U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Global Health Trax Inc.
(Exact name of registrant as specified in its charter)
Nevada 2834
- ------ ---- 91-1961408
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
2465 Ash Street, Vista, CA 92081-8424
(Address of registrant's principal executive offices) (Zip Code)
760-542-3000
(Registrant's Telephone Number, Including Area Code)
Kennan E. Kaeder
110 West "C" Street, Suite 1300
San Diego, California 92101
Telephone 619-232-6545
Facsimile 619-374-7277
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: From time to time after this
registration statement becomes effective. The securities are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
1
CALCULATION OF REGISTRATION FEE
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of registered (1) offering price per aggregate offering registration fee
securities to be share price
registered
Common stock 7,705,206 $1.25 $9,624,561 $1,219.43
no par value
(1) Includes 3,705,206 shares offered by selling shareholders, and 4,000,000
shares offered by Global Health Trax, Inc. The offering price of $1.25 per share
for the selling shareholders was estimated for the purpose of calculating the
registration fee pursuant to Rule 457 of Regulation C.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
2
Preliminary Prospectus
Global Health Trax, Inc., a Nevada corporation
Up To 7,705,206 Shares
Common Stock
Offering Price $1.25 per share
This prospectus relates to 7,705,206 shares of our common stock. We are offering
for sale 7,705,206 shares of our common stock in a direct public offering. The
purchase price is $1.25 per share. No underwriter is involved in the offering
and distribution of the shares. We are offering the shares without any
underwriting discounts or commissions. Of the shares being offered, selling
shareholders will sell 3,705,206 shares of their own shares. Selling
shareholders may sell their shares of common stock either directly or through a
broker-dealer in transactions between selling shareholders and purchasers. We
are not selling any shares on behalf of the selling shareholders. If all of the
shares offered are purchased, the proceeds will be $9,631,597. Of that amount,
$4,631,507 will be received by the selling shareholders and $5,000,000 of the
proceeds will be received by us. No minimum amount is required to be sold in
this offering. This is our initial public offering and no public market
currently exists for shares of our common stock. This offering will terminate
six months following the effective date of this registration statement unless
Global Health Trax, Inc. determines to extend the offering for one additional
term of six months.
- --------------------- ------------------- -------------------- ----------------
Title of securities Number of offered Offering price Proceeds
to be offered shares per share
- --------------------- ------------------- -------------------- ----------------
Common Stock 7,705,206 $1.25 $9,624,561
- --------------------- ------------------- -------------------- ----------------
See "Risk Factors" on page 7 for factors to be considered before purchasing
shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We will
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state or other jurisdiction where the offer or sale of these
securities is not permitted.
The date of this prospectus is___________,2004
Subject to completion.
3
TABLE OF CONTENTS
Prospectus Summary ...........................................................6
Risk Factors..................................................................7
Use of Proceeds..............................................................13
Determination of Offering Price..............................................15
Dilution.....................................................................15
Capitalization...............................................................17
Selling Security Holders.....................................................18
Plan of Distribution.........................................................19
Legal Proceedings............................................................24
Directors, Executive Officers, Promoters and Control Persons.................24
Executive Compensation ......................................................25
Security Ownership of Certain Beneficial Owners and Management...............26
Description of Securities....................................................27
Interest of Named Experts and Counsel........................................29
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities..............................................................29
Description of Business .....................................................31
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................43
Description of Property......................................................51
Certain Relationships and Related Transactions...............................51
Market for Common Equity and Related Stockholder Matters.....................53
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.........................................................53
Experts......................................................................53
Legal Matters................................................................53
Additional Information.......................................................53
Financial Statements................................................F-1 to F-38
Indemnification of Directors and Officers..................................II-1
Other Expenses of Issuance and Distribution................................II-1
Recent Sales of Unregistered Securities....................................II-2
Exhibits...................................................................II-3
Undertakings...............................................................II-4
Signatures.................................................................II-5
4
Outside Back Cover Page
Dealer Prospectus Delivery Obligation
Until ___________, 2004, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligations to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
5
Prospectus Summary
- ------------------
Our Business: Our principal business address is 2465
Ash Street, Vista, California 92081-8424
Our telephone number is 760-542-3000
We develop, manufacture and distribute our
own nutrition and other wellness products
through home-based business entrepreneurs
and other direct sales venues.
Our state of organization: We were incorporated in Nevada in 1999.
Summary financial information: The summary financial information set
forth below is derived from the more
detailed financial statements appearing
elsewhere in this Form SB-2. We have
prepared our financial statements
contained in this Form SB-2 in accordance
with accounting principles generally
accepted in the United States. All
information should be considered in
conjunction with our financial statements
and the notes contained elsewhere in this
prospectus.
Income Statement Period from
January 1, 2003 to December 31, 2003
Revenue $7,819,836
Net Income (Loss) $ (227,465)
Net Income (Loss) Per Share $ (0.01)
Balance Sheet December 31, 2003
Total Assets $2,279,246
Total Liabilities $1,628,919
Shareholders' Equity $ 650,327
Number of shares being offered: 7,705,206 shares
are being offered. Of these, selling
shareholders intend to sell 3,705,206 of
the shares being registered pursuant to
this registration statement and we intend
to sell 4,000,000 shares.
Number of shares outstanding 25,099,649 shares of our common stock are
after the offering: currently issued and outstanding. After
the offering, 29,099,649 shares of our
common stock will be issued and
outstanding.
Estimated use of proceeds: $5,000,000 for industrial plant
development, debt reduction and working
capital.
6
RISK FACTORS
In addition to the other information in this prospectus, the following risk
factors should be considered carefully in evaluating our business before
purchasing any of our shares of common stock. A purchase of our common stock is
speculative in nature and involves a lot of risks. Any person who cannot afford
the loss of his or her entire purchase price for the offered shares should not
purchase the offered shares because such a purchase is highly speculative and
involves significant risks. Our business objectives must also be considered
speculative, and we cannot guaranty that we will satisfy those objectives.
Purchasers of the offered shares may not realize any return on their purchase of
the offered shares. Purchasers may lose their investments in us completely.
Risks Related to the Business
Since we have a history of financial losses failure to raise funds from this
offering could severely impact our business. We may not be able to further
implement our business strategy unless sufficient funds are raised as a result
of this offering, business operations or subsequent public or private offerings,
which could prevent us from conducting marketing activities and becoming
profitable. We do not currently have any specific plans to conduct an additional
public or private offering. We have recently completed a private offering of
3,705,206 shares of common stock that resulted in $2,010,030 in proceeds to
Global, including the conversion of debt for stock and stock subscriptions
receivable in the amount of $187,500. In order to develop our business and fund
proposed manufacturing activities, we believe that the proceeds from this
offering will be sufficient to conduct our operations for the next 12 months
although there can be no assurance that this is in fact true. Our net losses for
our two most recent fiscal years are $233,231 and $287,879 respectively. If we
do not raise the entire offering amount, our current earnings must improve to
the point where earnings alone can sustain our current operations. As of June
30, 2004, our current cash and cash equivalents are $385,936.
There is no assurance that our products will remain in demand. Although our
products are currently in demand, there can be no assurance that such demand
will continue or that we will be successful in obtaining a sufficient market
share to sustain our business or to achieve significant profitable operations.
We have a limited prior operating history and there can be no assurance that we
will continue to maintain and increase our revenues and be profitable.
Additionally, if either the demand for the particular products produced by us or
the consumer industry generally suffers a decline, or if general economic
conditions deteriorate significantly, our business could be impacted to a
substantial degree resulting in lower profitability or losses. Many of the
factors, which affect us are dictated by the marketplace and are beyond our
control. . Our net losses for our two most recent fiscal years are $233,231 and
$287,879 respectively.
We could go out of business unless we raise cash either from the sale of our
products or from other sources. Our only other source for cash at this time is
investments by others in our company. From June 1, 2003 to June 30, 2004, we
raised approximately $2,010,030 from the sale of 3,705,206shares of common
stock. This amount includes the conversion of some of our debt to stock by our
creditors and stock subscriptions receivable in the amount of $187,500. If these
funds, together with our product sales are not sufficient to support Global's
operations during the next 12 months, then we may have to raise cash through
loans or equity financing in order to implement our business plan. If we are
unable to raise additional capital then you may lose your entire investment.
7
Failure to abide by significant governmental regulation could halt our
operations. The formulation, manufacturing, packaging, labeling, advertising and
distribution of our products are subject to regulation by one or more federal
agencies, including the United States Food and Drug Administration ("FDA"), the
Federal Trade Commission ("FTC"), the Consumer Product Safety Commission
("CPSC"), the United States Department of Agriculture ("USDA") and the
Environmental Protection Agency ("EPA"). No approval of any of Global's products
has been sought or given by the FDA or any other regulatory entity. Global's
activities are also regulated by various agencies of the states and localities
in which Global's products are sold, including without limitation the California
Department of Health Services, Food and Drug branch. The FDA in particular
regulates the advertising, labeling and sales of vitamin and mineral supplements
and may take regulatory action concerning medical claims, misleading or
untruthful advertising, and product safety issues. These regulations include the
FDA's Good Manufacturing Practices ("GMP") for foods. Detailed dietary
supplement GMP's have been proposed but no regulations have been adopted.
Additional dietary supplement regulations were adopted by the FDA pursuant to
the implementation of the Dietary Supplement Health and Education Act of 1994
("DSHEA"). Failure to comply with current governmental regulations could result
in fines or penalties.
We cannot predict what the effect of new regulations would be on us. Global is
unable to predict the nature of such future laws, regulations, interpretations
or their application to Global, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could, however, by way of
illustration and without limitation, require us to reformulate certain products
to meet new standards; recall or discontinue certain products not able to be
reformulated; expand documentation of the properties of certain products; expand
or provide different labeling and scientific substantiation; or, impose
additional record keeping requirements. Any or all such requirements could have
a material adverse effect on our results of operations and financial position.
We can not prove that our products are not dangerous to human consumption.
Although many of the ingredients in our products are vitamins, minerals, herbs
and other substances for which there is a long history of human consumption,
some of these products contain innovative ingredients or combinations of
ingredients. Although we believe all of our products to be safe when taken as
directed, there is little long-term experience with human consumption of certain
of these innovative product ingredients or combinations thereof in concentrated
form. Although we perform research and/or tests on the formulation and
production of our products, we have not sponsored any clinical studies.
Several items supporting the basic premise of our products' safety include:
o GHT is inspected and licensed by the State of California Food & Drug
Branch equaling standards and recognized by the Food and Drug
Administration (FDA),
o GHT requires certificates of analysis from its suppliers of raw
materials, o Testing of raw materials and products is done using
Association of Official Analytical Chemists (AOAC) test methods for
in-house and independent laboratories to insure product efficacy,
o In-house test methods include: microbial and visocity tests, flavor
8
stability tests, appearance, brix, and pH testing, and o We follow FDA
guidelines for Recommended Daily Allowances.
If we cannot manufacture our own products our profitability would be severely
impacted. We currently manufacture many of our products at our manufacturing
facilities in Vista, California. Accordingly, any event resulting in the
slowdown or stoppage of these manufacturing operations or distribution
facilities in Southern California could have a material adverse affect on us.
Through an exclusivity agreement with the supplier of one product representing a
material amount of gross sales, we have exclusive rights of sale in several
countries. Under current conditions, we feel it is more cost effective to import
the product than to manufacture it. Should access to this source be terminated,
we are confident that we could replace the product within a reasonable amount of
time and a minimum interruption in sales. We do not maintain business
interruption insurance.
Investors in our offering will suffer immediate substantial dilution. Invesotrs
in this offering in shares being sold by us, but not shares being sold by the
selling shareholders, will pay a price per share that substantially exceeds the
value of Global's assets after subtracting its liabilities. Further, investors
in this offering will contribute over 76% of the amount required to date to fund
Global but only own approximately 17% of Global. See "Dilution."
We intend to spend most of the proceeds of this offering on marketing , paying
off debt and developing our manufacturing facility with a minimum amount of
funds retained to sustain operations if there is a downturn in sales. The
continued development and commercialization of our products will require a
commitment of substantial funds. Marketing will be the primary thrust for
generating additional cash flows. Current marketing plans include domestic and
international efforts. By paying off debt, we will be better positioned
financially. The current facility has room for growth. As the marketing plans
begin to produce results, we will need to meet the anticipated increased sales
in a timely manner. Consequently, new manufacturing equipment will be sourced
and prepared for meeting increased production needs. With projected increases in
cash flow related to marketing efforts, a minimum amount of proceeds from this
offering are anticipated. Our actual capital requirements will depend on many
factors, including but not limited to, the costs and timing of our development
and launch activities, the success of our development efforts and the costs and
timing of the expansion of our plant and marketing activities.
The extent to which our existing and new products will gain market acceptance,
will be based upon our ability to maintain existing collaborative relationships
and enter into new collaborative relationships as well as dealing with competing
product developments. Our commercialization efforts and the commercialization
efforts of our competitors will depend upon relative costs involved in
acquiring, prosecuting, maintaining, enforcing and defending intellectual
property claims, developments related to regulatory issues, and other factors.
We estimate that it will require a substantial investment to launch additional
products with significant marketing efforts in its target market, and further
additional funds will be necessary to implement our business plan nationwide and
internationally. Furthermore, to satisfy these capital requirements, we may seek
to raise additional funds through public or private financing, collaborative
relationships or other arrangements. Any additional equity financing may be
dilutive to shareholders, and debt financing, if available, may involve
significant restrictive covenants. Collaborative arrangements, if necessary to
raise additional funds, may require us to relinquish our rights to certain of
our technologies, products or marketing territories. Any failure or inability to
raise capital when needed could have a material adverse effect on our business,
9
financial condition and results of operations. There can be no assurance that
such financing will be available on terms satisfactory to Global, if at all.
We have established a collaborative agreement with a foreign company to access
the markets related to our business in that arena. With an agreement by the
foreign entity to assist in the establishment of a business presence for us,
managing the product approval process, and development of a sales base, we are
anxious to begin seeing results by the second quarter of 2005. Should this
collaborative agreement fail, we are confident in our ability to take over the
operations through other alliances.
If our products are duplicated our results would be negatively impacted. We rely
upon a combination of patents and patents pending, proprietary technology and
know-how, trademarks, copyrights, confidentiality agreements and other
contractual covenants to establish and protect its intellectual property rights.
There can be no assurance that steps taken by us to protect its intellectual
property will be adequate to prevent misappropriation of that intellectual
property, or that our competitors will not independently develop products
substantially equivalent or superior to our products. We believe our business
does not infringe upon the valid proprietary rights of others, but there can be
no assurance that third parties will not assert infringement claims against us.
In the event of an unfavorable ruling on any such claim, a license or similar
agreement to utilize the intellectual property rights in question relied upon by
Global in the conduct of its business will be available to us on reasonable
terms, if at all. The loss of such rights (or the failure by us to obtain
similar licenses or agreements) could have a material adverse effect on our
business, financial condition and results of operations. Only one product,
Oxygen Elements, is currently patented. This product's patent number 6,383,534
was granted on May 7, 2002 and expires after twenty years on May 7, 2022. There
are approximately eighteen years remaining on the patent. The patent abstract
identifies the product as, "A mineral water composition comprising a blend of
minerals and trace elements, a bifidobacterium probiotic agent, at least one
carboxylic acid, and at least one mineral acid. Embodiments of the composition
further comprises silica and ascorbic acid. The mineral water compositions can
be ingested as a concentrate or diluted into beverages or other foods." Oxygen
elements is part of the Life Support product line of Global Health Trax, Inc.
which makes up approximately 45% of gross sales.
If we are sued for product liability the business operations of the company may
be seriously impacted. Global, like any other retailer, distributor and
manufacturer of products that are designed to be ingested, faces an inherent
risk of exposure to product liability claims in the event that the use of its
products results in injury. With respect to product liability claims, Global has
$1.0 million per occurrence and $2.0 million in aggregate liability insurance
subject to a self-insurance retention of $25,000. However, there can be no
assurance that such insurance will continue to be available at a reasonable
cost, or, if available, will be adequate to cover liabilities. Global generally
does not obtain contractual indemnification from parties supplying raw materials
or marketing its products and, in any event, any such indemnification is limited
by its terms and, as a practical matter, to the creditworthiness of the
indemnifying party. In the event that Global does not have adequate insurance or
contractual indemnification, product liabilities relating to defective products
could have a material adverse effect on Global.
10
Our business may be adversely affected if we don't continue to develop new
products. Global believes its ability to grow in its existing markets is
partially dependent upon its ability to introduce new and innovative products
into such markets. Although Global seeks to introduce additional products each
year in its existing markets, the success of new products is subject to a number
of conditions, including developing products that will appeal to customers and
obtaining necessary regulatory approvals. There can be no assurance that
Global's efforts to develop innovative new products will be successful, that
customers will accept new products or that Global will obtain required
regulatory approvals of such new products. In addition, no assurance can be
given that new products currently experiencing strong popularity and rapid
growth will maintain their sales over time. See "Business -- Strategy."
The loss of our key employee would have a negative impact on Global. We consider
Everett Hale, one of our company's founders, to be essential to the success of
the business. Mr. Hale is currently subject to a three year employment agreement
and we maintain key life insurance on him. Although Mr. Hale has not indicated
any intention of leaving Global, the loss of Mr. Hale for any reason would have
a very negative impact on our ability to fulfill on our business plan.
Risks Related to the Common Stock
The price of our stock was arbitrarily determined and so it may not reflect an
actual market value.The price of the shares offered was arbitrarily selected by
us and is not related to any objective measure such as book value. Investors may
lose all or part of their investment if the offering price is higher than the
current market value of the offered shares. Additionally, the price of the
shares of common stock is not based on past earnings, nor is the price of the
shares indicative of current market value for the assets owned by us. Investors
could lose all or a part of their investment if the offering price has been
arbitrarily set too high. Even if a public trading market develops for our
common stock, the shares may not attain market values commensurate with the
offering price.
We are using projections in this prospectus that may not be accurate. The
description of the business incorporated in this Offering contains detailed
financial projections, which are intended to be illustrative only. The financial
projections were prepared by, and are based solely upon, estimates and
assumptions made by Global and its officers. See "Assumptions Used in
Projections." Financial projections are inherently unreliable. There is no
assurance that the estimates and assumptions made by Global are or will be
correct and/or accurate. Any inaccuracies in such estimates and assumptions
could result in the financial projections being materially different from actual
performance or results of operations for any period. This prospectus also
contains a projection of future cash flows. The analysis of the financial
aspects of Global's business often is based on projected cash flow, as
distinguished from net operating income, as determined in accordance with
Generally Accepted Accounting Principles ("GAAP"). Such projections of cash flow
include not only cash flow generated by operations, but also tax benefits and
cash projected from assumed private placements and an initial public offering.
Numerous assumptions are necessarily made in projecting cash flow from
operations but cannot be predicted with assurance.
Our officers and directors control nearly eighty-five percent of Global and
could take actions detrimental to your investment for which you would have no
remedy. Global's directors and executive officers beneficially own the majority
of the outstanding Common Stock as of the date of this filing. Accordingly,
these shareholders will continue to have the ability to substantially influence
the management, policies, and business operations of Global. The rights of the
11
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of any preferred stock that may be issued in the future.
If Global insiders sell their stock the market price could be severely impacted.
Our officers and directors currently own or have options to purchase an
aggregate of approximately 23,400,000 shares of common stock. Although all of
this stock is restricted from sale in accordance with Rule 144, these persons
could still sell at least 234,000 shares of stock every 90 days or 936,000
annually. The only free trading stock will be the 7,705,206 shares registered in
this offering. The sale of insider stock could dramatically depress the value of
stock sold in this offering.
Risks Related to the Industry
We face intense competition in our industry that could severely impact our
results. Global's products are sold in domestic and foreign markets in
competition with other private label manufacturing and marketing companies. If
we fail to achieve market acceptance for our products our results could be
severely impacted.
Competitors could develop better products that would reduce or eliminate demand
for our products. If our competitors develop and market products similar to ours
faster than we do or which are superior to our products, our commercial
opportunities will be reduced or eliminated.
Competitionfor our products may be increasing thus further endangering market
acceptance for our products. Competition for the sale of vitamins and
supplements comes from many sources, including companies that sell supplements
to supermarkets, large chain discount retailers, drug store chains and
independent drug stores, health food stores, pharmaceutical companies and others
who sell to wholesalers, as well as mail order vendors, eCommerce and network
marketing companies. We do not believe it is possible to accurately estimate the
number or size of its many competitors since the supplement industry is largely
privately held and highly fragmented.
