- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended : January 31, 2009

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

For the transition period from _________ to _________

WELLSTAR INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of incorporation or organization)

20-1834908

(I.R.S. Employer Identification No.)

6911 Pilliod Road

Holland, Ohio 43528

(Address of principal executive offices)

(419) 865-0069

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller Reporting Company x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

CLASS		NUMBER OF SHARES OUTSTANDING

Common Stock, $0.001 par value		1,522,703,975 as of March 3, 2009

Table of Contents

		Page
Part I –	Financial Information
	Item 1. Financial Statements (unaudited)	F-1
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	9
	Item 4T. Controls and Procedures	9
Part II –	Other Information
	Item 1. Legal Proceedings	10
	Item 1A. Risk Factors	10
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	10
	Item 3. Defaults upon Senior Securities	10
	Item 4. Submission of Matters to a Vote of Security Holders	10
	Item 5. Other Information	10
	Item 6. Exhibits	10
Signatures		11
Exhibit Index
Rule 13a-14(a) Certification executed by John Antonio
Rule 13a-14(a) Certification executed by Howard Bielski
Section 1350 Certification

PART I

FINANCIAL INFORMATION

WELLSTAR INTERNATIONAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2009 AND 2008

F-1

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2009 AND 2008

CONTENTS

	PAGE

CONSOLIDATED BALANCE SHEET	F-3, F-4

CONSOLIDATED STATEMENT OF OPERATIONS	F-5

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)	F-6

CONSOLIDATED STATEMENT OF CASH FLOWS	F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENT	F-8 to F-25

F-2

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

	January 31 2009 (Unaudited)		July 31 2008 (Audited)
Current Assets:
Cash	$	178,086	$	25,560
Prepaid Expenses		16,125		40
Rent Refund Receivable		1,580		1,580
Total Current Assets		195,791		27,180
Fixed Assets:
Imaging Equipment		837,874		837,874
Office Equipment and Fixtures		154,884		154,540
Subtotal		992,758		992,414

Less: Accumulated Depreciation		474,403		374,414
Net Fixed Assets		518,355		618,000

Intangible Assets:
Covenant Not To Compete		20,000		20,000
Manufacturing and Distribution Agreement		700,000		700,000
Subtotal		720,000		720,000

Less: Accumulated Amortization		416,463		352,304
Net Intangible Assets		303,537		367,696

Other Assets:
Loan Acquisition Cost (net of amortization of $231,805 @ 10/31/08 and $216,861 @ 7/31/08)		57,108		80,664
Software and Manuals (net of amortization of $104,080		26,666		35,975
@ 10/31/08 and $99,425 @ 7/31/08)
Security Deposit		4.525		4,525
Total Other Assets		88,299		121,164
Total Assets	$	1,105,982	$	1,134,040

See Accompanying Notes to Consolidated Financial Statements

F-3

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

LIABILITIES LESS SHAREHOLDERS’ DEFICIT

	January 31 2009 (Unaudited)			July 31 2008 (Audited)
Current Liabilities:
Accounts Payable	$	671,555		$	699,295
Accrued Expenses		2,455,050			1,915,925
Note & Loan Payable - Other		29,912			13,000
Note & Loan Payable - Officer		69,680			-
Notes Payable		750,000			750,000
Derivative Instrument Liability - Loan		401,581			374,952
Derivative Instrument Liability - Convertible Notes		2,886,686			2,525,027
Convertible Debt		1,499,866			530,452
Total Current Liabilities		8,764,330			6,808,651

Long Term Liabilities:
Convertible Debt		38,015			85,499
Derivative Instrument Liability - Convertible Notes		4,500,900			5,841,505
Derivative Instrument Liability - Warrants		98,114			1,153,454
Total Long-Term Liabilities		4,637,029			7,080,458

Total Liabilities		13,401,359			13,889.109

Stockholders' Deficit:
Common Stock
Authorized 1,000,000,000 Shares, par value .001 per
Share Issued Shares, 519,940,017 - Outstanding Shares, 518,440,017 (10/31/08) and 460,040,217 (7/31/08)		1,148,705			460,041
Paid in Surplus		1,318,878			1,098,260
Retained Earnings (Deficit)		(14,762,960	)		(14,313,370	)
Total Shareholders' Deficit		(12,295,377	)		(12,755,069	)
Total Liabilities Less Stockholder's Deficit	$	1,105,982		$	1,134,040

See Accompanying Notes to Consolidated Financial Statements

F-4

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

		Three Months January 31,					Six Months January 31,
Income:		2009			2008		2009			2009
Revenue from Medical Imaging	$	-0-		$	-0-		$	-0-		$	-0-
Cost of Sales		-0-			-0-			-0-			-0-
Gross Profit		-0-			-0-			-0-			-0-

Operating Expenses:		512,795			689,042			939,039			1,085,481
Selling, General and Administrative		95,342			110,370			197,014			202,876
Depreciation and Amortization		608,137			799,412			1,136,053			1,288,357
Total Operating Expenses

Loss from Operations		(608,137	)		(799,412	)		(1,136,053	)		(1,288,357	)

Other Expense (Income):
Interest Income		(3	)		(1,415	)		(62	)		(1,851	)
Interest Expense		128,272			119,514			250,124			227,075
Derivative Instrument (Income) Expense, Net		108,900			122,400			217,800			182,400
Non-Registration Penalties		1,616,582			(3,783,355	)		(1,154,325	)		(2,333,761	)
Total Other Expenses (Income)		1,853,751			(3,542,856	)		(686,463	)		(1,926,137	)

Income (Loss) before Provision for Taxes		(2,461,888	)		2,743,444			(449,590	)		637,780
Provision for Taxes		-			-			-			-
Net Income (Loss)	$	(2,461,888	)	$	2,743,444		$	(449,590	)	$	637,780

Net Income (Loss) Per Share, Basic and Diluted	$	.0		$	.02		$	(-)		$	(-)

Weighted Average Number of Common Shares Outstanding, Basic and Diluted		697,103,141			175,496,901			509,756,411			149,868,232

See Accompanying Notes to Consolidated Financial Statements

F-5

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN

STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JANUARY 31, 2009

	Common Stock						Additional Paid in			Accumulated
	Shares			Amount			Capital			Deficit			Total

Balance, August 1, 2008		460,040,217		$	460,041		$	1,098,260		$	(14,313,370	)	$	(12,755,069	)

Stock Issued to Consultants and Others for Services and
Expenses		66,176,450			66,176			335,196						401,372

Conversion of Debentures		435,400,000			435,400			(271,040	)					164,360

Stock Issued for Cash		203,200,000			203,200			140,350						343,550

Company Stock Donated		(16,112,500	)		(16,112	)		16,112

Net (Loss) for the Period											(449,590)			(449,590	)

Balance, January 31, 2009		1,148,704,167		$	1,148,705		$	1,318,878		$	(14,762,960	)	$	(12,295,377	)

