CLStv Corp. - Quarter Report: 2010 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2010

OR

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 333-157360

WELLTEK INCORPORATED

Nevada		8099		98-0610431
(State or other jurisdiction of		(Primary Standard Industrial		(IRS Employer Identification #)
organization)		Classification Code)

1030 N. Orange Ave, Ste 300
Orlando, FL 32801
(Address of Issuer’s principal executive offices)

Tel. (407) 704-8950
(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 last 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 270,046,328 as of November 15, 2010.

 

 

WELLTEK INCORPORATED

INDEX

		PAGE
Part I. Financial Information			3
Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Consolidated Statements of Cash Flows			5
Consolidated Statements of Changes in Stockholders Equity			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures about Market Risk			17
Item 4. Controls and Procedures			17
Part II. Other Information			18
Item 1. Legal Proceedings			18
Item 1A. Risk Factors			18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			18
Item 3. Defaults upon Senior Securities			18
Item 4. Removed and Reserved			18
Item 5. Other Information			18
Item 6. Exhibits			19
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WELLTEK, INC.

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

		SEPTEMBER 30, 2010				DECEMBER 31, 2009
		(Unaudited)				(Audited)
ASSETS
Current Assets:
Cash		$	78,381			$	34,270
Accounts receivable, net			307,960				194,386
Prepaid expenses			23,568				16,654
Inventories, net			85,494				97,220
Total current assets			495,404				342,530
Property, plant and equipment-net			646,846				264,775
Investment in shell			100,000				100,000
Goodwill			225,000				—
Total assets		$	1,467,249			$	707,305
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable		$	335,243			$	387,086
Accrued expenses			608,214				396,059
Warranty and obsolescence provision			40,000				40,000
Customer deposits			138,553				54,142
Current portion capital lease payable			21,355				23,355
Notes payable			588,900				577,918
Due to related party			110,000				110,000
Total current liabilities			1,842,264				1,588,560
Total Liabilities			1,842,264				1,588,560
Commitments and contingencies
Stockholders’ Deficit
Common stock, $.00001 par value, 400,000,000 shares authorized, 211,296,328 and 85,783,828 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively			2,113				858
Treasury stock			(120,000	)			(120,000	)
Additional paid in capital			5,463,369				3,149,262
Accumulated deficit			(5,720,497	)			(3,911,375	)
Total stockholders’ deficit			(375,015	)			(881,255	)
Total liabilities and stockholders’ deficit		$	1,467,249			$	707,305

WELLTEK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

		NINE MONTHS				NINE MONTHS				THREE MONTHS				THREE MONTHS
		ENDED				ENDED				ENDED				ENDED
		SEPTEMBER 30,				SEPTEMBER 30,				SEPTEMBER 30,				SEPTEMBER 30,
		2010				2009				2010				2009
Revenues		$	739,504			$	2,078,673			$	174,656			$	1,103,331
Cost of revenues			389,511				1,002,810				128,046				483,472
Gross profit			349,993				1,075,863				46,610				619,859
Operating expenses:
Selling expense			24,700				224,225				1,300				138,055
General and administrative			708,214				1,305,443				120,719				666,328
Depreciation			128,430				86,800				53,921				28,920
Total operating expenses			861,344				1,616,468				175,940				833,303
Operating loss			(511,351	)			(540,605	)			(129,330	)			(213,444	)
Other income			—				—				—				—
Induced Conversion Expense			(1,215,000	)			—				(335,000	)			—
Interest expense			(99,815	)			(339,648	)			(19,865	)			(322,032	)
Minority Interest			17,549				—				17,043				—
Net loss		$	(1,808,617	)		$	(880,253	)		$	(467,152	)		$	(535,476	)
Net loss per share
Basic		$	(0.01	)		$	(0.02	)		$	(0.00	)		$	(0.01	)
DIluted		$	(0.01	)		$	(0.02	)		$	(0.00	)		$	(0.01	)
Weighted average number of shares outstanding
Basic			161,295,328				54,579,309				131,851,884				61,805,337
Diluted			161,295,328				62,337,195				131,851,884				69,563,223

