SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT.
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-15586
GHS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1373960
- --------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
425 WEST 15TH STREET, 3RD FLOOR, NEW YORK, NEW YORK 10011
- --------------------------------------------------------- -------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 313-9400
- --------------------------------------------------------------------------------
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
65 BROADWAY, 7TH FLOOR, NEW YORK, NEW YORK 10006
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMAL FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
INDICATE BY CHECK 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 REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO___
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY AS OF NOVEMBER 12, 1999 WAS AS FOLLOWS: 40,368,351 SHARES OF
COMMON STOCK
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
Sept. 30,
1999
---------
ASSETS
Current Assets
Cash and cash equivalents $ 13,426
Prepaid expenses 158
Cash held in escrow 100
--------
Total current assets 13,684
Non-current assets
Property and equipment (net of accumulated depreciation of $9) 606
Intangible Assets (net of accumulated amortization of $792) 6,338
Security Deposit 349
--------
Total assets 20,977
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 777
Obligations under capital lease, current portion 50
Other current liabilities 6
--------
Total current liabilities 833
Long term liabilities
Obligations under capital lease, net of current portion 43
Stockholders' equity
Convertible Preferred Stock Series A - $.01 par value - 100,000 shares
authorized; 99,059 shares issued and outstanding; Liquidation
preference $99,059 1
Common Stock $.01 par value - 25,000,000 shares authorized;
9,659,955 shares issued and outstanding 96
Additional-paid-in-capital 33,104
Deferred compensation (5,229)
Deficit accumulated during the development stage (7,871)
--------
Total stockholders' equity 20,101
--------
Total liabilities and stockholders' equity 20,977
========
The accompanying notes to financial statements are an integral part thereof
2
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(Unaudited)
For the period from
Three months April 21, 1999
ended (date of inception) to
September 30, 1999 September 30, 1999
------------------ ------------------
Expenses:
Non-cash compensation expense $ 907 $ 4,889
Amortization of intangible assets 594 792
General and administrative 1,887 2,408
----------- -----------
Total operating expenses 3,388 8,089
Other Income
Interest 155 218
----------- -----------
Net Loss $ (3,233) $ (7,871)
=========== ===========
Net Loss per share - basic and diluted $ (0.41) $ (1.03)
Weighted average number of common shares outstanding 7,877,032 7,634,907
The accompanying notes to financial statements are an integral part thereof
3
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
APRIL 21, 1999 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED
COMMON STOCK STOCK SERIES A STOCK SERIES B
PAR VALUE $.01 PAR VALUE $.01 PAR VALUE $.01
---------------- ---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Issuance of shares pursuant to merger of GHS, Inc. and
Change Your Life.com, LLC (CYL) (Note 1 and Note 2) 7,047,828 $ 70 -- -- -- --
Issuance of shares to members of CYL pursuant to
merger (Note 2) -- -- 99,059 $ 1 -- --
Issuance of shares in private placement, net of expenses -- -- -- -- 178,582 $ 2
Issuance of shares to acquire Concept Development Inc.
(Note 3) -- -- -- -- -- --
Issuance of shares pursuant to an exclusive content -- -- -- -- -- --
agreement (Note 3)
Exercise of stock options 268,857 3 -- -- -- --
Issuances of common stock options (Note 5) -- -- -- -- -- --
Deferred compensation expense -- -- -- -- -- --
Conversion of Convertible Preferred Stock Series B 1,785,820 18 -- -- (178,582) (2)
Conversion of Convertible Preferred Stock Series C
(Note 3) 557,450 5 -- -- -- --
Distribution of discontinued operations -- -- -- -- -- --
Net loss for the period from April 21,1999 (date of
inception) to September 30, 1999 -- -- -- -- -- --
---------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 9,659,955 96 99,059 1 -- --
===========================================================================
CONVERTIBLE PREFERRED DISTRIBUTION OF
STOCK SERIES C DISCONTINUED
PAR VALUE $.01 ADDITIONAL OPERATION
--------------------- PAID-IN TO COMMON
SHARES AMOUNT CAPITAL STOCKHOLDERS
------ ------ ------- ------------
Issuance of shares pursuant to merger of GHS, Inc. and
Change Your Life.com, LLC (CYL) (Note 1 and Note 2) -- -- $ 4,169 $ (1,239)
Issuance of shares to members of CYL pursuant to
merger (Note 2) -- -- (1) --
Issuance of shares in private placement, net of expenses -- -- 15,064 --
Issuance of shares to acquire Concept Development Inc. 50,000 $ 1 4,499 --
(Note 3)
Issuance of shares pursuant to an exclusive content
agreement (Note 3) 5,745 -- 517 --
Exercise of stock options -- -- (3) --
Issuances of common stock options (Note 5) -- -- 10,118 --
Deferred compensation expense -- -- -- --
Conversion of Convertible Preferred Stock Series B -- -- (16) --
Conversion of Convertible Preferred Stock Series C
(Note 3) (55,745) (1) (4) --
Distribution of discontinued operations -- -- (1,239) 1,239
Net loss for the period from April 21,1999 (date of
inception) to September 30, 1999 -- -- -- --
---------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 -- -- 33,104 --
===================================================
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ------- -----
Issuance of shares pursuant to merger of GHS, Inc. and
Change Your Life.com, LLC (CYL) (Note 1 and Note 2) -- -- $ 3,000
Issuance of shares to members of CYL pursuant to
merger (Note 2) -- -- --
Issuance of shares in private placement, net of expenses -- -- 15,066
Issuance of shares to acquire Concept Development Inc.
(Note 3) -- -- 4,500
Issuance of shares pursuant to an exclusive content
agreement (Note 3) -- -- 517
Exercise of stock options -- -- --
Issuances of common stock options (Note 5) $ (10,118) -- --
Deferred compensation expense 4,889 -- 4,889
Conversion of Convertible Preferred Stock Series B -- -- --
Conversion of Convertible Preferred Stock Series C
(Note 3) -- -- --
Distribution of discontinued operations -- -- --
Net loss for the period from April 21,1999 (date of
inception) to September 30, 1999 -- $ (7,871) (7,871)
---------------------------------------
BALANCE AT SEPTEMBER 30, 1999 (5,229) (7,871) $ 20,101
=======================================
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART THEREOF
4
GHS, INC. AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
For the period from
April 21, 1999
(date of inception) to
September 30, 1999
------------------
Cash flows from operating activities:
Loss from continuing operations (7,871)
Adjustments to reconcile net loss to net cash used in
operating activities
Non-cash compensation expense 4,889
Depreciation and amortization 801
Changes in:
Prepaid expenses (158)
Cash held in escrow (100)
Accounts payable and accrued expenses 783
--------
Net cash used in continuing operations (1,656)
--------
Cash flows from investing activities:
Acquisition of property and equipment (515)
Acquisition of Concept Development Inc. (2,113)
Payment of security deposit (349)
--------
Net cash used in investing activities (2,977)
--------
Cash flows from financing activities:
Net proceeds from private placement of Series B Convertible Preferred Stock 15,066
Cash acquired pursuant to merger of GHS, Inc. and Change Your Life.com 3,000
Payments under capital lease obligations (7)
--------
Net cash provided by financing activities 18,059
--------
Net increase in cash and cash equivalents and balance at end of period $ 13,426
========
Supplemental information of non-cash investing and financing activities:
Common Stock dividend to effect USN Spin-Off (Note 2) $ 1,239
Computer equipment acquired under capital lease $ 100
Acquisition of Concept Development, Inc. by issuance of Series C Convertible
Preferred Stock (Note 3) $ 4,500
Stock issued for license acquired under exclusive content agreement (Note 3) $ 517
The accompanying notes to financial statements are an integral part thereof
5
Notes to Unaudited Consolidated Financial Statements
Note 1: Basis of Presentation
The accompanying consolidated financial statements present the historical
financial results of Change Your Life.com, LLC ("CYL"), which was formed on
April 21, 1999, and include the assets acquired in GHS, Inc.'s ("GHS" or "the
Company") acquisition of CYL on May 27, 1999. The acquisition of CYL was
accounted for as a reverse acquisition, as described in Note 2.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The Company is a development stage enterprise since as of
September 30, 1999 it has not generated any revenue from its principal
operations.