See Accompanying Notes to Consolidated Financial Statements

F-6

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Three Month Ended January 31,
Cash Flows from Operating Activities:	2009			2008
Net Income Loss	$	(449,590	)	$	637,780
Adjustments to Reconcile Net Loss to Net Cash used in Operating Activities:
Depreciation and Amortization		197,014			202,876
Services Paid in Stock		385,247			65,382
Derivative Instrument (Income) Expense, Net		(1,154,325	)		(2,333,761	)
Delinquent Registration Penalty		217,800			182,400
Changes in Operating Assets and Liabilities:
Increase (Decrease) In:
Accounts Receivable		-			50,000
Prepaid Expenses		40			12,244
Accounts Payable		(27,740	)		52,713
Accrued Expenses		554,282			335,648
Net Cash Used in Operating Activities		(277,272	)		(794,718	)

Cash Flows from Investing Activities:
Purchase of Equipment and Software		(344	)		(45.525	)
Net Cash Used in Investing Activities		(344	)		(45.525	)

Cash Flows From Financing Activities:
Payments of Financing Costs		-			(35,000	)
Proceeds from Issuance of Convertible Notes		-			815,000
Note Payable - Officer		59,680			-
Note Payable - Other		16,912			-
Issuance of Stock for Cash		343,550			-
Net Cash Provided by Financing Activities		430,142			780,000

Net Increase in Cash		152,526			(60,243	)

Cash at Beginning of Period		25,560			64,791
Cash at End of Period	$	178,086		$	4,548

Cash Paid for Interest	$	-0-		$	-0-

Cash Paid for Taxes	$	-0-		$	-0-

See Accompanying Notes to Consolidated Financial Statements

F-7

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED JANUARY 31, 2009 AND 2008

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

1.	During the six months ended January 31, 2009, convertible debentures in the amount of $164,360 were converted into 435,400,000 shares of Common Stock.

2.	66,176,450 shares of Common Stock was issued for services rendered in the six months ended January 31, 2009. The amount was $401,372.

3.	During the six months ended January 31, 2009, two officer/stockholders donated 16,112,500 shares of the Company stock they owned to the Company. This transaction has no effect on cash.

4.	During the six months ended January 31, 2008, stock purchase warrants exercisable for 35,000,000 shares of Common Stock were issued in connection with a closing on $815,000 of convertible notes had no cash effect.

5.	7,682,142 shares of Common Stock was issued for services rendered. The amount was $65,382 in the six months ended January 31, 2008.

6.	During the six months ended January 31, 2008, convertible debentures in the amount of $161,117 were converted into 101,274,500 shares of Common Stock.

7.	During the six months ended January 31, 2008, the Company acquired software for cameras in the amount of $300,000, which was not paid for, as such, has no effect on cash in this period.

See Accompanying Notes to Consolidated Financial Statements

F-8

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

AS OF JANUARY 31, 2009

(UNAUDITED)

NOTE 1 Summary of Significant Accounting Policies and Organization

Organization and Recent Company History

Wellstar International, Inc. (the “Company”) was incorporated December 15, 1997, under the laws of the State of Nevada. Through its wholly owned subsidiary, Trillennium Medical Imaging, Inc. (“TMI”), it is developing and licensing the use of advanced thermal imaging technology.

Principles of Consolidation

The consolidated financial statements include the accounts of Wellstar International, Inc. and its wholly owned subsidiary, Trillennium Medical Imaging, Inc. (collectively, the “Company”).

Interim Condensed Consolidated Financial Statements

The consolidated financial statements as of and for the six months ended January 31, 2009 and 2008 are unaudited. In the opinion of management, such consolidated financial statements include all adjustments (consisting only of normal recurring accruals) necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. The consolidated results of operations for the six months ended January 31, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet information as of July 31, 2008 was derived from the audited consolidated financial statements included in the Company’s annual report Form 10-KSB for the year ended July 31, 2008. The interim consolidated financial statements should be read in conjunction with that report.

d) Revenue Recognition

The Company recognizes revenues utilizing the accrual method of accounting. More specifically, the Company enters into licensing agreements for its advanced thermal imaging technology. Under the licensing agreements, the Company supplies the camera equipment, related software and training for each facility. Once the facility is operational, the licensing agreement provides for a fixed fee monthly fee for the use of the camera. Accordingly, the revenue is recognized in the month that the camera is in use at the customer’s facility, which represents the Company’s right to receive the fixed fee. The Company’s revenue recognition policy is in compliance with the provisions of EITF 00-21.

F-9

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

AS OF JANUARY 31, 2009

(UNAUDITED)

NOTE 1 Summary of Significant Accounting Policies and Organization (cont’d)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

f) Cash

For the purpose of the Statement of Cash Flows, cash is defined as balances held in corporate checking accounts and money market accounts.

g) Income (Loss) Per Share

Basic and diluted net income (loss) per common share for the six months ended January 31, 2009 and 2008 are computed based upon the weighted average number of common shares outstanding. The assumed conversion of Common Stock equivalents was not included in the computation of diluted Income (loss) per share because the assumed conversion and exercise would be anti-dilutive due to the net Income (loss) incurred. Based on the conversion formula in the Agreements (see Note 2 and 3) on the conversion of its convertible notes would have resulted in the issuance of additional common shares in the amount of 77,728,682,692, on January 31, 2009.

h) Stock Based Compensation

Stock based compensation will be valued in accordance with SFAS 123(R) under the Fair Valued based method. Compensation cost is measured at the grant date based on the value of the award and is recognized over the service period which is usually the vesting period. Transactions with non-employees shall be accounted for based on the Fair Value of the consideration received or Fair Value of the equity installments issued, whichever is more reliably measurable.

Derivative Instruments

In connection with the sale of debt or equity instruments, we may sell options or warrants to purchase our Common Stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

F-10

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

AS OF JANUARY 31, 2009

(UNAUDITED)

NOTE 1 Summary of Significant Accounting Policies and Organization (cont’d)

Derivative Instruments (cont’d)

Income Taxes

The Company will provide for income taxes based on the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 109 (“SFAS No. 109"), “Accounting for Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements and tax returns in different years. Under this method, deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consists of a checking account with a financial institution in excess of insured limits. There was no excess above insured limits at January 31, 2009. The Company does not anticipate non-performance by the financial institution.

Fair Value of Financial Instruments

Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of their short maturities.

F-11

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

AS OF JANUARY 31, 2009

(UNAUDITED)

NOTE 1 Summary of Significant Accounting Policies and Organization (cont’d)

m) Equipment

Imaging and office equipment are recorded at cost and depreciated on the straight line method with an estimated life of five (5) years. Imaging equipment is at the customers facility where the equipment is used or stored by the Company until placed in use. The Company retains title to the imaging equipment while it is at the customers location. Depreciation expense for the six months ended January 31, 2009 and 2008 were $99,989 and $87,916, respectfully.

n) Intangible Assets

Loan acquisition costs are stated at cost and relate to the costs of acquiring the convertible notes (see Note 2) and to obtaining the $400,000 Note Payable (see Note 3). Amortization is provided for under the straight line method over three (3) years, which is the term of the convertible notes and six months for the original term of the Note Payable. Total amortization for the six months ended January 31, 2009 and 2008 were $23,556 and $22,269, respectfully.