Our competitive position in the industry could be compromised. The competitive
position of Global will likely depend upon continued acceptance of its products,
its ability to attract and retain qualified personnel, future governmental
regulations affecting vitamins and nutritional supplements, and publication of
vitamin product safety and efficacy studies by the government and authoritative
health and medical authorities.
Many of our competitors have advantages that could overcome our ability to sell
our products. Most of our competitors, either alone, or together with their
collaborators, have substantially greater research and development capabilities
and financial, scientific, operational, marketing and sales resources than we
do, as well as significantly more experience in research and development,
clinical trials, regulatory matters, manufacturing, marketing and sales. These
competitors and other companies may have already developed or may in the future
develop new technologies or products that compete with ours or which could
render our technologies and products obsolete. In addition, our competitors may
succeed in obtaining broad patent protection, receiving FDA approval for
products or developing and commercializing products or technologies before us.
Our manufacturing operations contain many risks. Our operations are subject to
the risks normally associated with manufacturing vitamins and nutritional
products. Our manufacturing strategy presents the following risks:
. we may not be able to locate acceptable manufacturers or enter into
12
favorable long-term agreements with them;
. the manufacturing processes for our products have not been tested
in quantities needed for expanded commercial sales;
. delays in scale-up to commercial quantities could discourage sales;
. we do not have intellectual property rights in the manufacturing
processes for our products;
Any of these factors could delay the sale of products developed and
commercialized by us, entail higher costs and result in our being unable to
effectively sell any products.
Forward Looking Statements
Information in this prospectus contains "forward looking statements" which can
be identified by the use of forward-looking words such as "believes",
"estimates", "could", "possibly", "probably", "anticipates", "estimates",
"projects", "expects", "may", "will", or "should" or other variations or similar
words. No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements. Among the key factors that have a direct
bearing on our results of operations are the effects of various governmental
regulations, the fluctuation of our direct costs and the costs and effectiveness
of our operating strategy. Other factors could also cause actual results to vary
materially from the future results anticipated by those forward-looking
statements.
Use of Proceeds
We are registering 7,705,206 shares for sale by us and the selling stockholders.
Of those shares, the selling shareholders are offering 3,705,206 shares. We are
offering the remaining 4,000,000 shares being registered.
Assuming all 4,000,000 of the shares we are offering are sold, we will receive
$5,000,000 in proceeds. The net proceeds to us from the sale of the 4,000,000
shares offered hereby at a public offering price of $1.25 per share will vary
depending upon the total number of shares sold. Regardless of the number of
shares sold, we expect to incur offering expenses estimated at $100,000 for
legal, accounting, printing and other costs in connection with the offering. The
table below shows how proceeds from this offering would be used for scenarios
where our company sells various amounts of the shares and the priority of the
use of net proceeds in the event actual proceeds are not sufficient to
accomplish the uses set forth. Pending use, we will invest the net proceeds in
investment-grade, short-term, interest bearing securities. The payment of
indebtedness includes current accounts payable, short-term loans used for asset
acquisitions and operations and long-term notes payable at 10% interest maturing
at various dates in 2005.
13
Percent of total shares offered 25% 50% 75% 100%
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
Shares sold 1,000,000 2,000,000 3,000,000 4,000,000
Gross proceeds from offering $1,250,000 $2,500,000 $3,750,000 $5,000,000
Less Offering Expenses $100,000 $100,000 $100,000 $100,000
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
Net Offering Proceeds $1,150,00 $2,400,000 $3,650,000 $4,900,000
Use of Net Proceeds
Development of manufacturing $250,000 $500,000 $750,000 $750,000
facility
Payment of Indebtedness $250,000 $750,000 $1,000,000 $1,000,000
Marketing and Public Relations $500,000 $1,000,000 $1,750,000 $3,000,000
Working Capital $150,000 $150,000 $150,000 $150,000
----------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ----------------
Total Use of Net Proceeds $1,150,000 $2,400,000 $3,650,000 $4,900,000
================= ================ ================ ================
Determination of Offering Price
There is no established public market for the shares of common stock being
registered. As a result, the offering price and other terms and conditions
relative to the shares of common stock offered hereby have been arbitrarily
determined by us and do not necessarily bear any relationship to assets,
earnings, book value or any other objective criteria of value. In addition, no
investment banker, appraiser or other independent, third party has been
consulted concerning the offering price for the shares or the fairness of the
price used for the shares.
Dilution
We are registering 3,705,206 shares for sale by the selling stockholders. We are
registering an additional 4,000,000 shares for sale by us. We will receive no
proceeds from the sale of the selling stockholder's shares. Consequently, the
sale by the selling stockholders of their shares will not result in any dilution
in the purchase price of your stock compared to the net tangible book value per
share immediately after the purchase.
However, the sale of 4,000,000 shares by us will result in substantial immediate
dilution. The net book value per share of Global's common stock as of the date
of Global's most recent audited financial statement, December 31, 2003, is
approximately $0.03 per share based upon 24,149,308 shares outstanding as of
December 31, 2003 after giving effect to a 4 for 1 reverse split of common stock
authorized on June 20, 2003 followed by a 2 for 1 forward split authorized on
November 15, 2003. Net book value per share is equal to total assets of Global
less total liabilities divided by the number of common shares outstanding as of
December 31, 2003 as adjusted for the share splits. Without taking into account
any other changes in net tangible book value other than to give effect to the
14
issuance of 4,000,000 shares of common stock hereby at an offering price of
$1.25 per share, and the receipt and application of $5,000,000 in anticipated
proceeds, including converted debt, in addition to 3,705,206 shares issued post
2 for 1 forward split in our recent private offering, the pro forma net book
value of Global would be approximately $5,650,327 or $0.19 per share, including
adjustments for shares issued since December 31, 2003. This represents an
immediate increase in pro forma net book value of $0.16 per share to existing
shareholders and an immediate dilution in net tangible book value of $1.09 per
share to investors in the Notes offered hereby. The following table illustrates
this per share dilution.
Assumed offering price................................................. $ 1.25
Pro forma net book value per share
Prior to Offering ................................................ $ 0.03
Increase per share attributable to new investors.................. $ 0.16
Pro forma net book value after Offering................................ $0.19
Dilution per share to new investors.................................... ($1.06)
All per share figures are rounded to the nearest penny.
The following table sets forth at December 31, 2003, the difference between
existing stockholders immediately prior to the Offerings and the purchasers of
shares in the Offering with respect to the number of shares purchased from us,
the total consideration paid, and the average price per share paid. The
calculations in the following table with respect to shares of Common Stock to be
purchased in the Offering reflect an initial public offering price of $1.25:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PER SHARE
PRICE
------------------------- ----------------------------
------------- ----------- -------------- -------------
NUMBER % AMOUNT %
------------- ----------- -------------- ------------- --------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Existing stockholders 24,149 83 % $1,560 23.8 % $0.07
New Stockholders 4,950 17 % 4,900 76.2 % 1.01
------------- ----------- -------------- ------------- --------------------
------------- ----------- -------------- ------------- --------------------
Total 29,099 100 % $6,460 100 % $0.23
15
Capitalization
The following table sets forth the capitalization of Global at December 31, 2003
and as adjusted to give effect to (i) the Exchange and (ii) the Offerings (at an
assumed initial public offering price of $1.25 per share and application of a
portion of the proceeds therefrom to reduce certain indebtedness of Global. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and the financial
statements and the notes thereto included elsewhere in this Prospectus.
DECEMBER 31,2003
ACTUAL AS ADJUSTED
----------------- --------------
------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE DATA)
Current portion of capital leases $ 42 $ -
Other short-term obligations 1,229 629
----------------- --------------
----------------- --------------
Total short-term obligations 1,271 629
Long-term debt:
Notes payable 264 -
Capital leases payable 94 -
----------------- --------------
----------------- --------------
Total long-term debt 358 -
Stockholders' equity:
Preferred stock, authorized 10,000,000 shares with no par value, none
issued and outstanding - -
Common stock, authorized 100,000,000 shares common stock with no par
value; issued and outstanding 24,149,308 at December 31, 2003. 1,560 6,460
Stock subscriptions receivable (125) (125)
Additional Paid-in capital-stock based compensation 75 -
Deferred stock based compensation (69) -
Retained earnings (deficit) (791) (785)
----------------- --------------
----------------- --------------
Total stockholders' equity 650 5,550
----------------- --------------
----------------- --------------
Total capitalization $2,279 $6,179
================= ==============
(1) As of December 31, 2003 the date of our most recent audit, as adjusted.
(2) Assumes the sale of all 4,000,000 shares offered by Global.
16
Selling Security Holders
This prospectus relates to the offer and sale of 3,705,206 shares of our common
stock by the selling stockholders identified below. None of the selling
stockholders are or have been affiliates of ours. The selling stockholders will
determine when they will sell their shares. Although we have agreed to pay the
expenses related to the registration of the shares being offered, we will not
receive any proceeds from the sale of the shares by the selling stockholders.
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of the date of this prospectus by each of the
selling stockholders:
- ------------------------------------------------ --------------------- ---------------------- ------------------------
Name (1) Number of shares Number of shares Number of shares owned
owned offered after the offering (1)
- ------------------------------------------------ --------------------- ---------------------- ------------------------
Ask, Patricia 55,556 55,556 -
Baluyot, Julius 44,444 44,444 -
Beck, William 22,222 22,222 -
Betker, Lloyd & Elizabeth 5,556 5,556 -
Britland, Lois 5,556 5,556 -
Bye, Duane 11,176 11,176 -
Chapman, Dean and Mary 22,306 22,306 -
Chika, Terry & Silva 44,444 44,444 -
Cobb, Mark & Alyson 16,684 16,684 -
Dempsey, Todd 10,084 10,084 -
Dixson, Tom E. 2,000,000 2,000,000 -
Dunning, Sherry 3,708 3,708 -
Dy Ning, Marcelino 5,556 5,556 -
Dyrr, Diana 11,204 11,204 -
Elder, Bruce & Deeann 5,556 5,556 -
Hale, Francis & Everett P. 336,164 336,164 -
Harton, Sandy 11,184 11,184 -
Hausig, John 5,556 5,556 -
Hoffman, Robert 27,778 27,778 -
Hutchins, Janice 33,360 33,360 -
Jones, James 111,840 111,840 -
Jones, Janet 3,708 3,708 -
Lee, Connie 11,112 11,112 -
Leonard, Henry & Min 15,556 15,556 -
Lightfoot, Jr., Marshall & Kathryn 5,556 5,556 -
Martinez, Samuel 5,556 5,556 -
McCaa, Pam 100,000 100,000 -
McGinnis, Ted 10,084 10,084 -
Morgan, Jeff 11,112 11,112 -
Moss, Marilyn 3,708 3,708 -
Oien, Sheila 11,112 11,112 -
Okafor, Emmanuel 2,222 2,222 -
Olson, Stanley & Barbara 5,556 5,556 -
Ortiz, Amancio 111,111 111,111 -
Pierce, Mildred 5,556 5,556 -
Robar Enterprises Inc. 5,556 5,556 -
Schilcher, Ralph, Jr. & Catherine 5,556 5,556 -
Schofield, Christopher 7,000 7,000 -
So, Jennifer 5,556 5,556 -
17
Summers, Richard 22,222 22,222 -
Summers, Rosa 88,888 88,888 -
Summers, Sharon 43,333 43,333 -
Summers, Susan 24,444 24,444 -
Tritten, Larry E. 106,312 106,312 -
Tritten, Virginia 222,224 222,224 -
Underwood, Jerry & Shirley 5,556 5,556 -
Valenko, Ronald 22,222 22,222 -
Vines, James 2,222 2,222 -
Wagner, Charlotte 5,556 5,556 -
Weisiger, Mary 11,120 11,120 -
Whistler, Fred & Belinda 5,556 5,556 -
Wood, James 20,000 20,000 -
Wood, James & Shirley 10,000 10,000 -
--------------------- ---------------------- ------------------------
3,705,206 3,705,206 -
--------------------- ---------------------- ------------------------
(1) Assumes all shares offered are sold.
Relationships Between Selling Shareholders.
Some of the selling shareholders are related. Diana Kristen Dyrr is the daughter
of Global officer and director Lorin Dyrr. Diana and Lorin Dyrr live in the same
household. Frances and E. Phillip Hale are the parents of Global officer and
director Everett Hale. Mr. Hale does not live in the same household with his
parents. Richard Summers and Rosa Summers are the parents of Sharon Summers and
Susan Summers. Virginia Tritten is the mother of Larry Tritten. Henry Leonard is
Global's Chief Financial Officer. Min Leonard is Henry Leonard's wife. Tom
Dixson, grantor of the Tom E. Dixson Trust, is Global's landlord.
Plan of Distribution
Selling Shareholders. This prospectus covers the resale by selling shareholders
of shares of our common stock that they have already purchased from us. Selling
shareholders may sell their shares of common stock either directly or through a
broker-dealer in transactions between selling shareholders and purchasers, or
otherwise. The selling stockholders will not use the Internet for the sale of
their shares.
The selling stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
18
o privately negotiated transactions;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved. Broker-dealers may
agree to sell a specified number of such shares at a stipulated price per share,
and, to the extent such broker-dealer is unable to do so acting as agent for us
or a selling shareholder, to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer commitment. Broker-dealers who
acquire shares as principal may thereafter resell such shares from time to time
in transactions, which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above, in
the over-the-counter markets or otherwise at pries and on terms then prevailing
at the time of sale, at prices than related to the then-current market price or
in negotiated transactions. In connection with such resales, broker-dealers may
pay to or receive from the purchasers such shares commissions as described
above.
The selling stockholder may from time to time pledge or grant a security
interest in some or all of the shares of common stock or warrants owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
Broker-dealers may charge commissions to both selling shareholders selling
common stock, and purchasers buying shares sold by a selling shareholder.
Neither the selling shareholders nor Global can presently estimate the amount of
such compensation. We know of no existing arrangements between the selling
shareholders and any other shareholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the shares.
To the extent required by laws, regulations or agreements we have made, we will
file a prospectus supplement during the time the selling shareholders are
offering or selling shares covered by this prospectus in order to add or correct
important information about the plan of distribution for the shares and in
accordance with our obligation to file post-effective amendments to the
prospectus as required by Item 512 of Regulation S-B. In addition to any other
applicable laws or regulations, selling shareholders must comply with
19
regulations relating to distributions by selling shareholders, including
Regulation M under the Securities Exchange Act of 1934. Regulation M prohibits
selling shareholders from offering to purchase and purchasing our common stock
at certain periods of time surrounding their sales of shares of our common stock
under this prospectus. Some states may require that registration, exemption from
registration or notification requirements be met before selling shareholders may
sell their common stock. Some states may also require selling shareholders to
sell their common stock only through broker-dealers.
We will not receive any proceeds from the sale of the shares by the selling
shareholders pursuant to this prospectus. We have agreed to bear the expenses
(other than broker's commissions and similar charges) of the registration of the
shares, including legal and accounting fees, which we expect to total
approximately $100,000. The selling shareholders may also use Rule 144 under the
Securities Act of 1933 to sell the shares if they meet the criteria and conform
to the requirements of such Rule. Offers or sales of the shares have not been
registered or qualified under the laws of any country other than the United
States. To comply with certain states' securities laws, if applicable, the
shares will be offered or sold in such jurisdictions only through registered or
licensed brokers or dealers. There can be no assurance that the selling
shareholders will sell any or all of the shares offered by them hereunder.
The selling security holders and any broker-dealers participating in the
distributions of the shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. Any profit on the sale
of shares by the selling security holders and any commissions or discounts given
to any such broker-dealer may be deemed to be underwriting commissions or
discounts. The shares may also be sold pursuant to Rule 144 under the Securities
Act of 1933 beginning one year after the shares were issued.
We have filed the registration statement, of which this prospectus forms a part,
with respect to the sale of the shares by the selling security holders. There
can be no assurance that the selling security holders will sell any or all of
the offered shares.
Under the Securities Exchange Act of 1934 and the regulations thereunder, any
person engaged in a distribution of the shares of our common stock offered by
this prospectus may not simultaneously engage in market making activities with
respect to our common stock during the applicable "cooling off" periods prior to
the commencement of such distribution. Also, the selling security holders are
subject to applicable provisions that limit the timing of purchases and sales of
our common stock by the selling security holders.
We have informed the selling security holders that, during such time as they may
be engaged in a distribution of any of the shares we are registering by this
registration statement, they are required to comply with Regulation M. In
general, Regulation M precludes any selling security holder, any affiliated
purchasers and any broker-dealer or other person who participates in a
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase, and any security which is the subject of the
distribution until the entire distribution is complete. Regulation M defines a
"distribution" as an offering of securities that is distinguished from ordinary
trading activities by the magnitude of the offering and the presence of special
selling efforts and selling methods. Regulation M also defines a "distribution
participant" as an underwriter, prospective underwriter, broker, dealer, or
other person who has agreed to participate or who is participating in a
distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security,
20
except as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of our common stock to be more than it would
otherwise be in the absence of these transactions. We have informed the selling
security holders that stabilizing transactions permitted by Regulation M allow
bids to purchase our common stock if the stabilizing bids do not exceed a
specified maximum. Regulation M specifically prohibits stabilizing that is the
result of fraudulent, manipulative, or deceptive practices. Selling security
holders and distribution participants are required to consult with their own
legal counsel to ensure compliance with Regulation M.
No stockholder may offer or sell shares of our common stock under this
prospectus unless such stockholder has notified us of his or her intention to
sell shares of our common stock and the registration statement of which this
prospectus is a part has been declared effective by the SEC, and remains
effective at the time such selling stockholder offers or sells such shares. We
are required to amend the registration statement of which this prospectus is a
part to reflect material developments in our business and current financial
17
information. Each time we file a post-effective amendment to our registration
statement with the SEC, it must first become effective prior to the offer or
sale of shares of our common stock by the selling stockholders.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under this rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares that the selling stockholder has the right to acquire within 60
days. The actual number of shares of common stock issuable upon the exercise of
warrants is subject to adjustment. To provide for adjustments that may occur in
the future, the number of shares covered by this prospectus, and as shown in the
table below, has been calculated at 130% of the total number of shares issuable
upon exercise of the warrants, as such warrants have been originally issued.
Sale of shares by Global. The following discussion addresses the material terms
of Global's plan of distribution. We are offering up to 4,000,000 shares of our
common stock at a price of $1.25 per share to be sold by Everett Hale, our Chief
Executive Officer and Chairman of our Board of Directors. This will be the only
method of distribution. Global does not intend to make any distribution through
an underwriter or on the Internet. The shares will be sold through our principal
executive officer and director, so no compensation will be paid with respect to
those sales, except for reimbursement of expenses actually incurred on behalf of
our company in connection with such activities. Since this offering is conducted
as a direct participation offering, there can be no assurance that any of the
shares will be sold. A subscription agreement, the form of which is attached to
this prospectus, will be required to be submitted by all purchasers of the
shares. The offering will not be sold to officers, directors or affiliates of
Global Health Trax Inc. The minimum purchase is 1,000 shares at $1.25 per share
or $1,250.
There is currently no market for any of our shares and no assurances are given
that a public market for such securities will develop after the closing of this
offering or be sustained if developed. While we plan following the closing of
this offering to take affirmative steps to request or encourage one or more
broker/dealers to act as a market maker for our securities, no such efforts have
yet been undertaken and no assurances are given that any such efforts will prove
21
successful. As such, investors may not be able to readily dispose of any shares
purchased hereby.
Mr. Hale is an associated person of us as that term is defined in Rule 3a4-1
under the Exchange Act, shall conduct the offering. Mr. Hale is deemed not to be
a broker for the following reasons:
*He is not subject to a statutory disqualification as that term is defined in
Section 3(a)(39) of the Exchange Act at the time of his participation in the
sale of our securities.
*He will not be compensated for his participation in the sale of our securities
by the payment of commission or other remuneration based either directly or
indirectly on transactions in securities.
*He is not an associated person of a broker or dealers at the time of his
participation in the sale of our securities.
*He will restrict his participation to the following activities:
A. Preparing any written communication or delivering any communication through
the mails or other means that does not involve oral solicitation by him of a
potential purchaser;
B. Responding to inquiries of potential purchasers in a communication initiated
by the potential purchasers, provided however, that the content of responses are
limited to information contained in a registration statement filed under the
Securities Act or other offering document;
C. Performing ministerial and clerical work involved in effecting any
transaction.
The offering will remain open for a period of 180 days and an additional 180
days in our sole discretion, unless the entire gross proceeds are earlier
received or we decide, in our sole discretion, to cease selling efforts.