WELLTEK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTH PERIOD ENDED

SEPTEMBER 30, 2010 AND 2009

		SEPTEMBER 30,				SEPTEMBER 30,
		2010				2009
Cash flows from operating activities:
Net loss		$	(1,808,617	)		$	(880,253	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			128,430				86,800
Stock based compensation			63,000				—
Stock issued for consulting services			48,750				150,097
Stock issued for finance charges			—				337,072
Non Cash Interest Expense			99,815				—
Induced Conversion Expense			1,215,000				—
Changes in operating assets and liabilities:
Accounts receivable			(113,574	)			(296,354	)
Prepaid expenses			(6,914	)			(19,937	)
Inventories, net			11,726				(222,700	)
Accounts payable and accrued expenses			160,312				(28,237	)
Customer deposits			84,411				139,895
Net cash used in operating activities			(117,662	)			(733,617	)
Cash flows used in investing activity:
Purchase of shell corporation			—				(100,000	)
Net cash provided by (used in) investing activity			—				(100,000	)
Cash flows from financing activities:
Proceeds from notes payable			147,543				457,432
Proceeds from the sale of common stock			—				533,212
Proceeds from sale of equipment			14,230				—
Net cash provided by financing activities			161,773				990,644
Net increase in cash			44,111				157,027
Cash, beginning of year			34,270				(8,134	)
Cash, end of period		$	78,381			$	148,893
Supplemental disclosures of cash flow information:
Cash paid for taxes		$	—			$	—
Cash paid for interest		$	—			$	—
Non-cash transactions:
Stock based compensation		$	63,000			$	—
Stock issued for consulting services		$	48,750			$	150,097
Stock issued for WellCity acquisition		$	660,515			$	—
Notes payable conversion expense		$	1,215,000			$	—

WELLTEK, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE YEAR ENDING DECEMBER 31, 2009

AND THE THREE MONTHS ENDING MARCH 31, JUNE 30 AND SEPTEMBER 30, 2010

																		Retained
																		Earnings
		Common Stock $.00001 par								Treasury				Additional				Accumulated				Shareholders’
		Shares				Par Value				Stock				Paid in Capital				Deficit				Equity
BEGINNING BALANCE AT JANUARY 2009			52,309,003			$	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
Warrants			—				—												—				—
Treasury stock							—								—								—
Net loss			—				—								—				(1,723,218	)			(1,723,218	)
ENDING BALANCE AT DECEMBER 31, 2009			85,783,828			$	858			$	(120,000	)		$	3,149,262			$	(3,911,375	)		$	(881,255	)

																		Retained
																		Earnings
		Common Stock $.00001 par								Treasury				Additional				Accumulated				Shareholders’
		Shares				Par Value				Stock				Paid in Capital				Deficit				Equity
BEGINNING BALANCE AT JANUARY 2010			85,783,828			$	858			$	(120,000	)		$	3,149,262			$	(3,911,375	)		$	(881,255	)
Shares issued for:
Founders			—				—												—				—
Merger			—				—												—				—
Cash			350,000				4								62,997				—				63,000
Consulting			—				—								—								—
Finance Charges			125,000				1								31,249								31,250
Employee options			—				—								—				—				—
Warrants			—				—												—				—
Treasury stock							—								—								—
Net loss			—				—								—				(268,503	)			(268,503	)
ENDING BALANCE AT MARCH 31, 2010			86,258,828			$	863			$	(120,000	)		$	3,243,507			$	(4,179,878	)		$	(1,055,508	)

																		Retained
																		Earnings
		Common Stock $.00001 par								Treasury				Additional				Accumulated				Shareholders’
		Shares				Par Value				Stock				Paid in Capital				Deficit				Equity
BEGINNING BALANCE AT APRIL 1, 2010			86,258,828			$	863			$	(120,000	)		$	3,243,507			$	(4,179,878	)		$	(1,055,508	)
Shares issued for:
Founders			—				—												—				—
Merger			14,500,000				145								666,855				—				667,000
Cash							—												—				—
Consulting			487,500				5								48,745								48,750
Finance Charges			50,000				1								500								500
Employee options							—								—				—				—
Debt Conversion			35,000,000				350								1,079,650				—				1,080,000
Treasury stock							—								—								—
Net loss			—				—								—				(1,073,467	)			(1,073,467	)
ENDING BALANCE AT JUNE 30, 2010			136,296,328			$	1,363			$	(120,000	)		$	5,039,256			$	(5,253,345	)		$	(332,725	)

