilities of $61,961 represented $47,961 of accounts payable and $14,000 of loans payable to related parties. OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS As we discussed in our recent 10K filing, 2003 was a year of restructuring for Bluetorch Inc., including the formation and investment in our subsidiary companies. Paramount in this process was the replacement of the original portfolio of brands with three new ones. As a result, we created Unboxed Distribution Inc., which now wholesales and markets Bluetorch branded apparel. Total Sports Distribution Inc. was established to market and wholesale both True Skate Apparel (TSABrand) and Airwalk branded apparel. Unboxed shipped its first Bluetorch apparel product of young men's t-shirts to retailers in the first quarter of 2004. As previously announced, Unboxed plans to ship their first junior's t-shirts in the second quarter of 2004. Young men's and junior's denim, tops and bottoms (knits & wovens) are scheduled for shipment starting July 2004. As a result, the number of Bluetorch styles available for shipment to retailers will more than triple in the third and forth quarters versus the first quarter of 2004. Unboxed anticipates that this will generate a greater volume of buying per retail account. Unboxed had net sales of $43,524 in the first quarter with only young men's t-shirts available for shipment. Unboxed opened and shipped 68 retail accounts in the first quarter. The management of Unboxed is forecasting that the majority of its net sales in 2004 will occur in the third and forth quarters. This assumption is based on the significantly expanded product line and the ongoing expansion of new retailers carrying Bluetorch apparel. The third and forth quarter revenues for Unboxed will also reflect a higher per unit wholesale price as the first quarter revenues were reliant on the lowest wholesale cost product (t-shirts). Total Sports shipped its first product (TSABrand) in April 2004. The licensing agreement for Airwalk apparel allows Total Sports to begin shipping product in July 2004. We have forecasted Airwalk to provide the majority of the revenue for 2004 out of the three brands presently within our subsidiary companies. Given that the collective product lines of our two subsidiaries will more than quadruple (1st quarter 2004 versus 2nd & 3rd quarters 2004), we are projecting a dramatic spike in the collective net sales of our subsidiaries in the second half of 2004 as compared to the first half. This assumption is also supported by the additional retail accounts projected to be opened by both subsidiaries. As previously announced, Unboxed did sign a letter-of-intent to license the Aztec Rose junior's label for North America. Unboxed in now working on completing a definitive agreement in order to ship initial product for the spring 2005 season rather than the Holiday 2004 season as originally projected. Bluetorch will continue to look and possibly make additional investments (in new brands) on behalf of its existing subsidiaries and/or any new potential subsidiary in 2004 and/or beyond. As of March 31, 2004, the Company has not recognized any revenues from its portfolio investments and for the three months ended March 31, 2004 has incurred an operating loss of $395,713. The loss represents expenses including payroll of $63,310, consulting fees for investment banking and investor relations of $56,505 and professional fees incurred for legal and accounting services of $26,961. Also included in the loss are expenses of $124,250 related to issuing stock at a discount and interest and penalties of $50,000 related to the retirement of 260,000 shares of Preferred Series B stock. Failure to successfully develop our portfolio companies would hinder the Company's ability to increase the size of our operations and realize asset appreciation. If we are not able to generate additional revenues adequate to cover increased operating costs, our business may ultimately fail. We have cash equivalents of $128,748 as of March 31, 2004. Subsequent to March 31, 2004, the Company received proceeds of $230,500 from the sale of its securities. In the opinion of management, available cash is not sufficient to fund current operations. However, management believes that it can obtain adequate capital via issuance and sale of its securities. ITEM 3. QUANTATATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK. Our business activities contain elements of risk. We consider the principal types of risk to be portfolio valuations and fluctuations in interest rates. We consider the management of risk essential to conducting our business. Accordingly, our risk management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. As a business development company, we invest in illiquid securities including debt and equity securities of primarily private companies and non-investment grade CMBS. Our investments are generally subject to restrictions on resale and generally have no established trading market. We value substantially all of our investments at fair value as policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgments be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We determine fair value to be the amount for which an investment could be exchanged in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. Our valuation policy considers the fact that no ready market exists for substantially all of the securities in which we invest. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio. We will record unrealized depreciation on investments when we believe that an equity security is doubtful, or when the enterprise value of the company does not currently support the cost of our debt or equity investment. Conversely, we will record unrealized appreciation if we believe that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value. The values of the investments in public securities are determined using quoted market prices discounted for restrictions on resale. Without a readily ascertainable market value and because of the inherent uncertainty of valuation, the fair value of our investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. In addition, the illiquidity of our investments may adversely affect our ability to dispose of debt and equity securities at times when it may be otherwise advantageous for us to liquidate such investments. In addition, if we were forced to immediately liquidate some or all of the investments in the portfolio, the proceeds of such liquidation would be significantly less than the current value of such investments. Because we may borrow money to make investments, our net investment income b before net realized and unrealized gains or losses, or net investment income, is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which would reduce our net investment income. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company's Chief Executive Officer and the Chief Financial Officer carried out an evaluation of the effectiveness of the design and operations of the Company's disclosure controls and procedures. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its periodic SEC filings is recorded, processed and reported within the time periods specified in the SEC's rules and forms. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting him to material information relating to the Company required to be included in the Company's periodic SEC filings. CHANGES IN INTERNAL CONTROLS There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II: OTHER INFORMATION ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES During the quarter ended March 31, 2004, the Company issued an aggregate of 36,332,620 shares of its common stock, of which 22,500,000 shares were issued for cash pursuant to an Investment Agreement entered into on October 2003. The remaining 13,832,620 shares were issued upon conversion of shares of the Company's Series B Preferred Stock, of which 1,666,667 shares related to interest and penalties. In February and March 2004, the Company purchased for cash 30,000 shares of its Series B Preferred Stock at a price of $1.00 per share, from the holder thereof in a private transaction. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BLUETORCH, INC. May 17, 2004 By:/s/ Bruce MacGregor --------------------------- Bruce MacGregor, President
EX-31.1 2 doc2.txt EXHIBIT 31.1 CERTIFICATIONS I, Bruce MacGregor, certify that: 1. I have reviewed this quarterly report for the period ended March 31, 2004, on Form 10-Q of Bluetorch, Inc. : 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures over financial reporting (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have; a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions); a) All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. May 17, 2004 By: /S/ Bruce MacGregor --------------------------- Bruce MacGregor, President EX-31.2 3 doc3.txt EXHIBIT 31.2 ------------ CERTIFICATIONS I, Scott Battenburg, certify that: 1. I have reviewed this quarterly report for the period ended March 31, 2004, on Form 10-Q of Bluetorch, Inc.: 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures over financial reporting (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions); a) All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. May 17, 2004 By: /S/ Scott A. Battenburg - --------------------------------------- Scott A. Battenburg, Chief Financial Officer EX-32.1 4 doc4.txt EXHBIT 32.1 - ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Bluetorch, Inc (the "Company") on Form 10-Q for the period ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Bruce MacGregor, Chief Executive Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ BRUCE MACGREGOR - ----------------------------- Bruce MacGregor Chief Executive Officer May 17, 2004 EX-32.2 5 doc5.txt EXHBIT 32.2 - ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Bluetorch, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Scott Battenburg, Chief Financial Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Scott A. Battenburg - ----------------------------- Scott A. Battenburg Chief Financial Officer May 17, 2004
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