No Escrow Of Proceeds
There is no escrow of any of the proceeds of this offering that will be received
by us or our selling shareholders. Accordingly, we will have use of the funds to
be received by us once we accept a subscription and funds have cleared. Such
funds shall be non-refundable to subscribers except as may be required by
applicable law.
Special Note Regarding Forward Looking Statements
Some of the statements under the "Prospectus Summary," "Risk Factors,"
"Management Discussion and Analysis or Plan of Operation," "Business" and
elsewhere in this prospectus constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance, or achievements
to be materially different from any future results, levels of activity,
performance, or achievement expressed or implied by such forward-looking
statements. Such factors include, among other things, those listed under "Risk
Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "intend," "expects," "plan," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms or other comparable terminology.
22
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. We have a duty to update any
of the forward-looking statements after the date of this prospectus if there is
a change of a material nature in the information provided.
Legal Proceedings
The Company was named as a defendant in a products liability lawsuit filed in
the Superior Court of the State of Arizona on June 18, 2002. On April 12, 2004,
the Company obtained a favorable court decision in the Superior Court case of
the State of Arizona. In the opinion of management, it is not anticipated that
the plaintiffs will appeal.
Directors, Executive Officers, Promoters and Control Persons
The following table sets forth the directors and executive officers of our
company, their ages, term served and all offices and positions with our company.
A director is elected for a period of one year and thereafter serves until his
or her successor is duly elected by the stockholders and qualifies. Officers
serve under written contracts but all other employees serve at the will of the
Board of Directors.
There are no arrangements or understandings regarding the length of time a
director of our company is to serve in such a capacity. Our directors hold no
directorships in any other company subject to the reporting requirements of the
Securities Exchange Act of 1934.
NAME AGE TERM SERVED POSITION WITH COMPANY
- -------------------------- -------- -------------------------- --------------------------------------------------
- -------------------------- -------- -------------------------- --------------------------------------------------
Everett Hale 61 Since Inception Director, Chief Executive Officer & President
Russell Chaisson 57 Since January 1, 2004 Director, Vice President, Training & Marketing
Kennan Kaeder 50 Since June 1, 2003 Director, Legal Counsel
Henry S. Leonard 47 Since August 11, 2003 Director (as of November 5, 2004), CFO
Art Thompson 58 Since November 5, 2004 Director
Global conducted its annual meeting of shareholders on November 5, 2004. All
Global directors were up for re-election at the meeting. At that time the
following directors were elected to one year terms commencing on November 5,
2004 and expiring on November 4, 2005: Everett Hale, Russell Chaisson, Kennan
Kaeder, Henry S. Leonard and Art Thompson. The shareholders also amended the
bylaws of Global to expand the number of directors to a minimum of five.
Everett Hale (Cofounder, CEO, President and Chairman of the Board of Directors)
is a 40-year veteran of owning, operating and managing businesses. His varied
background includes the entertainment, food service, real estate, financial
services, and nutrition industries promoting a variety of products. To many, Mr.
Hale is widely known for his pioneering work in introducing the first
commercially successful water-based ionic nutrition systems packaged for the
consumer's convenience. Mr. Hale has been an officer and director of Global
Health Trax, Inc. since it was incorporated in March 1999.
Mr. Hale is popular with Multi-Level-Marketing (MLM, AKA "Network Selling")
participants, because of his outgoing, entertaining personality. In the past six
years, Mr. Hale has promoted the concept of Global's health and wellness focus.
23
Russell Chiasson (Vice President Training and Marketing and Director) is the
solution to Global's need for state of the art and cost-effective training on a
nationwide and eventually worldwide scale. He was also the National Training
Director of the first MLM Telecom Company, U. S. Telecom, in the mid 1980's,
which became US Sprint. Mr. Chiasson has developed multimedia training programs
for other $100 million companies as a consultant, and for Global has developed
and implemented multi-sensory training videos and manuals including the Team
Trax Training System(TM). He is currently overseeing the production and
implementation of Global's marketing and training programs. He is a Director on
Global's Board of Directors. Mr. Chiasson has been working with Global Health
Trax, Inc. since April 2001. Prior to that, he was self-employed as a consultant
for thirty years with clients including Coca Cola, International Power Machines,
Texas American Bank Shares and North American Rockwell.
Henry S. Leonard (Chief Financial Officer) brings over fifteen years of business
experience and is a practicing Certified Public Accountant, licensed in
California, Hawaii and Florida. Mr. Leonard currently spends approximately ten
hours a week outside of normal business hours on his accounting practice. Mr.
Leonard has served as Chief Financial Officer to other companies including
Nutri-Sport, Inc. in the nutritional supplements industry and Hydroflush
Corporation in manufacturing, business acquisition and development.
Additionally, he has taught part-time with National University, DeVry University
and the University of Phoenix since 1999. Mr. Leonard is near completion of a
doctorate in Accounting. He is a Certified Management Accountant and holds a
Masters in Business Administration. Mr. Leonard, a former United States Marine
Corps Officer, and prior Enlisted, has maintained an accounting and consulting
practice since 1989. Mr. Leonard has been an officer of Global Health Trax, Inc.
since August 2003.
Kennan E. Kaeder has been an attorney licensed to practice law in the state of
California since 1982. He maintains a private law practice in San Diego,
California that emphasizes business formation, corporate governance and
securities law issues. He has extensive experience in advising new and
developing companies in all aspects of the law relating to formation, capital
raising and operating issues. The name of Mr. Kaeder's firm is The Law Office of
Kennan E. Kaeder.
Art Thompson has been a principal in a consulting firm since 1977 named Policon
Associates located in Denver, Colorado. Policon is involved in public policy
strategy and advocacy, political and governmental relations, advocating for
business clients in obtaining and implementing licenses and permits from
federal, state and local government agencies, administering and advising
nonprofit community organizations, business management consulting and managing
operations for several business properties owned by estates and trusts.
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or paid
for services rendered to us in all capacities during the year ended December 31,
2003, our executive officers and directors.
Summary Compensation Table Long-Term Compensation Awards
24
COMPENSATION 2003
NAME AND PRINCIPAL POSITION SALARY ($)NONSALARY COMPENSATION ($) NUMBER OF SHARES AND
UNDERLYING OPTIONS
Everett Hale, CEO, Director 97,900 0 11,000,000
Lorin Dyrr, Vice President, Director(2) 97,900 0 10,900,000
Kennan Kaeder, Legal Counsel, Director 0 32,000 0
Russell Chaisson, Vice President, Director 0 110,383 1,000,000
Henry Leonard, CFO 27,415 0 15,556
COMPENSATION 2004(3)
NAME AND PRINCIPAL POSITION SALARY ($) NONSALARY COMPENSATION ($) NUMBER OF SHARES AND
UNDERLYING OPTIONS
Everett Hale, CEO, Director 143,000 0 11,000,000
Lorin Dyrr, Vice President, Director (2) 143,000 0 10,900,000
Kennan Kaeder, Legal Counsel, Director 0 54,000 20,000
Russell Chaisson, Vice President, Director 92,000 93,600 1,000,000
Henry Leonard, CFO, Director 92,800 0 590,556
Art Thompson, Director 0 2,000 0
(1) The exercise price for all options is $0.25.
(2) Ms. Dyrr resigned as an
officer and director on October 26, 2004 due to a family illness.
(3) Estimated for the year ended December 31, 2004. Non-employee directors
Kennan Kaeder and Art Thompson are compensated $1,000 for each director's
meeting.
No options were granted during the year 2003.
There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining any of our officers or directors from engaging in or continuing any
conduct, practice or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a
security, or any aspect of the securities business or of theft or of any felony.
Nor are any of the officers or directors of any corporation or entity affiliated
with us so enjoined.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial
ownership of our company's common stock with respect to each named director and
executive officer of our company and each person known to our company to be the
beneficial owner of more than five percent (5%) of said securities, and all
directors and executive officers of our company as a group, assuming the sale of
all 4,000,000 shares offered by Global:
25
- ----------------------------------------- ----------------------- -------------------
Number of Shares
Shareholder Beneficially Owned Percentage Owned
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Everett Hale 10,000,000 39.8%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Lorin Dyrr 9,900,000 39.4%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Kennan Kaeder 0 00.0%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Russell Chaisson 1,000,000 04.0%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Henry Leonard 500,000 01.9%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Tom Dixson 2,000,000 08.0%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Art Thompson 0 00.0%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Selling shareholders 1,699,649 6.8%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
All officers and directors as a group 21,400,000 85.30%
- ----------------------------------------- ----------------------- -------------------
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.
Changes in Control. Our management is not aware of any arrangements which may
result in "changes in control" as that term is defined by the provisions of Item
403(c) of Regulation S-B.
Description of Securities
The shares registered pursuant to the registration statement of which this
prospectus is a part are shares of common stock, all of the same class and
entitled to the same rights and privileges as all other shares of common stock.
26
Common Stock
Global Health Trax Inc. is presently authorized to issue 100,000,000 shares of
no par value common stock. The holders of common stock, including the shares
offered hereby, are entitled to equal dividends and distributions, per share,
with respect to the common stock when, as and if declared by the Board of
Directors from funds legally available therefore. No holder of any shares of
common stock has a pre-emptive right to subscribe for any securities of our
company nor are any common shares subject to redemption or convertible into
other securities of our company. Upon liquidation, dissolution or winding up of
our company, and after payment of creditors and preferred stockholders, if any,
the assets will be divided pro-rata on a share-for-share basis among the holders
of the shares of common stock. All shares of common stock now outstanding are
fully paid, validly issued and non-assessable. Each share of common stock is
entitled to one vote with respect to the election of any director or any other
matter upon which shareholders are required or permitted to vote. Holders of our
company's common stock do not have cumulative voting rights, so that the holders
of more than 50% of the combined shares voting for the election of directors may
elect all of the directors, if they choose to do so and, in that event, the
holders of the remaining shares will not be able to elect any members to the
Board of Directors.
Preferred Stock.
Global Health Trax Inc. is also presently authorized to issue 10,000,000 shares
of no par value preferred stock. No preferred stock has been issued as of this
date and management has no current plans to issue preferred stock to any
investor. Under our company's articles of incorporation, as amended, the Board
of Directors has the power, without further action by the holders of the common
stock, to designate the relative rights and preferences of the preferred stock,
and issue the preferred stock in such one or more series as designated by the
Board of Directors. The designation of rights and preferences could include
preferences as to liquidation, redemption and conversion rights, voting rights,
dividends or other preferences, any of which may be dilutive of the interest of
the holders of the common stock or the preferred stock of any other series. The
issuance of preferred stock may have the effect of delaying or preventing a
change in control of our company without further shareholder action and may
adversely effect the rights and powers, including voting rights, of the holders
of common stock. In certain circumstances, the issuance of preferred stock could
depress the market price of the common stock. The Board of Directors effects a
designation of each series of preferred stock by filing with the California
Secretary of State a Certificate of Designation defining the rights and
preferences of each such series. Documents so filed are matters of public record
and may be examined in accordance with procedures of the California Secretary of
State, or copies thereof may be obtained from our company.
Options and Warrants
The Board of Directors of Global has adopted a non-qualified 2003-2004 Employee
Stock Option Plan. The Board of Directors administers the plan unless a
committee is appointed by the Board (the "Committee") to administer the plan.
The plan authorizes the Board/Committee to grant options to certain qualifying
key employees. Within certain limitations, both the selection of recipients and
the number of option shares to be allocated to each recipient is within the
discretion of the Board/Committee, but the aggregate number of option shares
granted under the Plan cannot exceed Three Million Shares (3,000,000). Under the
plan, optionees have the right to exercise the options no sooner than the second
anniversary date of hire by Global, or, if the optionee has at the time of the
27
grant of the option has been an employee of Global for over two years, then no
sooner than one year from the date of grant of the options. All options granted
expire 36 months from the date of this grant. 2,496,200 of incentive stock
options were granted in January 2004. Global Health Trax' Inc.'s non-qualified
stock option plan includes an incentive for certain key employees and
independent contractors who make significant contributions to Global's growth
and development. To date the Board of Directors has authorized 1,000,000 shares
for such purposes. Under this plan, optionees have the right to exercise no more
than on half of the total options granted no sooner than the first anniversary
date of the grant. Optionees have the right to exercise the remaining options
granted no sooner than the second anniversary date of the grant. All options
granted herein shall expire 36 months from the date of this Grant. The selection
of recipients, the exercise price and the number of option shares to be
allocated to each recipient is strictly within the discretion of the Board of
Directors.
Dividend Policy
We have not previously paid any cash dividends on our common stock and do not
anticipate or contemplate paying dividends on our common stock in the
foreseeable future. Our present intention is to utilize all available funds for
the development of our business. There is no assurance that we will ever have
excess funds available for the payment of dividends. The only legal restrictions
that limit the ability to pay dividends on common equity or that are likely to
do so in the future, are those restrictions imposed by state laws. Under
California corporate law, no dividends or other distributions may be made which
would render our company insolvent or reduce assets to less than the sum of its
liabilities plus the amount needed to satisfy any outstanding liquidation
preferences.
Transfer Agent
We intend to use U.S. Stock Transfer, 1745 Gardena Avenue, Glendale, CA 91204,
as our transfer agent and registrar for the common stock upon completion of the
offering.
Interest of Named Experts and Counsel
Kennan Kaeder, our legal counsel and a director of Global, has been granted an
option to purchase 20,000 shares of common stock pursuant the terms of our key
employee and independent contractor stock option plan. These options were
granted to Mr. Kaeder on January 2, 2004 as part of his compensation as
corporate counsel during the years 2004 and 2005. The options are exercisable at
the price of $0.25 per share.. One half of these options become exercisable on
January 2, 2005 and the other half on January 2, 2006. The options expire if not
exercised by January 2, 2007. Mr. Kaeder was not hired on a contingent basis.
Further, no other expert was hired on a contingent basis.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Our Articles of Incorporation provides, among other things, that our officers
and directors shall not be personally liable to us or our shareholders for
monetary damages for breach of fiduciary duty as an officer or a director,
except for liability for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or for unlawful payments
of dividends or unlawful stock purchase or redemption by us.
Accordingly, our directors may have no liability to our shareholders for any
mistakes or errors of judgment or for any act of omission, unless the act or
28
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to our shareholders.
Indemnification Agreements. We will enter into indemnification agreements with
each of our executive officers. We will agree to indemnify each such person for
all expenses and liabilities, including criminal monetary judgments, penalties
and fines, incurred by such person in connection with any criminal or civil
action brought or threatened against such person by reason of such person being
or having been our officer or director or employee. In order to be entitled to
indemnification by us, such person must have acted in good faith and in a manner
such person believed to be in our best interests. With respect to criminal
actions, such person must have had no reasonable cause to believe his or her
conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that act and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 29,105,206 shares of common stock
outstanding. Of these shares, the 7,705,206 shares to be sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act of 1933.
The remaining 21,400,000 shares of common stock held by the remaining
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act of 1933. Of these shares,
19,900,000 shares are held by two of our officers and directors, Everett Hale
and Lorin Dyrr, exclusive of options granted to acquire additional common stock.
Ms. Dyrr resigned form her position as a Director and Officer of the Company
effective October 26, 2004 to aid in the care of a family relation. The shares,
owned by these existing or prior officers of the Company just mentioned, were
initially issued more than two years ago and therefore are currently eligible
for sale subject to the limitations of Rule 144 for control persons, otherwise
known as "affiliates" under the Rule. We cannot predict the effect, if any, that
offers or sales of these shares would have on the market price. Nevertheless,
sales of significant amounts of restricted securities in the public markets
could adversely affect the fair market price of the shares, as well as impair
our ability to raise capital through the issuance of additional equity shares.
In general, under Rule 144, a person who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (1) one percent of the then
outstanding shares of common stock or (2) the average weekly trading volume in
the common stock in the over-the-counter market during the four calendar weeks
preceding the date on which notice of the sale is filed, provided several
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, our affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of common stock which are not
restricted securities.
Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least six months prior to the sale and who has beneficially
owned shares for at least two years may resell their shares without compliance
with the foregoing requirements. In meeting the one- and two-year holding
periods described above, a holder of shares can include the holding periods of a
29
prior owner who was not an affiliate. The one- and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate.
There is presently no agreement by any holder, including our "affiliates," of
"restricted" shares not to sell their shares.
Penny Stock Regulation
Our shares will probably be subject to the Penny Stock Reform Act of
1990, which may potentially decrease your ability to easily transfer our shares.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated. Penny stocks generally are equity securities with a price of less
than $5.00. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. As our shares immediately following this offering will likely
be subject to such penny stock rules, investors in this offering will in all
likelihood find it more difficult to sell their securities.
30
Description of the Business
General
Global Health Trax, Inc. develops, manufactures, markets, distributes and sells
branded and private label vitamins, nutritional supplements, dietary supplements
and holistic technological products in the United States and throughout the
world. Our website address is www.globalhealthtrax.com. No part of the website
is to be considered part of this prospectus. We offer a broad range of liquids,
capsules and powdered products consisting of approximately 100 stock keeping
units ("SKUs"). Our portfolio of recognized brands, Life SupportTM, Nature's
TurnTM and Smart MagnetsTM, are primarily marketed through multi-level
marketing, mass market, and health food store distribution channels. We market
our branded nutritional supplement products, both domestically and
internationally, in four principal categories:
1. specialty supplements;
2. vitamins and minerals;
3. non-traditional dietary supplements;
4. technological health products.
Our Life Support line of products and two Nature's Turn products are produced
internally, with certain powdered, encapsulated, cream and the Smart Magnet line
products by outside vendors.
Only one product, Oxygen Elements, is currently patented. This product's patent
number 6,383,534 was granted on May 7, 2002 and expires after twenty years on
May 7, 2022. There are approximately eighteen years remaining on the patent. The
patent abstract identifies the product as, "A mineral water composition
comprising a blend of minerals and trace elements, a bifidobacterium probiotic
agent, at least one carboxylic acid, and at least one mineral acid. Embodiments
of the composition further comprises silica and ascorbic acid. The mineral water
compositions can be ingested as a concentrate or diluted into beverages or other
foods." Oxygen elements is part of the Life Support product line of Global
Health Trax, Inc. which makes up approximately 45% of gross sales.
Our principal executive offices are located at 2465 Ash Street, Vista,
California 92081-8424 and our telephone number is (760) 542-3000. We were
incorporated in Nevada in 1999. Our Internet website address is
www.globalhealthtrax.com. No part of the website is to be considered part of
this prospectus. Following the completion of this offering, we anticipate that
our annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current
reports on Form 8-K, and all amendments thereto, along with other reports
required by the Securities Exchange Act of 1934, will be available free of
charge on our internet website. These reports will be posted on our website as
soon as reasonably practicable after such reports are electronically filed with
the Securities And Exchange Commission (SEC).
Recent Developments
On October 15, 2003, we secured the full patent rights to our flagship
31
product Oxygen Elements, United States Patent Office number 6,383,534 B1 which
was granted on May 7, 2002 and expires after twenty years on May 7, 2022. This
patent covers two products, Oxygen Elements and Silica Plus, both of which are
leaders in the dietary supplements field of oxygenation.
At our 2003 San Diego, California Health and Wellness convention, we introduced
one primary product and a new product line: Super Sea Essentials and Smart
31
Magnets.
On November 15, 2003, a special stockholders' meeting was held in San Diego,
California and a two-for-one stock split was approved for stockholders of record
on that date.
Industry Overview
Global believes it is well positioned to capitalize on the growth of the
nutritional supplements market. Multi-Level Marketing of Nutrition Products and
related Natural Personal Care Products in the U.S. in 2003 was approximately
$6.9 billion, which represents approximately 10.9% of the total U.S. industry of
$62.8 billion in 2003 and grew at 10% in 2003 from 2002 and is estimated to grow
at a cumulative average growth rate of approximately 15.3% into 2010. Global
believes several factors account for the steady growth of the nutritional
supplement market, including increased public awareness of the health benefits
of nutritional supplements and favorable demographic trends toward older
Americans who are more likely to consume nutritional supplements.
Over the past several years, public awareness of the positive effects of
nutritional supplements on health has been heightened by widely publicized
reports and medical research findings indicating a correlation between the
consumption of nutrients and the reduced incidence of certain diseases. In
addition, Congress has established the Office of Alternative Medicine within the
National Institutes of Health to foster research into alternative medical
treatment modalities, which may include natural remedies. Congress has also
recently established the Office of Dietary Supplements in the National
Institutes of Health to conduct and coordinate research into the role of dietary
supplements in maintaining health and preventing disease.