Software and manuals, Covenant Not To Compete and Manufacturing & Distribution Agreement acquired in the acquisition of Micro Health Systems, Inc. (See Note 3) with cost of $80,000, $20,000 and $700,000 respectively are being amortized over a 24 month period for the software and the Covenant and 5 ½ years for the manufacturing and distribution agreement. The total amortization expense for the six months ended January 31, 2009 and 2008 were $73,469 and $92,692, respectfully.

Long-lived Assets

Estimates of future cash flows used to test recoverability of long-lived assets shall be based on the existing service potential of the asset or asset group at the date it is tested. The testing will be done annually prior to July 31 st , the Company’s fiscal year end.

Management, in reviewing the value, is of the opinion that its carrying values of its imaging equipment are not higher than fair value to sell. It also is of the opinion that it’s exclusive Mikron Manufacture and Distribution Agreement which is at a carrying value of 50% of its cost three years ago, is a low value. Current tests of its imaging equipment are currently under way by a major medical facility and management is of the opinion the tests will yield positive results to effect future revenue and cash flow.

F-12

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

AS OF JANUARY 31, 2009

(UNAUDITED)

NOTE 1 Summary of Significant Accounting Policies and Organization (cont’d)

p)	Derivative Instruments

Because of the limited trading history of our Common Stock, we have estimated the future volatility of our Common Stock price based on not only the history of our stock price but also the experience of other entities considered comparable to us. The identification of, and accounting for, derivative instruments and the assumptions used to value them can significantly affect our financial statements.

q)	Registration Rights Agreements

In connection with the sale of debt or equity instruments, we may enter into Registration Rights Agreements. Generally, these Agreements require us to file registration statements with the Securities and Exchange Commission to register common shares that may be issued on conversion of debt or preferred stock, to permit re-sale of common shares previously sold under an exemption from registration or to register common shares that may be issued on exercise of outstanding options or warrants.

The Agreements usually require us to pay penalties for any time delay in filing the required registration statements, or in the registration statements becoming effective, beyond dates specified in the Agreement. These penalties are usually expressed as a fixed percentage, per month, of the original amount we received on issuance of the debt or preferred stock, common shares, options or warrants. We account for these penalties as a contingent liability and not as a derivative instrument. Accordingly, we recognize the penalties when it becomes probable that they will be incurred. Any penalties are expenses over the period to which they relate.

NOTE 2 Convertible Notes

On October 31, 2005, the Company entered into a Securities Purchase Agreement with AJW Partners, LLC and its related entities for the sale of $3,000,000 of 8% secured convertible notes, each advance is evidenced by a note which is due three years from the date of the advance, and for stock purchase warrants exercisable for a total of 5,000,000 shares of Common Stock each issuance of warrants expiring on the fifth anniversary from the date of issue. The warrants are issued at the time funds are advanced at 1,666,667 per $1 million advanced. The notes are convertible, at the holder’s option, into shares of Common Stock, in whole or in part, at any time after the original issue date. No interest shall be due and payable for any month in which the Company’s stock trading price is greater than $0.1125 for each trading day of the month.

F-13

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

AS OF JANUARY 31, 2009

NOTE 2 Convertible Notes (cont’d)

The number of shares of Common Stock issuable upon a conversion is to be determined by dividing the outstanding principal amount of the notes to be converted, plus related accrued interest, by the conversion price. The conversion price in effect on any conversion date will be at the selling stockholder’s option, at the lower of (i) $0.12 or (ii) a 40% discount to the average of the three lowest intraday trading prices for the Common Stock on a principal market for the twenty trading days preceding, but not including, the conversion date for all notes except a discount of 67.50% relates to stock conversions for the convertible debentures dated April 22, 2008, June 12, 2008 and August 29, 2008. The total shares at January 31, 2009 were 71,453,974,359.

The stock purchase warrants have an exercise price of $0.50 per share. The Company has closed on the entire $3,000,000 of convertible notes contemplated by the Securities Purchase Agreement and issued stock purchase warrants exercisable for 5,000,000 shares of Common Stock in connection therewith. The dates of the advance of the funds of $1 million each were October 31, 2005 and January 20, 2006 and $500,000 each on July 25, 2006 and August 8, 2006. The stock registration was effective August 4, 2006.

On November 30, 2006, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $400,000 of 8% secured convertible notes due November 30, 2009, and for stock purchase warrants of 4,000,000 shares of Common Stock exercisable at anytime at $.08 per share, expiring on the seventh anniversary from the date of issue, November 30, 2013.

The funds were advanced on November 30, 2006, in the amount of $392,500, less a $7,500 charge as a loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of Common Stock, in whole or in part, at any time after the original issue date.

No interest shall be due on any payable for any month in which the Company’s stock trading price is greater than $.0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

On March 26, 2007, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $165,000 of 8% secured convertible notes due March 26, 2010, and for stock purchase warrants of 1,000,000 shares of Common Stock exercisable at anytime at $.03 per share, expiring on the seventh anniversary from the date of issue, March 26, 2014.

The funds were advanced on March 26, 2007, in the amount of $150,000, less a $15,000 charge as a loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of Common Stock, in whole or in part, at any time after the original issue date.

F-14

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 2 Convertible Notes (cont’d)

No interest shall be due or any payable for any month in which the Company’s stock trading price is greater than $.0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

On May 30, 2007, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $435,000 of 8% secured convertible notes due May 30, 2010, and for stock purchase warrants of 10,000,000 shares of Common Stock exercisable at anytime at $.02 per share, expiring on the seventh anniversary from the date of issue, May 30, 2014.

The funds were advanced on May 30, 2007, in the amount of $415,000, less a $20,000 charge as a loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of Common Stock, in whole or in part, at any time after the original issue date. No interest shall be due or any payable for any month in which the Company’s stock trading price is greater than $.0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

On October 12, 2007, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $175,000 of 8% secured convertible notes due October 12, 2010, and for stock purchase warrants of 15,000,000 shares of common stock exercisable at anytime at $ .0001 per share expiring on the seventh anniversary from the date of issue October 12, 2014.

The funds were advanced on October 12, 2007 in the amount of $170,000, less a $5,000 charge as loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of common stock, in whole or in part, at any time after the original issue date. No interest shall be due or payable for any month in which the Company’s stock trading price is greater than $ .0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

On November 15, 2007, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $325,000 of 8% secured convertible notes due November 15, 2010, and for stock purchase warrants of 10,000,000 shares of common stock exercisable at anytime at $ .0001 per share expiring on the seventh anniversary from the date of issue November 15, 2014.

