In March 2010, the FASB issued ASU No. 2010-11, "Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives" (codified within ASC 815 - Derivatives and Hedging). ASU 2010-11 improves disclosures originally required under SFAS No. 161. ASU 2010-11 is effective for interim and annual periods beginning after June 15, 2010. The adoption of ASU 2010-11 is not expected to have any material impact on our financial position, results of operations or cash flows.
In April 2010, the FASB issued ASU No. 2010-13, "Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades" ("ASU 2010-13"). ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2010 and is not expected to have a significant impact on the Company's financial statements.
In April 2010, the FASB issued ASU No. 2010-17, "Revenue Recognition - Milestone Method (Topic 605): Milestone Method of Revenue Recognition" (codified within ASC 605 - Revenue Recognition). ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. ASU 2010-17 is effective for interim and annual periods beginning after June 15, 2010. The adoption of ASU 2010-17 is not expected to have any material impact on our financial position, results of operations or cash flows.
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 12% per annum payable on maturity. The debenture matures on March 2014, unless 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.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
4. Convertible Debenture (continued)
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. Under the terms of the agreement, the Company also has to reserve for issuance 50,000,000 sh ares of Common Stock as may be issuable from time to time upon a request for repayment of the debenture in common stock.
Events of default under the terms of the agreement include the following:
| a) | Default of payment of interest or principal or any amount due under the agreement |
| b) | Material default, misrepresentation, or material breach of the covenants described in the paragraph above. |
| c) | Any transfer, conveyance, or assignment of substantial Company or subsidiary assets |
| d) | Any money judgment, writ of warrant or attachment, or similar process against the company in excess of $100,000 |
| e) | Failure to issue common stock within 5 business days of receipt of a written request for repayment of outstanding amounts in common shares |
| f) | The average dollar volume of common stock for any consecutive 10 day trading period falls below $40,000 per day |
| g) | Control of the whole or substantial portion of the Company by any governmental agencies |
| h) | Order by a court adjudging the Company bankrupt or insolvent, or seeking reorganization |
| i) | Failure of the Company to maintain its status as a reporting company under the federal securities laws |
| j) | Failure to timely file reports required to be filed by the SEC |
Upon occurrence of one of the above events, the amount due under the debenture will be immediately due and payable at the rate of 110% of the sum of the principal outstanding immediately prior to the event of default and all interest, fees, costs and penalties. These amounts will accrue interest at the rate of 12% per annum until payment.
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 finder’s 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.
During the three month period ended August 31, 2010, the Company recorded amortization of the debt discount in the amount of $37,940 which was charged to interest expense.
| | | August 31, 2010 | | | May 31, 2010 | |
| Principal amount of liability component | | $ | 533,333 | | | $ | 533,333 | |
| Unamortized discount | | | (27,685 | ) | | | (65,625 | ) |
| Net carrying amount | | $ | 505,648 | | | $ | 467,708 | |
On July 16, 2010, the Company had an event of default under the terms of the debenture. The holder of the debenture waived the default, and in exchange, raised the interest rate on the debenture from 6% per annum to 9% per annum.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
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. |
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.
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
6. Deferred Financing Costs (continued)
The company also incurred direct cash costs relating to this financing of a total of $57,000 which were also recorded as deferred financing costs.
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 | |
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 | | | 779,100 | | | | 560,350 | |
| Valuation allowance | | | (788,196 | ) | | | (569,446 | ) |
| 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.
b) Loss carryforwards
The Company has estimated accumulated non-capital losses of approximately $2,226,000 which will expire as follows:
| 2026 | | $ | 9,000 | |
| 2027 | | | 52,000 | |
| 2028 | | | 56,000 | |
| 2029 | | | 168,000 | |
| 2030 | | | 1,316,000 | |
| 2031 | | | 625,000 | |
| | | $ | 2,226,000 | |
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
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 | |
10. Stock Options
On June 29, 2009, the Company granted 2,000,000 options to directors and officers of the Company. 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.
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% |
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
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.
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. Restatement of prior year
Subsequent to the quarter end, the Company identified that the compensation expense for the President of the Company for the three month period ended August 31, 2010 was overstated. In addition, during the review of the financial statements, the Company discovered that the accounting for the convertible debenture considered a beneficial conversion feature that was subsequently determined not to meet the criteria of a beneficial conversion feature.