Global believes that the aging of the United States population, together with a
corresponding increased focus on preventative health care measures, will
continue to result in increased demand for certain nutritional supplement
products. According to Congressional findings that accompanied the DSHEA,
national surveys reveal that almost 43% of Americans regularly consume vitamins,
minerals and/or herbal supplements and 80% have consumed these products at some
time during their lives. The 35-and-older age group of consumers, which is
expected to continue to grow over the next two decades, represents 78% of the
regular users of vitamin and mineral supplements. Based on data provided by the
United States Bureau of the Census, from 1990 to 2010, the 35-and-older age
group of the United States population is projected to increase by 32%, a
significantly greater increase than the 20% projected increase for the United
States population in general.
Global believes these and other trends have helped fuel the growth of the
nutritional supplement market.
Brands, Products and Distribution
The following table shows comparative net sales results categorized by business
unit and as a percentage of net sales for quarter ending 03/31/2004, and fiscal
years 2003, 2002 and 2001 (dollars in thousands):
32
SIX MONTHS ENDED
06/30/2004 FYE 2003 FYE 2002 FYE 2001
---------------------- --------------------- ---------------------- -----------------------
------------ --------- ------------ -------- --------- ---------
Life Support 1,822,152 35.3% 3,555,151 45.5% 3,467,774 66.7% 4,824,527 74.8%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- --------------------- ------------ --------- ------------ -------- ------------ --------- -------------
Nature's Turn 3,044,864 59.0% 3,731,202 47.7% 1,336,445 25.7% 935,646 14.5%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Technological 99,907 1.9% 131,683 1.7% 89,185 1.7% --- ---
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Marketing Aids 24,320 .5% 68,917 .9% 92,634 1.8% 65,951 1.0%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Other 170,280 3.3% 332,883 4.2% 210,545 4.1% 622,371 9.7%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Total 5,161,523 100.% 7,819,836 100.% 5,196,583 100.% 6,448,495 100.%
============ ========= ============ ======== ============ ========= ============= =========
Global's efforts to insure the highest of product quality consider many
characteristics including:
|X| A Scientific Basis for development, |X| A Complete Approach to Wellness, |X|
The highest standards in Formulations, |X| State-Of-The-Art Production
Facilities, |X| Quality Ingredients, |X| Patent & Trade Secrets, and |X|
Documented Success.
In support of these activities, Global performs the following functions:
|X| Nutritional Product Development, sometimes with Patentability,
|X| Research.
|X| Infrastructure (telecommunications, computer networks, paperless office
environment, policies and procedures, training, physical office space, product
management systems, state of the art shipping department, fully integrated
enterprise software, etc.)
|X| Multi-channel Distribution.
|X| Two free individual Member websites: a business-building site; a retail
sales site.
Life Support(TM)
Life Support(TM) products are liquid-based nutrition supplements that improve,
balance, and increase overall health, vitality, and immunity. They are the
nutritional foundation needed for wellness providing the body with the 40 or so
nutrients that the body does not make on its own. This line currently consists
of two patented products and three support products. With the wellness and
33
vitality of the human body dependent upon getting and absorbing over 40
well-known nutrients essential for good health, Life Support(TM) includes two
vitality factors not included in most nutrition programs: oxygen and silica. A
key technology feature of Life Support is that all products are in a very tasty
liquid form. Liquids have specific advantages over pills and tablets, including
better absorption rates in the body and ease of oral application.
Oxygen Elements Plus(TM) is our oxygen supplement flagship product patented
under United States Patent Number 6,383,534 B1. Silica Plus(TM) is a parallel
patented product with Silica Plus(TM) that provides benefits to hair, skin and
nails as well as nutritional support for the lungs, joints and cardiovascular
system. The Life Support(TM) product line also includes our Daily Vita Plus(TM)
(Vegetarian and regular) as well as Mega Minerals Plus(TM). The Life Support(TM)
product line is the starting point of Global's marketing towards those
interested in its products. The Life Support line represents the core foundation
of general daily nutrition as presented by Global Health Trax Inc.
All of the Life Support products are produced internally by Global. This insures
the highest quality possible in the raw material selection, storage and
preparation and guarantees complete control over product quality assurance.
By providing the basic nutrients needed in the body, a foundation is created to
meet an individual's needs through more specific products that are provided
through the product line named Nature's Turn(TM).
Nature's Turn(TM)
The products available through Nature's Turn will grow much faster than those of
Life Support(TM). The reason is that this is a specialty category meant to
provide nutritional supplements to meet an individual's particular needs. The
Nature's Turn products are designed to assist the body in dealing with many
challenges including fungal infestation, enzyme support, temporary heart burn,
digestive disorders, immune system support, anti-aging help, sleep disorders,
the restoration of lean muscle mass through proper nutrition, help with joint
pain due to cartilage damage, and more. The product line currently consists of a
dozen products, some of which are produced internally and others outsourced. The
same standards of quality are applied to all products represented by Global
Health Trax Inc. whether produced internally or not.
Smart Magnets(TM)
The technological products produced for this line result from the digital
programming of electro-magnetic (EM) energy into health magnets. The Smart
Magnet comes ready to use and provides EM support as soon as they are applied to
the body. By programming these magnets, we get the desired EM benefits. Smart
Magnets are programmed by establishing an electro magnetic frequency level that
is appropriate to support a need that will be beneficial to the body. The
metallic, holographic paper that is used for this purpose must contain 20% or
more metal fiber. The magnets are placed in a stainless steel containment field
and the frequency is established with a frequency generator. The magnets are
kept in the containment field for a period of time until the EM frequency is
stable on the magnet. The magnets then present a benefit that is consistent with
the body's needs, based on the matching EM frequency that a healthy body makes,
based on documented Homeopathic Medicine. Standard health magnets are commonly
sold for inflammation reduction and pain relief. With ten different magnets
currently, the line is expected to triple in 2005.
34
Other
As a multi-level marketing company, sales are generated through a membership
base. Currently there are over 70,000 members registered with Global Health
Trax, Inc. Sales to these members include marketing aids in addition to the Life
Support(TM), Nature's Turn(TM) and Smart MagnetsTM product lines. Marketing aids
include books, tapes, CDs, business development tools and plans, brochures,
flyers, pamphlets, sales training videos, catalogues, and much more.
The statements provided above and throughout Company marketing and claims have
not been evaluated by the Food and Drug Administration and the products listed
are not intended to diagnose, treat, cure or prevent any disease. Regardless,
Global has accumulated volumes of testimonials in support of its products. As a
result, Global believes that its brands will become leaders in the direct
selling nutritional supplement industry. The following table identifies Global's
16 leading products and illustrates Global's multi-brand, multi-channel
strategy:
BRAND PRIMARY CHANNEL PRIMARY NUTRITIONAL SUPPORT
- ----- --------------- ----------------
Life Support Line
Oxygen Elements Plus Retail, Wholesale, Multi-Level Marketing Oxygenation, Trace
Elements Silica Plus Retail, Wholesale, Multi-Level Marketing Hair, Skin, Nails,
Lungs, Joints Daily Vita Plus Retail, Wholesale, Multi-Level Marketing
Multivitamin Supplement Daily Vita Plus (Vegetarian) Retail, Wholesale,
Multi-Level Marketing Multivitamin Supplement Mega Minerals Plus Retail,
Wholesale, Multi-Level Marketing Multimineral Supplement
Nature's Turn Line
Threelac Retail, Wholesale, Multi-Level Marketing Fungal Defense
Super Sea Essentials Retail, Wholesale, Multi-Level Marketing Antioxidant and Energy Drink
L-H-B Retail, Wholesale, Multi-Level Marketing Enzyme Support
Active Enzymes Retail, Wholesale, Multi-Level Marketing Digestive Enzyme Support
Coral Complete Retail, Wholesale, Multi-Level Marketing Multimineral Supplement
Mineral Milk Powder Retail, Wholesale, Multi-Level Marketing Multimineral Supplement
Colostrum FM (Capsules) Retail, Wholesale, Multi-Level Marketing Immune Support
Colostrum FM (Powder) Retail, Wholesale, Multi-Level Marketing Immune Support
Gold Label Noni Juice Retail, Wholesale, Multi-Level Marketing Broad Nutritional Support
HGH at Night Retail, Wholesale, Multi-Level Marketing Collagen Protein Supplement
Start-Ups Retail, Wholesale, Multi-Level Marketing Herbal Cell Support
ProgestAroma Retail, Wholesale, Multi-Level Marketing Progesterone Cream
Smart Magnet Line
Life Support Retail, Wholesale, Multi-Level Marketing Partner to Oxygen Elements
Water Revive Retail, Wholesale, Multi-Level Marketing Wake Up the Taste of Water
Bedtime Retail, Wholesale, Multi-Level Marketing Partner to Mega Minerals Plus for
Rest
Ideal Beauty Retail, Wholesale, Multi-Level Marketing Partner to Silica Plus for Hair
and Skin
Comfort Retail, Wholesale, Multi-Level Marketing Assist in Pain Relief
Vital Move Retail, Wholesale, Multi-Level Marketing EM Support for Cleansing
Magflex Retail, Wholesale, Multi-Level Marketing Partner to Silica Plus for Joint
Stress
Smile Retail, Wholesale, Multi-Level Marketing For Stressful Times
Alert Retail, Wholesale, Multi-Level Marketing Help Increase General EM Support
Seasonal Best Retail, Wholesale, Multi-Level Marketing Extra EM Support for Seasonal
Changes
Marketing Aids Retail, Wholesale, Multi-Level Marketing Hardgoods
35
To support its multi-brand, multi-channel strategy, Global will continue to
invest in research and development and state-of-the-art manufacturing and
distribution facilities. Global's research and development department is
currently working on several new product innovations to be brought to targeted
markets in the next twelve months. Global believes its research and development
commitment and integrated manufacturing capabilities will continue to provide a
significant advantage in capturing an increasing share of the growing
nutritional supplement market. The Production Manager of Global attended San
Francisco State and has 19 years experience in production. Our Quality Assurance
employee has a degree in Chemistry from Mira Costa College and has over 19 years
experience in product formulation and other areas related to product testing.
Global intends to broaden its position in the nutritional supplement industry by
utilizing the multi-level marketing channels to strengthen brand awareness and
promote sales. Specifically, Global's strategy is to: (i) leverage its portfolio
of established brands to increase its share of the nutritional supplement
market; (ii) develop new brands and product line extensions through its
commitment to research and development; (iii) continue the growth of its
balanced distribution network; (iv) further penetrate international markets; and
(v) supplement internal growth through focused organizational development and
training through increased marketing development and support of the multi-level
marketing entrepreneurs. Global believes that its multiple distribution
channels, broad portfolio of leading brands and state-of-the-art manufacturing
and distribution capabilities position it to be the long-term competitive leader
in the nutritional supplement industry.
Global's strategy is to increase sales, profits and market share in the sale of
vitamins, sports nutrition products, weight management and other nutritional
supplements to health and natural food stores, mass market accounts and through
certain direct sales distribution channels. Global plans to implement this
strategy by: (i) capitalizing on the strength of its established brands; (ii)
developing and introducing new channel-specific products; (iii) increasing
penetration of foreign markets; and (iv) improving manufacturing and operational
efficiencies.
We have grown from start-up to $1,000,000 in our first full year to $5,200,000
in 2002, $7,800,000 in 2003 and we expect to generate between $12,000,000 and
$15,000,000 in 2004. Global strongly believes it will be able to achieve sales
of $3,000,000 to $4,000,000 per month, within 24-30 months of completion of its
securities offerings. To accomplish this goal, Global plans to increase its
marketing activities through a national regional rally program, to open new
sales regions in North America, Japan, Australia and Europe, grow existing
multi-level marketing relationships with members, create a new "Customer Care
and Development" strategy, create and broadcast radio and television
infomercials and solicit contract manufacturing and fulfillment. Global has
concurrent efforts of product registration in Australia, Canada and Japan. With
the expectation of selling fully in Japan by early 2005, fully in Canada by
December 2004 and partially in Australia by December 2004, the sales in these
three markets are believed to match Global's domestic sales. With the
anticipated combined increased domestic sales matched with new international
sales, having an average related 41% cost of sales, Global is anxious to
implement the marketing plans discussed above. Global contemplates the creation
of a wellness cable information and shopping channel in the future. The ultimate
goal of Global is to dramatically increase sales by a factor of 5 to 6 within 4
years.
Global consolidated its operations under one roof in 2002 and opened its state
36
of the art product production facility in May 2003. We lease a single,
freestanding building of 47,550 square feet in Vista California, a northern San
Diego County suburb. The lease is triple net, expires in 2013 and contains a
cost of living increase as well as a cost of living decrease. A lease in which
the lessee pays rent to the lessor, as well as all taxes, insurance, and
maintenance expenses that arise from the use of the property. Additionally,
Global is fortunate enough to have a potential offset, cost of living decrease,
to any increased rent due to an increased cost of living index. Global's offices
are located at 2465 Ash Street, Vista, CA 92081; telephone: 760-542-3000;
facsimile: 760-542-3046 or 800-673-4883; e-mail:ght@globalhealthtrax.com;
website: www.globalhealthtrax.com; contact: Everett Hale, President or Lorin
Dyrr, Executive Vice-President. See "Related Party Transactions -- Certain
Acquisitions."
We are now in a position to deliver production capacity to match
Global's marketing and sales goals. Global has identified multiple qualified
providers of nutritional materials and finished nutritional products in the
U.S., Canada, and Europe. Currently, the percentage of all international sales
is less than 5% of gross sales.
In May 2003, Global shipped its first order to Indonesia under a license
agreement with a privately owned company, GHT-Indonesia. Neither Global nor any
of its current owners have any ownership interest in GHT-Indonesia. A similar
license agreement is currently being negotiated for Korea, Singapore and Mexico.
Global has opened a wholly owned subsidiary in Canada, GHT-Canada and is working
on product approval for the Canadian market to work seamlessly in the MLM
division.
Global also plans to expand into Europe with pilot programs in 2005 and expanded
programs in 2006 and 2007 at which time Global may decide to strategic partner
with established firms. As currently envisioned Global would license its brands
and manufacturing rights to the licensee. The European licensee would start with
a country-specific license that would be expandable to exclusivity throughout
Europe if key performance milestones are met. Discussions are underway with
qualified distributors in Finland at this time regarding the possibility of
licensing the European market.
Production capabilities in Global's new facilities will be able to meet demand
for the foreseeable future with enough space for expansion should Global sales
exceed its plan. Production capabilities of outsourced products are similarly
situated.
Global closely monitors consumer trends and scientific research, and has
consistently introduced innovative products and programs in response thereto.
Global regularly studies scientific, health and nutrition periodicals, including
the New England Journal of Medicine and the Journal of the American Medical
Association, in order to generate ideas for new product formulations. Global
intends to continue developing new products and programs in the future. Global
plans to introduce new products within the next 12 to 24 months, which may
include: a Whole Food Greens Supplement, Skin Care line, Colon Cleanse, Bath
Products, Functional Foods and Bio-friendly cleaning agents
Global has additional products in various stages of planning. In summary, Global
anticipates an ongoing stream of new products that are responsive to market
demand and new technologies.
Historical Financial Data
The following selected consolidated financial data at December 31, 2003 and
37
2002, and for the years then ended have been derived from Global's consolidated
financial statements, which have been audited by Weinberg & Company, P.A., an
independent public accounting firm, whose report thereon is included elsewhere
in this prospectus. Also included is the following selected consolidated
financial data at June 30, 2003 and 2004 and for the six months ended have been
derived from the June 30, 2003 and June 30, 2004 unaudited consolidated
financial statements of Global. The selected consolidated financial data as of
and for the six months ended June 30, 2004 and 2003 are unaudited. In the
opinion of management, such consolidated financial data includes all adjustments
(consisting only of normal recurring adjustments) considered necessary for the
fair presentation of the consolidated financial position and the consolidated
results of operations for such periods
Selected unaudited consolidated financial data at December 31, 1997, 1998, 1999,
2000 and 2001 and audited 2002 and 2003 data are provided. The financial data
should be read in conjunction with, and are qualified by, the consolidated
financial statements and notes thereto included elsewhere in this prospectus.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
38
Fiscal Year Ended Six Months Ended
December 31, June 30
---------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2003 2004
---------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Net Sales
22,241 995,372 3,087,134 5,541,063 6,448,495 5,196,583 7,819,836 3,429,011 5,161,523
Cost of goods sold
16,657 691,154 2,012,549 3,679,754 4,456,206 3,388,991 4,613,500 2,029,922 3,187,822
---------------------------------------------------------------------------------------------------
Gross Profit 5,584 304,218 1,074,585 1,861,309 1,992,289 1,807,592 3,206,336 1,399,089 1,973,701
Total operating expenses 16,867 463,607 1,060,900 1,690,433 2,087,855 2,123,084 3,368,385 1,276,001 2,416,050
---------------------------------------------------------------------------------------------------
Income (loss) from
operations (11,283) (159,389) 13,685 170,876 (95,566) (315,492) (162,049) 123,088 (442,349)
Other Income (Expenses)
Interest, net - - - (5,293) (22,007) (64,240) (91,085) (57,595) (29,736)
Other - - - - - 92,653 20,703 - -
---------------------------------------------------------------------------------------------------
Total - - - (5,293) (22,007) 28,413 (70,382) (57,595) (29,736)
I(L)BITP (11,283) (159,389) 13,685 165,583 (117,573) (287,079) (232,431) 65,493 (472,085)
Provision for income taxes - - - 27,414 (27,582) (800) (800) - -
---------------------------------------------------------------------------------------------------
Net Income (loss) (11,283) (159,389) 13,685 138,169 (89,991) (287,879) (233,231) 65,493 (472,085)
===================================================================================================
Pro forma net income
(loss) per Common and
common equivalent share (1)
Basic $ (56.42) (796.96) 45.62 0.00 (0.01) (0.01) (0.01) 0.00 (0.02)
Diluted $ (56.42) (796.96) 45.62 0.00 (0.01) (0.01) (0.01) 0.00 (0.02)
Pro forma weighted average
Common and
equivalent shares
Basic 200 200 300 40,000,000 10,000,000 20,000,000 21,267,956 20,000,000 24,432,755
Diluted 200 200 300 40,000,000 10,000,000 20,000,000 21,267,956 20,000,000 24,432,755
OTHER DATA
EBITDA(2) (10,529) (143,205) 40,057 261,327 (1,415) (81,085) 142,705 208,524 (268,372)
Capital expenditures 3,771 74,056 156,367 148,467 265,259 147,104 611,227 583,997 145,145
Net sales increase - 4375% 210% 79% 16% -19% 50% - 51%
Income from operations
increase - -1313% 109% 1149% -169% -168% 49% - -459%
Income from operations
margin -51% -16% 0% 3% -2% -6% -2% 4% -9%
BALANCE SHEET DATA:
Cash and cash equivalents,
net of cash overdraft 6,538 38,943 83,404 (98,892) (21,847) (45,641) 70,072 90,423 212,959
Working capital deficiency (6,434) (115,816) (220,457) (206,613) (256,756) (524,839) (281,571) (496,152) (206,982)
Total assets 34,221 272,655 492,240 555,513 852,461 1,179,320 2,279,246 1,989,009 2,560,161
Total debt (3) 45,504 397,341 635,095 637,568 1,006,272 1,713,721 1,628,919 2,533,642 1,867,398
Total stockholders' equity
(deficiency) (11,283) (124,686) (142,855) (82,055) (153,811) (534,401) 650,327 (544,633) 692,763
39
(1) Gives effect to stock splits but not to offerings.
(2) EBITDA is presented because it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to operating income as an
indicator of operating performance and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. (3) Total debt represents long-term
debt ( including current portion of long-term debt ) and short-term debt.
Distinguishing Market Characteristics
Although the health and nutrition industry remains intensely competitive, Global
believes it has a number distinguishing market characteristics that place it at
an advantage. From patented oxygenation products, a highly experienced trainer
of trainers in our Marketing VP to internally designed and manufactured
products, we have products, skills and the capability of continuing to develop
new products. What makes Global Health Trax unique is an amalgam of business
propositions that powerfully inter-relate. Global has uniquely positioned itself
in four critical areas that drive the growth of our current distribution channel
and will dramatically support its expansion into other marketing channels. Each
area strengthens the others, and makes the Global Health Trax story even more
compelling.