The funds were advanced on November 15, 2007 in the amount of $310,000, less a $15,000 charge as loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of common stock, in whole or in part, at any time after the original issue date.

F-15

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 2 Convertible Notes (cont’d)

No interest shall be due or payable for any month in which the Company’s stock trading price is greater than $ .0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

On December 14, 2007, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $315,000 of 8% secured convertible notes due December 14, 2010, and for stock purchase warrants of 10,000,000 shares of common stock exercisable at anytime at $ .0001 per share expiring on the seventh anniversary from the date of issue December 14, 2014.

The funds were advanced on December 14, 2007 in the amount of $300,000, less a $15,000 charge as loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of common stock, in whole or in part, at any time after the original issue date. No interest shall be due or payable for any month in which the Company’s stock trading price is greater than $ .0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

On December 31, 2007, the Lender issued the Company a new note for all accrued unpaid interest. The Lender applied all of its conversions from convertible notes into stock to the principal of its original note issued October 31, 2005.

The Company which had been applying the conversions to interest first then principal made this adjustment to be in agreement with the Lender and will apply all conversion to principal beginning January 1, 2008. The Callable Secured Convertible Note dated December 31, 2007 in the amount of $427,759.61 bears interest at 2% per annum, payable quarterly. The note is due December 31, 2010. All of the terms are identical to the above notes, including the conversion options.

On April 22, 2008, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $190,000 of 8% secured convertible notes due April 22, 2011, and for stock purchase warrants of 20,000,000 shares of common stock exercisable at anytime at $ .0001 per share expiring on the seventh anniversary from the date of issue April 22, 2015.

The funds were advanced on April 22, 2008 in the amount of $185,000, less a $5,000 charge as loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of common stock, in whole or in part, at any time after the original issue date. No interest shall be due or payable for any month in which the Company’s stock trading price is greater than $.0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

F-16

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 2 Convertible Notes (cont’d)

On June 12, 2008, the Company entered into an additional securities purchase agreement with AJW Partners, LLC and its related entities for the sale of $135,000 of 8% secured convertible notes due June 12, 2011.

The funds were advanced on June 12, 2008 in the amount of $105,000, less a $20,000 charge as loan acquisition cost, amortized over the loan period of 36 months. The notes are convertible, at the holders option, into shares of common stock, in whole or in part, at any time after the original issue date. No interest shall be due or payable for any month in which the Company’s stock trading price is greater than $.0775 for each trading day of the month. The notes are secured by all the assets and intellectual property of the Company.

On August 29, 2008, AJW Partners, LLC and its related entities (the Lender) issued the Company a new Note for all accrued unpaid interest from January 1, 2008 through August 29, 2008. The accrued interest has been reclassified to a convertible note payable. The Callable Secured Convertible Note, dated August 29, 2008, in the amount of $235,113.84, bears interest at 2% per annum, payable quarterly. The Note is due on August 29, 2011. The conversion price is the average of the three (3) lowest trading prices in the 20 days prior to conversion (before the conversion date) X 32.5% = conversion price. All other terms are identical with the other Note.

See Paragraph 2 of this note related to the terms of conversion. The total shares at January 31, 2009, included in Paragraph 2 above, includes all additional convertible notes.

All notes include a Registration Rights Agreement. The Company was required to register additional shares in relation to all the additional agreements listed above, this was not done. There is a penalty of 2% per month of the note amount, a penalty of $913,374 was accrued through January 31, 2009.

In connection with the aforementioned issuance of the $1,000,000 of convertible notes, on October 31, 2005, the Company granted a first priority security interest in all the assets of the Company. The issuance of convertible notes resulted in conversion features being accounted for as embedded derivative liabilities in accordance with EITF00-19 and SFAS 133 (see Note 4). The note holder’s have converted notes of $872,952 into 760,748,200 shares of Common Stock as of January 31, 2009. The balance of the notes are $4,927,758, at January 31, 2009. Interest due of $193,982 is included in Accrued Expenses.

F-17

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 2 Convertible Notes (cont’d)

The classification as short-term and long-term derivative instrument liabilities-convertible notes, derivative instrument liabilities warrants and convertible debt is based upon the due date of the notes and the date the warrants expire. Some of the notes have passed their due dates and others are due within one year; these are shown as current liabilities, the other are shown as long-term liabilities. The warrants are shown as long-term as the expiration dates are over one year.

NOTE 3 Notes Payable

The Company has borrowed $150,000 from an unrelated individual. The Note is dated August 1, 2005. The outstanding balance of the loan shall bear monetary interest at the fixed rate of six percent (6%) simple, non-compounding interest payable in arrears per annum.

The outstanding balance of principal and interest is due and payable on demand on or after August 1, 2006. All payments shall apply first to interest accrued and then principal. The Company may prepay all or part without a pre-payment penalty. The loan was not paid on August 1, 2006 and was extended under the same terms by mutual agreement. Interest due of $31,975 is included in Accrued Expenses.

Default shall occur upon (1) failure to make payment on the note or transfer of stock when due, (2) Company institutes bankruptcy or solvency proceedings or make an assignment for the benefit of creditors.

Note Payable - Current

150,000

The Company has entered into a loan agreement with an unrelated individual. The note is dated October 11, 2005. The note provides for a total loan of $400,000, the Company received $190,000 by October 31, 2005. The balance of $210,000 was subsequently received on November 29, 2005. The note bears interest at a fixed rate of 8%, plus the prevailing variable margin rate charged to the lender. As of January 31, 2009, the margin rate was 7.625%. The lender was paid a loan acquisition cost on December 5, 2005, in Common Stock of 1 million shares.

The cost was recorded at market value at the date of the loan which was $ .12 per share, for a total of $120,000. The outstanding balance of principal and accrued interest was due and payable on April 11, 2006. The note has been extended to February 28, 2007 by addendum under the current terms and interest is being accrued. The addendum was signed on November 11, 2006. In consideration of the waiver and extension, the Company, with the signing, paid the lender $20,000. The lender was also issued additional warrants to purchase 400,000 shares of common stock, 200,000 at $0.10 per share and 200,000 at $0.20 per share, which expire on February 28, 2008. As of January 31, 2009, the note has not been paid.

F-18

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 3 Notes Payable (cont’d)

At January 31, 2009, $202,372 of interest expense is included in Accrued Expenses. As security for the loan, the Company has pledged all of its tangible and intangible assets. Commencing on January 1, 2006, the Company shall establish an escrow account and shall deposit 25% of all proceeds generated by the thermal imaging cameras purchased with $210,000 of proceeds from the loan. The funds shall remain in escrow for use in paying all sums due to the lender. To January 31, 2009, no funds have been put into escrow.

In addition, the lender has the option to convert the loan into fully registered, unsecured Common Stock of the Company at a conversion price on the day of conversion, minus 40%. The total shares at January 31, 2009 were 6,274,708,333. The lender shall have the right to convert on the prepayment date or the due date, whichever occurs first. The issuance of the notes and warrants resulted in conversion features being accounted for as embedded derivative liabilities in accordance with EITF00-19 and FASB 133 (see

Note 4 ).

