GLOBAL HEALTH VENTURES INC.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
As of October 12, 2010, there were 72,907,248 shares of common stock of the registrant outstanding.
GLOBAL HEALTH VENTURES INC.
(Expressed in U.S. Dollars)
Global Health Ventures Inc.
Global Health Ventures Inc.
(The accompanying notes are an integral part of these consolidated financial statements)
Global Health Ventures Inc.
(The accompanying notes are an integral part of these consolidated financial statements)
Global Health Ventures Inc.
(The accompanying notes are an integral part of these consolidated financial statements)
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
1. Development Stage Company
Global Health Ventures Inc. (the “Company”) was incorporated in the State of Nevada on April 25, 2006 under the name Acting Scout Inc. The Company changed its name to Goldtown Investments Corp. on September 20, 2007 and on October 6, 2008 changed its name to Global Health Ventures Inc. The Company is located in British Columbia, Canada. The Company is a healthcare technology financial institution that is in the business of acquiring and licensing current outstanding and promising healthcare related technologies for further development and re-licensing to major pharmaceutical companies. The Company is a Development Stage Company, as defined under ASC 915 “Development stage entities”.
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. As at August 31, 2010, the Company has never generated any significant rev enue and has accumulated losses of $5,927,087 since inception. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company’s common shares trade on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “GHLV”.
2. Summary of Significant Accounting Policies
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. These consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, Posh Cosmeceuticals Ltd., and its inactive wholly-owned subsidiary, Global Health (BC) Ventures Inc.
b) Interim Financial Statements
The interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. These financial statements should be used in conjunction with our annual audited financial statements.
The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuation allowance. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienc ed by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
2. Summary of Significant Accounting Policies (continued)
d) Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS exc ludes all dilutive potential shares if their effect is anti dilutive.
e) Revenue Recognition
The Company recognizes revenue in accordance with ASC 605 “Revenue Recognition”. The Company has never generated any revenue since inception.
ASC 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.
g) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
h) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided annually at rates calculated to write off the assets over their estimated useful lives as follows:
| Laboratory equipment | 20% diminishing balance |
| Computer hardware | 45% diminishing balance |
| Office furniture and fixtures | 20% diminishing balance |
| Office machines and equipment | 20% diminishing balance |
In the year of acquisition, these rates are reduced by one-half.
In accordance with ASC 360 “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sol d or disposed significantly before the end of its estimated useful life.
Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
2. Summary of Significant Accounting Policies (continued)
j) Website Development Costs
The Company capitalizes website development costs in accordance with ASC 350 “Intangibles – Goodwill and Other”, whereby costs related to the preliminary project stage of development are expensed and costs related to the application development stage are capitalized. Any additional costs for upgrades and enhancements which result in additional functionality will be capitalized. Capitalized costs will be amortized based on their estimated useful life over three years. Internal costs related to the development of website content are charged to operations as incurred.
k) Financial Instruments
The fair value of financial instruments, which include cash, accounts payable and amounts due to a related party, were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The Company’s operations will be in Canada and the United States, resulting in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
l) Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, current taxes are recognized for the estimated income taxes payable for the current period.
Deferred income taxes are provided based on the estimated future tax effects of temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases as well as the benefit of losses available to be carried forward to future years for tax purposes.
Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be covered or settled. The effect of deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets when it is more likely than not that such deferred tax assets will not be realized.
m) Foreign Currency Translation
The functional currency of the Company is the Canadian dollar with the reported amounts being stated in the United States dollar. In accordance with ASC 830 “Foreign Currency Matters”, assets and liabilities are translated at the rates of exchange at the balance sheet dates. Income and expense items are translated at average annual rates of exchange. The resulting translation adjustments are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.
n) Research and development costs
Research costs are expensed in the period incurred. Development costs are expensed in the period incurred unless the Company believes a development project meets generally accepted accounting criteria for deferral and amortization. No such costs have been deferred as at August 31, 2010 and 2009.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
2. Summary of Significant Accounting Policies (continued)
o) Stock-based Compensation
In accordance with ASC 718 “Stock Compensation”, the Company accounts for share-based payments using the fair value method. Common shares issued to third parties for non-cash consideration are valued based on the fair market value of the services provided or the fair market value of the common stock on the measurement date, whichever is more readily determinable
3. Accrued Liabilities
| | | August 31, 2010 $ | | | May 31, 2010 $ | |
| Accrued interest | | | 14,757 | | | | 6,578 | |
| Professional fees | | | 25,000 | | | | 25,000 | |
| Research and development | | | 80,833 | | | | 30,833 | |
| Salaries | | | 356,569 | | | | 292,555 | |
| Accrued finance costs | | | - | | | | 312,000 | |
| | | | 477,159 | | | | 666,966 | |
4. Convertible Debenture
On March 19, 2010, the Company sold to one investor a $4,200,000 convertible debenture (“Debenture”) due March 18, 2014.