Note 2: GHS, Inc. Reverse Acquisition of Change Your Life.com, LLC
On April 25, 1999, GHS announced an Internet initiative that included plans for
a network to focus on personal and professional improvement. On May 27, 1999,
GHS issued 99,059.338 shares of a newly-designated Series A Convertible
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), to
the members of CYL in exchange for 100% of the membership interests in CYL
pursuant to a Contribution and Exchange Agreement (the "Exchange Agreement")
dated as of May 20, 1999. The Series A Preferred Stock automatically converted
into an aggregate of 30,708,396 shares of common stock of GHS, par value $0.01
per share (the "Common Stock"), on November 4, 1999 (the next business day
following the date of filing a certificate of an amendment to GHS's Restated
Certificate of Incorporation increasing the number of authorized shares of
Common Stock to a number sufficient to permit such conversion- See Note 8).
Prior to conversion, the holders of the Series A Preferred Stock voted on an as
converted basis with the holders of the Common Stock. As a result of the
issuance of the Series A Preferred Stock pursuant to the Exchange Agreement, the
members of CYL obtained voting control of GHS; accordingly, for accounting
purposes, the transaction was treated as a reverse acquisition with CYL as the
acquirer. In addition, as the only assets of GHS at the time of the transaction
were cash and the net assets of the discontinued operations of U.S.
NeuroSurgical, Inc. ("USN"), a subsidiary of GHS at time, the transaction was
accounted for as a recapitalization of CYL with the issuance of Common Stock and
options and warrants to purchase Common Stock to the pre-transaction holders of
Common Stock in exchange for cash. Accordingly, the accompanying consolidated
financial statements are the historical financial statements of CYL and include
the operations of GHS from May 27, 1999.
CYL was formed on April 21, 1999 with membership interests held by Anthony J.
Robbins ("Robbins"), Robbins Research International Inc. ("RRI") and CYL
Development Holdings, LLC
6
("Development Holdings"). In exchange for their membership interests, the
members contributed the right and license to use (subject to certain
limitations) the Robbins name in connection with CYL's Internet business as set
forth in a Content Provider Agreement and License dated as of April 23, 1999,
all goodwill attached to the Robbins name and likeness for use in CYL's Internet
business, the existing Internet activities and business of RRI, the exclusive
license to use RRI trademarks, tradenames, goodwill attached thereto, and the
right to use existing programs, recordings, videos, CD-ROMs, proprietary
software packages and seminars owned by RRI in CYL's Internet business. Also
contributed were various URLs, an online self-help pilot program and a business
plan. The contributed intangible assets were not ascribed a value by CYL since
there was no book value for these assets in the contributing companies books and
records. CYL did not conduct operations prior to the acquisition on May 27,
1999. The terms of the Content Provider Agreement and License provide that CYL
will share varying percentages of revenues with Robbins and RRI from the online
sale of Robbins', RRI's or CYL's products. There are also additional amounts due
for CYL's off-line sales of Robbins or RRI products.
On September 16, 1999, GHS completed the spin-off of its wholly owned subsidiary
USN pursuant to an Agreement and Plan of Distribution ("Distribution Agreement")
and an Assignment and Assumption Agreement (the "Assignment Agreeement") between
GHS and USN. Under the Assignment Agreement, the majority of the assets and
liabilities of GHS and its subsidiaries on May 27, 1999 were assigned and
transferred to USN. Pursuant to the Distribution Agreement, GHS distributed to
holders of record of the Common Stock of GHS on September 8, 1999 one share of
USN common stock for each share of Common Stock of GHS owned (the "Spin-Off").
Effective at the time of the Spin-Off, USN became a separate company no longer
owned or controlled by GHS in any way. The results of USN were accounted for as
discontinued operations from May 20, 1999, the date the Board of Directors of
GHS (the "Board") formally approved the discontinuance of USN through a
distribution to its shareholders. The results of operations of USN during the
phase out period (May 20, 1999 through September 16, 1999) was a net loss of
$36,000.
Note 3: Other Transactions
On May 27, 1999, GHS acquired all of the outstanding capital stock of Concept
Development Inc. ("Concept Development") pursuant to an Agreement and Plan of
Reorganization dated as of May 27, 1999 among GHS, Concept Development, Concept
Acquisition Corporation, a wholly-owned subsidiary of GHS, William Zanker
("Zanker") and Debbie Dworkin ("Dworkin") (the "Concept Development
Acquisition"). Concept Development was formed in September 1996 to provide
online general-interest continuing education courses. Concept Development did
not conduct operations prior to its acquisition and as of May 27, 1999 had
assets of $1,000. GHS paid $2.0 million in cash and issued an aggregate of
50,000 shares of a newly-designated Series C Convertible Preferred Stock, par
value $0.01 per share (the "Series C Preferred Stock"), to Dworkin, the sole
stockholder of Concept Development (the "Dworkin Shares"), in exchange for all
of the outstanding capital stock of Concept Development. Concurrently, GHS
entered into a three year employment agreement with Zanker (Dworkin's husband.)
The shares of Series C Preferred Stock issued in the Concept Development
Acquisition were automatically converted into an aggregate of 500,000 shares of
Common Stock on September 9, 1999 (the next business day following the record
date for the Spin-Off). The fair value of the Dworkin Shares, at $90 per
preferred share, aggregating $4,500,000, was based on the price paid for similar
preferred shares issued in a contemporaneous private placement (described
below).
7
On May 27, 1999, in connection with the Concept Development Acquisition, GHS
entered into a Repurchase Agreement with Dworkin, the sole stockholder of
Concept Development prior to the Concept Development Acquisition (the
"Repurchase Agreement"). Pursuant to the Repurchase Agreement, GHS has the right
to repurchase the Dworkin Shares (the "Repurchase Option") issued to Dworkin in
connection with the Concept Development Acquisition if Zanker ceases to be
employed by GHS, unless due to a termination without cause (as defined in the
employment agreement dated May 27, 1999 between GHS and Zanker) or in connection
with a change in control of GHS after the change in control described above. The
number of Dworkin Shares subject to the Repurchase Option will be reduced, in
equal quarterly increments commencing on August 31, 1999 and ending in the
quarter ending May 31, 2002, ultimately to zero.
The acquisition of Concept Development is accounted for as a purchase with the
purchase price allocated to the intangible assets underlying the three-year
Zanker employment agreement including certain non-compete restrictions and to
the license agreement entered into with The Learning Annex (described below.)