The impact of these restatements on the 2010 financial statements was as follows:
| | | August 31, 2010 | |
| | | As previously reported | | | Adjustment | | | As restated | |
| Deficit | | | 5,927,087 | | | | (410,149 | ) | | | 5,516,938 | |
| Convertible debenture | | | (488,890 | ) | | | (16,757 | ) | | | (505,647 | ) |
| Accrued expenses | | | (477,159 | ) | | | 26,907 | | | | (450,252 | ) |
| Additional paid up capital | | | (3,963,167 | ) | | | 400,000 | | | | (3,563,167 | ) |
| Salary expense incurred | | | 149,659 | | | | (55,210 | ) | | | 94,449 | |
| Interest expense | | | 335,083 | | | | (156,797 | ) | | | 178,286 | |
Global Health Ventures Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Unaudited)
August 31, 2010
13. Subsequent events
Pursuant to the convertible debenture detailed in Note 4, the Company has allowed the investor to convert approximately $1,001,494 of the Debenture into 20,970,387 shares of the Company’s common stock, subsequent to the quarter end. In accordance with the terms of the convertible debenture in Note 4, the Company also received five ‘investor notes’ with a contributed value of $250,000 and face value of $333,333 for each of the five months in the period between October 2010 and February 2011.
The Company has entered into agreements with various consultants to provide services to the Company. As part of the agreements, the Company will issue 480,000 shares in lieu of services, and is committed to pay $5,000 per month for a period of six months commencing January 1, 2011.
On September 2, 2010, the Company had an event of default under the terms of the debenture. The holder of the debenture waived the default, and in exchange, raised the interest rate on the debenture from 9% per annum to 12% per annum and negotiated a 10% discount on the market price as defined under the agreement for all conversions of the debenture into common stock.
On January 14, 2011, 132,085 share purchase warrants were exercised using a cashless provision, for 5,500,019 common shares.
On January 27, 2011, 126,646 share purchase warrants were exercised using a cashless provision, for 6,000,000 common shares.
On February 10, 2011, 143,590 share purchase warrants were exercised using a cashless provision, for 7,000,013 common shares.
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/A 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 $465,402 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/A 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 $685,294, including $75,788 in professional fees, $50,121 in general and administrative expenses, $218,905 in salaries and $178,286 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 $685,294 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 $625,294 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 $465,402 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 decrease in financing activities was primarily due to repayments made to 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 $465,402 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 woul d 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 ensu re 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.
During the course of the preparation of our financial statements for the period ended November 30, 2010, our Chief Executive Officer and Chief Financial Officer identified a material weakness in our internal controls and disclosure controls and procedures. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on the assessment of the effectiveness of disclosure controls and procedures as of August 31, 2010, the following deficiencies were identified:
Our annual audited financial statements for the year ended May 31, 2010 and unaudited interim financial statements for the three months ended August 31, 2010 require an adjustment to the accounting and disclosure of the compensation paid to our President in fiscal 2010. The amount of compensation paid to our President reported in our Annual Report on Form 10-K for the year ended May 31, 2010 is overstated due to our acquisition of Posh Cosmeceuticals Inc. effective December 2009 and an inadvertent error in the accrual of compensation to which our President is entitled. Similarly, the amount of compensation paid to our President reported in our Quarterly Report on Form 10-Q for the three months ended August 31, 2010 is overstated due to an inadvertent error in the accrual of compensation to which our President is entitled. Our annual audited fin ancial statements for the year ended May 31, 2010 and unaudited interim financial statements for the three months ended August 31, 2010 are being restated to reflect this adjustment.
In addition, based on the assessment of the effectiveness of disclosure controls and procedures as of August 31, 2010, the following additional deficiencies were identified:
| 1. | Lack of segregation of duties/management override – in common with businesses that have few employees, there exists a weakness as one person performs many different functions; |
| 2. | Financial reporting deficiencies – certain accounting entries and related reporting of transactions were inadvertently not properly recorded in the past. |
Management plans to remediate many of these deficiencies by engaging an accountant (other than our independent auditors) to prepare our financial statements on our behalf going forward. In addition, management plans to work with such accountants in evaluating or proceeding with any potential acquisitions. Also, management is currently considering additional remediation plans with respect to the above.
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 amended report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: February 28, 2011 | | GLOBAL HEALTH VENTURES INC. |
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| | By: | /s/ Hassan Salari |
| | | Hassan Salari |
| | | Chief Executive Officer |
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