The debenture bears interest at a rate of 6% per annum payable on maturity. The debenture matures on March 2014, unless previously converted in accordance with the repayment terms prior to such date.
The debenture is unsecured and ranks equally to any of the Company’s existing and future unsecured debts.
The debenture was sold with a 25% discount from face value for a net book value of $3,150,000. The $3,150,000 consists of cash of $400,000 paid at closing and eleven “Investor Notes” in the amount of $250,000 each. The investor notes are mandatorily pre-payable in sequence, at the rate of one note per month commencing on the seven month anniversary of the closing date.
Beginning six months from the closing date, the lender may require the Company to repay the principal amount and accrued interest, in full or in part, in fully-paid and non-assessable shares of the Company’s common stock at a rate per share equal to the market price as calculated under the debenture agreement. The lender is not permitted to deliver a request for repayment where the dollar amount of the request for repayment would exceed 125% of the amounts outstanding under the debenture.
As long as any amounts due under the debenture are outstanding, the Company is prohibited, unless consented to by the lender, from selling, leasing or otherwise disposing of any of its assets other than in its ordinary course of business, from merging or consolidating with any other person unless the debenture is assumed by the surviving entity and from adopting any plan or arrangement for the dissolution or liquidation of the Company. Debenture covenants also prohibit the Company from redeeming or repurchasing any of its capital stock or making any advance or loan to any person, firm or corporation except for reasonable business expenses advanced to Company employees or independent contractors in the ordinary course of business.
In connection with the issuance of the debenture, the Company incurred $952,250 of issuance costs which consisted of $895,250 of non-cash costs for warrants issued to the lender and for warrants issued as a finders fee and $57,000 of cash costs for commissions and related professional fees. These costs are being amortized and are recorded as interest expense through March 18, 2014, the maturity date of the debenture.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
4. Convertible Debenture (continued)
The Company has separately accounted for the liability and equity components of the convertible debenture by allocating the proceeds from the issuance of the debenture between the liability component and the embedded conversion option, or equity component. The fair value of the embedded conversion option was valued using the Black-Scholes valuation model to bifurcate the instrument using the following assumptions:
| Risk-free interest rate | 2.85% |
| Expected term to exercise | 6 months |
| Expected volatility of | 253% |
| Expected dividend yield | 0% |
Based on this calculation, $336,733 was allocated to the equity component. During the quarter ended August 31, 2010, the Company recorded amortization of the debt discount in the amount of $266,667 which was charged to interest expense.