																		Retained
																		Earnings
		Common Stock $.00001 par								Treasury				Additional				Accumulated				Shareholders’
		Shares				Par Value				Stock				Paid in Capital				Deficit				Equity
BEGINNING BALANCE AT JULY 1, 2010			136,296,328			$	1,363			$	(120,000	)		$	5,039,256			$	(5,253,345	)		$	(332,725	)
Shares issued for:
Founders			—				—												—				—
Merger							—								—				—				—
Cash							—												—				—
Consulting							—								—								—
Finance Charges							—								—								—
Employee options							—								—				—				—
Debt Conversion			75,000,000				750								424,113				—				424,863
Treasury stock							—								—								—
Net loss			—				—								—				(467,152	)			(467,152	)
ENDING BALANCE AT SEPTEMBER 30, 2010			211,296,328			$	2,113			$	(120,000	)		$	5,463,369			$	(5,720,497	)		$	(375,014	)

Welltek Incorporated

Notes to the Financial Statements

(Unaudited)

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 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. On May 1, 2010, the Company acquired 51% of the outstanding stock of WellCity, Inc., a social networking company.

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 $5,720,497 at September 30, 2010. 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, Pure Healthy Back, Inc. and WellCity, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

Interim Financial Statements

The interim financial statements presented herein have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in 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. The interim financial statements should be read in conjunction with the Company’s annual financial statements, notes and accounting policies included in the Company’s Annual Report. In the opinion of management, all adjustments which are necessary to provide a fair presentation of financial position as of September 30, 2010 and the related operating results and cash flows for the interim period presented have been made. All adjustments are of a normal recurring nature. The results of operations, for the period presented are not necessarily indicative of the results to be expected for the year ended December 31, 2010.

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.

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.

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.

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.

Advertising

The Company 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, 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.

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.

Fair Value

The carrying amounts of the Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximates fair value because of their short maturities. The carrying amount of capital lease obligations approximate fair values based on the fact that the capital lease interest rates are at prevailing market rates.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB has published ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): — Improving Disclosures about Fair Value Measurements”. ASU No. 2010-06 clarifies improve disclosure requirement related to fair value measurements and disclosures — Overall Subtopic (Subtopic 820-10) of the FASB Accounting Standards Codification. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure about purchase, sales, issuances, and settlement in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. 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 February 2010, the FASB issued ASU 2010-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2010, the FASB issued Accounting Standard Updates No. 2010-21 (ASU No. 2010-21) “Accounting for Technical Amendments to Various SEC Rules and Schedules” and No. 2010-22 (ASU No. 2010-22) “Accounting for Various Topics — Technical Corrections to SEC Paragraphs”. ASU No 2010-21 amends various SEC paragraphs pursuant to the issuance of Release no. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies. ASU No. 2010-22 amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics. Both ASU No. 2010-21 and ASU No. 2010-22 are effective upon issuance. The amendments in ASU No. 2010-21 and No. 2010-22 will not have a material impact on the Company’s financial statements.

Other ASUs not effective until after September 30, 2010, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

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 September 30, 2010 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 September 30, 2010 are as follows:

						Fair Value Measurements at September 30, 2010
		Total				Level 1				Level 2				Level 3
Assets:
Investment in Shell Corporation		$	100,000			$	—			$	—			$	100,000
Total Assets:		$	100,000			$	—			$	—			$	100,000

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, 2010		$	100,000
Change in fair value included in operations			—
Balance, September 30, 2010		$	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 $85,494 and $97,220 at September 30, 2010 and December 31, 2009.

NOTE 5 — PROPERTY AND EQUIPMENT, NET

Property and equipment as of September 30 consists of the following:

		2010				2009
Manufacturing machinery and equipment		$	403,030			$	422,530
Furniture and Fixtures			41,010				11,010
Computers and software			472,583				14,250
Less: accumulated deprecation			(269,778	)			(183,015	)
		$	646,846			$	264,775

Depreciation expense for the nine months ended September 30, 2010 and 2009 was $128,430 and $86,800 respectively.