It is one thing to manufacture products. It is quite another to understand how
the body uses them and manufacture the products to science-based specifications
so the consumer gets the results they expect. Global Health Trax has maintained
its absolute commitment to using exacting science and results as the basis for
formulating all of the products it sells. This one unique feature contributes as
much as any other to repeat sales and repeat sales are the key to success in
this or any business. Other competitive advantages include:
o Unique Products - Useful, thoughtfully packaged, and "they work."
o Brand Loyalty - Affinity Membership consumption driven by scientifically
advanced products and results.
o Product Delivery Diversification - Liquids, tablets, capsules and powders.
o Quality Control and Packaging - Quality control is strictly maintained.
Expanding into proprietary manufacturing will allow Global to control the
science even more strictly and reduce costs simultaneously.
o New Product Stream - A loyal following eager for new products enlarges the
marketing story and increases sales.
Patenting has allowed Global Health Trax to corner market share and increase
sales. In addition to its patent, Global Health Trax owns the formulas of most
formulated products marketed by Global. More than just good business, this
allows Global Health Trax to respond immediately to new science and improve
products without long delays or increased costs. By reducing costs, Global is
also able to offer products at more competitive prices, increasing brand
loyalty. Global also has the following additional competitive advantages:
o Patents - Global Health Trax has two patented oxygen-supplementation products
that are the only two products of their kind in the marketplace today.
40
o Most Formulas and Names Proprietary - Global Controls its products.
o Competitive Pricing - The percentage of repeat sales continues to grow each
year because the costs are controlled and prices are competitive.
o Exclusive "ThreeLac" Contract - North American, Australian and New
Zealand excusive distribution rights from Japanese pharmaceutical firm.
o International Governmental Relationships - Approved to do business in
Indonesia, most of Canada, pending in Mexico, Australia and New Zealand, and
will be approved in all European Union countries with the establishment of
manufacturing and fulfillment facilities in Finland where Global is already
approved. In each country there are similar needs to obtaining approval to do
business there. There are licenses and product registrations.
o Professional and Business Associations - Active membership in the Direct
Selling Association, the most prestigious organization in the direct selling
industry, and ongoing membership in the Better Business Bureau.
It takes seasoned, conservative management to demand quality, to develop
competitive proprietary products, and to build relationships that will aid
Global's expansion. Since its inception, the founders, who are deeply committed
to making this business work for all its customers, have guided the growth of
Global. Management is a group of seasoned professionals with diverse skills, who
are comfortable with their own abilities and with recruiting additional talent
for expansion.
Product Distribution Plan
The distribution plan is to maintain a strong multi-level marketing division
building Global's base throughout the United States and Canada.
Global has extensive experience in building new sales and distribution
territories. In going after new markets, Global may create new "sample" size
products, for example, chewable products for the youth market and one week
supplies of ThreeLac for its users.
Through effective use of radio, television and Internet infomercials, Global
will expand its retail sales to end consumers. These infomercials will also give
Global's distributors the brand recognition to approach natural and health food
stores, specialty retail sales outlets, health care providers, and conventional
grocery, drug, mass merchandise, club and convenience stores with point of sale
information and retail displays for merchandising. The Internet is already being
used very successfully by Global Distributors in the distribution of ThreeLac.
Global has invested significantly in dollars and human resources to develop
custom-tailored software programs to manage inventory, customer inquiries,
member inquiries, and other information. The information infrastructure is
proven, in use, and scalable to meet Global's growth projections.
Global believes that its information infrastructure (telecommunications,
computer programs, database management, paperless document maintenance, etc.)
will provide important savings as a result of economies-of-scale in response to
increased sales volume.
Significant cost savings are being realized since Global combined all of its
resources under one roof. This is especially relevant in May 2003 when Global
fully manufactured its liquid products in its own facility. Estimated savings of
up to 40% in the manufacturing cost of some products will lower the
overall product Cost of Sales by up to 4% in 2004.
41
Global has three full time programmers and three part time programmers on staff.
Marketing Plan
The marketing plan is based on the understanding that product sales are
predicated on consumers getting the information they need to make informed
purchase decisions through a "high tech-high touch" approach. A well-trained and
highly motivated national sales force is the key to getting information to the
ultimate consumer. These motivated salespeople are "products of the products"
and all have personal testimony to give to other consumers in meetings, in one
on one encounters, and on their individual websites provided by Global to them
at no cost.
The marketing plan includes several key points:
|X| Expanding the membership base through a revitalized national training
program, strong advertorials in industry and trade publications, radio and
television infomercials and regional rallies featuring the corporate executives.
|X| Repositioning Global away from "illness" (existing testimonials) and toward
"wellness" (new testimonials, etc.). |X| Enrolling recognized "champions" of
Global's scientific/nutritional basis, including M.D.s and Ph.D.s who can become
spokespersons for Global, its science, and its products.
|X| Sponsoring nutrition events and related health events, including seminars,
conferences, exhibitions, fun-runs, and other health events.
|X| Videotaping the experts, and packaging the footage to support product
training sales videotapes, as well as incorporating the footage in infomercials
and streaming video on the member websites.
|X| Creation of a new Customer Care and Development Department designed to
create a "high touch" sales effort with all existing customers and members.
|X| Creation of a sales representative force targeting contract manufacturing or
O.E.M.
|X| Expanding direct mail and Internet prospecting.
Private label opportunities. Global believes that large chain store retailers
will also be receptive to private labeling their house brands, Global is
currently seeking private label opportunities, however not in competition with
its members or products.
Original Equipment Manufacturers" or O.E.M. services. Because Global plans to
operate under the guidelines of Over The Counter FDA-certified laboratories and
production facilities, Global is actively seeking additional revenue-generating
opportunities by selling manufacturing services to other nutrition product
providers.
Competition.
Global faces competition from other channels for product marketing and
distribution, as well as competition from other multi-level marketing firms and
organizations. The business of developing, manufacturing and selling vitamins,
minerals, herbs, sports nutrition products, nutritional supplements and other
nutraceuticals is highly competitive in all channels of distribution. There are
numerous companies selling products competitive to Global's products to mass
merchandisers, drug store chains, independent drug stores, supermarkets, health
42
and natural food stores, as well as through catalogs, the internet and network
marketing. Certain of Global's competitors are substantially larger and have
greater financial resources than Global.
Global believes that it can continue to compete effectively with these and other
nutritional product providers, in a rapidly growing and highly fragmented
marketplace by relying on liquid nutrition that combines technology with science
and by its current and future strategic alliances with national and
international companies.
Projections
The following table represents what management believes to be reasonable
projections for Global's revenue through the end of fiscal year 2006. No
assurances can be given that the future results anticipated by these
forward-looking statements will be achieved. These projections are qualified in
their entirety by certain factors, including certain risks and uncertainties
that could cause actual results to vary materially from the future results
anticipated by those forward-looking statements. Among the key factors that may
have a direct bearing on our results of operations are the effects of various
governmental regulations, the fluctuation of our direct costs and the costs and
effectiveness of our operating strategy. Other factors could also cause actual
results to vary materially from the future results anticipated by these
forward-looking statements.
The basis for these projections include some basic assumptions:
o Sales will increase at a rate of 4%,
o Cost of sales will decline with increased utilization of current
manufacturing capacity,
o Non-cash components of operations such as depreciation and amortization
will increase as facility improvements are added through equipment acquisitions
and building improvements which will likely begin to impact productivity in
subsequent years,
o A few new products will be added to the product lines after extensive
testing with 2006 seeing the largest additions anticipated to be from 3 to 8 new
products,
o Domestic markets will continue to grow,
o International markets, especially Japan, Canada, Australia and Mexico
will become more developed and generate stronger sales, and
o There are no regulatory law changes negatively affecting Global's operations.
43
2004 2005 2006
--------------------------- -------------------------- ---------------------------
--------------- ----------- --------------- ---------- ---------------- ----------
Revenue $12,000,000 $18,000,000 $30,000,000
Cost of sales 6,756,000 56.3% 9,432,000 52.4% 14,610,000 48.7%
Gross profit 5,244,000 43.7% 8,568,000 47.6% 15,390,000 51.3%
Operating expenses 4,908,000 40.9% 6,246,000 34.7% 8,490,000 28.3%
Net income before taxes 336,000 2.8% 2,322,000 12.8% 6,900,000 23.0%
Income tax provision * - 990,000 5.5% 2,970,000 9.9%
Net income 336,000 2.8% 1,332,000 7.3% 3,930,000 13.1%
Earnings before interest,
taxes, depreciation and
amortization 540,000 4.5% 2,484,000 13.8% 7,080,000 23.6%
* tax loss carry forward from prior years
Management's Discussion and Analysis Or Plan of Operations
The following discussion and analysis should be read in conjunction with the
consolidated financial statements, including the notes thereto, appearing
elsewhere in this prospectus.
Overview
Global experienced growth in sales over the past four fiscal years with a small
decrease in 2002 and a substantial growth in 2003. Increased sales were due
primarily to Global's increased penetration of the growing mass volume retail
distribution channel. In addition, Global's emphasis on research and development
and greater marketing efforts increased sales volumes, particularly as a result
of new product introductions. Global believes future sales growth will depend
upon the same factors which contributed to its recent growth.
Currently, Global Health Trax, Inc. has arrangements with a company in Japan to
introduce the Company's products, develop a presence for the Company and
generate sales on an ongoing basis. These sales are believed to begin materially
impacting Global's sales by mind-2005.
As evidenced in the following schedules, Global's sales continue to grow. Later
in 2005, it is anticipated that additional employees will be hired for the
support of members and the production of product. With existing equipment in
place and currently being purchased, the Company will have the needed capacity
to meet its production needs. With the software for running the daily operations
of the Company as the foundation of the business, there is currently a contract
for its enhancement and integration with financial accounting needs. It is
anticipated that the ultimate costs for this project will be finalized by the
44
end of 2005. These costs are not anticipated to exceed $300,000. Being a
phased-in project divided into three areas; order entry, commissions, website
design and fulfillment, each phase is anticipated to result in increased sales
due to significantly improved support, marketing and reporting capabilities.
With the enhanced order entry phase, employees will be able to provide more
detailed support to the Company's members. Commissions are important to all
members, and to be able to provide "real-time" commission information to
Global's independent business owners, provides incentive for increased sales.
With the website design changes, Global will have a much more integrated system
whereby changes in one area will be automatically updated throughout. Even
through customer fulfillment, the changes coming will allow for quicker shipping
times, tighter controls of shipped items and returns.
The following list highlights existing monthly contractual obligations which are
not sales related:
$210,000 Payroll
31,500 Rent
20,700 Capital leases
50,700 Operating leases
Commissions vary directly with sales and averaged approximately $208,000 per
month during 2003.
The following table shows selected items expressed on an actual basis and as a
percentage of net sales for the fiscal years and three month periods indicated:
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------ -----------------------------------
--------------- ------------- --------------- -------------- ------------
2001 2002 2003 2003 2004
Unaudited Unaudited Unaudited
--------------- ------------- --------------- -------------- ------------
(DOLLARS IN THOUSANDS)
Net Sales $ 6,448 100.0 % $ 5,196 100.0 % $ 7,819 100.0 % $ 3,429 100.0 % $ 5,161 100.0%
Cost of goods sold 4,456 69.1 3,388 65.2 4,613 59.0 2,030 59.2 3,187 61.8
------- ------- ------ ------ ------- ------- ------- ------ ----- ------
Gross profit 1,992 30.9 1,808 34.8 3,206 41.0 1,399 40.8 1,974 38.2
=======================
Total operating
expenses 2,088 32.4 2,123 40.9 3,368 43.0 1,276 37.2 2,416 46.0
------- ------- ------ ------ ------- ------- ------- ------ ----- ------
Income (loss) f rom
operations (96) (1.5) (315) (6.1) (162) (2.1) 123 3.6 (442) 8.6
=======================
Other income (expense) (22) (0.3) 28 0.5 (70) (0.9) (58) (1.7) (30) (0.6)
Provision for income
taxes 28 0.4 (1) - (1) - - - - -
------- ------- ------ ------ ------- ------- ------- ------ ----- ------
Net income (loss) $ (90) (1.4) % $ (288) (5.5) % $ (233) (3.0) % $ 65 1.9 % $ (472) 9.1%
======= ======= ====== ====== ======= ======= ======= ====== ===== ======
45
Results of Operations
Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003
Net Sales. The following table shows comparative net sales results categorized
by Product line on an actual basis and as a percentage of net sales for the
periods indicated:
SIX MONTHS ENDED JUNE 30,
----------------------- ----- --- -----------------------
2003 2004
----------------------- -----------------------
---------------------------------------------------------
(DOLLARS IN THOUSANDS)
Life Support $ 1,777 51.8 % $ 1,822 35.3 %
Nature's Turn 1,415 41.3 3,045 59.0
Technological 54 1.6 100 1.9
Marketing Aids 31 0.9 24 0.5
Other 152 4.4 170 3.3
----------- ----------- ----------- -----------
Total $ 3,429 100.0 % $ 5,161 100.0 %
=========== =========== =========== ===========
The 51% increase in sales during the second quarter of 2004 as compared to the
same period in 2003 is directly attributable to Global's improved marketing
efforts. With a vastly improved website presence in the nutritional supplements
marketplace, Global Health Trax, Inc. is better able to support its members and
their efforts. Additionally, Global is able to produce its products with very
little lead times involved. With the ability to manufacture in-house, quality
control is significantly enhanced. Equally important is that with the ability to
manufacture internally, the potential for shortages of product is all but
eliminated. The Life Support product line has decreased as a percentage of
overall sales due to a well-rounded marketing philosophy of stressing a total
wellness concept. To further emphasize the oxygenation benefit of our flagship
product, Hydroxygen Plus has been officially renamed Oxygen Elements Plus. We
feel the new name more appropriately portrays the patented oxygenation process
that is the cornerstone of our Life Support product line. Where the Life Support
products represent the basic building blocks of the Global Health Trax, Inc.
philosophy of health and wellness, the Nature's Turn products provide specific
and focused health related supplemental treatments and maintenance regimens.
The Nature's Turn product line has continued to meet with acceptance and
vigorous repeat sales. This line began in the year 2000 with less than 5% of
total sales and increased to over 59% of total sales in the year ended 2004.
With an increase of over 115% for the six-months ended June 30, 2004 over the
same period in 2003, or an increase of approximately $1,630,000 to approximately
46
$3,045,000 in sales, the results of product differentiation have taken hold.
There are several new products being researched to add to this line as well.
The Technological product line continues to evolve and grow. The PolarWearZ has
given way to the Smart Magnet line that was introduced late in 2003. The 85%
increase in Global's Technological line for the six-months ended June 30, 2004
over the same period in 2003, or an increase of approximately $46,000 to
approximately $100,000 in sales, has proven to management and Global's members
that the need for technologically advanced health and wellness products is real
and very much in demand. Consequently, the Smart Magnet line is being developed
along with supporting products within this area. Global Health Trax, Inc.
foresees the growth of its Technological product line
to potentially rival all other product lines in the near future. Marketing plans
are being developed to share the exciting technology of Smart Magnets
internationally.
Marketing Aids represent the level at which the members of Global Health Trax,
Inc. avail themselves of the tools provided by Global to both maintain and
attract new members. The 7% decline in Marketing Aids products indicates to
management the continued effectiveness of existing Life Support and Nature's
Turn marketing products from prior periods. Aggressive marketing of Smart
Magnets in conjunction with new products, catalogues, packaging, flyers and
website options should lead to increased Marketing Aids sales over the ensuing
year.
Other sales items include operating income from fees and charges not related to
the primary product or revenue generating lines. The 18% increase in other sales
is interpreted by management as being directly related to the addition of new
membership.
Gross Profit. Global's gross profit has increased 41% for the six months ended
June 30, 2004 from the same time the previous year. Being able to produce the
Life Support product line in-house allows for more controlled production costs.
As sales for the Life Support product line increase, desired economies of scale
will see even better cost of goods sold per production unit which should result
in even more desirable gross profits.
Operating Expenses. Operating expenses have increased approximately 89% for the
six months ended June 30, 2004 from the same time period in the previous year.
Global Health Trax, Inc. moved to a new 47,500 square foot facility in Vista,
California, hired more than double the employees to handle in-house production
as well as increased sales volumes. Advertising decreased nearly 121% due to the
increased expenditures on internal internet, television and radio marketing
efforts. Global's purchase of in-house production equipment, its purchase of
computer hardware and software, along with other capital acquisitions saw over a
94% increase in depreciation and amortization for the first six months of 2004,
and approximately 25% of these gross expenses were allocated to cost of sales.
With the larger facility and increased sales, additional computer related
investments have been made. Still, with in house programming, the computer and
programming expenses decreased over 22% during the second quarter of 2004 from
the same period in 2003. Global Health Trax, Inc. is committed to maintaining
efficient and state-of-the-art member support and purchased most of its high
tech equipment in late 2003. Consulting fees increased about 325% as contracts
were secured for ongoing marketing development support. Equipment rental
decreased over 6% as a result of Global's acquiring equipment in late 2003.
Legal expenses rose over 62% in direct proportion to Global's efforts to become
a public entity. Rent expense decreased nearly 8% in the six months ended June
30, 2004 as compared to 2003 due to having only one facility to pay rent on in
2004, and approximately 25% of these gross expenses were allocated to cost of
sales. In beginning in-house production, many repairs and maintenance expenses
47
were incurred in 2003 on equipment subsequently replaced which led to a 64%
decline in the repairs and maintenance category in the six months ended June 30,
2004 as compared with the same period in 2003, and the repair expenses persented
were for non-production related equipment. Being ever mindful of the need to
find better products, research and development increased 94%. With more
personnel, there was a 105% increase in salaries and wages along with health and
product benefits for employees for the six months ended June 30, 2004 from the
same time period in the previous year, and approximately 25% of these gross
expenses were allocated to cost of sales.
Other Income (Expense). Our primary other expense consists of interest expense.
Interest expense decreased 50% for the six months ended June 30, 2004 from the
same time the previous year. This decrease is primarily attributed to the notes
payable to the landlord of the new facility being converted to equity along with
several other vendors.
Provision for Income Taxes. Global did not incur any income tax liability for
the six months ended June 30, 2004.or 2003.
Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended December 31,
2003 Net Sales.
The following table shows comparative net sales results categorized by product
line for the fiscal years indicated:
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
----------------------- ------ ---- -----------------------
2002 2003
----------------------- -----------------------
-----------------------------------------------------------
(DOLLARS IN THOUSANDS)
Life Support $ 3,468 66.8 % $ 3,555 45.5 %
Nature's Turn 1,336 25.7 3,731 47.6
Technological 89 1.7 132 1.7
Marketing Aids 93 1.8 69 0.9
Other 210 4.0 332 4.3
----------- ----------- ----------- -----------
Total $ 5,196 100.0 % $ 7,819 100.0 %
=========== =========== =========== ===========
Life Support product sales increased about 2.5% in 2003 from 2002. The flagship
products of Oxygen Elements Plus(TM) and Silica Plus(TM) grew in light of
increased marketing emphasis in the Natures Turn and technological lines of
products. Until early 2003, Global Health Trax, Inc. had been outsourcing the
48
production of its Life Support products. Seeing the decline in sales of both the
overall total and the Life Support mix of total sales, led management in 2002 to
consider implementing stringent quality control measures. It became apparent
that the only way to insure the highest level of quality possible was to
directly control the manufacturing processes. Consequently, towards the later
part of 2002, the management of Global Health Trax, Inc. made the decision to
manufacture its own Life Support and certain Nature's Turn products in-house.
The Nature's Turn product line increased in total sales by over 179% from 2002
to 2003. Its contribution to the total mix of products rose nearly 22% to 47.4%
of total sales in 2003.
Technological sales evidenced an increase in sales of 48% in 2003 over 2002. In
the later half of 2003, the Smart Magnet line was introduced. Smart Magnets are
vitality and body support products that bring electro-magnetic health properties
to defined areas of need. Global's Smart Magnets are coated with a metallic,
holographic surface. This surface is then printed with a micro-circuit board
that is capable of holding an electro-magnetic program defined for a specific
purpose. The circuit board is carefully protected with a special polymer that
adds durability to this very advanced wellness support product for longevity and
ease of use. There are currently over twelve Smart Magnets available with more
being developed and tested for specific health and wellness support. The
Technological product line was developed in 2002 with the introduction of
PolarWearz. There were fifteen categories of PolarWearz products from gloves and
ankle supports to body wraps and water bottle holders. PolarWearz was based on
Complex Meridian Unit technology that conceptually provides a means to control
and manage pain relief using electro magnetic therapy. That the launching of a
new technologically innovative product met with such immediate success was
evidence of the public outcry for advanced health and wellness products.