| | | August 31,2010 | | | May 31,2010 | |
| Principal amount of liability component | | $ | 533,333 | | | $ | 533,333 | |
| Unamortized discount | | | (44,443 | ) | | | (311,110 | ) |
| Net carrying amount | | $ | 488,890 | | | $ | 222,223 | |
5. Related Party Transactions
| a) | During the three month period ended August 31, 2010, the President of the Company advanced $nil (2009 - $nil) to the Company, was repaid $nil (2009 - $4,557) by the Company and incurred $894 (2009 - $6,395) of expenses on behalf of the Company. |
| b) | During the three month period ended August 31, 2010, the Company paid $5,765 (2009 - $5,665) to a Company related to the President for rent of laboratory space. |
| c) | On March 15, 2009, the Company entered into a research contract with Globe Laboratories Inc. (“Globe”), a company controlled by 2 individuals related to the President of the Company, to engage Globe for research on the sublingual technologies developed by Globe. The Company agreed to pay $50,000 per quarter to Globe from April 1, 2009 until the technology is put into commercial production, or the technologies are sold or sublicensed. To date, $283,333 in research costs have been accrued under this agreement, of which $202,500 has been paid to Globe. |
| d) | Effective December 11, 2009, the Company issued an aggregate of 4,000,000 shares of its common stock to the shareholders of Posh Cosmeceuticals Inc., a company controlled by the President of the Company, pursuant to share exchange agreements dated June 12, 2009. The Company issued the securities to twenty-seven non-U.S. persons (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933. Due to the fact that the two companies were not dealing at arm’s length, and due to the transaction not being in the normal course of business, the transaction was recorded at the carrying value of the Company acquired. |
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
5. Related Party Transactions (continued)
The following table sets forth the allocation of the purchase price for the investment in Posh Cosmeceuticals:
| Working capital acquired | | $ | (205,685 | ) |
| Property, Plant and Equipment | | | 9,916 | |
| Patents and rights | | | 22,557 | |
| Other long-term assets | | | 68,492 | |
| | | $ | (104,720 | ) |
| Consideration: | | | |
| Common shares of the Company | | $ | (400 | ) |
| Related party adjustment on purchase charged to deficit | | | 105,120 | |
| | | $ | 104,720 | |
6. Deferred Financing Costs
On March 19, 2010, the Company sold to one investor a $4,200,000 convertible debenture (“Debenture”) due March 18, 2014. As part of the debenture financing the Company issued share purchase warrants to purchase up to $800,000 worth of company stock and also issued warrants to purchase 100,000 common shares as a finders fee. These warrants were valued using the Black-Scholes model using the following assumptions:
| Risk-free interest rate | 2.85% |
| Expected term to exercise | 4 years |
| Expected volatility of | 253% |
| Expected dividend yield | 0% |
Based on this calculation $895,250 was recorded as a deferred financing cost.
The company also incurred direct cash costs relating to this financing of $57,000 which were also recorded as a deferred financing cost.
The deferred financing costs are being amortized over the term of the debt.
| | | August 31, 2010 | | | May 31, 2010 | |
| Deferred financing costs | | $ | 952,250 | | | $ | 952,250 | |
| Accumulated amortization | | | (109,112 | ) | | | (49,596 | ) |
| Net carrying amount | | | 843,138 | | | | 902,654 | |
| Share purchase agreement commitment fee (Note 8) | | | 312,000 | | | | 312,000 | |
| Write-off of commitment fee (Note 8) | | | (312,000 | ) | | | - | |
| | | | - | | | | 312,000 | |
| | | $ | 843,138 | | | $ | 1,214,654 | |
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
7. Income Taxes
The Company accounts for income taxes using the liability method of tax allocation. Deferred income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Deferred income tax assets are evaluated periodically and if realization is not considered likely, a valuation allowance is provided.
a) Deferred tax assets and liabilities
| | | August 31, 2010 $ | | | May 31, 2010 $ | |
| Property and equipment | | | 8,218 | | | | 8,218 | |
| Intangible assets | | | 878 | | | | 878 | |
| Operating loss carry forwards | | | 923,300 | | | | 630,350 | |
| Valuation allowance | | | (932,396 | ) | | | (639,446 | ) |
| Net future tax asset | | | - | | | | - | |
Management believes that it is not more likely than not that it will create sufficient taxable income sufficient to realize its deferred tax assets. Due to this, the Company has no income tax expense.
b) Loss carryforwards
The Company has estimated accumulated non-capital losses of approximately $2,638,000 which will expire as follows:
| 2026 | | $ | 9,000 | |
| 2027 | | | 52,000 | |
| 2028 | | | 56,000 | |
| 2029 | | | 168,000 | |
| 2030 | | | 1,516,000 | |
| 2031 | | | 837,000 | |
| | | $ | 2,638,000 | |
8. Share Purchase Agreement
Pursuant to a Purchase Agreement dated May 28, 2010 and a Registration Rights Agreement dated May 28, 2010 with Lincoln Park Capital Fund, LLC (“LPC”), the Company may sell to LPC up to $20,000,000 of its common stock over a thirty month period. As part of this agreement, the Company was required to issue 600,000 shares of its stock to LPC as a commitment fee for entering into the Purchase Agreement. The fee was recorded as a payable at May 31, 2010 of $312,000 based on the fair market price of the stock of $0.52.
On June 15, 2010, the shares were issued. The fair market value of the stock on the date of issuance was $0.42, resulting in a gain on the settlement of the payable of $60,000.