NOTE 6- BUSINESS COMBINATIONS

On May 1, 2010, the Company acquired a 51% interest in the common stock of WellCity, Inc., a social networking company, from the sole shareholder of WellCity. Consideration for the purchase of the stock of WellCity, Inc. was 14,500,000 shares of restricted common stock of the Company. WellCity’s social network was to be used as a platform for WellTek to reach consumers with health and wellness products and services.

At the time of the stock purchase, WellCity had on its books fixed assets of $30,000 and a note payable of $94,485. The WellTek stock on May 1, 2010 was trading at an average of $.045. The WellCity acquisition is being accounted for as a subsidiary of WellTek. The Company has recorded the balance of WellCity’s baqlance sheet on the date of acquisition at fair value. The following is an analysis of the fair value. The acquisition is being accounted for as a purchase acquisition as required by ASC Topic 805, formerly SFAS 141R.

		At				Fair Value
		Acquisition				Adjustment				Fair Value
Assets Acquired
Fixed Assets		$	30,000				—			$	30,000
Software			—				500,000				500.000
Total Assets Acquired			30,000				500,000				530,000
Liabilities Acquired
Notes Payable			94,485				—				94,485
Total Liabilities Acquired			94,485				—				94,485
Net Fair Value of Assets Acquired			(64,485	)			500,000				435,515
Goodwill			225,000				—				225,000
Purchase Price		$	160,515			$	500,000			$	660,515

During the three months ending June 30 and September 30, 2010, WellCity had revenues of $0 and $39,581 and net loss of $403 and $34,773, respectively.

NOTE 7 — NOTES PAYABLE

At September 30 Notes Payable consists of the following:

		2010				2009
15% Secured Notes		$	350,000			$	400,000
10% Notes			5,000				165,000
5% Notes			202,500				10,000
Other			31,400				2,918
		$	588,900			$	577,918

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 was extended until May 15, 2010. For previous extensions, the noteholders received an additional 1,300,000 shares of common stock. The Company is in discussions with the noteholders to further extend the maturity date. 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 December 31, 2010.

5% Note

The 5% Notes were originated at varying dates in 2009 and 2010. The Notes are due upon demand by the maker.

During the nine months ending September 30, 2010, $255,000 in notes payable were converted into 110,000,000 shares of common stock in negotiated transactions, resulting in an induced conversion expense for the period of $1,215,000. On April 1, 2010, $40,000 of the 10% Notes were converted into 4,000,000 shares, resulting in an induced conversion expense of $400,000. On May 10, 2010, $110,000 of the 10% Notes and 5% Notes were converted into 11,000,000 shares, resulting in an induced conversion expense of $330,000. On June 23, 2010, $50,000 of 10% Notes were converted into 20,000,000 shares, resulting in an induced conversion expense of $150,000. On August 10, 2010, $500 of the 10% Notes were converted into 5,000,000 shares, resulting in an induced conversion expense of $49,500. On August 19, 2010, $50,000 of the 15% Secured Notes were converted into 25,000,000 shares, resulting in an induced conversion expense of $50,000. On August 20, 2010, $500 of the 10% Notes were converted into 5,000,000 shares, resulting in an induced conversion expense of $14,500. On September 7, 2010, $500 of the 10% Notes were converted into 5,000,000 shares, resulting in an induced conversion expense of $14,500. On September 28, 2010, $2,500 of the 10% Notes were converted into 25,000,000 shares, resulting in an induced conversion expense of $147,500. On September 28, 2010, $1,000 of the 10% Notes were converted into 10,000,000 shares, resulting in an induced conversion expense of $59,000.

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 $3,818 are due under this lease until August 2011.

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.

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 three months ended September 30, 2010 and 2009, $0 and $0 of general and administrative expenses was attributed to compensation expense associated with cash investors. In addition, for the three months ended September 30, 2010 and 2009, $0 and $0 of general and administrative expenses was attributed to stock based compensation for common shares issued for finance charges.