The resulting intangible assets are being amortized over three years.
On May 27, 1999, GHS entered into the Exclusive Marketing and License Agreement
(the "Marketing and License Agreement") with The Learning Annex (defined below)
pursuant to which The Learning Annex granted to GHS, the exclusive right to use
The Learning Annex's intellectual property online and to sell certain of The
Learning Annex's merchandise online. The Marketing and License Agreement also
provides for certain co-marketing and co-promotion activities. In exchange, GHS
issued to The Learning Annex certain equity securities and is required to pay to
The Learning Annex an annual license fee. The fair value of the stock issued was
recorded as an intangible asset and is being amortized over the initial term of
the license. "The Learning Annex" consists of Seligman Greer Communication
Resources, Inc., a California corporation (d/b/a The Learning Annex of San
Francisco), SGS Communication Resources, Inc., a California corporation (d/b/a
The Learning Annex of Los Angeles), Seligman Greer Sandberg Enterprises, Inc., a
California corporation (d/b/a The Learning Annex of San Diego), SGC
Communication Resources LLC, a Delaware limited liability company (d/b/a The
Learning Annex of New York), and Learning Annex Interactive LLC, a Delaware
limited liability company.
GHS also obtained an option to acquire The Learning Annex (the "Option"),
pursuant to the Option Agreement with The Learning Annex dated as of May 27,
1999 (the "Option Agreement"). The Option is exercisable, on the terms and
subject to the conditions in the Option Agreement, at any time through May 27,
2004 at an exercise price based on a pre-negotiated price structure. GHS paid
$75,000 on May 27, 1999 for the first year of the Option and is required to pay
$125,000, $200,000, $500,000 and $750,000, respectively, to maintain the Option
in each of the subsequent four years. The annual fee is charged to expense as
incurred.
On May 27, 1999, GHS completed a private placement of 178,582 shares (the
"Shares") of a newly designated Series B Convertible Preferred Stock, par value
$0.01 per share (the "Series B Preferred Stock"), at a purchase price of $90 per
share. The private placement resulted in net proceeds of approximately $15.1
million, which GHS raised to finance ongoing operations and for general
corporate purposes. The shares of Series B Preferred Stock were automatically
converted into an aggregate of 1,785,820 shares of Common Stock on September 9,
1999 (the next business day following the record date for the Spin-Off). The
Shares were sold pursuant to an exemption from the registration requirements of
the Securities Act of 1933. GHS has agreed
8
to file a registration statement under the Securities Act of 1933 to register
the resale of the shares of Common Stock issued upon the conversion of the
Series B Preferred Stock.
Note 4: Summary of Significant Accounting Policies
Start-up Costs:
All costs and expenses associated with the start-up of the Internet initiative
have been expensed as incurred.
Depreciation and Amortization:
GHS has acquired computers and other equipment through leases which are
accounted for as capital leases. The cost of the equipment is being depreciated
over the lease period, which is two years. GHS will be acquiring additional
computer equipment and will assign a useful life of the shorter of the lease
term or three years. GHS has also acquired furniture and other equipment not
under leases which is being depreciated over its estimated useful life of three
years. In connection with the Company's relocation to new corporate offices, GHS
has spent $121,000 in leasehold improvements which are being amortized over the
remaining term of the lease which expires August 31, 2004.
Loss Per Share:
Basic loss per share excludes dilution and is computed by dividing the loss
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if potentially dilutive securities such as convertible
preferred stock, stock options and warrants were exercised or converted into
common stock. Basic and dilutive loss per share were the same for the period
April 21, 1999 (inception) through September 30, 1999 (and for the quarter
ending September 30, 1999) since the effect of all potential dilutive common
share equivalents was anti-dilutive. As of September 30, 1999, there were
outstanding preferred shares convertible into 30,708,396 shares of Common Stock
and options and warrants exercisable into 1,675,000 shares of Common Stock.
Stock Options:
Pursuant to Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), companies can either expense the
estimated fair value of employee stock options or follow the intrinsic value
method set forth in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), but disclose the pro forma effects on net
loss and net loss per share had the fair value of the options been expensed. GHS
has elected to apply APB 25 in accounting for its employee stock options.
Income Taxes:
Deferred tax assets have not been provided for the value of the net operating
loss for the period from April 21, 1999 (inception) through September 30, 1999
as their future utilization is uncertain.
9
Note 5: Stock Options
Effective on the date of the reverse acquisition, the Board granted to an
executive officer of GHS 300,000 options at an exercise price of $4.50 per
share. Such options vested immediately and expire in May 2009. In addition, the
Board granted to the executive officer 1,000,000 additional options which will
vest in increments over four years from the date of grant and have exercise
prices of $9.00 per share for 225,000 options which vest at the end of year one,
$9.00 per share for 225,000 options which vest at the end of year two, $10.00
per share for 250,000 options which vest monthly during year three and $12.00
per share for 300,000 options which vest monthly during year four. Compensation
expense related to these options was $908,000 and $4,890,000 during the quarter
ending September 30, 1999 and the period April 21, 1999 (inception) through
September 30, 1999, respectively. None of the above options were granted under
any of the Company's stock option plans.
Officers, directors, consultants and other key personnel of GHS are eligible for
option grants under GHS's 1997 Stock Option Plan (the "1997 Plan"), which is
administered by the Board. During 1998 and the first nine months of 1999, no
options were granted and at September 30, 1999, 175,000 options were outstanding
under the 1997 Plan and 425,000 options were available for future grant.
The 1997 Plan authorizes the granting of incentive stock options ("ISOs") and
non-qualified stock options ("NSOs") to purchase up to 750,000 shares of Common
Stock at a price not less than 100% (110% in the case of ISO's granted a person
who owns stock possessing more than 10% of the voting power of GHS) of the fair
market value of the common stock on the date of grant and provides that no
portion of an option may be exercised beyond ten years from that date (five
years in the case of ISO's granted to a 10% stockholder).
To the extent not otherwise provided by the Board, options granted under the
1997 Plan to employees and consultants become exercisable in three installments,
each equal to one-third of the entire option granted and exercisable on the
first, second and third anniversaries of the grant date, respectively. In the
event of termination of an employee's service to GHS, vested options may be
exercised within one year following the date of death or following a
determination of disability and within three months following termination for
any other reason; except that, if such termination is for cause, the options
will not be exercisable following such termination. In no event may an option be
exercised later than the date of expiration of the term of the option as set
forth in the agreement evidencing such option. The 1997 Plan will terminate in
2007.
In October 1999, GHS adopted three new stock option plans, the 1999 Employee
Stock Option Plan, the 1999 Outside Directors Stock Option Plan and the 1999
Consultants Stock Option Plan (collectively the "1999 Plans").
The 1999 Employee Stock Option Plan provides for the granting of options to
employees to purchase up to 2,287,500 shares of Common Stock. The 1999 Employee
Stock Option Plan will permit grants of incentive stock options ("ISOs") and
non-qualified stock options ("NSOs"). ISO's will be granted at a price not less
than fair market value of the Common Stock on the date of grant. NSO's may have
a specified exercise price that is fixed or varies in accordance with a
predetermined formula while the NSO is outstanding, provided that the exercise
price per share shall not be less than the par value per share of the Common
Stock. Options granted under the 1999 Employee Stock Option Plan will carry
minimal vesting periods and employees would then be required to remain with GHS
for a number of years to earn and receive the full benefit of a stock option
grant. Options may be exercised in part from time to time or in whole at any
time after a portion becomes fully vested, for a period not to exceed ten years
from the date of grant. Upon a change of control, as defined, the vesting will
accelerate on up to 25% of the shares originally covered by an option for
employees employed by the Company at least one year.