Balance due at January 31, 2009

400,000

On December 21, 2005, the Company completed the purchase of certain assets of Micro Health Systems, Inc. (“MHS”) under a definitive agreement.

Total consideration paid by the Company was $600,000, plus 2,000,000 shares of Restricted Common Stock. The Company paid $400,000 at closing. A promissory note was executed for $200,000 with interest at 8% per annum. $100,000 is due with accrued interest on or before the 180 th day following the date of the Note which is June 19, 2006, with the balance of principal and interest due and payable on or before the 365 th day following the date of the note.

The 2,000,000 shares of Restricted Common Stock were issued on December 21, 2005 and priced at the market price of $ .10 per share for a total value of $200,000. The cost was allocated as follows:

Mikron Manufacturing Distribution Agreement
Customer List and Intangible Assets	$	700,000
Tangible Assets		80,000
Covenant Not-To-Compete		20,000
Total	$	800,000

F-19

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 3 Notes Payable (cont’d)

In addition, 1,500,000 shares of Restricted Common Stock are being held in escrow as security for the note payable of $200,000. These shares have been shown as issued but not outstanding. The Company is in default on $200,000 of the Note Payable and interest of $4,000 which was due June 19, 2006 on the first $100,000 of notes due. Due to the default, the interest charged from June 19, 2006 is 18% on the $200,000 Note Payable. Interest expense of $96,486 is included in Accrued Expenses.

On November 28, 2006, the Company received a letter due to the default, giving it ten (10) days to pay the note and accrued interest or the 1,500,000 shares held in escrow will be issued to the shareholder of Micro Health Systems, Inc. As of January 31, 2009 and through December 12, 2008 nothing has transpired.

Balance due at October 31, 2008

200,000

The Company has borrowed $10,000 from an unrelated company. The Note is dated April 14, 2008, and was due on July 15, 2008 (maturity date). The Note has an interest rate of 15% per annum. Per the terms of the Note, the Company is in default as it failed to pay the principal and interest due upon the maturity date. In an event of default, Lender by notice given to Borrower may declare the unpaid principal and accrued interest owing upon this notice to be immediately payable. The Company (Borrower) has not received any demand for payment from the Lender as of January 31, 2009. The Note is included as a current liability in Note and Loan Payable - Other, in the amount of $10,000. The note was paid on full in February 2, 2009.

The Company has borrowed $16,912 from an unrelated party. The note is dated January 16, 2009, and was due on February 16, 2009 (maturity date). The note has an interest rate of 12% per annum. Per the terms of the note, the Company is in default as it failed to pay the principal and interest due upon the maturity date. In the event of default, the lender, by notice given to the borrower, may declare the unpaid principal and accrued interest owing to be paid. The Company (borrower) has not received any demand for payment as of March 5, 2009. The note is included as a current liability in Notes and Loans Payable - Other in the amount of $16,912.

On December 3, 2008, the President of the Company issued Promissory Notes to AJW Partners, LLC, and related entities, in the amount of $57,500. $50,000 was loaned to the Company and $7,500 was paid as Loan Acquisition Costs. The Notes bear no interest unless and until an event of default occurs, as specified in the Notes. The Notes are due December 31, 2009. The $50,000 is included as a Current Liability in Note and Loan Payable - Officer.

F-20

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 4 Derivative Financial Instrument Liabilities

We use the Black-Scholes option pricing model to value options and warrants, and the embedded conversion option components of any bifurcated embedded derivative instruments that are recorded as derivative liabilities. See Note 1, related to embedded derivative instruments accounting policy.

In valuing the options and warrants and the embedded conversion option components of the bifurcated embedded derivative instruments, at the time they were issued and at January 31, 2009, we used the market price of our Common Stock on the date of valuation, an expected dividend yield of 0% and the remaining period to the expiration date of the options or warrants or repayment date of the convertible debt instrument. All options, warrants and conversion options can be exercised by the holder at any time.

Because of the limited historical trading period of our Common Stock, the expected volatility of our Common Stock over the remaining life of the options and warrants has been estimated at 123%, based on a review of the historical volatility and of entities considered by management as comparable. The risk-free rates of return used ranged from 0.12% to 1.80%, based on constant maturity rates published by the U.S. Federal Reserve, applicable to the remaining life of the options or warrants.

F-21

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 4 Derivative Financial Instrument Liabilities (cont’d)

At January 31, 2009, the following derivative liabilities related to Common Stock options and warrants and embedded derivative instruments were outstanding (see Notes 2 and 3):

Issue Date	Expiry Date	No. of Warrants		Issued To	Exercise Price Per Share		Value - Issue Date		Value - Jan. 31, 2009
10/11/05	04/11/06		1,000,000	Thompson	$	.50	$	41,526	$	0

11/19/06	02/18/08		200,000	Thompson	$	.10		3,845		0

11/19/06	02/18/08		200,000	Thompson	$	.20		2,276		0

10/31/05	10/31/10		1,666,667	AJW Partners	$	.50		169,629		3

01/20/06	01/20/11		1,666,667	AJW Partners	$	.50		81,321		7

07/25/06	07/25/11		833,333	AJW Partners	$	.50		146,197		13

08/04/06	08/04/11		833,333	AJW Partners	$	.50		102,816		14

11/30/06	11/30/13		4,000,000	AJW Partners	$	.08		158,741		2,169

03/26/07	03/26/14		1,000,000	AJW Partners	$	.03		25,433		811

05/30/07	05/30/14		10,000,000	AJW Partners	$	.02		163,409		9,244

10/12/07	10/12/14		15,000,000	AJW Partners	$	.0001		179,353		23,384

I1/15/07	11/15/10		10,000,000	AJW Partners	$	.0001		39,649		15,605

12/14/07	12/14/10		10,000,000	AJW Partners	$	.0001		24,000		15,605

04/22/08	04/22/15		20,000,000	AJW Partners	$	.0001		17,540		31,266
Fair value of derivative instrument liabilities for warrants							$	1,155,735	$	98,114

F-22

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 4 Derivative Financial Instrument Liabilities (cont’d)

Issue Date	Due Date	Note Amount		Instrument	Exercise	Value - Issue Date		Value - Jan. 31, 2009
10/11/05	04/11/06	$	400,000	Loan	Various	$	370,189	$	401,581