For the nine months ended September 30, 2010 and 2009, $0 and $0 of general and administrative expenses was attributed to compensation expense associated with cash investors. In addition, for the nine months ended September 30, 2010 and 2009, $0 and $0 of general and administrative expenses was attributed to stock based compensation for common shares issued for finance charges.

The Company affected a 40 to 1 forward split of its common stock during November 2009.

Note 11 — SUBSEQUENT EVENTS

In accordance with the guidance offered in ASC Topic 855, formerly SFAS 165 — “Subsequent Events”, the Company has evaluated its activities from September 30, 2010 through November 19, 2010 the date the financial statements were issued, and determined that there were no reportable subsequent events.

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

Special Note Regarding Forward-Looking Statements

Certain statements in this Form 10-Q under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such statements are indicated by words or phrases such as “anticipates,” “projects,” “management believes,” “believes,” “intends,” “expects,” and similar words or phrases. Such factors include, among others, the following: competition; seasonality; success of operating initiatives; new product development and introduction schedules; acceptance of new product offerings; advertising and promotional efforts; adverse publicity; changes in business strategy or development plans; availability and terms of capital; labor and employee benefit costs; changes in government regulations; and other factors particular to the Company. You should carefully review the risk factors described in other documents we file from time to time with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for our fiscal year ended December 31, 2009.

Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements of Welltek may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to Welltek or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Welltek disclaims any obligation to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

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”).

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.

On May 1, 2010, the Company acquired a 51% interest in the common stock of WellCity, Inc. Welltek currently conducts its business operations through the following three operating subsidiaries: MedX Limited, an English and Wales corporation (“Limited”) and Pure Healthy Back, Inc., a Florida corporation (“PHB”) and WellCity, Inc., a Tennessee corporation (“WellCity”).

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 subsidiaries Limited and WellCity, 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 proven solutions to help address some of the world’s most pressing and costly health and wellness challenges.

In 2008, the WellTek vision began with the acquisition of MedX Corporation, a mature brand of exercise and medical rehabilitation equipment sold around the world with a proven reputation for excellence. Following in 2009, WellTek formed Pure Healthy Back to leverage the well-trusted MedX-branded equipment into its operating platform. After carefully scrutinizing prevailing market perceptions and consumer trends inherent in today’s booming health and wellness environment, WellTek quickly recognized the significant role consumers play in influencing hot new trends with the advent of social media. Consequently, WellTek acquired WellCity, an online platform, to serve as the vital foundation in allowing WellTek to actively reach, engage and influence health and wellness conscious consumers with new and existing brand assets, technologies, products and services.

With specific concentration on high-growth emerging market sectors being fueled by the global health and wellness movement and social media trends, WellTek continues to develop and acquire businesses that will play a definitive role in empowering consumers to feel better, live longer, look younger and enjoy life more as they age; creating a positive impact on the health of millions around the world.

At present, WellTek’s operating subsidiaries include:

	•		WellCity: a social utility where health-and-wellness-minded ‘residents’ commune with one another; receive support, information and encouragement from their ‘neighbors’ and from a league of leading professional experts; shop for health and wellness-oriented product and services; compete in WellCity’s proprietary 90-Day Wellness Challenge; and even enjoy income opportunities by leveraging their personal network.
	•		MedX Limited: the manufacturer and global distributor of MedX’s superior line of medical exercise and fitness equipment.
	•		Pure HealthyBack, Inc.: a forward-thinking company building a national network of patient-centric medical rehabilitation centers for health plans, large self-insured employer groups, federal government agencies and consumers utilizing its proprietary medical exercise technology and scientifically proven clinical protocols to provide a viable and lasting solution to chronic neck and back pain without surgery.

Results of Operations

Welltek Comparison of Three Months Ended September 30, 2010 and 2009

Revenues decreased to $174,656 for the three months ended September 30, 2010 from $1,103,331 for the comparable 2009 period, representing a decrease of 84%. This decrease is attributed to lower international sales for the MedX products. Operating loss decreased to ($129,330) for the three months ended September 30, 2010 from ($213,444) for the comparable 2009 period, representing a change of 39%. This change is primarily attributed to a decrease in salaries and related expenses at both MedX and the corporate office.