Sales of Marketing Aids decreased over 25% in 2003 from 2002. Flyers, samples,
videos and tape sales represented the majority of this decline. The sales aids
sold in the latter half of 2002 and those to new members in 2003 continue to
provide the marketing tools necessary for members to market Global's products.
The illustrative effects of these sales aids continue to spread the philosophy
of health and wellness while providing financial and health returns to our
members.
Other sales items increased in volume by nearly 58%. The increase in 2003 in
Life Support product sales carried over to related fees and charges and is
directly related to new member enrollment and associated deferred income. It is
anticipated that in 2004, all product sales and other related sales will
increase substantially.
The Gross Profit increase to 41.0% in 2003 over 2002's 34.8% as a percentage of
sales reflects increased marketing and management's continuing efforts to
negotiate lower costs of goods sold. Management's policy of proactive cost
controls is a routine. From constantly monitoring freight costs to sourcing raw
materials for production and packaging materials, Global Health Trax, Inc. is
always on the lookout for the most cost effective alternatives.
Operating Expenses as a percentage of sales increased approximately 58% in 2003
over 2002. The management of Global Health Trax, Inc. controlled costs as much
as possible in light of the costs anticipated in Global's move to a new 47,500
square foot facility. Advertising decreased over 18%. Amortization and
depreciation saw over a 96% increase due to capital expenditures made during
2003. General computer and programming expenses increased around 289% as more
high tech equipment was purchased in 2003 for the increase in employees,
necessary to provide support to members. Consulting fees decreased over 23% due
to the hiring of personnel in-house. Equipment rental increased 5% partly in
response to moving into the new facility. Legal expenses increased 16% due to
49
actions taken by Global Health Trax, Inc. in relation to its efforts to become a
public entity. Rent expense rose about 58% with the higher rent costs of the new
facility. With the new facility, repairs and maintenance expenses rose 208%.
Research and development rose by 79% in 2003 over 2002. With the manufacturing
deficiencies and related efforts to correct them, the move to the new facility,
and the hiring of new research and development staff little time was available
the last few months of 2002 for research and development. Hiring new personnel
to handle manufacturing and customer support led to an increase in salaries and
wages of 56% in 2003.
Other Income (Expense) primarily consists of interest expense. Interest expense
increased nearly 42% for the year 2003 over 2002. This increase is primarily
attributed to the notes payable to the landlord of the new facility. For the
year ended December 31, 2003, $20,703 in debt was eliminated.
The debt extinguishment was the result of arbitration for a dispute resolution
with a vendor who had supplied the Company with unacceptable product during the
years 2002 and 2003. For the year ended December 31, 2002, $92,653 in debt was
eliminated. The debt extinguishment was the result of a protracted dispute
resolution process from improper billing by a telephone service provider during
1998 and 1999
Provision for Income Taxes. For the years ended 2003 and 2002, Global Health
Trax, Inc. did not incur any federal income tax liability. Net operating loss
carryforwards totaling approximately $566,000 federal and $307,000 state amounts
at December 31, 2003 are being carried forward. The net operating loss
carryforwards expire at various dates through 2024 for federal purposes and 2014
for state purposes.
Liquidity and Capital Resources.
Prior to our recent private offering, Global's operations and capital
requirements were financed through internally generated funds, and loans. For
fiscal years ended December 31, 2002 and 2003, and the six months ended June 30,
2004, Global's primary capital requirements were as follows:
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED JUNE
30,
----------- --- ----------- ---------------
2002 2003 2004
----------- --- ----------- ---------------
(DOLLARS IN THOUSANDS)
Working capital deficit $ 525 $ 282 $ 207
Capital expenditures 147 611 145
----------- ----------- ---------------
Total capital requirements $ 672 $ 893 $ 352
=========== =========== ===============
These capital requirements, which primarily reflect the growth of Global, were
satisfied through internally generated funds, and loans. These proceeds were as
follows:
50
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED JUNE 30,
---------- --- ----------- ----------------
2002 2003 2004
---------- --- ----------- ----------------
(DOLLARS IN THOUSANDS)
Cash from the sale of stock $ - $ 531 $ 275
Working capital provided by (used in) operations (243) 98 20
Proceeds from loans 525 400 50
---------- ----------- ----------------
Total $ 282 $ 1,029 $ 345
========== =========== ================
Global's cash requirements through the remainder of fiscal 2004 are expected to
include expenditures in connection with: (i) increasing investment in research
and development, (ii) hiring additional personnel, if and as necessary, to
support Global's marketing plan as sales of Global's nutritional supplements
increase; (iii) increasing advertising and promotional investments to continue
to educate consumers about Global's products; and (iv) implement an integrated
accounting, manufacturing, quality assurance and customer support driven
enterprise software package. Global expects that the net proceeds from the
Offerings, together with anticipated cash flows from operations will be
sufficient for the above purposes. Should the Company not raise the entire
offering amount, operations will be maintained with slower growth expectations.
With a June 30, 2004 balance of $385,936 in cash and cash equivalents, slower
growth expectations would require fewer capital expenditures, fewer facilities
improvements, and less marketing.
Global's long-term capital requirements are expected to include capital
expenditures to support continued growth of nutritional supplements sales.
Global may also enter into strategic acquisitions as the nutritional supplements
industry continues to consolidate. Global expects to fund its long-term capital
requirements including construction of capital projects such as a potential
enlargement of the manufacturing facility for the next twelve months and in the
foreseeable future, through the use of operating cash flow supplemented, if
necessary, through debt financings or the issuance of additional equity.
Impact of Inflations
Global has historically been able to pass inflationary increases for raw
materials and other costs onto its customers through price increases and
anticipates that it will be able to continue to do so in the future.
Government Regulation.
The formulation, manufacturing, packaging, labeling, advertising and
distribution of Global's products are subject to regulation by one or more
federal agencies, including the United States Food and Drug Administration
51
("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety
Commission ("CPSC"), the United States Department of Agriculture ("USDA") and
the Environmental Protection Agency ("EPA"). Global's activities are also
regulated by various agencies of the states and localities in which Global's
products are sold, including without limitation the California Department of
Health Services, Food and Drug branch. The FDA in particular regulates the
advertising, labeling and sales of vitamin and mineral supplements and may take
regulatory action concerning medical claims, misleading or untruthful
advertising, and product safety issues. Global has been inspected and licensed
by the State of California Food and Drub Branch which is equivalent to FDA
standards. These regulations include the FDA's Good Manufacturing Practices
("GMP") for foods. Detailed dietary supplement GMPs have been proposed but no
regulations have been adopted. Additional dietary supplement regulations were
adopted by the FDA pursuant to the implementation of the Dietary Supplement
Health and Education Act of 1994 ("DSHEA").
Global may be subject, from time to time, to additional laws or regulations
administered by the FDA or other Federal, state or foreign regulatory
authorities, or to revised interpretations of current laws or regulations.
Global is unable to predict the nature of such future laws, regulations,
interpretations or their application to Global, nor can it predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however, by
way of illustration and without limitation, require Global to:
reformulate certain products to meet new standards; recall or discontinue
certain products not able to be reformulated; expand documentation of the
properties of certain products; expand or provide different labeling and
scientific substantiation; or, impose additional record keeping requirements.
Any or all such requirements could have a material adverse effect on Global's
results of operations and financial position.
Additionally, Internet access and online services are not subject to direct
regulation in the United States. Changes in the laws and regulations relating to
the telecommunications and media industry, however, could impact our business.
For example, the Federal Communications Commission could begin to regulate the
Internet and online services industry, which could result in increased costs for
us. The laws and regulations applicable to the Internet and to our services are
evolving and unclear and could damage our business. There are currently few laws
or regulations directly applicable to access to, or commerce on, the Internet.
Due to the increasing popularity and use of the Internet, it is possible that
laws and regulations may be adopted, covering issues such as user privacy,
defamation, pricing, taxation, content regulation, quality of products and
services, and intellectual property ownership and infringement. Such legislation
could expose us to substantial liability as well as dampen the growth in use of
the Internet, decrease the acceptance of the Internet as a communications and
commercial medium, or require us to incur significant expenses in complying with
any new regulations. The European Union has recently adopted privacy and
copyright directives that may impose additional burdens and costs on
international operations.
Research and Development.
Global's Research and Development Laboratory is currently attempting to create
even more powerful multi mineral and multi vitamin products at slightly reduced
costs to the consumer. Research is being done on a whole food greens product.
Testing of various new flavors to be developed for our liquid Mega Minerals
Plus, Daily Vita Plus, Daily Vita Plus Vegetarian, HGH at night and Super Sea
Essentials is ongoing. Additionally, a probiotic product to work in conjunction
with ThreeLac is in beginning stages with a product introduction estimated at
late 2004. A skin care line is being researched for introduction in 2005 with
possible household cleaning products and functional foods in 2006.
52
Employees.
As of the date of this prospectus Global Health Trax, Inc. employed
approximately 77 persons, of whom approximately 15 were in management, 19 sales,
7 marketing, research and development, 8 warehouse, 3 manufacturing and 25
administration. Global is not party to, and does not expect to be a party to,
any collective bargaining arrangements.
Facilities.
Global leases a 47,500 square-foot, state-of-the-art distribution, manufacturing
and office facility in Vista, California, which it has occupied since October
2002. This facility has served as Global's executive offices for management,
sales and administration. In addition, this facility is the distribution center
for manufactured and sourced products. The lease on this facility is due to
expire in 2012 and the current rental lease, considering the most recent
adjustment, is approximately $377,000 per year.
Description of Property
As of the date of this prospectus we did not own any property other than office
furnishings and fixtures, business machines, vehicles and inventory.
Certain Relationships and Related Transactions
In connection with the organization of Global, and prior to any stock splits,
Everett Hale, a founding shareholder of our company, provided labor and services
in exchange for which for he was issued 20,000,000 shares of common stock. On
June 15, 2003 Global conducted a 4 for 1 reverse split of its outstanding common
stock, which reduced Mr. Hale's ownership to 5,000,000 shares. On November 15,
2003 we conducted a 2 for 1 forward split of our common stock, which increased
Mr. Hale's ownership to 10,000,000 shares. Similarly, in connection with the
organization of Global, and prior to any stock splits, Lorin Dyrr, a founding
shareholder of our company, provided labor and services in exchange for which
for she was issued 20,000,000 shares of common stock.
On June 15, 2003 Global conducted a 4 for 1 reverse split of its outstanding
common stock, which reduced Ms. Dyrr's ownership to 5,000,000 shares. During the
first and second quarters of 2003, $40,037 was advanced to Ms. Dyrr. In June
2003, the Company offset the advance in consideration of 50,000 shares of the
Company's stock received from her. The transaction was recorded as the
cancellation of stock. On November 15, 2003 we conducted a 2 for 1 forward split
of our common stock, which increased Ms. Dyrr's ownership to 9, 900,000 shares.
In addition, Global officer and director Russell Chaisson was issued 500,000
shares of common stock in October 2003 in exchange for services and a promissory
note in the amount of $125,000 at 5% per annum with the full amount due and
payable 12/31/2006 and secured by the 500,000 shares issued.
On November 15, 2003 we conducted a 2 for 1 forward split of our common stock,
which increased Mr. Chaisson's ownership to 1,000,000 shares. Global officer
Henry S. Leonard was issued 500,000 shares of common stock in June 2004 in
exchange for services and a promissory note in the amount of $62,500 at 5% per
annum with the full amount due and payable 12/31/2006 and secured by the 500,000
shares issued. In each case presented above where stock was issued, it is the
Company's firm belief that, based upon circumstances including Global's need at
the time, retention of skills available from key employees and the perceived
long-term benefit of recognition for work performed, the terms received for
these transactions are on terms as favorable as could have been obtained from
unaffiliated third parties.
53
Further, we have recently completed our capitalization with a private offering
that resulted in $2,010,030 in proceeds to Global, including the conversion of
debt for stock. These proceeds were contributed by the selling shareholders set
forth elsewhere in this prospectus in exchange for an aggregate of 3,705,206
shares of common stock.
The Company's landlord through notes payable conversions and purchases of stock
has accumulated two million shares of the Company's common stock. This
represents 8.3% of the Company's outstanding common stock at December 31, 2003.
The facility lease agreement is a non-cancelable operating lease and extends
into 2012. The rent lease provides that property taxes, insurance, and
maintenance expenses are the responsibility of the Company.
The Board of Directors of Global has adopted a 2003-2004 Employee Stock Option
Plan. The Board of Directors administers the Plan unless a committee is
appointed by the Board (the "Committee") to administer the Plan. The Plan
authorizes the Board/Committee to grant options to certain qualifying key
employees. Within certain limitations, both the selection of recipients and the
number of option shares to be allocated to each recipient is within the
discretion of the Board/Committee, but the aggregate number of option shares
granted under the Plan cannot exceed Three Million Shares (3,000,000). 2,495,500
of incentive stock options were granted during the six-months ended June 30,
2004, including 1,000,000 to Everett Hale and 1,000,000 to Lorin Dyrr.
The Stock Option Plan includes incentives for certain key employees and
independent contractors who make significant contributions to Global's growth
and development. To date the Board of Directors has authorized 1,000,000 shares
for such purposes. The Board of Directors is authorized to grant options to
certain qualifying key employees. The selection of recipients, the exercise
price and the number of option shares to be allocated to each recipient is
strictly within the discretion of the Board of Directors. 700,000 non-statutory
stock options were granted during the six-months ended June 30, 2004.
Market for Common Equity and Related Stockholder Matters
Reports to Security Holders. Our securities are not listed for trading on any
exchange or quotation service. We are not required to comply with the timely
disclosure policies of any exchange or quotation service. The requirements to
which we would be subject if our securities were so listed typically include the
timely disclosure of a material change or fact with respect to our affairs and
the making of required filings. Although we are not required to deliver an
annual report to security holders, we intend to provide an annual report to our
security holders, which will include audited financial statements. When we
become a reporting company with the Securities and Exchange Commission, the
public may read and copy any materials filed with the Securities and Exchange
Commission at the Security and Exchange Commission's Public
52
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may
also obtain information on the operation of the Public Reference Room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Securities and Exchange Commission. The address of that
site is http://www.sec.gov.
As of the date of this prospectus, there were 51 record holders of our common
stock.
There are 21,400,000 outstanding shares of our common stock which can be sold
54
pursuant to Rule 144. There are also 4,000,000 options or warrants to purchase,
or securities convertible into, shares of our common stock.
There have been no cash dividends declared on our common stock. Dividends are
declared at the sole discretion of our Board of Directors in accordance with
California law.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no disagreements with our accountant since our formation
required to be disclosed pursuant to Item 304 of Regulation S-B.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by us has
been passed upon by Kennan E. Kaeder, Attorney at Law, 110 West C Street, Suite
1300, San Diego, California.
EXPERTS
Our consolidated financial statements as of December 31, 2003 and 2002 and for
the years then ended included in this prospectus and in the registration
statement of which this prospectus forms a part, have been audited by Weinberg &
Company, P.A., an independent registered public accounting firm, to the extent
and for the periods set forth in their report thereon, and are included in
reliance upon said report given upon the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission pursuant to the Securities Act of 1933. This prospectus does
not contain all of the information set forth in the registration statement and
the exhibits and schedules to the registration statement. For further
information regarding us and our common stock offered hereby, reference is made
to the registration statement and the exhibits and schedules filed as a part of
the registration statement.
55
PART FS
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGES 2 - 3 CONSOLDIATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2002
PAGE 4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
PAGE 5 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIENCY) FOR THE YEARS ENDED
DECEMBER 31, 2003 AND 2002
PAGES 6 - 7 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
PAGES 8 - 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002
PAGES 19-20 CONSOLDIATED BALANCE SHEETS AS OF JUNE 30, 2004 (UNAUDITED)AND DECEMBER 31, 2003
PAGE 21 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
PAGE 22 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE SIX MONTHS ENDED JUNE
30, 2004 (UNAUDITED)
PAGES 23-25 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
PAGES 26-40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Global Health Trax, Inc.:
We have audited the accompanying consolidated balance sheets of Global Health
Trax, Inc. and subsidiary (the "Company"), as of December 31, 2003 and 2002, and
the related statements of operations, changes in stockholders' equity
(deficiency), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Health Trax,
Inc. and subsidiary as of December 30, 2003 and 2002, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
May 28, 2004
F-1
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of December 31, 2003 and 2002
ASSETS
2003 2002
---------------- ---------------
---------------- ---------------
CURRENT ASSETS
Cash and cash equivalents $ 242,455 $ 160,034
Accounts receivable, net of allowance for doubtful accounts
of $7,742 and $12,525, respectively 24,977 33,868
Inventories 633,034 299,610
Prepaid expenses 87,097 182,622
Income taxes receivable - 27,582
Other 1,714 1,149
---------------- ---------------
Total Current Assets 989,277 704,865
---------------- ---------------
Plant and equipment, net of accumulated depreciation of
$385,061 and $237,083, respectively 881,790 202,680
---------------- ---------------
Intangible assets, net of accumulated amortization of $224,077 and
$83,070 respectively 309,805 192,170
---------------- ---------------
OTHER ASSETS
Deposits 63,030 47,632
Other receivable, related parties 33,782 31,973
Interest receivable 1,562 -
---------------- ---------------
Total Other Assets 98,374 79,605
---------------- ---------------
Total Assets $2,279,246 $1,179,320
================ ===============
The accompanying notes are an integral part of these statements.