10/31/05	10/31/08		1,000,000	Convertible Notes	Various		2,681,204		134,002

01/20/06	01/20/09		1,000,000	Convertible Notes	Various		1,363,058		1,051,282

07/25/06	07/25/09		500,000	Convertible Notes	Various		791,994		590,285

08/04/06	08/04/09		500,000	Convertible Notes	Various		616,127		596,738

11/30/06	11/30/09		400,000	Convertible Notes	Various		523,047		514,379

03/26/07	03/26/10		165,000	Convertible Notes	Various		274,500		225,221

05/30/07	05/30/10		435,000	Convertible Notes	Various		825,801		611,202

10/12/07	10/12/10		175,000	Convertible Notes	Various		711,289		258,855

11/15/07	11/15/10		325,000	Convertible Notes	Various		465,052		485,241

12/14/07	12/14/07		315,000	Convertible Notes	Various		631,254		474,492

12/31/07	12/31/10		427,760	Convertible Notes	Various		894,835		647,652

04/22/08	04/22/11		190,000	Convertible Notes	Various		569,394		604,507

06/12/08	06/12/11		135,000	Convertible Notes	Various		555,374		432,493

08/29/08	08/29/11		235,114	Convertible Notes	Various		875,919		761,237

Fair value of bifurcated embedded derivative instrument liabilities						$	12,149,037	$	7,889,167

Total derivative financial instruments						$	13,304,772	$	7,887,281

F-23

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 5 Accrued Expenses

The following are the components of Accrued Expenses:

	January 31, 2009		July 31, 2008


Penalties - Registrations	$	913,374	$	695,574
Interest on Debt		524,898		512,488
Payroll and Payroll Taxes		1,001,409		682,133
Professional Fees		14,169		24,530
Accrued Trade Payables		1,200		1,200
	$	2,455,050	$	1,915,925

NOTE 6 Stockholders’ Equity (Deficit)

During the six months ended January 31, 2009, the Company issued the following shares of restricted common stock for services rendered; for Public Relations/Marketing services 45,900,000 shares, at market value, for computer software design 3,500,000 shares at 70% of market value and for unreimbursed expenses 8,050,000 shares at 70% of market value, for legal fees 5,726,458 and financial consulting 4,000,000 at market value. The total was recorded as common stock $66,176 and additional paid-in capital of $335,196. The total of $401,372 is reflected as an expense in the Statement of Operations.

NOTE 7 Derivative Instruments Income, Net

Derivative instruments income of $1,154,325 represents the net unrealized (non-cash) change during the six months ended January 31, 2009, in the fair value of our derivative instrument liabilities related to certain warrants and embedded derivatives in our convertible debt that have been bifurcated and accounted for separately.

NOTE 8 Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $(449,590) after derivative instrument income of $1,154,325, and a loss from operations of ($1,136,053) and a negative cash flow from operations of $277,272 for the six months ended January 31, 2009, negative working capital of $8,568,539 and a stockholders’ deficiency of $12,295,377 at January 31, 2009.

F-24

WELLSTAR INTERNATIONAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JANUARY 31, 2009

NOTE 8 Going Concern (cont’d)

The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional funds and implement its business plan. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management’s plans include the raising of additional capital through private or public transactions and implementation of its business and marketing plan to increase revenues.

NOTE 9 Lease Agreement

On July 17, 2007, Trillenium Medical Imaging, Inc., a wholly owned subsidiary, entered into a lease agreement with an unrelated party for a facility in New York City. The lease replaced a prior lease in the same facility. The lease is for a period of one year with a monthly rent of $4,435. The lease expires July 16, 2009. The Company incurred a rent expense of approximately $26,210 for the six months ended January 31, 2009. Future rental payments under the lease for the year ended July 31, 2009 is $26,610.

NOTE 10 Subsequent Events

AJW Partners, LLC and related entities converted a portion of their notes (See Note 2) into 532,500,000 shares of Common Stock during the period February 1, 2009 through March 5, 2009.

F-25

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

Special Note on Forward-Looking Statements

Certain statements in Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believe," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight including changes in the trends of the mobile computing industry, formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors and related notes included in the Company’s Form S-1 and Form S-1a filed with the Securities and Exchange Commission.

Overview

The following MD&A is intended to help the reader understand the results of operations, financial condition, and cash flows of Wellstar International, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements ("Notes").

Background

Wellstar through it’s wholly owned subsidiary, Trillennium Medical Imaging, Inc. (“Trillennium,” “TMI” or “the Company”) has developed an innovative thermal imaging system designed for the evaluation and early detection of heat patterns within the body that indicate the presence of physiological changes such as pressure ulcers, referred pain and metabolic changes within the breast. The Company’s infrared imaging involves the detection and recording of skin temperature and injury patterns, providing visual and quantitative documentation to accurately capture body temperature data. The Company’s system map changes in skin blood flow by translating temperature data into pictures. The interpretation of these temperatures and thermal patterns can play an important role in the development of a diagnosis. The Company’s system consists of proprietary imagers (“TMI 7800 Imager”), operating software (“Image MHS 5.0 Software”) and a comprehensive data transmission and collection network, for which TMI has patents pending. The Company seeks to be the first-to-market in deep tissue injury and pressure ulcer detection using its proprietary infrared imaging system. Thermal Imaging is a low cost, noncontact, non-radioactive diagnostic screening procedure designed for clinical evaluation. In addition, thermal imaging provides an ability to track the progress of therapies being utilized in a low cost, non-invasive manner. Thermal Imaging can detect signs of pressure ulcers before they are visible with the naked eye through detection of temperature changes at the site which allows for treatment of the pressure ulcer before it erupts. The TMI system can be used to scan all new patients into hospitals and long-term care facilities prior admittance and begin treating existing wounds before they are visible.The TMI technology and software is approved by the FDA as an Adjunctive Diagnostic screening procedure for early breast cancer detection, differential diagnosis of pain dysfunctions, (such as Reflex Sympathetic Dystrophy, Neuromuscular Skeletal Syndromes and Neurological disorders), the early detection of pressure ulcers, deep tissue injuries, and bed sores, as well as orthopedic applications. The Company’s imaging research concurrently looks to initiate consideration of thermography as a viable tool and a medical standard for predicting and preventing pressure ulcers in the medical community.

TMI is currently seeking financing to complete the necessary changes to the System and bring the System to market. The company will initially focus is efforts on Hospitals and long term care facilities.

Plan of Operation and Financing Needs

We are seeking financing in different amounts. Initiallty we are attempting to raise one to ten million dollars. This money would be used for the roll out of our TMI System to the long term care market. With the million dollars, the company will be in a position to start implementing sales within the three months of receipt of the money . The next round of investment the company will be looking for will be approximately nine million dollars. This money will be used to retire the current company debt and for expansion.

If We Are Unable to Obtain Additional Funding, Our Business Operations Will be Harmed. In Addition, Section 4e of the October 2005 Securities Purchase Agreements Contains Certain Restrictions and Limitations on Our Ability to Seek Additional Financing. If We Do Obtain Additional Financing, Our Then Existing Shareholders May Suffer Substantial Dilution.

Results of Operations

Quarter Ended January 31, 2009 compared to Quarter Ended January 31, 2008 (all references are to the Quarter Ended January 31)

Total Net Sales: Total Net Sales were none in the second quarter ended January 31, 2009 and none for the same period in 2008.