On August 14, 2010, the agreement was cancelled and the commitment fee of $312,000 was written off to share issue costs.
9. Warrants
A summary of share purchase warrants outstanding is presented below:
| | | Number of Warrants | | | Weighted Average Exercise Price $ | |
| Warrants outstanding at June 1, 2010 | | | 4,118,333 | | | $ | 0.68 | |
| Granted during 3 months ending August 31, 2010 | | | - | | | | - | |
| Exercised July 14, 2010 | | | (460,000 | ) | | $ | 0.40 | |
| Warrants outstanding at August 31, 2010 | | | 3,658,333 | | | $ | 0.72 | |
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
10. Stock Option Plan
The Company may grant options to purchase 2,000,000 common shares of the Company. Options may be issued under the stock option plan as determined at the sole discretion of the Company’s board of directors. Options may be issued for a term of up to 10 years at an exercise price based on the market price at the time of granting. All options vest at a rate of four per cent of the total number of Options granted to an Optionee vesting each month on a monthly basis during the two-year period and the total remainder of such Options vesting on the second anniversary of the date of grant.
On June 29, 2009, the Company granted 2,000,000 options to directors and officers of the Company. For the three months ending August 31, 2010, the fair value of the options of $166,450 has been expensed and 1,040,000 of the options are exercisable.
A summary of stock options outstanding is presented below:
| | | Number of Options | | | Weighted Average Exercise Price $ | |
| Options outstanding at June 1, 2010 | | | 2,000,000 | | | $ | 0.70 | |
| Granted | | | - | | | | - | |
| Expired | | | - | | | | - | |
| Options outstanding at August 31, 2010 | | | 2,000,000 | | | $ | 0.70 | |
The Company has estimated the fair value of each option on the date of grant using the Black-Scholes Options Pricing Model with the following weighted average assumptions:
| Risk-free interest rate | 1.79% - 2.50% |
| Expected life of options | 5-10 years |
| Expected volatility in the market price of the shares | 252% |
| Expected dividend yield | 0.0% |
11. Fair Value Measures
ASC 820 “Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
11. Fair Value Measures (continued)
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Our financial instruments consist principally of cash and accounts payable. Pursuant to ASC 820, “Fair Value Measurements and Disclosures”, or the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
12. Subsequent Event
Pursuant to the convertible debenture detailed in Note 4, the Company has allowed the investor to convert approximately $235,000 of the Debenture into 3,042,076 shares of the Company’s common stock.
The Company has entered into agreements with various consultants to provide services to the Company. As part of the agreements, the Company issued 230,000 shares in lieu of services, subsequent to the quarter end.
As used in this report: (i) the terms "we", "us", "our", and the “Company" mean Global Health Ventures Inc. and its subsidiaries, unless the context requires otherwise; and (ii) all dollar amounts in this report refer to U.S. dollars unless otherwise indicated.
Cautionary Statement Regarding Forward-Looking Information
The statements in this report that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements appear in a number of different places in this report and can be identified by words such as “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, or their negatives or other comparable words. Also look for discussions of strategy that involve risks and uncertainties. Forward-looking statements include, among others, statements regarding the development of our products, our proposed markets and our business plans.
You are cautioned that any such forward-looking statements are not guarantees and may involve risks and uncertainties. Our actual results may differ materially from those in the forward-looking statements due to risks facing us or due to actual facts differing from the assumptions underlying our estimates. Some of these risks and assumptions include those set forth in reports and other documents we have filed with or furnished to the United States Securities and Exchange Commission (“SEC”). We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.
Overview of Our Business
We are a specialty pharmaceutical company developing proprietary platform technology that delivers drugs via the sublingual (under the tongue) route. This unique method delivers drugs to the bloodstream quickly and with minimal drug breakdown in the liver and gastro-intestinal system, a process that can greatly reduce side effects while also requiring a lower dosage than conventional oral drugs while generally still producing the same results. Additionally, we are also developing oral formulations of drugs which are intended to cause fewer stomach side effects than formulations of such drugs previously marketed by other pharmaceutical companies. Our drug formulations are specifically designed to deliver drugs to the blood stream rapidly and more efficiently than traditional drug formulations but with fewer side effects.