The 1999 Outside Directors Stock Option Plan provides for the granting of
options to directors who are not common-law-employees of GHS or any subsidiary
of GHS. The 1999 Outside Directors Stock Option Plan provides for the granting
of options to purchase up to 385,000 shares of Common Stock. Options granted
under the 1999 Outside Directors Stock Option Plan will carry minimal vesting
periods and directors would then be required to remain on the Board for a number
of years to earn and receive the full benefit of a stock option grant. Options
may be exercised in part from time to time or in whole at any time
10
after a portion becomes fully vested, for a period not to exceed ten years from
the date of grant. The 1999 Consultants Stock Option Plan provides for granting
of options to consultants and other bona fide service providers who are not
common-law-employees of GHS or any subsidiary of GHS. The 1999 Consultants Stock
Option Plan provides for the granting of options to purchase up to 327,500
shares of Common Stock. The exercise price of options under the 1999 Outside
Directors Stock Option Plan and the 1999 Consultants Stock Option Plan may be
fixed or vary in accordance with a predetermined formula while the option is
outstanding, provided that the exercise price per share shall not be less than
the par value of the Common Stock.
A summary of the status of GHS's stock options as of September 30, 1999, and
changes during the period from April 21, 1999 (date of inception) to September
30, 1999 is presented below:
Weighted
average
Number exercise price
--------------- ------------------
Options assumed pursuant to merger of GHS and CYL 459,000 $ 0.75
Granted 1,300,000 $ 8.85
Exercised (284,000) $(0.75)
------------ ------
Outstanding at September 30, 1999 1,475,000 $ 7.89
============ ======
Options exercisable at September 30, 1999 475,000 $ 3.12
============ ======
Weighted average fair value of options granted during the period $14.05
======
11
The following table summarizes information related to options outstanding at
September 30, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES SEPTEMBER 30, 1999 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE SEPTEMBER 30, 1999 EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------
$0.75-$4.50 475,000 9.03 $ 3.12 475,000 $ 3.12
$9.00-$12.00 1,000,000 9.67 $10.15 - -
-----------------------------------------------------------------------------------------------------------
$0.75-$12.00 1,475,000 9.71 $ 7.89 475,000 $ 3.12
===========================================================================================================
12
Pro forma information regarding net income (loss) and basic and diluted income
(loss) per share is required by SFAS No. 123, and has been determined as if GHS
had accounted for its employee stock options under the fair value method of that
statement. The following pro forma information gives effect to fair value for
those options granted during 1999, which was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield 0%, volatility of 75%, risk free interest rate of
5.9% and an expected life of 5 years.
For the period from April
21, 1999 (inception)
through
September 30, 1999
Net loss from continuing operations:
As reported ($7,871)
Pro forma ($9,953)
Basic and diluted loss per share
As reported ($1.03)
Pro forma ($1.30)
Note 6: Warrants
A total of 200,000 warrants granted prior to the reverse acquisition of CYL by
GHS remain outstanding at September 30, 1999. The warrants provide for the
purchase of common stock at $0.75 per share. The warrants contain registration
and certain anti-dilution rights and expire on November 30, 2003.
Note 7: Commitments:
In May 1999, GHS entered into a lease for office space in New York, New York.
The lease required a $0.3 million security deposit which is returnable at the
conclusion of the lease on August 31, 2004. The annual cost of the lease is $0.4
million for the term. GHS has granted a security interest in all of the
leasehold improvements and building systems to the landlord.
Note 8: Subsequent Events:
On November 3, 1999, GHS filed an amendment to its Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
25,000,000 to 100,000,000. On November 4, 1999, the outstanding shares of Series
A Preferred Stock automatically converted into Common Stock in accordance with
their terms.
On November 3, 1999, GHS adopted certain stock option plans as of September 8,
1999, the date of approval by the Board (See Note 5).
13
GHS, Inc. and Subsidiaries
Pro forma Unaudited Financial Information (Unaudited Consolidated Statement of
Operations for the nine months ended September 30, 1999)
The following pro-forma unaudited consolidated statement of operations reflects
the acquisition of CYL by GHS, which was accounted for as a reverse acquisition,
the acquisition of Concept Development, the Spin-Off, the Marketing and License
Agreement and Option Agreement with The Learning Annex and the issuance of stock
options to an executive officer of GHS. The acquisition of Concept Development
is accounted for as a purchase. The costs associated with the execution of the
Marketing and License Agreement are being amortized over the term of the
agreement.
The pro forma statement of operations gives effect to the transactions as if
they had occurred at January 1, 1999.
In the opinion of management of GHS, all adjustments necessary to present fairly
such pro-forma unaudited financial statements have been made. The pro-forma
unaudited financial statements are not necessarily indicative of what the actual
results of operations would have been had the transactions occurred on the dates
indicated above, nor do they purport to represent the future results of
operations of GHS.
- -------------------------------- -------------------------------------------------------------------------------------
Pro Forma Adjustments
- -------------------------------- -------------------------------------------------------------------------------------
The Learning Pro Forma
Annex (nine months
GHS. Inc. and Concept License and Executive ended)
Subsidiaries Development Inc. Purchase Compensation September 30,
As reported Acquisition (1) Option (2) (3) 1999
- -------------------------------- -------------------------------------------------------------------------------------
Expenses:
General and administrative 8,089 1,017 228 1,637 10,971
- -------------------------------- -------------------------------------------------------------------------------------
Total Operating Expenses 8,089 1,017 228 1,637 10,971
- -------------------------------- -------------------------------------------------------------------------------------
Interest income 218 218
- -------------------------------- -------------------------------------------------------------------------------------
- -------------------------------- -------------------------------------------------------------------------------------
Net Loss $ (7,871) $ (1,017) $ (228) $ (1,637) $ (10,753)
- -------------------------------- -------------------------------------------------------------------------------------
Basic and fully diluted loss
per share $ (1.03) $ (1.41)
- -------------------------------- -------------------------------------------------------------------------------------
Weighted average shares
outstanding 7,634,907 7,634,907
- -------------------------------- -------------------------------------------------------------------------------------
Notes to pro-forma statement of operations.
[1] Reflects the amortization of the intangible assets acquired in the Concept
Development Acquisition as described in Note 3 to the accompanying financial
statements and salary expense and employee benefits at an estimate of 20% of
salary for the former President of Concept Development who is now employed by
GHS, pursuant to an employment agreement.
[2] Reflects the amortization of the intangible assets relating to the Marketing
and License Agreement and Option Agreement with The Learning Annex as described
in Note 3 to the accompanying financial statements.