Cost of Sales and Gross Profit: Cost of Sales for the second quarter of 2009 was none and none for the same period in 2008.

Selling, General and Administrative Expenses: Selling, general and administrative expenses decreased by $176,247, or 26% in the 2009 second quarter to $512,795 from $689,042 in 2008. The decrease is primarily due to a decrease in salaries of $ 184,169 from $ 161,100 in the 2009 second quarter to $ 345,269 in 2008.

Loss from Operations: Loss from operations for the second quarter of 2009 was $608,137, an decrease of $191,275 or 24% from the loss from operations in 2008 of $799,412 as a result of the aforementioned decrease in sales and administrative expenses.

Other Income and Expense: Total other expenses of $1,853,751 in 2009 represented an increase of $5,396,607 from the income of $3,542,856 in 2008 as a result of higher expense from derivative instrument income for the period related to a decrease in derivative instrument liabilities caused by lower stock prices.

Net Loss: Net loss of $2,461,888 for the first quarter of 2009 was $5,205,332 higher than the net income of $2,743,444 for the same period in 2008 due to other income from derivative instrument income.

Six Months Ended January 31, 2009 compared to Six Months Ended January 31, 2008 (all references are to the Quarter Ended January 31)

Total Net Sales: Total Net Sales were none for the six months ended January 31, 2009 and none for the same period in 2008.

Cost of Sales and Gross Profit: Cost of Sales for the six months ended January 31, 2009 was none and none for the same period in 2008.

Selling, General and Administrative Expenses: Selling, general and administrative expenses decreased by $146,442, or 13% for the six months ended January 31, 2009 to $939,039 from $1,085,481 in 2008. The decrease is primarily due to a decrease in salaries of $ 220,000 from $ 542,200 for the six months ended January 31, 2009 to $ 322,200 in 2008.

Loss from Operations: Loss from operations for the six months ended January 31, 2009 was $ 1,136,053, an decrease of $92,304 or 8% from the loss from operations in 2008 of $1,228,357 as a result of the aforementioned decrease in sales and administrative expenses.

Other Income and Expense: Total other income of $686,463 for the six months ended January 31, 2009 represents a decrease of $1,239,674 from the income of $1,926,137 in 2008 as a result of a lower income from derivative instrument income for the period due to a decrease in derivative instrument liabilities caused by lower stock prices.

Net Loss: Net loss of $449,590 for the six months ended January 31, 2009 was $1,087,370 higher than the net income of $637,780 for the same period in 2008 due to the increase in expense from derivative instruments.

Liquidity and Capital Resources

As of January 31, 2009, we had a working capital deficit of approximately $8,568,539, and cash of $178,806. We have acquired additional funding in the amount of $336,400 from the sale of the company’s common stock. However, we do not have the funds necessary to maintain our operations for the remainder of our fiscal year, and will need to raise additional funding.

The liquidity impact of our outstanding debt is as follows:

Our secured convertible note with Andrew W. Thompson (the "Thompson Note"), in the principal amount of $400,000, matured on April 11, 2006 and remains outstanding. We are in default pursuant to the terms of the Thompson Note, although we have not received a notice of default from Mr. Thompson, nor has Mr. Thompson indicated to the Company that he intends to place the Company in default under the loan agreement. Interest on the Thompson Note is at the rate of 8% plus the prevailing margin rate charged to the lender, which is currently 7.625%. If these rates remain at these levels, the accrued interest at maturity will exceed $108,365. The lender has the option of converting the loan into fully registered common stock at a discount of 40% on the day of conversion, which is the prepayment date or the due date, whichever occurs first. Additionally, the lender also received warrants to purchase 1,000,000 shares of the company's fully registered common stock at an exercise price of $0.50 per share. If the lender converts, the Company will issue the appropriate number of shares and will not be required to use cash to liquidate the debt. Additionally, the Company will receive the cash proceeds in the amount of $500,000 if the lender exercises the $0.50 warrants. On November 10, 2006, the Thompson Note was amended to include a provision stipulating that the holder may not convert the secured convertible note if such conversion or exercise would cause him to own more than 9.99% of our outstanding common stock. However, this restriction does not prevent the holder from converting a portion of the note and then converting the rest of the note. In this way, the holder could sell more than this limit while never holding more than this limit.

Our unsecured demand note with Michael Sweeney (the "Sweeney Note"), in the principal amount of $150,000, matured on August 1, 2006 and remains outstanding. In addition to the outstanding principal, we also owe accrued interest in the amount of $18,250. We are in default pursuant to the terms of the Sweeney Note and we have not received a notice of default from Mr. Sweeney, nor has Mr. Sweeney indicated to the Company that he intends to place the Company in default under the note.

Our unsecured demand note with Micro Health Systems (the "MHS Note"), dated December 21, 2005 in the principal amount of $200,000, with interest at 8% per annum, has two maturity dates: at the 180th day and the 365th day following issuance. A payment of $100,000.00 is due at each maturity date. We did not make the first or second payment. There is an acceleration provision in the MHS Note stipulating that the entire $200,000.00 was due upon non-payment of the first $100,000. The interest rate then goes to the highest rate allowed by Florida law. We received a notice of default from MHS on November 28, 2006 but no further action has been taken. The MHS Note is secured by a pledge of 1.5 million shares of the Company's treasury stock.

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors - AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Partners II, LLC on October 31, 2005 for the sale of (i) $3,000,000 in secured convertible notes and (ii) warrants to buy 5,000,000 shares of our common stock. The gross financing proceeds were paid to the Company in three separate tranches of $1,000,000 each. The first tranche of the financing, in the amount of $1,000,000, was received by the Company upon closing. The second tranche was received on January 20, 2006. The third tranche was received as follows:

$500,000 in July 2006 and $500,000 in August 2006.

The secured convertible notes issued pursuant to our October 2005 through June 2008 Securities Purchase Agreements bear interest at 8%, mature three years from the date of issuance, and are convertible into our common stock, at the selling stockholders' option, at the lower of (i) $0.12 or (ii) generally a 40% discount to the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. As of November 28, 2008, the average of the three lowest intraday trading prices for our common stock during the preceding 20 trading days as reported on the Over-The-Counter Bulletin Board was $ .0012 and, therefore, the conversion price for the secured convertible notes was $ .0007. Based on this conversion price, the $5,064,048 outstanding principal amount of the secured convertible notes, excluding interest, were convertible into approximately 7,234,354,285 shares of our common stock.The stock purchase warrants have an exercise price of $0.0001 and $0.50 per share. If the lender converts, the Company will issue the appropriate number of shares and will not be required to use cash to liquidate the debt. Additionally, the Company will receive cash proceeds in the amount of $3,055,000 if the lender exercises the warrants. If the lender converts, the Company will issue the appropriate number of shares and will not be required to use the cash to liquidate the debt.

The registration statement we filed to register the shares underlying the convertible notes and warrants was declared effective by the Securities & Exchange Commission on August 4, 2006 (File No. 333-130295).