We are currently in the process of developing the following products:
X-Excite
X-Excite is a development stage sublingual formulation of sildenafil. Sildenafil is registered under the trade name of Viagra® and currently marketed by Pfizer under patent protection until 2012/2013 (depending on the jurisdiction). Viagra® (sildenafil citrate) is indicated for the treatment of erectile dysfunction, which is the inability to achieve or maintain a penile erection sufficient for satisfactory sexual performance.
Relax-B
This product utilizes a non-benzodiazopin drug as its active ingredient. The drug is FDA approved for sleep disorder, used worldwide. When it is used at a low dose, the product has a relaxant property and can reduce stress and anxiety. We have formulated this product to absorb sublingually and have used taste masking products to reduce the taste. Our plan is to develop this product once further financing is secured.
Nico-Z
Nico-Z is a sublingual formulation of nicotine designed for cigarette replacement. We are using a small dose of nicotine (about 5 times less than commercial nicotine) and will achieve a higher concentration of nicotine in the blood in a much shorter time span. The rapid absorption of nicotine will be beneficial for individuals craving cigarette or tobacco products. Nico-Z is not designed for smoking cessation.
V-Energy
This product is a sublingual formulation of vitamin B6/B12. Vitamin B6/B12 is a stimulus and anti-tiredness. This product is reported to be several times more stimulant than caffeine, yet does not have the side effects of caffeine such as increased heart rate, and sleeping disorder. Vitamin B6/B12 is often used in patients with cancer to help them to be less tired and more energetic. Currently vitamin B6/B12 is used by injection or taken orally. Injection is not a convenient way for drug delivery and also carries certain risks including infection. A sublingual formulation would be the most convenient and acceptable route of administration.
T-Slim
T-Slim is a novel formulation of catechin. Catechin is a flavonoid that is found in higher plants and green tea. Catechin is a major component in reducing appetite but has a poor oral absorption rate. A sublingual formulation should have an increased availability. Thus, it will be most beneficial if used whenever a person feels hungry and it should reduce the desire for food appreciably.
We have entered into a research contract with Globe Laboratories Inc., a company controlled by two individuals related to the President of our company, to conduct research on the sublingual technologies developed by Globe Laboratories. We agreed to pay $50,000 per quarter to Globe Laboratories from April 1, 2009 until the technologies are put into commercial production, or the technologies are sold or sublicensed.
Our plan is to develop our products to the final stage of marketing. Any further clinical trials to support regulatory filings if required will be conducted in-house. We plan to market our products through direct consumer sources such as advertisements on the internet, television, radio and in magazines. We also plan to enter into agreements with co-marketing partners, which typically will be larger specialty pharmaceutical companies and distributors. In the latter case, we plan to share the revenue on a pre-arranged royalty basis structure.
See our annual report on Form 10-K for the year ended May 31, 2010 filed with the SEC for more information.
We anticipate we will require approximately $1,300,000 to pursue our plan of operations for the next 12 months. As at August 31, 2010, we had $741,422 in cash and a working capital deficit of $475,551 and will require substantial additional financing to pursue our plan of operations. There can be no assurance that we will be able to acquire the financing necessary to enable us to pursue our plan of operation, on terms acceptable to us or at all. If we are unable to obtain the financing required, we may have to curtail our business plans, and our business may fail.
Results of Operations
The following discussion and analysis of our results of operations and financial condition for the three months ended August 31, 2010 should be read in conjunction with our interim consolidated financial statements and related notes included in this report, as well as our most recent annual report on Form 10-K for the year ended May 31, 2010 filed with the SEC.
Three Months Ended August 31, 2010 Compared to Three Months Ended August 31, 2009
Revenues
We have not generated any revenues from inception on April 25, 2006 to August 31, 2010. We do not anticipate generating any revenues until we have developed our products to the point where they are suitable for commercial production. We anticipate we will incur substantial expenses in the development of our business and current products and the identification and acquisition of new healthcare technologies. Accordingly, we expect to incur significant losses into the foreseeable future. If we are unable to generate significant revenues from our activities, our entire business may fail. There is no history upon which to base any assumption as to the likelihood that we will be successful in our plan of operation, and we can provide no assurance to investors that we will generate any operating revenues or achieve profitable operations.