[3] Reflects the issuance of compensatory stock options to an executive officer
of GHS and salary expense and employee benefits at an estimate of 20% of salary.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
As a result of the following, the discussion and analysis of GHS's financial
condition and results of operations for the quarter ending September 30, 1999
and for the period from inception through September 30, 1999 reflect the
operations of GHS's Internet business from the period commencing on April 21,
1999, the date of inception of CYL (See Notes 1, 2 and 3 to GHS's Unaudited
Consolidated Financial Statements):
(i) CYL was the acquiror of GHS for accounting purposes in the reverse
acquisition;
(ii) GHS completed the Spin-Off, which included the spin-off of GHS's
subsidiary, USN, and, except for certain cash, all its other
business related assets (USN's operations were treated as
discontinued operations of GHS for accounting purposes as of May
20, 1999, the date the Board approved the Spin-Off); and
(iii) CYL was formed on April 21, 1999 and had not conducted significant
operations prior to the reverse acquisition on May 27, 1999.
In addition to the reverse acquisition of CYL by GHS, resulting in GHS's
acquisition of CYL's Internet business focused on personal and professional
improvement, GHS completed the following transactions:
o On May 27, 1999, GHS acquired the right and license to use
(subject to certain limitations) the Robbins name in connection
with CYL's Internet business, all goodwill attached to the Robbins
name and likeness for use in CYL's Internet business, the existing
Internet activities and business of RRI, the exclusive license to
use RRI trademarks, tradenames, goodwill attached thereto, and the
right to use existing programs, recordings, videos, CD-ROMs,
proprietary software packages, and seminars owned by RRI in CYL's
Internet business as well as various URLs, an online self-help
pilot program and a business plan. See Note 2 to GHS's Unaudited
Consolidated Financial Statements.
o On May 27, 1999, GHS acquired Concept Development, which was
formed in September 1996 to provide online general-interest
continuing education courses. See Note 3 to GHS's Unaudited
Consolidated Financial Statements.
o On May 27, 1999, GHS entered into the Marketing and License
Agreement with The Learning Annex, a leading provider of
continuing education courses in five cities in the United States
and Canada, for the exclusive online use of its intellectual
property and sale of certain of its merchandise over the Internet
and for certain co-marketing and co-promotion activities. See Note
3 to GHS's Unaudited Consolidated Financial Statements.
o On May 27, 1999, GHS obtained the Option to acquire The Learning
Annex. See Note 3 to GHS's Unaudited Consolidated Financial
Statements.
15
o On May 27, 1999, GHS completed a private placement resulting in
net proceeds of approximately $15.1 million to GHS. See Note 3 to
GHS's Unaudited Consolidated Financial Statements.
PLAN OF OPERATION
As described above, GHS changed its business from that of USN, which provided
access to stereotactic radiosurgery centers using the Gamma Knife technology, to
an initiative that includes plans for a network to focus on personal and
professional improvement.
During the next twelve months, GHS anticipates that it will establish an online
learning destination featuring an integrated offering of content, services,
communities, and interactive sales. GHS's plan is that its online content and
services will consist mainly of interactive, expert-instructed courses;
community tools; expert live audio and video appearances; and other expert-based
content and services. GHS will attempt to deliver to consumers the emotional and
motivational power of branded personalities, companies and institutions in the
personal and professional improvement industry in a unified online experience.
Distribution of GHS's products and services will be done primarily over the
Internet through a branded web site.
GHS plans to derive revenues from its activities in the form of sponsorships,
electronic commerce, advertising and fees for interactive products and services.
GHS's web site is currently in the development stage and additional
infrastructure and programming is necessary to bring the web site to market.
GHS's ability to develop the web site and related functionalities will directly
affect the timing of future revenues. GHS plans to launch the first stage of its
web site, consisting of newsletters by the end of 1999. GHS anticipates that it
will begin to generate revenues through sponsorship and third-party product
sales with the launch of the third stage of its web site that is anticipated to
include course communities with newsletters, chat events and product sales,
which is planned to launch by the end of the first quarter of 2000. There can be
no assurance that the launch of GHS's web site will proceed as planned. As with
any development stage enterprise, unforeseen difficulties may arise.
RESULTS OF OPERATION FOR THE QUARTER ENDING SEPTEMBER 30, 1999 AND FOR THE
PERIOD APRIL 21, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999
No comparison of prior periods is presented below as CYL was formed on April 21,
1999 and did not conduct operations prior to May 27, 1999.
REVENUES
GHS did not generate revenues during the period from inception through September
30, 1999. GHS believes that it will begin to generate revenues through
sponsorship and third-party product sales with the launch of the third stage of
its web site, anticipated by the end of the first quarter of 2000. GHS
anticipates that the third stage of its web site will include course communities
with newsletters, chat events and product sales.
16
INTEREST
GHS earned interest of approximately $0.2 million on cash balances acquired in
the CYL acquisition and raised in the May 27, 1999 private placement.
EXPENSES
General and administrative expenses for the quarter ending September 30, 1999
totaled $3.4 million, of which $1.5 million relates to non-cash items including
$0.9 million of compensation expense for the compensatory stock options granted
to an executive officer of GHS and $0.6 million relating to the amortization of
intangible assets acquired in the Concept Development and The Learning Annex
transactions (see Note 3 to GHS's Unaudited Consolidated Financial Statements).
The remaining $1.9 million was spent on salaries and consulting fees relating to
the development of our web site, legal fees, and miscellaneous operating
expenses.
General and administrative expenses for the period from inception to September
30, 1999 totaled $8.1 million, of which $5.7 million relates to non-cash items
including $4.9 million of compensation expense for the compensatory stock
options granted to an executive officer of GHS and $0.8 million relating to the
amortization of intangible assets acquired in the Concept Development and The
Learning Annex transactions (see Note 3 to GHS's Unaudited Consolidated
Financial Statements). The remaining $2.4 million of expenses primarily consist
of legal expenses relating to the CYL transactions and general corporate
matters, expenses relating to web site design and expenses related to
prospective content acquisitions. GHS believes that the cost relating to
compensatory stock options will decline in future periods but that the
amortization of intangibles may increase depending on the amount and nature of
future content acquisitions. GHS believes that the general and administrative
expenses will significantly increase as GHS continues to acquire staff and
equipment.
NET LOSS
GHS incurred a net loss of $3.2 million and $7.9 million for the quarter ending
September 30, 1999 and the period from inception to September 30, 1999,
respectively. The net loss is a result of the operating expenses described above
offset by interest income on the cash obtained in the reverse acquisition of CYL
and from the May 1999 private placement.
LIQUIDITY AND CAPITAL RESOURCES
GHS had $13.4 million in cash and cash equivalents at September 30, 1999.
For the period from inception through September 30, 1999, cash used in operating
activities was $1.7 million, of which legal expenses totaled $0.5 million and
web site development and content acquisition expenses totaled $0.7 million, and
$.5 million for other operating expenses.
For the period from inception through September 30, 1999, cash used in investing
activities was $3.0 million including $2.1 million of cash paid in the Concept
Development acquisition and related legal fees (see Note 3 to GHS's Unaudited
Consolidated Financial Statements), $0.5 million of capital expenditures and
$0.3 million paid as a security deposit on the New York, New York office lease
(see Note 7 to GHS's Unaudited Consolidated Financial Statements).
17
Cash provided by financing activities was approximately $18.1 million,
consisting of net proceeds of approximately $15.1 million from a private
placement of equity and $3.0 million cash acquired in the acquisition of CYL.