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief operating history as a start up company, our operations have not been a source of liquidity. We will need to obtain additional capital in order to maintain and expand our operations. We are currently investigating other financial alternatives, including additional equity and/or debt financing. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. However, there can be no assurance that that any additional financing will become available to us, and if available, on terms acceptable to us.

Sources and Uses of Cash

	Six Months Ended Jan 31,
(In thousands)	2009			2008
Cash flow data:
Net cash provided by (used in) operating activities		(277	)		(795	)
Net cash (used in) investing activities		(0	)		45	)
Net cash provided (used) by financing activities		430			780
Net increase (decrease) in cash and cash equivalents		152			(60	)
Cash and cash equivalents, beginning of period		25			65
Cash and cash equivalents, end of period		178			5

Operating Activities

Net cash used in operating activities for the Six Months ended January 31, 2009 was $277,272, a decrease of $517,446 from the same period in 2008 reflecting the decrease in operating expenses.

Investing Activities

Cash used in investing activities for the Six Months ended January 31, 2009 was $344, down $45,181 from the same period in 2008 represented principally in a decrease in the purchase of imaging equipment.

Financing Activities

Net cash provided by financing activities for the Six Months ended January 31, 2009 was $430,142 as compared with $780000 for the same period last year. The decrease is attributed to a decrease in the prodeeds from the issuance of convertible notes.

As of January 31, 2009, the Company had cash and cash equivalents in the amount of $178,086 as compared with $4,548 at January 31, 2008.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires that management make a number of assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements and accompanying notes. Management bases its estimates on historical information and assumptions believed to be reasonable. Although these estimates are based on management's best knowledge of current events and circumstances that may impact the Company in the future, actual results may differ from these estimates.

Our critical accounting policies are those that affect our financial statements materially and involve a significant level of judgment by management.

The Company has adopted the policy of capitalizing the cost of its imaging equipment and depreciating the cost against earnings over the straight line method using an estimated useful life of five years. Because the useful life of any new technology is difficult to estimate due to factors such as competition, obsolescence, government regulations, etc., this accounting estimate is reasonably likely to change from period to period with a material impact on our financial statements. The significance of the accounting estimate to the Company's financial statements is that the equipment on the balance sheet is stated at cost less accumulated amortization and the corresponding depreciation is an expense on the statement of operations. The estimate as to the useful life of these assets will directly affect the carrying amount on the balance sheet and the expense for depreciation recorded in the statement of operations. Accordingly, shareholders' equity and earnings will be materially affected.

Revenue Recognition

Revenue will be recognized as earned per the licensing agreements which provide for a fixed fee for each thermal imaging camera we install. The revenue is recognized in the month that the camera is in use at the customer's facility.

Derivative Instruments

In connection with the sale of debt or equity instruments, we may sell options or warrants to purchase our common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

The identification of, and accounting for, derivative instruments is complex. Our derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income, in the period in which the changes occur. For options, warrants and bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes option pricing model. That model requires assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the option. Because of the limited trading history for our common stock, we have estimated the future volatility of our common stock price based on not only the history of our stock price but also the experience of other entities considered comparable to us. The identification of, and accounting for, derivative instruments and the assumptions used to value them can significantly affect our financial statements.

Registration Rights Agreements

In connection with the sale of debt or equity instruments, we may enter into registration rights agreements. Generally, these registration rights agreements require us to file registration statements with the Securities and Exchange Commission to register common shares that may be issued on conversion of debt or preferred stock, to permit re-sale of common shares previously sold under an exemption from registration or to register common shares that may be issued on exercise of outstanding options or warrants.

The registration rights agreements usually require us to pay penalties for any time delay in filing the required registration statements, or in the registration statements becoming effective, beyond dates specified in the registration rights agreement. These penalties are usually expressed as a fixed percentage, per month, of the original amount we received on issuance of the debt or preferred stock, common shares, options or warrants. We account for these penalties as a contingent liability and not as a derivative instrument. Accordingly, we recognize the penalties when it becomes probable that they will be incurred. Any penalties are expensed over the period to which they relate.

Recent Accounting Pronouncements

Emerging Issues Task Force Pronouncement 00-27, relating to certain convertible instruments, requires the discounting of certain debt instruments when the conversion feature meets certain criteria. FASB 123R, Stock Options To Employees And Consultants. This pronouncement relates to employees and consultants who receive stock based pay.

The Company will account for the fair value of employee and non-employee options and warrants in accordance with SFAS No. 123R, "Share-Based Payment", which is effective for options and warrants during the annual reporting period beginning after December 15, 2005. The compensation cost will be measured after the grant date based on the value of the reward and is recognized over the service period. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes stock option pricing model. The Company has not yet adopted a stock option plan but is evaluating the affect of a stock option plan on its financial position and results of operations in future periods.

In September, 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 provides a new single authoritative definition of fair value and enhanced guidance in measuring the fair value of assets and liabilities. It requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value , and the effect of fair value measurement on earnings. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating what effect, if any, the adoption of SFAS No. 157 will have on its financial position, results of operations, or cash flows for the current fiscal year.

On December 21, 2006, the Financial Accounting Standards Board (FASB) posted FASB Staff Position (FSP) FSPEITF00-19-2, Accounting For Registration Payment Arrangements. The FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting For Contingencies. This FSP further clarifies that the financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles (GAAP) without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. We have accounted for registration payments as required under its securituies purchase agreement and will follow this pronouncement effect from date of issue.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option For Financial Assets And Financial Liabilities” (SFAS 159). SFAS 159 expands the use of fair value accounting but does not affect the existing standards that require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, accounts payable and issued debt. If the use of fair value is elected, any up-front costs and fees related to the item must be recognized in earnings and can not be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the impact of SFAS 159 will have on our financial position and results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

N/A

Item 4T. Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of July 31, 2008. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms , and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of January 31, 2009, our disclosure controls and procedures were effective.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material pending legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, management is not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Should any liabilities be incurred in the future, they will be accrued based on management’s best estimate of the potential loss. As such, there is no adverse effect on our consolidated financial position, results of operations or cash flow at this time. Furthermore, Management of the Company does not believe that there are any proceedings to which any director, officer, or affiliate of the Company, any owner of record of the beneficially owned more than five percent of the common stock of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-KSB filed with the SEC on November 17, 2008 for the period ended July 31, 2008.

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

Issuance of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None

Item 6. Exhibits.

31.1	Certification of Periodic Financial Reports by John Antonio in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Per iodic Financial Reports by Howard Bielski in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Periodic Financial Reports by John Antonio in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350
32.2	Certification of Periodic Financial Reports by Howard Bielski in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	WELLSTAR INTERNATIONAK, INC.

Date: March 13, 2009	By:	/s/ John Antonio
		John Antonio
		Chief Executive Officer


Date: March 13, 2009	By:	/s/ Howard Bielski
		Howard Bielski
		Chief Financial Officer