F-2
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of December 31, 2003 and 2002
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Cash overdraft $ 172,383 $ 205,675
Accounts payable 642,501 445,354
Accrued expenses 63,864 17,706
Accrued commissions 244,462 208,517
Notes payable, related parties - 175,212
Notes payable, current portion - 94,402
Capital leases payable, current portion 42,202 18,891
Deferred income 105,436 63,947
----------------- ----------------
Total Current Liabilities 1,270,848 1,229,704
----------------- ----------------
LONG-TERM LIABILITIES:
Notes payable 263,970 484,017
Capital leases payable 91,401 -
Other payable 2,700 -
----------------- ----------------
Total Long-Term Liabilities 358,071 484,017
----------------- ----------------
Total Liabilities 1,628,919 1,713,721
----------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, authorized 10,000,000 shares with no par value, none
issued and outstanding - -
Common stock, authorized 100,000,000 shares common stock with no par
value; issued and outstanding 24,149,308 and 20,000,000, respectively
1,560,193 23,000
Stock subscription receivable (125,000) -
Additional Paid-In Capital - Stock Based Compensation 75,000 -
Deferred Stock Based Compensation (69,234) -
Retained earnings (Deficit) (790,632) (557,401)
----------------- ----------------
----------------- ----------------
Total Stockholders' Equity (Deficiency) 650,327 (534,401)
----------------- ----------------
----------------- ----------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 2,279,246 $ 1,179,320
================= ================
F-3
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2003 and 2002
2003 2002
------------------ ----------------
Revenue
Net sales $ 7,819,836 $ 5,196,583
Cost of sales 4,613,500 3,388,991
------------------ ----------------
Gross profit 3,206,336 1,807,592
------------------ ----------------
Operating expenses
Amortization & depreciation 249,418 141,754
Other selling, general and administrative 3,118,967 1,981,330
------------------ ----------------
Total Operating expenses 3,368,385 2,123,084
------------------ ----------------
Loss from operations (162,049) (315,492)
------------------ ----------------
Other income and (expense)
Interest expense (91,085) (64,240)
Gain on extinguishment of debt 20,703 92,653
------------------ ----------------
Total other income and (expense) (70,382) 28,413
------------------ ----------------
Loss before income tax provision (232,431) (287,079)
------------------ ----------------
Current tax provision (800) (800)
------------------ ----------------
Total tax provision (800) (800)
------------------ ----------------
Net loss $ (233,231) $ (287,879)
================== ================
Loss per common share:
Basic and diluted $ (0.01) $ (0.01)
Weighted average common and dilutive common
equivalent shares outstanding:
Basic and diluted 21,267,956 20,000,000
F-4
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIENCY)
For The Years Ended December 31, 2003 and 2002
------------------------- ------------ -------------- ------------- --------- ----------
Additional
Paid In
Stock Capital - Deferred Retained
Common Stock Subscription Stock Based Stock Based Earnings
Number Amount Receivable Compensation Compensation (Deficit) Total
----------- ---------- ------------ -------------- ------------- --------- ----------
Balance, January 1, 20,000,000 $ 23,000 $ - $ - $ - $ (269,522) $ (246,522)
2002
Net loss - - - - - (287,879) (287,879)
----------- ---------- ------------ -------------- ------------- --------- ----------
Balance, December
31, 2002 20,000,000 23,000 - - - (557,401) (534,401)
----------- ---------- ------------ -------------- ------------- --------- ----------
Stock issued
for cash 1,202,874 531,000 - - - - 531,000
Stock issued
on conversion
of notes 2,046,434 921,230 - - - - 921,230
payable
Stock issued
for note 1,000,000 125,000 (125,000) 75,000 (75,000) - -
receivable
Amortization
of deferred
compensation - - - - 5,766 - 5,766
Cancellation
of stock (100,000) (40,037) - - - - (40,037)
Net loss - - - - - (233,231) (233,231)
----------- ---------- ------------ -------------- ------------- --------- ----------
Balance, December
31, 2003 24,149,308 $ 1,560,193 $ (125,000) $ 75,000 $ (69,234) $ (790,632) $ 650,327
----------- ---------- ------------ -------------- ------------- --------- ----------
F-5
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2003 and 2002
2003 2002
------------------ -----------------
Cash flows from operating activities
Net loss for the year $ (233,231) $ (287,879)
Adjustments to reconcile net loss for the year to net
cash provided by (used in) operating activities
Amortization and depreciation 278,285 141,754
Amortization of deferred compensation 5,766 -
Loss on disposal of plant and equipment - 1,393
Gain on extinguishment of debt (20,703) (92,653)
Decrease in accounts receivable 8,891 43,331
Increase in inventories (333,424) (29,784)
Decrease (increase) in prepaid expenses 10,525 (167,999)
Decrease in income tax receivable 27,582 27,634
Increase in other assets (566) (74)
Increase in deposits (15,398) (29,147)
Increase in interest receivable (1,562)
-
Increase in accounts payable 245,797 139,391
Increase in accrued expenses 46,158 15,705
Increase in accrued commissions 35,946 24,102
Increase(decrease) in deferred income 41,489 (28,766)
Increase in other payable 2,700 -
------------------ -----------------
Net cash provided by (used in) operating activities 98,255 (242,992)
------------------ -----------------
Cash flows from investing activities
Proceeds on sales of plant and equipment - 5,200
Purchase of plant and equipment (611,227) (147,104)
Increase in related party loans (41,845) (31,973)
Purchases of intangible assets (173,642) (131,835)
------------------ -----------------
Net cash used in investing activities (826,714) (305,712)
------------------ -----------------
Cash flows from financing activities
(Decrease) increase in cash overdraft (33,292) 31,976
Proceeds from notes payable 400,291 524,921
Principal payments on notes payable (21,670) -
Principal payments on capital leases payable (65,449) -
Proceeds from stock issuance 531,000 -
------------------ -----------------
Net cash provided by financing activities 810,880 556,897
------------------ -----------------
F-6
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For The Years Ended December 31, 2003 and 2002
2003 2002
Increase in cash and cash equivalents during the year $ 82,421 $ 8,193
Cash and cash equivalents, beginning of year 160,034 151,841
------------------ -----------------
Cash and cash equivalents, end of year $ 242,455 $ 160,034
================== =================
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 91,085 $ 64,240
================== =================
Income taxes $ 800 $ 800
================== =================
Non-cash investing and financing activities:
Stock issued for conversion of notes payable $ 921,230
$
-
Stock issued for note receivable 125,000 -
Stock cancelled for other receivable, related party 40,037 -
Acquisition of equipment through capital leases payable 180,161 -
Acquisition of equipment through notes payable 25,000 -
Acquisition of services through notes payable 10,000 -
Increase in intangible asset and decrease in prepaid expenses 85,000 -
Interest payable added to principal amount of converted notes
payable ----------------- -
17,947
F-7
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies consistently applied in the preparation of the
accompanying consolidated financial statements follow.
1. Financial statement presentation
The accounting and reporting policies of Global Health Trax, Inc. and
Subsidiaries (the Company) conform with accounting principles generally accepted
in the United States of America (US GAAP) and general practices in the
manufacturing industry.
2. Principles of consolidation
The consolidated financial statements include the accounts and operations of
Global Health Trax, Inc. and its wholly owned subsidiary in Canada. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
3. Business activity
The Company is a Nevada corporation organized in 1997 and incorporated in 1999.
The Company is engaged in the development, manufacture, marketing and
distribution of its own nutrition and other wellness products through retail and
wholesale home-based business entrepreneurs (members) and other direct sales
venues. The Company is an international neutracutical manufacturing and
wholesale distributor of proprietary health and wellness products, some of which
are patented by the Company.
4. Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less, when purchased, to be cash equivalents.
5. Intangible assets
The Company has adopted SFAS No. 142, "Goodwill and Other Intangible Assets", in
connection with intangible assets. In accordance with SFAS No. 142, in addition
to amortization, intangible assets are tested at least annually for impairment.
Intangible assets include software development costs, patents and formulas,
website development costs, good manufacturing practices, and training system
developments and are amortized over periods ranging between three and five
years.
6. Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method. The Company is implementing a standard costing inventory
management system in 2004.
F-8
7. Plant and Equipment
Plant and equipment are stated at cost less accumulated depreciation. Cost
includes expenditures for major improvements and replacements and the net amount
of interest cost associated with significant capital additions. Depreciation is
provided in amounts sufficient to relate the cost of depreciable assets to
operations over the estimated useful lives. Leasehold improvements are amortized
over the shorter of the life of the respective lease or the service life of the
improvements. The straight-line method of depreciation and amortization is
followed for financial reporting purposes.
Assets are depreciated utilizing the straight-line method of depreciation over
the following estimated useful lives:
Computer and equipment 3 to 7 years
Furniture and fixtures 3 to 7 years
Vehicles 3 to 5 years
Leasehold Improvements 7 to 10 years
Maintenance, repairs, and renewals, which neither materially add to the value of
the property nor appreciably prolong its life, are charged to expense as
incurred. These long-lived assets are generally evaluated on an individual basis
in making a determination as to whether such assets are impaired. Periodically,
the Company reviews its long-lived assets for impairment based on estimated
future nondiscounted cash flows attributed to the assets. In the event such cash
flows are not expected to be sufficient to recover the recorded value of the
assets, the assets are written down to their estimated fair values. There has
been no impairment loss recorded for the years ended December 31, 2003 and 2002.
Gains or losses on dispositions of property and equipment are included in
earnings as they occur. The Company generally capitalizes assets with a cost in
excess of one thousand dollars.
8. Revenue recognition and deferred revenue
The Company receives payment, primarily via credit card for the sale of products
at the time members and customers place orders. Sales are recorded when the
product is shipped and title passes to the customer. Payments received for
unshipped products are recorded as deferred income and are included in current
liabilities. At December 31, 2003, there were no payments received for unshipped
products. At December 31, 2002, $1,356 of payments had been received for
unshipped products. Product returns are tracked for a potential reserve founded
on historical experience. Based on management's opinion, product returns in 2003
and 2002 were not material and a reserve for product returns and allowances was
not provided for. Additionally, the Company collects an annual renewal fee from
members that are recognized on a straight-line basis over a subsequent
twelve-month period. Annual renewal fees that the Company has received but which
have not been recognized in revenue are recorded as deferred income and are
included in current liabilities. At December 31, 2003 and 2002, annual renewal
fees received but which had not been recognized in revenue totaled $105,436 and
$62,591, respectively.
Under the guidelines of Emerging Issues Task Force No 01-09 ("EITF 01-09"),
certain sales incentives offered by a company to customers, including discounts,
coupons, and rebates, are generally presumed to be a reduction of the selling
prices of products, and, therefore, should be characterized as a reduction of
revenue when recognized in a company's income statement. Member incentives paid
under our compensation plan include commissions and bonuses that are paid based
F-8
on sales volume points assigned to products independent of the product's price
and do not include discounts, coupons, or rebates. Currently, member incentives
are classified as a component of operating expenses and we believe that this is
the appropriate treatment, given the guidelines pursuant to EITF 01-09. Members
and customers are generally charged for delivery of product. Net shipping and
handling fees are included in net sales.
9. Comprehensive Income
The Company has no items of other comprehensive income (loss) for the years
ended December 31, 2003 and 2002.
10. Income taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income tax assets and
liabilities are provided based on the difference between the financial statement
and tax bases of assets and liabilities as measured by the currently enacted tax
rates in effect for the years in which these differences are expected to
reverse. Deferred tax expense or benefit is the result of changes in deferred
tax assets and liabilities. An allowance against deferred tax assets is recorded
in whole or in part when it is more likely than not that such tax benefits will
not be realized.
11. Product return policy
All returned product within the first 60 days of purchase will be refunded at
100 percent of the sales price to all first-time purchasers. This 60 day return
policy is offered to members only on their first order of any given product
offered by the Company. Returned product that was damaged during shipment to the
customer is 100 percent refundable.
12. Research and development
Research and development costs are charged to expense as incurred. Research and
development expenses were $17,152 and $9,573 for the years ended December 31,
2003 and 2002, respectively.
13. Shipping and Handling Fees
The Company nets excess shipping and handling fees billed to customers over the
related costs to revenues. Such fees and costs are primarily comprised of
outbound freight. Included in revenues in the accompanying consolidated
statements of income are net shipping and handling fees of $70,315 and $23,980
for the years ended December 31, 2003 and 2002, respectively.
14. Advertising
Advertising costs are charged to expense as incurred. Advertising expenses
included in selling expenses were $78,181 and $95,873 for the years ended
December 31, 2003 and 2002, respectively.
15. Stock - based compensation
As described in Note I, the Company has elected to follow the accounting
provisions of Accounting Principles Board Opinion (APBO) No. 25, "Accounting for
Stock Issued to Employees," for stock-based compensation and to furnish the pro
forma disclosures required under SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure."
F-9
16. Earnings (loss) per share and stock split
Basic earnings (loss) per common share (EPS) are based on the weighted average
number of common shares outstanding during each period. Diluted earnings per
common share are based on shares outstanding (computed as under basic EPS) and
potentially dilutive common shares. Potential common shares included in the
diluted earnings per share calculation include in-the-money stock options that
have been granted but have not been exercised. Weighted average shares
outstanding for all years presented reflect the stock splits effective November
15, 2003 and June 30, 2003 (See Note H).
17. Fair value of financial instruments
The carrying value of the Company's cash and cash equivalents, accounts
receivable, payables, bank overdrafts and accrued liabilities approximate fair
values due to the short-term maturity of the instruments. The carrying value of
long-term obligations approximates the fair value based on the effective
interest rates compared to current market rates.
18. Concentrations of Credit Risk
At December 31, 2003 and 2002, the Company held cash and cash equivalents, in
the aggregate amount of $242,455 and $160,034, respectively, and most of these
amounts were deposited with one bank. The majority of the Company's sales are
made to members and retail customers. Consequently, the exposure to credit risks
relating to trade receivables is limited. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. An
appropriate allowance for doubtful accounts is included in trade accounts
receivable.
19. Reclassification
Certain 2002 balances have been reclassified to conform to the 2003
presentation.
20. Common stock
The Company follows the practice of recording amounts received upon the sale of
its stock by crediting its no par common stock. No stock options were authorized
as of December 31, 2003.
21. Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and the related notes. Actual results
could differ from those estimates.
22. Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation Number 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). This Interpretation of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest entity
("VIE") established by means other than voting interests. FIN No. 46 also
requires consolidation of a VIE by an enterprise that holds such a controlling
interest. In December 2003, FASB completed its deliberations regarding the
proposed modification to FIN No. 46 and issued Interpretation Number 46 (R)
"Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51"
("FIN No. 46 (R)"). The decisions reached included a deferral of the effective
F-10
date and provisions for additional scope exceptions for certain types of
variable interests. Application of FIN No. 46 (R) is required in financial
statements of public entities that have interests in VIEs or potential VIEs
commonly referred to as special-purpose entities for periods ending after
December 15, 2004. The adoption of FIN No. 46 (R) is not expected to have an
impact on the Company's consolidated financial position, results of operations
or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments embedded
in other contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." It is effective for
contracts entered into or modified after June 30, 2003, except as stated within
the statement, and should be applied prospectively. Management believes the
provisions of this Standard currently have no effect on our financial position
or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after September 15, 2003. Management believes the provisions of
this Standard currently have no effect on our financial position or results of
operations.
NOTE B - INVENTORIES
Inventories as of December 31, 2003 and 2002 consisted of the following:
12/31/2003 12/31/2002
--------------------- -----------------
--------------------- -----------------
Raw materials $ 64,510 $ 11
Work in progress 32,866 -
Finished goods 535,658 299,599
--------------------- -----------------
--------------------- -----------------
$ 633,034 $ 299,610
===================== =================
F-11
NOTE C - PLANT AND EQUIPMENT
Plant and equipment as of December 31, 2003 and 2002 consisted of the following:
Plant and Equipment (A) 2003 2002
----------------------------------------------------------- -- --------------- ------------------
----------------------------------------------------------- -- --------------- ------------------
Computer $ 391,143 $ 195,962
Equipment 389,453 51,959
Furniture and fixtures 69,463 42,266
Vehicles 70,441 74,380
Leasehold Improvements 346,351 75,196
--------------- ------------------
--------------- ------------------
Total 439,763
Accumulated Depreciation (385,061) (237,083)
--------------- ------------------
--------------- ------------------
Net Plant and Equipment $ 881,790 $ 202,680
=============== ==================
Depreciation expense for the years ended December 31, 2003 and 2002 was $137,278
and $67,336, respectively.
(A) Includes assets held under capital leases payable (See Note G).
NOTE D - INTANGIBLE ASSETS
Intangible assets as of December 31, 2003 and 2002 consisted of the following:
Intangible Assets 2003 2002
--------------------------------------------------------- -------------- ----------------
--------------------------------------------------------- -------------- ----------------
Software Development $ 110,186 $ 110,186
Patents and Formulas 159,139 54,139
Website Development 139,557 70,915
Good Manufacturing Practices 85,000 -
Training System Development 40,000 40,000
-------------- ----------------
-------------- ----------------
Total 275,240
Accumulated Amortization (224,077) (83,070)
-------------- ----------------
-------------- ----------------
Net Intangibles $ 309,805 $ 192,170
============== ================
Amortization expense for the years ended December 31, 2003 and 2002 was $141,007
and $74,418 , respectively.
F-12
NOTE E - LONG TERM DEBT
2003 2002
---------------- -- --------------
Notes payable to related parties, 10% interest maturing from
2003 through 2012. $155,042 of 2002 balances was converted to
stock in 2003. (See Note H). $ - $ 175,212
Notes payable at 10% interest, maturing at various dates.
$563,779 of 2002 balances was converted to stock in 2003.
(See Note H). 263,970 578,419
---------------- --------------
---------------- --------------
263,970 753,631
Less: current portion - (269,614)
---------------- --------------
$ 263,970 $ 484,017
================ ==============
Approximate principal repayments are as follows: 2003
--------------------------------------------------------------- ---------------
--------------------------------------------------------------- ---------------
2004 $
-
2005 263,970
---------------
$ 263,970
===============
NOTE F - INCOME TAXES
Significant components of the Company's deferred income tax assets at December
31, 2003 and 2002 are as follows:
2003 2002
-------------------- --------------------
-------------------- --------------------
Deferred income tax asset:
Net operating loss carry forward $ 219,000 $ 136,000
-------------------- --------------------
Total deferred income tax asset 219,000 136,000
Valuation allowance ( 219,000 ) ( 136,000 )
-------------------- --------------------
-------------------- --------------------
Net deferred income tax asset $ - $ -
==================== ====================
Reconciliation of the effective income tax rate to the U. S. statutory rate is as follows:
2003 2002
--------------- ---------------
--------------- ---------------
Tax expense at the U.S. statutory
income tax rate (34.0) % (34.0) %
Increase in the valuation allowance 34.0 34.0
--------------- ---------------
--------------- ---------------
Effective income tax rate - % - %
=============== ===============
F-13
The tax provision for the years ended December 31, 2003 and 2002 represents
minimum California state taxes. Deferred taxes are recorded to give recognition
to temporary differences between the tax bases of assets or liabilities and
their reported amounts in the financial statements. Deferred tax assets
generally represent items that can be used as a tax deduction or credit in
future years. Deferred tax liabilities generally represent items that we have
taken a tax deduction for, but have not yet recorded in the Consolidated
Statement of Operations.
Net operating loss carryforwards totaling approximately $566,000 federal and
$307,000 state amounts at December 31, 2003 are being carried forward. The net
operating loss carryforwards expire at various dates through 2024 for federal
purposes and 2014 for state purposes.
A full valuation allowance has been established due to the lack of earnings as
support for recognition of the deferred tax assets recorded.
NOTE G - CAPITAL LEASE OBLIGATIONS
The Company follows the provisions of Statement of Financial Accounting
Standards No. 13, Accounting for Leases (SFAS 13), in determining the criteria
for capital leases. Leases that do not meet such criteria are classified as
operating leases and related rentals are charged to expense in the year
incurred.
During 2003, the Company entered into four equipment leases of production
equipment that provided for bargain purchase options at the termination of the
lease. As a result of these bargain purchase options, the leases were classified
as capital leases. The present value of future minimum payments under these
capital leases totaled $123,583 and payments were scheduled through 2005, 2006
and 2008.
Two vehicles have been capitalized due to their extended leases exceeding 75% of
their economic life of five years. The present value of future minimum payments
under these capital leases totaled $10,721 and payments were scheduled into 2004
and 2005.
The following is a summary by year of future minimum rental payments for
capitalized leases that have initial or remaining noncancelable terms in excess
of one year as of December 31, 2003:
At the year ended December 31, 2003, capital lease assets as a component of net
property and equipment were as follows:
F-14
2003 2002
--------------------- -----------------
--------------------- -----------------
Capital lease assets $ 168,042 $ 79,259
Accumulated depreciation (17,988) (29,018)
--------------------- -----------------
--------------------- -----------------
Net capital lease assets $ 150,054 $ 50,241
===================== =================
(See Note K for operating lease disclosures).
NOTE H - STOCKHOLDERS' EQUITY
During the first and second quarters of 2003, $40,037 was advanced to the
Company's Co-founder, Director and Executive Vice President (the Executive Vice
President). In June 2003, the Company offset the advance in considerations of
100,000 shares of the Company's stock received from the Executive Vice
President. The transaction was recorded as the cancellation of stock.
During the second and third quarters of 2003, the Company issued 1,202,874
shares of its stock for $531,000 in cash pursuant to a limited private
placement.
On October 1, 2003, the Company issued 500,000 (1,000,000 post-split) shares of
its stock to a Director and Vice President of Training of the Company (the Vice
President of Training) for a note receivable of $125,000. The note receivable
bears interest at 5%, is collateralized by the stock issued, and is due December
31, 2006. In connection with this transaction, the Company recorded $75,000 as
deferred compensation and additional paid-in capital in the stockholders' equity
(deficiency) section of accompanying financial statements (See Note M).
During 2003, notes payable of $921,230, including accrued interest, were
converted into 2,046,434 shares of common stock.
On November 15, 2003, the Stockholders voted to initiate a two for one forward
common stock split.
Effective June 30, 2003 the Board of Directors initiated a four for one reverse
split of the common stock. It also increased the authorized number of common
stock shares from 50,000,000 to 100,000,000 and authorized the issuance of
10,000,000 shares of preferred stock.
Effective January 1, 2001, the Board of Directors initiated a forward stock
split on the basis of 200,000 new for 1 old share.
All share and per share amounts have been restated to reflect the effects of the
previously discussed common stock splits.
NOTE I - STOCK-BASED COMPENSATION
The Company has applied the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation --
F-15
Transition and Disclosure -- An Amendment of FASB Statement No. 123," for the
years ended December 31, 2003 and 2002. Issued in December 2002, SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. As permitted by SFAS No. 148, the Company continues to
account for stock options under APB Opinion No. 25, under which no compensation
has been recognized. There were no stock options granted or exercised during
this reporting period. Had there been, the Company would have applied the fair
value recognition disclosure provisions of SFAS No. 123, as amended by SFAS No.
148, to stock-based compensation. As a result, no pro forma disclosures are
presented.
In 2003, the Company adopted a stock option plan, the 2003-2004 Employee Stock
Option Plan (the Plan), that provides for the granting of incentive stock
options or nonstatutory stock options, as defined.
The Plan authorizes the Board of Directors or a committee appointed by the Board
of Directors to grant incentive stock options to certain qualifying key
employees. The aggregate number shares of common stock that may be optioned and
sold under incentive stock options is 3 million shares. Optionees have the right
to exercise the incentive stock options no sooner than the second anniversary
date of hire by the Company, or, if the optionee has been an employee of the
Company for over two years, then no sooner than one year from the date of grant.