GHS believes that it will continue to incur operating losses through at least
2001. GHS expects that cash and cash equivalents at September 30, 1999 will
adequately fund initial significant technology hardware and software
expenditures necessary to develop its business and allow GHS to meet its
operating needs for at least four months from the date of this filing. GHS also
expects to significantly increase the number of employees devoted to its
Internet business from 22 at September 30, 1999 to approximately 100 at March
31, 2000 and believes existing cash will fund related increased costs for that
period of time. To the extent that such increased costs exceed existing
resources and the acquisition or development of content and/or marketing
requires significant cash consideration, GHS anticipates the need to obtain
additional financing. There can be no assurance that GHS will be able to secure
additional financing or that such financing, if any, will be available on
favorable terms.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year, such as
"99" for "1999." These programs were designed and developed without addressing
the impact of a new century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. GHS is at risk if the information technology systems or non-IT systems on
which it is dependent to conduct its operations do not address this problem,
i.e., are not "year 2000 compliant." GHS's potential areas of exposure include
products purchased from third parties and computers, software, telephone
systems, and other equipment used internally.
As GHS has only begun operations in May 1999, it is requiring all vendors
supplying computer hardware and software to provide statements of their products
compliance with the year 2000 issue. GHS has not acquired any software or
equipment that has not been represented to be year 2000 compliant. GHS is also
dependent on the year 2000 compliance of third parties. Examples include credit
card processing, server hosting and delivery of goods by the United States
Postal Service or other third party carriers. While GHS has not yet determined
the system to be used to process its Internet commerce transactions, it will
ensure that it is year 2000 compliant. GHS does not expect to begin processing
Internet commerce before the first quarter of 2000. GHS has obtained a year 2000
compliance representation from the third party processing our internal payroll
and from the provider of our financial software.
If production and operational facilities that support GHS's systems are not year
2000 compliant, some or all of our web sites may become unavailable. For
instance, GHS depends on the integrity and stability of the Internet to provide
its services. GHS also depends on the year 2000 compliance of the computer
systems and financial services used by customers. Thus, the infrastructure
necessary to support GHS's operations consists of a network of computers and
telecommunications systems located throughout the world and operated by numerous
unrelated entities and individuals, none of which individually has the ability
to control or manage the potential year 2000 issues that may impact the entire
infrastructure. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards would have an
adverse effect on demand for GHS's services and would have a material adverse
effect on GHS.
18
If GHS's web hosting facilities are not year 2000 compliant, its web sites would
be unavailable and GHS would not be able to deliver services to its users. If
GHS's present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with which it
conducts business do not successfully address such issues, our business,
operating results and financial position could be materially and adversely
affected.
Although GHS is currently assessing potential contingency plans, it has
developed no contingency plans to address the worst case scenario that might
occur if year 2000 issues make the Internet or GHS's web sites unavailable. In
such case, our dependence on the widespread and unrelated entities, which
maintain the Internet's infrastructure, makes it impossible to develop or
implement an adequate contingency plan and, accordingly GHS does not plan to
develop one. GHS has discussed year 2000 readiness with its current content
providers and has obtained representations that their internal systems are year
2000 compliant and that year 2000 issues relating to their internal systems are
not anticipated. There remains the risk that factors outside of their internal
systems may cause significant business interruption and would therefore have a
material adverse effect on GHS.
FORWARD LOOKING STATEMENTS
THIS QUARTERLY REPORT, INCLUDING THE DISCUSSION OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF GHS, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. GHS'S ACTUAL RESULTS AND TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THOSE FACTORS DESCRIBED ELSEWHERE
IN THIS QUARTERLY REPORT AND IN OTHER FILINGS MADE BY GHS WITH THE COMMISSION.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In 1993, pursuant to an agreement (the "USN Agreement") between GHS and A. Hyman
Kirshenbaum, M.D. ("Kirshenbaum") and Jerry Brown, Ph.D ("Brown"), GHS, among
other things, granted an aggregate 20% interest in USN to Brown and Kirshenbaum.
In addition, following the execution of the USN Agreement, Kirshenbaum was
appointed as an officer of USN and Brown was appointed to the Board and executed
an employment agreement with USN. Mr. Brown is no longer a member of the Board.
Under the terms of the USN Agreement, GHS possessed the right to repurchase for
cash or Common Stock such 20% interest during each of the third through sixth
full fiscal years of the USN Agreement at a value to be calculated by GHS in
accordance with the terms of the USN Agreement. GHS exercised its right to
repurchase the 20% interest in USN in November 1996 at a value of $38,781.40,
which value was disputed by Brown and Kirshenbaum.
In June 1997, GHS instituted an action (the "Declaratory Action") in the United
States District
19
Court of Maryland, Southern Division against Kirshenbaum and Brown seeking a
declaration from the Court that its repurchase of Brown's and Kirshenbaum's 20%
interest in USN for $38,781.40 was fair and equitable. In response to the
Declaratory Action, Brown and Kirshenbaum filed a counterclaim and third party
claim against GHS, USN, Alan Gold (GHS's Chief Executive Officer) and Allen &
Company Incorporated (a significant stockholder of GHS) citing various claims
including causes of action for breach of contract and fraud. USN filed a
counterclaim against Brown and Kirshenbaum alleging various torts claims arising
out of the business relationship. In addition to the above described federal
court action, Brown filed a state court action in the District Court in and for
Montgomery County, Maryland against USN and other parties seeking breach of
contract damages for lost salary, unreimbursed expenses and for consequential
damages and costs arising out of what he claimed to be an improper termination
from USN.
On May 25, 1999, the parties to the above-described actions settled all of
above-described legal proceedings pursuant to an Agreement and Plan of
Settlement dated March 22, 1999 between Brown, Kirshenbaum, GHS, USN, Alan Gold
and Allen & Company Incorporated. As part of the closing of such settlement, GHS
issued in the aggregate 68,668 additional shares of GHS Common Stock to Brown
and Kirshenbaum and delivered $200,000 in cash to them. In addition, USN
delivered to Brown and Kirshenbaum promissory notes (the "Settlement Notes") in
the aggregate amount of $450,000, bearing interest at the rate of 6% per annum,
and payable over a four-year period as follows: $100,000 on the first, third and
fourth anniversaries of such closing and $150,000 on the second anniversary of
such closing. USN will be solely responsible for the payment of the Settlement
Notes. The Settlement Notes are secured by a second-priority security interest
in USN's receivables from its Kansas City and New York Gamma Knife centers. On
June 9, 1999, the Declaratory Action was dismissed with prejudice by the
parties, and said dismissal was approved by the District Court judge.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
INCREASE IN AUTHORIZED COMMON STOCK; ADOPTION OF STOCK OPTION PLANS
By Unanimous Written Consent dated as of September 8, 1999, the Board approved
each of the following actions and submitted such actions to stockholders
representing a majority of outstanding voting stock for their consent and
approval:
1. Amendment to GHS's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock from
25,000,000 to 100,000,000;
2. Adoption of GHS's 1999 Employee Stock Option Plan, which
provides for the granting of options to employees to
purchase, in the aggregate, up to 2,287,500 shares of Common
Stock;
3. Adoption of GHS's 1999 Outside Directors Stock Option Plan,
which provides for the granting of options to non-employee
directors to purchase, in the aggregate, up to 385,000 shares
of Common Stock; and
4. Adoption of GHS's 1999 Consultants Stock Option Plan, which
provides for the granting of options to consultants and other
bona fide service
20
providers to purchase, in the aggregate, up to 327,500 shares
of Common Stock.