Expenses
During the three months ended August 31, 2010, our operating expenses totaled $897,302, including $75,788 in professional fees, $50,121 in general and administrative expenses, $274,116 in salaries and $335,083 in interest expense. During the three months ended August 31, 2009, our operating expenses totalled $257,059, including $16,586 in professional fees, $31,563 in general and administrative expenses and $114,694 in salaries. Operating expenses increased primarily due to an increase in our operations.
Our general and administrative expenses consist of rent, travel, advertising and promotion, office maintenance, communication expenses (cellular, internet, fax, and telephone), courier, postage costs, and office supplies. General and administrative expenses increased to $50,121 for the three months ended August 31, 2010 from $31,563 for the three months ended August 31, 2009, primarily due to an increase in business operations.
Professional fees increased by $59,202 to $75,788 for the three months ended August 31, 2010 from $16,586 for the same period in 2009, primarily due to an increase in legal and accounting fees resulting from an increase in our operations.
We reported a loss from operations of $837,302 for the three months ended August 31, 2010, compared to a loss from operations of $257,059 for the three months ended August 31, 2009.
Net Loss
We incurred a net loss of $837,302 for the three months ended August 31, 2010, compared to $257,059 for the three months ended August 31, 2009.
Liquidity and Capital Resources
We had cash of $741,422 and a working capital deficit of $475,551 as of August 31, 2010, compared to cash of $204,012 and working capital of $56,672 as of August 31, 2009.
To date, we have not generated any revenue and have been dependent on sales of our equity securities and debt financing to meet our cash requirements. We expect this situation to continue for the foreseeable future.
Cash Flow Used in Operating Activities
Operating activities used cash of $299,874 for the three months ended August 31, 2010, compared to using cash of $131,784 for the three months ended August 31, 2009. The increase in cash used during the year ended August 31, 2010 was primarily attributable to legal and accounting fees, research and development, and salaries.
Cash Flow Used in Investing Activities
Investing activities provided cash of $4,334 for the three months ended August 31, 2010, compared to using cash of $1,979 for the three months ended August 31, 2009, primarily due to a credit on the purchase of equipment.
Cash Flow Provided by Financing Activities
Financing activities used cash of $8,996 for the three months ended August 31, 2010 compared to providing cash of $5,059 for the three months ended August 31, 2009. The increase in financing activities was primarily due to amounts due from shareholders.
We anticipate we will require approximately $1,300,000 to pursue our plan of operations over the next 12 months. We had cash of $741,422 and a working capital deficit of $475,551 as of August 31, 2010. We intend to raise additional funds through the sale of our equity securities or through debt financing. There are no assurances that we will be able to obtain the funds required for our continued operation, upon terms acceptable to us or at all. If we are not able to obtain additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or cease the operation of our business. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
We do not anticipate generating positive internal operating cash flows until we can generate substantial revenues from the commercial production of our products. There is no assurance that we will achieve profitable operations in the future. We have historically financed our operations primarily by cash flows generated from the sale of our equity securities and through cash infusions from officers and affiliates in exchange for debt and/or common stock. No officer or affiliate has made any commitment or is obligated to continue to provide cash through loans or purchases of equity.
We are currently seeking additional financing, however, we currently do not have any financing arrangements in place and there is no assurance that we will be successful in completing any further private placement financings. If we are unsuccessful in raising sufficient funds through future capital raising efforts, we may review other financing options.
Going Concern
Our financial statements for the period ended August 31, 2010 have been prepared on a going concern basis and Note 1 to the financial statements identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have not generated any revenues, have achieved losses since our inception, and rely upon the sale of our common stock and loans from related and other parties to fund our operations. We may not generate any material revenues, and if we are unable to raise equity or secure alternative financing, we may not be able to pursue our plans and our business may fail.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Not applicable.
Disclosure Controls and Procedures
Our management, with the participation and under the supervision of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensur e that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of August 31, 2010.
Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
We are not a party to any material pending legal proceedings and are not aware of any legal proceedings that have been threatened against us. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or securityholder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings.
Not applicable.
There have been no sales of our equity securities during the period covered by this report that have not been previously reported.
None.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: October 15, 2010 | GLOBAL HEALTH VENTURES INC. |
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| | By: | /s/Hassan Salari |
| | | Hassan Salari |
| | | Chief Executive Officer |
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