Gross profit decreased to $46,610 for the three months ended September 30, 2010 from $619,859 for the comparable 2009 period, representing a change of 92%. The decrease in gross profit is directly attributed to the decrease in manufacturing revenues at MedX.

Operating expenses decreased to $175,940 for the three months ended September 30, 2010 from $833,303 for the comparable 2009 period, representing a decrease of 79%.

Interest Expense decreased to $19,865 for the three months ended September 30, 2010 from $322,032 for the comparable 2009 period. This change is primarily attributed to the stock that was given to noteholders and expensed as a finance charge in 2009.

As a result of the above changes, net loss was ($467,152) for the three months ended September 30, 2010 from ($535,476) for the comparable 2009 period, representing a change of 13%. This change is primarily attributed to a reduction in operating expenses.

Welltek Comparison of Nine Months Ended September 30, 2010 and 2009

Revenues decreased to $739,504 for the nine months ended September 30, 2010 from $2,078,673 for the comparable 2009 period, representing a decrease of 64%. This decrease is attributed to lower international sales for the MedX products. Operating loss decreased to ($511,351) for the nine months ended September 30, 2010 from ($540,605) for the comparable 2009 period, representing a change of 5%. This change is primarily attributed to a decrease in operating costs at both MedX and the corporate office.

Gross profit decreased to $349,993 for the nine months ended September 30, 2010 from $1,075,863 for the comparable 2009 period, representing a change of 67%. The decrease in gross profit is directly attributed to the decrease in manufacturing revenues at MedX.

Operating expenses decreased to $861,344 for the nine months ended September 30, 2010 from $1,616,468 for the comparable 2009 period, representing a decrease of 47%.

Interest Expense decreased to $99,815 for the nine months ended September 30, 2010 from ($339,648) for the comparable 2009 period. This change is primarily attributed to the stock that was give to noteholders and expensed as a finance charge in 2009.

As a result of the above changes, net loss was ($1,808,617) for the nine months ended September 30, 2010 from ($880,253) for the comparable 2009 period, representing a change of 105%. This change is primarily attributed to a decrease in revenues and induced conversion costs of $1,215,000 in 2010.

Liquidity and Capital Resources

As of September 30, 2010, Welltek had cash on hand in the amount of $78,381. As of September 30, 2010, Welltek’s current assets were $495,404 and its current liabilities were $1,842,264, which resulted in a working capital deficiency of $375,015. As of September 30, 2010, Welltek had total assets of $1,467,249 and total liabilities of $1,842,264. 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 3.		Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4.		Controls and Procedures.

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act) as of the end of the period covered by the report. Based upon that evaluation, the Company’s CEO and CFO concluded that as of September 30, 2010 the Company’s disclosure controls and procedures were effective.

Internal Control over Financial Reporting

During the quarter ended September 30, 2010, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A.		Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, 2010, Welltek issued the following securities in transactions not registered under the Securities Act of 1933, as amended (the “Securities Act”):

•

Issued 75,000,000 shares of common stock to note holders for the conversion of debt.

Item 3.		Defaults Upon Senior Securities.

The maturity date for the 15% Secured Notes was extended until May 15, 2010. We are in discussions with the note holders to further extend the maturity date.

Item 4.		Removed and Reserved

Item 5.		Other Information.

None.

Item 6.		Exhibits.

Exhibit No.				Description
	3.1	(i)		Articles of Incorporation (2)
3.1		(ii)		Certificate of Amendment to Articles of Incorporation, filed September 25, 2009 (1)
	3.2			Bylaws (2)
	10.1			Agreement and Plan of Merger, dated September 1, 2009 (3)
	21			Subsidiaries (1)
	31.1			Certification of the PEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
	31.2			Certification of the PFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
	32.1			Certification of the CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2			Certification of the CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Orlando, FL, on November 19, 2010.

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		November 19, 2010
Randy Lubinsky
Chief Executive Officer, Chairman of the Board and Director
(Principal Executive Officer)
/s/ Mark Szporka		November 19, 2010
Mark Szporka
Chief Financial Officer, Secretary and Director
(Principal Financial Officer and Principal Accounting Officer)