By Written Consent in Lieu of a Meeting dated as of September 8, 1999, holders
as of September 8, 1999, representing 3,998,246 shares of Common Stock, 54.6% of
the shares of Common Stock outstanding, approved the amendment to the Restated
Certificate of Incorporation to increase the authorized shares of Common Stock
of GHS. By Written Consent in Lieu of a Meeting dated as of September 8, 1999,
holders as of September 8, 1999, representing 23,031,296 shares of capital
stock, 57.1% of the shares of Common Stock and shares of Series A, B and C
Preferred Stock voting as a single class, approved the amendment to the Restated
Certificate of Incorporation to increase the authorized shares of Common Stock
of GHS and the adoption of the 1999 Employee Stock Option Plan, the 1999 Outside
Directors Stock Option Plan and the 1999 Consultants Stock Option Plan. Such
actions by written consent are sufficient to satisfy the applicable requirements
of Delaware law that GHS obtain the approval of its stockholders for the above
corporate actions.
On October 14, 1999, GHS sent to its stockholders an Information Statement with
respect to the actions set forth above in compliance with Rule 14c-2 promulgated
under the Securities Exchange Act of 1934. On November 3, 1999, after the 20-day
waiting period applicable under Rule 14c-2 promulgated under the Securities
Exchange Act of 1934, GHS increased its authorized shares of Common Stock as
described above by the filing of a Certificate of Amendment to GHS's Restated
Certificate of Incorporation and the three stock option plans became effected as
of the date of Board approval. Accordingly, the stockholders will not be asked
to take further action on such corporate actions at any future meeting.
Reference is made to GHS's definitive information statement on Form 14C dated
and filed with the Securities Exchange Commission on October 12, 1999, for more
information on the matters approved by stockholders set forth above.
ELECTION OF NEW BOARD OF DIRECTORS
In connection with the Exchange Agreement and in accordance with the Restated
Bylaws, by Written Consent in Lieu of a Meeting dated as of September 29, 1999,
holders representing 23,031,297 shares of capital stock, 57.1% of the
outstanding voting securities of GHS on such date (including shares of Common
Stock and shares of Series A Preferred Stock voting as a single class), elected
seven new directors in accordance with the Restated By-Laws. The seven new
directors nominated to the Board were W. Grant Gregory, Charles D. Peebler,
Fredric D. Rosen, Peter A. Lund, Anthony J. Robbins, H. Peter Guber and Bruce L.
Stein.
On November 8, 1999, GHS sent to its stockholders an Information Statement for
the election of the nominees set forth above in compliance with Rule 14f-1
promulgated under the Securities Exchange Act of 1934. The nominees are expected
to take office as directors on November 18, 1999, ten days after the delivery of
such Information Statement, in compliance with Rule 14f-1 promulgated under the
Securities Exchange Act of 1934. When the nominees take office on November 18,
1999, the tendered resignations of the three current members of the Board, Alan
Gold, William F. Leimkuhler and Charles H. Merriman, will become effective,
resulting in an entirely new Board.
21
Reference is made to GHS's definitive information statement on Form 14C dated
and filed with the Securities Exchange Commission on November 4, 1999, for more
information on the election of the new Board described above.
ITEM 5. OTHER INFORMATION.
GHS plan to change its corporate name from GHS, Inc. to dreamlife, inc. The name
change is being made to help create a corporate identity that is tied to the
business GHS is developing, a network focusing on personal and professional
improvement. The name change is also being made to clearly distinguish GHS's
current business from its former business.
By Unanimous Written Consent of the Board dated October 27, 1999, the Board
approved the amendment to GHS's Restated Certificate of Incorporation to change
GHS's corporate name from GHS, Inc. to dreamlife, inc. By Written Consent in
Lieu of a Meeting dated October 28, 1999, holders representing 30,708,396 shares
of capital stock, 76.1% of the shares of Common Stock and shares of Series A
Preferred Stock voting as a single class, approved such amendment. Under Rule
14c-2 promulgated under the Securities Exchange Act of 1934, the name change
cannot take effect until 20 days after an Information Statement is sent to GHS's
stockholders. Accordingly, GHS plans to effect the name change as soon as
possible after such 20-day period by filing a Certificate of Amendment to the
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware. On November 10, 1999, GHS filed with the Securities Exchange
Commission for review a Preliminary Information Statement with respect to the
name change in compliance with Rule 14c-2 promulgated under the Securities
Exchange Act of 1934.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS DESCRIPTION
2(a) Contribution and Exchange Agreement dated as of May
20, 1999 among GHS, Change Your Life.com, LLC,
Anthony J. Robbins, Robbins Research International
Inc. and CYL Development Holdings, LLC (1)
2(b) Agreement and Plan of Reorganization dated as of May
27, 1999 among GHS, Concept Acquisition Corporation,
Concept Development, Inc., William Zanker and Debbie
Dworkin (1) (2)
2(c) Agreement of Merger dated as of May 27, 1999 between
Concept Acquisition Corporation and Concept
Development, Inc. (1) (2)
3(i)(a) Restated Certificate of Incorporation (3)
3(i)(b) Certificate of Amendment to Certificate of
Incorporation dated June 18, 1987 (4)
3(i)(c) Certificate of Amendment to Certificate of
Incorporation dated November 17, 1989 (5)
3(i)(d) Certificate of Amendment to Certificate of
Incorporation dated November 3, 1999
3(ii) Amended and Restated By-Laws (1)
22
10(a) Content Provider Agreement and License
effective as of April 23, 1999 between Change
Your Life.com, LLC, Anthony J. Robbins and
Research International Inc.
(1) (2)
10(b) Escrow Agreement dated as of May 27, 1999 among GHS,
Debbie Dworkin and State Street Bank and Trust
Company (1) (2)
10(c) Repurchase Agreement dated as of May 27, 1999 between
GHS and Debbie Dworkin (1) (2)
10(d) Employment Agreement dated as of May 27, 1999 between
GHS and Wiliam Zanker (1)
10(e) Exclusive License and Marketing Agreement dated as of
May 27, 1999 among GHS, Seligman Greer Communication
Resources, Inc., SGS Communications Resources, Inc.,
Seligman Greer Sandberg Enterprises, Inc., SGC
Communication Resources LLC and Learning Annex
Interactive LLC (1) (2)
10(f) Option Agreement dated as of May 27, 1999
among GHS, Seligman Greer Communication
Resources, Inc., SGS Communication Resources,
Inc., Seligman Greer Sandberg Enterprises,
Inc., SGC Communication Resources LLC and
Learning Annex Interactive LLC and certain
shareholders and members, as applicable, of
such entities other than GHS listed therein
(1) (2)
10(g) Registration Rights Agreement dated as of May 27,
1999 among GHS, Anthony J. Robbins, Robbins Research
International Inc. and CYL Development Holdings, LLC
(1)
10(h) Stockholders Agreement dated as of May 27, 1999 among
GHS, Anthony J. Robbins, Robbins Research
International Inc. and CYL Development Holdings, LLC
(1)
10(i) Lease for 425 West 15th Street, 3rd Floor,
New York, New York dated May 21, 1999 between GHS
and CFG/AGSB Chelsea Ninth, L.L.C. (6)
10(j) Distribution Agreement dated May 27, 1999 between GHS
and USN (7)
10(k) Tax Matters Agreement dated May 27, 1999 between
GHS and USN (7)
10(l) Assignment and Assumption Agreement dated May 27,
1999 between GHS and USN (7)
10(m) 1997 Stock Option Plan (8)
10(n) 1999 Employee Stock Option Plan
10(o) 1999 Outside Directors Stock Option Plan
10(p) 1999 Consultants Stock Option Plan
27 Financial Data Schedule
23
(1) Incorporated by reference from the identically
numbered exhibit to GHS's Form 8-K/A dated May 27,
1999 and filed with the Securities and Exchange
Commission as of June 11, 1999.
(2) Confidential treatment has been requested for certain
portions of this exhibit. Omitted portions have been
filed separately with the Securities and Exchange
Commission.
(3) Incorporated by reference from Exhibit 3.1 to GHS's
Registration Statement No. 33-4532-W on Form S-18.
(4) Incorporated by reference from Exhibit 3(b) to the
GHS's 1987 Annual Report on Form 10-K.
(5) Incorporated by reference to Exhibit 3(c) to the
GHS's 1988 Annual Report on Form 10-K.
(6) Incorporated by reference to Exhibit 10(i) to the
GHS's Quarterly Report on Form 10-Q for the period
from April 21, 1999 through June 30, 1999.
(7) Incorporated by reference to exhibits to USN's Form
10 as filed with the Securities and Exchange
Commission on July 1, 1999.
(8) Incorporated by reference to Exhibit 10(k) to the
GHS's 1997 Annual Report on Form 10-K.
(b) Reports on Form 8-K
On August 10, 1999, GHS filed a report on Form 8-K/A dated May 27, 1999 amending
Item 7 (Financial Statement, Pro Forma Financial Information and Exhibits) of
its Form 8-K filed on June 11, 1999 to include PRO FORMA unaudited consolidated
financial statements of GHS giving effect to the acquisition of CYL by GHS,
accounted for as a reverse acquisition, the acquisition of CDI by GHS and the
related private placement of preferred stock and license and option agreements
with The Learning Annex.
On August 24, 1999, GHS filed a report on Form 8-K/A dated May 27, 1999 amending
Item 7 (Financial Statement, Pro Forma Financial Information and Exhibits) of
its Forms 8-K filed on June 11, 1999 and August 10, 1999 revising the PRO FORMA
unaudited consolidated financial statements of GHS giving effect to the reverse
acquisition of CYL by GHS, the acquisition of CDI by GHS and the related private
placement of preferred stock and license and option agreements with The Learning
Annex.
On August 26, 1999, GHS filed a report on Form 8-K dated August 25, 1999 under
Item 5 (Other Events) in connection with the declaration of the dividend for the
Spin-Off of U.S. Neurosurgical, Inc.
On September 30, 1999, GHS filed a report on Form 8-K dated September 16, 1999
under Item 2 (Acquisition or Disposition of Assets) in connection with the
disposition of assets in connection with the Spin-Off of U.S.
Neurosurgical, Inc.
24
SIGNATURES
In accordance with 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.
GHS, INC.
Dated: November 15, 1999 By: /s/ Philicia G Levinson
---------------------- -----------------------------------
Philicia G. Levinson
Senior Vice President
Chief Financial Officer
25
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2(a) Contribution and Exchange Agreement dated as of May 20, 1999
among GHS, Change Your Life.com, LLC, Anthony J. Robbins,
Robbins Research International Inc. and CYL Development
Holdings, LLC (1)
2(b) Agreement and Plan of Reorganization dated as of May 27, 1999
among GHS, Concept Acquisition Corporation, Concept
Development, Inc., William Zanker and Debbie Dworkin (1) (2)
2(c) Agreement of Merger dated as of May 27, 1999 between Concept
Acquisition Corporation and Concept Development, Inc. (1) (2)
3(i)(a) Restated Certificate of Incorporation (3)
3(i)(b) Certificate of Amendment to Certificate of Incorporation dated
June 18, 1987 (4)
3(i)(c) Certificate of Amendment to Certificate of Incorporation dated
November 17, 1989 (5)
3(i)(d) Certificate of Amendment to Certificate of Incorporation dated
November 3, 1999
3(ii) Amended and Restated By-Laws (1)
10(a) Content Provider Agreement and License effective as of April
23, 1999 between Change Your Life.com, LLC, Anthony J. Robbins
and Research International Inc. (1) (2)
10(b) Escrow Agreement dated as of May 27, 1999 among GHS, Debbie
Dworkin and State Street Bank and Trust Company (1) (2)
10(c) Repurchase Agreement dated as of May 27, 1999 between GHS and
Debbie Dworkin (1) (2)
10(d) Employment Agreement dated as of May 27, 1999 between GHS and
Wiliam Zanker (1)
10(e) Exclusive License and Marketing Agreement dated as of May 27,
1999 among GHS, Seligman Greer Communication Resources, Inc.,
SGS Communications Resources, Inc., Seligman Greer Sandberg
Enterprises, Inc., SGC Communication Resources LLC and
Learning Annex Interactive LLC (1) (2)
10(f) Option Agreement dated as of May 27, 1999 among GHS, Seligman
Greer Communication Resources, Inc., SGS Communication
Resources, Inc., Seligman Greer Sandberg Enterprises, Inc.,
SGC Communication Resources LLC and Learning Annex Interactive
LLC and certain shareholders and members, as applicable, of
such entities other than GHS listed therein (1) (2)
10(g) Registration Rights Agreement dated as of May 27, 1999 among
GHS, Anthony J. Robbins, Robbins Research International Inc.
and CYL Development Holdings, LLC (1)
10(h) Stockholders Agreement dated as of May 27, 1999 among GHS,
Anthony J. Robbins, Robbins Research International Inc. and
CYL Development Holdings, LLC (1)
10(i) Lease for 425 West 15th Street, 3rd Floor, New York, New York
dated May 21, 1999 between GHS and CFG/AGSB Chelsea Ninth,
L.L.C. (6)
10(j) Distribution Agreement dated May 27, 1999 between GHS and USN
(7)
10(k) Tax Matters Agreement dated May 27, 1999 between GHS and USN
(7)
10(l) Assignment and Assumption Agreement dated May 27, 1999 between
GHS and USN (7)
10(m) 1997 Stock Option Plan (8)
10(n) 1999 Employee Stock Option Plan
10(o) 1999 Outside Directors Stock Option Plan
10(p) 1999 Consultants Stock Option Plan
27 Financial Data Schedule
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(1) Incorporated by reference from the identically numbered exhibit to
GHS's Form 8-K/A dated May 27, 1999 and filed with the Securities and
Exchange Commission as of June 11, 1999.
(2) Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(3) Incorporated by reference from Exhibit 3.1 to GHS's Registration
Statement No. 33-4532-W on Form S-18.
(4) Incorporated by reference from Exhibit 3(b) to the GHS's 1987 Annual
Report on Form 10-K.
(5) Incorporated by reference to Exhibit 3(c) to the GHS's 1988 Annual
Report on Form 10-K.
(6) Incorporated by reference to Exhibit 10(i) to the GHS's Quarterly
Report on Form 10-Q for the period from April 21, 1999 through June 30,
1999.
(7) Incorporated by reference to exhibits to USN's Form 10 as filed with
the Securities and Exchange Commission on July 1, 1999.
(8) Incorporated by reference to Exhibit 10(k) to the GHS's 1997 Annual
Report on Form 10-K.