All incentive stock options granted expire 36 months from the date of grant. At
December 31, 2003, no incentive stock options had been granted under the Plan
(see Note N).
The Plan also authorizes the Board of Directors to grant nonstatutory stock
options to certain key employees and independent contractors who make
significant contributions to the Company's growth and development. The aggregate
number shares of common stock that may be optioned and sold under nonstatutory
stock options is 1 million shares. Optionees have the right to exercise no more
than one half of the total nonstatutory stock options granted no sooner than the
first anniversary date of the grant. Optionees have the right to exercise the
remaining nonstatutory stock options granted no sooner than the second
anniversary date of the grant. All nonstatutory options granted herein shall
expire 36 months from the date of this grant. The selection of recipients, the
exercise price and the number of nonstatutory option shares to be allocated to
each recipient is strictly within the discretion of the Board of Directors. At
December 31, 2003, no nonstatutory options had been granted under the Plan. (See
Note N).
NOTE J - GAIN ON EXTINGUISHMENT OF DEBT
For the year ended December 31, 2003, $20,703 in debt was eliminated. The debt
extinguishment was the result of arbitration for a dispute resolution with a
vendor who had supplied the Company with unacceptable product during the years
2002 and 2003.
For the year ended December 31, 2002, $92,653 in debt was eliminated. The debt
extinguishment was the result of a protracted dispute resolution process from
improper billing by a telephone service provider during 1998 and 1999.
F-16
NOTE K - COMMITMENTS AND CONTINGENCIES
1. Operating leases
Operations are currently conducted in leased facilities. The facility lease
agreement is a non-cancelable operating lease and extends into 2012. The rent
lease provides that property taxes, insurance, and maintenance expenses are the
responsibility of the Company. The total rent expense for the years ended 2003
and 2002 was $266,250 and $139,245, respectively. The Company utilizes equipment
under non-cancelable operating leases, extending through 2008. The rental lease
expenses for the years ended December 31, 2003 and 2002 were $53,452 and
$50,888, respectively. The following amounts contain the assumption that, in the
normal course of business, any operating leases that expire within the time
frame represented will be renewed or replaced by leases on other properties,
assuming operations continue and will extend, at a maximum, through 2012.
Fiscal Years Ending Operating
--------------------------------------------------------------------------------- ---------------------
--------------------------------------------------------------------------------- ---------------------
2004 $ 497,126
2005 461,978
2006 423,617
2007 412,713
2008 380,541
Later years 1,038,444
---------------------
Total minimum lease payments $ 3,214,419
=====================
2. Contingencies
The Company is involved in a lawsuit arising in the normal course of business
regarding product liability. The Company, like any other retailer, distributor
and manufacturer of products that are designed to be ingested, faces an inherent
risk of exposure to product liability claims in the event that the use of its
products results in injury. With respect to product liability claims, Global has
$1.0 million per occurrence and $2.0 million in aggregate liability insurance
subject to a self-insurance retention of $25,000. The Company was named as a
defendant in a products liability lawsuit, Gil v. Global Health Trax, Inc.,
filed in the Superior Court of the State of Arizona on June 18, 2002. The case
went to trial on April 4, 2004. The Company's insurance carrier is providing the
defense. On April 12, 2004, the Company obtained a favorable court decision in
Gil v. Global Health Trax, Inc. In the opinion of management, it is not
anticipated that the plaintiffs will appeal.
NOTE L - EMPLOYEE BENEFIT PLAN
The Company has an employee benefit plan under Section 401(k) of the Internal
Revenue Code. This plan covers employees who are at least 18 years of age and
have been employed by the Company longer than three months. The Company is not
obligated to make matching contributions. The Company may make a discretionary
contribution based on earnings. The Company's discretionary contributions vest
at 25 percent per year beginning with the first year. Contributions made by the
Company to the plan in the United States for the years ended 2003, and 2002 were
$10,135, and $8,035 respectively.
F-17
NOTE M - RELATED PARTY TRANSACTIONS
The Company's Co-founder, Chairman of the Board, Chief Executive Officer and
President (the President) is the sole beneficial owner and single largest
shareholder of the Company owning 41.41% of the Company's issued and outstanding
shares as of December 31, 2003 and 50% in 2002. The President is a 50% owner of
Health Services International, Inc. (HSI).
The Executive Vice President is the sole beneficial owner and second largest
shareholder of the Company, owning 40.99% of the Company's issued and
outstanding shares as of December 31, 2003 and 50% in 2002. The Executive Vice
President is a 50% owner of HSI. The Company leases a residential unit for the
use of the Executive Vice President on a month-to-month basis. In 2003, the
Company advanced $40,037 to the Executive Vice President (See Note H).
The Company had one transaction with HSI for $35,000 in 2002. The amount
receivable from HSI was $32,097 at December 31, 2003. The amounts loaned were
for product purchases which were paid by the Company on behalf of HSI. The
Company anticipates full repayment from HSI.
The President and Executive Vice President are related to individuals who loaned
the Company $150,000 and $5,042, respectively, plus accrued interest, that was
converted into stock of the Company in 2003. (See Note H).
The Vice President of Training received directly or through his wholly owned
corporation, $140,018 and $79,330 in 2003 and 2002, respectively, for services
rendered to the company. On October 1, 2003, the Company issued 500,000
(1,000,000 post-split) shares of its stock to the Vice President of Training for
note receivable of $125,000. The note bears interest at 5%, is collateralized by
the stock issued, and is due December 31, 2006. In connection with this
transaction, the Company recorded $75,000 as deferred compensation and
additional paid-in capital in the stockholders' equity (deficiency) section of
the accompanying financial statements. Amortization of the deferred compensation
related to the stock issued to the Vice President of Training in 2003 totaled
$5,766 for the year ended December 31, 2003.
The Company's landlord through notes payable conversions and purchases of stock
has accumulated two million shares of the Company's common stock. This
represents 8.3% of the Company's outstanding common stock at December 31, 2003.
NOTE N - SUBSEQUENT EVENTS
An aggregate of 3,195,500 of incentive stock options and nonstatutory stock
options were granted in the first and second quarters of 2004 under the
2003-2004 Employee Stock Option Plan.
F-18
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of June 30, 2004 and December 31, 2003
ASSETS
June 30, 2004 December 31, 2003
(Unaudited)
---------------- ------------------
---------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $ 385,936 $ 242,455
Accounts receivable, net of allowance for doubtful accounts
of $7,086 and $7,742, respectively 63,262 24,977
Inventories 683,413 633,034
Prepaid expenses 121,419 87,097
Other 20,853 1,714
---------------- ------------------
Total current assets 1,274,883 989,277
---------------- ------------------
Plant and equipment, net of accumulated depreciation of
$480,079 and $385,061, respectively 880,658 881,790
---------------- ------------------
Intangible assets, net of accumulated amortization of $289,906
and $224,077 respectively 278,869 309,805
---------------- ------------------
OTHER ASSETS
Deposits 85,877 63,030
Other receivable, related party 35,187 33,782
Interest receivable 4,687 1,562
---------------- ------------------
Total other assets 125,751 98,374
---------------- ------------------
Total assets $2,560,161 $2,279,246
================ ==================
F-19
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of June 30, 2004 and December 31, 2003
LIABILITIES & STOCKHOLDERS' EQUITY
June 30, 2004 December 31, 2003
(Unaudited)
---------------- ------------------
CURRENT LIABILITIES:
Cash overdraft $ 172,977 $ 172,383
Accounts payable 670,411 642,501
Accrued expenses 124,446 63,864
Accrued commissions 309,844 244,462
Capital leases payable, current portion 43,453 42,202
Deferred income 160,734 105,436
---------------- ------------------
---------------- ------------------
Total current liabilities 1,481,865 1,270,848
---------------- ------------------
LONG-TERM LIABILITIES:
Notes payable 313,181 263,970
Capital leases payable 69,836 91,401
Other payable 2,516 2,700
---------------- ------------------
Total long-term liabilities 385,533 358,071
---------------- ------------------
Total liabilities 1,867,398 1,628,919
---------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares with no par value,
none issued and outstanding - -
Common stock, authorized 100,000,000 shares common stock
with no par value; issued and outstanding 25,005,203 and
24,149,308, respectively 1,897,993 1,560,193
Stock subscriptions receivable (187,500) (125,000)
Additional paid in capital - stock based compensation 691,825 75,000
Deferred stock based compensation (446,838) (69,234)
Retained earnings (deficit) (1,262,717) (790,632)
---------------- ------------------
Total stockholders' equity 692,763 650,327
---------------- ------------------
Total liabilities and stockholders' equity $ 2,560,161 $ 2,279,246
================ ==================
F-20
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Six Months Ended June 30, 2004 and June 30, 2003
June 30, 2004 June 30, 2003
(Unaudited) (Unaudited)
------------------ ------------------
Revenue
Net sales $ 5,161,523 $ 3,429,011
Cost of sales 3,187,822 2,029,922
------------------ ------------------
Gross profit 1,973,701 1,399,089
------------------ ------------------
Operating expenses
Amortization & depreciation 154,825 79,510
Other selling, general and administrative 2,261,225 1,196,491
------------------ ------------------
Total operating expenses 2,416,050 1,276,001
------------------ ------------------
(Loss) income from operations (442,349) 123,088
------------------ ------------------
Other income and (expense)
Interest expense (29,736) (57,595)
------------------ ------------------
Total other income and (expense) (29,736) (57,595)
------------------ ------------------
(Loss) income before income tax provision (472,085) 65,493
------------------ ------------------
Current tax provision - 26,198
Deferred tax provision - (26,198)
------------------ ------------------
Total tax provision - -
------------------ ------------------
Net (loss) income $(472,085) $ 65,493
================== ==================
Income (loss) per common share:
Basic and diluted $ ( 0.02) $ 0.00
================== ==================
==================
Weighted average common and dilutive common equivalent shares outstanding:
Basic and diluted 24,432,755 20,000,000
================== ==================
F-21
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Six Months Ended June 30, 2004 (Unaudited)
---------------------------- ------------- -- ------------- -- -------------- -- ----------- -- -----
-- -- -- --
Additional
Paid In Deferred
Common Stock Stock Capital Stock Retained
Subscriptions - Stock Based Earnings
Based
Number Amount Receivable Compensation Compensation (Deficit) Total
------------ ------------ ------------- ------------- -------------- ----------- ------
Balance, January 1, 2004 24,149,308 $ 1,560,193 $ (125,000) $ 75,000 $ $ (790,632) $ 650,327
(69,234)
Stock issued for cash - - - -
355,895 275,300 275,300
Stock issued for note
receivable 500,000 62,500 137,500 (137,500) - -
(62,500)
Stock options issued - - - 479,325 - -
(479,325)
Amortization of deferred
compensation - - - - 239,221 - 239,221
Net loss - - - - - (472,085)
(472,085)
------------ ------------ ------------- ------------- -------------- ----------- -------
Balance, June 30, 2004 25,005,203 $ 1,897,993 $ (187,500) $ 691,825 $ (446,838) $ (1,262,717) $ 692,763
============ ============ ============= ============= ============== =========== =======
F-22
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30, 2004 and June 30, 2003
June 30, 2004 June 30, 2003
(Unaudited) (Unaudited)
------------------ -----------------
Cash flows from operating activities
Net (loss) income for the period $ (472,085) $
65,493
Adjustments to reconcile net (loss) income for the period to net
cash provided by operating activities
Amortization and depreciation 173,977 85,436
Amortization of deferred compensation 239,221 -
Loss on disposal of asset 38,130 -
Accounts receivable (38,285) (34,370)
Inventory (50,379) (63,750)
Prepaid expenses (34,322) 75,595
Other assets (19,139) (1,958)
Deposits (22,847) (11,131)
Interest receivable (3,125) -
Accounts payable 28,621 92,463
Accrued expenses 60,582 42,563
Accrued commissions 65,382 88,568
Other payables (184) 900
Deferred income 55,298 23,214
------------------ -----------------
Net cash provided by operating activities 20,845 363,023
------------------ -----------------
Cash flows from investing activities
Purchase of plant and equipment (145,145) (583,997)
Related party loans (1,405) (1,809)
Purchases of intangible assets (34,894) (165,660)
------------------ -----------------
Net cash used in investing activities (181,444) (751,466)
------------------ -----------------
Cash flows from financing activities
Proceeds from notes payable 50,000 655,249
Principal payments on notes payable (1,500) (200,436)
Principal payments on capital leases payable (20,314) (23,201)
Bank overdraft 594 46,448
Proceeds from stock issuance 275,300
-
------------------ -----------------
Net cash provided by financing activities 304,080 478,060
------------------ -----------------
Increase in cash and cash equivalents during the period 143,481 89,617
F-23
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued) For The Three Months Ended June 30,
2004 and June 30, 2003
Cash and cash equivalents, beginning of period 242,455 160,034
-------------------- -----------------
Cash and cash equivalents, end of period $385,936 $ 249,651
==================== =================
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 29,736 $ 26,494
==================== =================
====================
Income taxes
- -
==================== =================
Noncash investing and financing activities:
Stock issued for note receivable $ 62,500 $ -
==================== =================
==================== =================
Interest payable added to principal amount of notes
payable $ 711 $ -
==================== =================
==================== =================
Acquisition of equipment through capital leases payable
$ - $180,161
==================== =================
==================== =================
Issuance of stock options $ 616,825 -
==================== =================
==================== =================
Increase in intangible asset and decrease in prepaid
expenses $ - $ 85,000
==================== =================
F-24
GLOBAL HEALTH TRAX, INC. AND SUBSIDIARY
For The Three Months Ended June 30,
2004 and June 30, 2003
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation
The accounting and reporting policies of Global Health Trax, Inc. and Subsidiary
(the Company) conform with accounting principles generally accepted in the
United States of America (US GAAP) and general practices in the manufacturing
industry.
2. Principles of consolidation
The consolidated financial statements include the accounts and operations of
Global Health Trax, Inc. and its wholly owned subsidiary in Canada. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
3. Business activity
The Company is a Nevada corporation organized in 1997 and incorporated in 1999.
The Company is engaged in the development, manufacture, marketing and
distribution of its own nutrition and other wellness products through retail and
wholesale home-based business entrepreneurs (members) and other direct sales
venues. The Company is an international neutracutical manufacturing and
wholesale distributor of proprietary health and wellness products, some of which
are patented by the Company.
4. Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and the related notes. Actual results
could differ from those estimates.
5. Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less, when purchased, to be cash equivalents.
6. Intangible assets
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets", in connection with intangible
assets. In accordance with SFAS No. 142, in addition to amortization, intangible
assets are tested at least annually for impairment. Intangible assets include
software development costs, patents and formulas, website development costs,
good manufacturing practices, and training system developments and are amortized
over periods ranging between three and five years.
7. Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method. The Company is implementing a standard costing inventory
management system in 2004.
F-25
8. Plant, and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Cost includes expenditures for major improvements and replacements and the net
amount of interest cost associated with significant capital additions.
Depreciation is provided in amounts sufficient to relate the cost of depreciable
assets to operations over the estimated useful lives. Leasehold improvements are
amortized over the shorter of the life of the respective lease or the service
life of the improvements. The straight-line method of depreciation and
amortization is followed for financial reporting purposes.
Assets are depreciated utilizing the straight-line method of depreciation over
the following estimated useful lives:
Computer and equipment 3 to 7 years
Furniture and fixtures 3 to 7 years
Vehicles 3 to 5 years
Leasehold Improvements 7 to 10 years
Maintenance, repairs, and renewals, which neither materially add to the value of
the property nor appreciably prolong its life, are charged to expense as
incurred. These long-lived assets are generally evaluated on an individual basis
in making a determination as to whether such assets are impaired. Periodically,
the Company reviews its long-lived assets for impairment based on estimated
future nondiscounted cash flows attributed to the assets. In the event such cash
flows are not expected to be sufficient to recover the recorded value of the
assets, the assets are written down to their estimated fair values. There has
been no impairment loss recorded for the six months ended June 30, 2004 and
2003. Gains or losses on dispositions of property and equipment are included in
earnings as they occur. The Company generally capitalizes assets with a cost in
excess of one thousand dollars.
9. Revenue recognition and deferred revenue
Revenue recognition and deferred revenue
The Company receives payment, primarily via credit card for the sale of products
at the time members and customers place orders. Sales are recorded when the
product is shipped and title passes to the customer. Payments received for
unshipped products are recorded as deferred income and are included in current
liabilities. At June 30, 2004 and December 31, 2003, there were no payments
received for unshipped products. Product returns are tracked for a potential
reserve founded on historical experience. Based on management's opinion, product
returns in the six months ended June 30, 2004 and 2003 were not material and a
reserve for product returns and allowances was not provided for. Additionally,
the Company collects an annual renewal fee from members, that is recognized on a
straight-line basis over a subsequent twelve-month period. Annual renewal fees
that the Company has received but which have not been recognized in revenue are
recorded as deferred income and are included in current liabilities. At June 30,
2004 and December 31, 2003, annual renewal fees received but which had not been
recognized in revenue totaled $160,734 and $105,436, respectively.
Under the guidelines of Emerging Issues Task Force No 01-09 ("EITF 01-09"),
certain sales incentives offered by a company to customers, including discounts,
coupons, and rebates, are generally presumed to be a reduction of the selling
prices of products, and, therefore, should be characterized as a reduction of
revenue when recognized in a company's income statement. Member incentives paid
under our compensation plan include commissions and bonuses that are paid based
on sales volume points assigned to products independent of the product's price
F-26
and do not include discounts, coupons, or rebates. Currently, member incentives
are classified as a component of operating expenses and we believe that this is
the appropriate treatment, given the guidelines pursuant to EITF 01-09. Members
and customers are generally charged for delivery of product. Net shipping and
handling fees are included in net sales.
10. Comprehensive Income
The Company has no items of other comprehensive income (loss) for the six months
ended June 30, 2004 and 2003.
11. Income taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income tax assets and
liabilities are provided based on the difference between the financial statement
and tax bases of assets and liabilities as measured by the currently enacted tax
rates in effect for the years in which these differences are expected to
reverse. Deferred tax expense or benefit is the result of changes in deferred
tax assets and liabilities. An allowance against deferred tax assets is recorded
in whole or in part when it is more likely than not that such tax benefits will
not be realized.
12. Product return policy
All returned product within the first 60 days of purchase are refunded at 100
percent of the sales price to all first-time purchasers. This 60 day return
policy is offered to members only on their first order of any given product
offered by the Company. Returned product that was damaged during shipment to the
customer is 100 percent refundable. For the six months ended June 30, 2004 and
2003, returns as a percentage of net sales were 1.5% and .9% respectively.
13. Research and development
Research and development costs are charged to expense as incurred. Research and
development expenses were $21,308 and $10,952 for the six months ended June 30,
2004 and 2003, respectively.
14. Shipping and handling fees
The Company nets excess shipping and handling fees billed to customers over the
related costs to revenues. Such fees and costs are primarily comprised of
outbound freight. Included in revenues in the accompanying consolidated
statements of income are net shipping and handling fees of $298,746 and $161,626
for the six months ended June 30, 2004 and 2003, respectively.
15. Advertising
Advertising costs are charged to expense as incurred. Advertising expenses
included in selling expenses were $92,249 and $39,103 for the six months ended
June 30, 2004 and 2003, respectively.
16. Stock - based compensation
As described in Note C, the Company has elected to follow the accounting
provisions of Accounting Principles Board Opinion (APBO) No. 25, "Accounting for
Stock Issued to Employees," for stock-based compensation and to furnish the pro
forma disclosures required under SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure."
F-27
17. Earnings per share
Basic earnings (loss) per common share (EPS) are based on the weighted average
number of common shares outstanding during each period. Diluted earnings per
common share are based on shares outstanding (computed as under basic EPS) and
potentially dilutive common shares. As of June 30, 2004, the Company had granted
stock options for 3,195,500 shares of common stock that are potentially dilutive
common shares but are not included in the computation of loss per share because
their effect would be anti-dilutive. As of June 30, 2003, the Company had no
potentially dilutive securities that would effect the income per share if they
were dilutive.
18. Fair value of financial instruments
The carrying value of the Company's cash and cash equivalents, accounts
receivable, payables, cash overdrafts and accrued liabilities approximate fair
values due to the short-term maturity of the instruments. The carrying value of
long-term obligations approximates the fair value based on the effective
interest rates compared to current market rates.
19. Concentrations of credit risk
At June 30, 2004 and December 31, 2003, the Company held cash and cash
equivalents, in the aggregate amount of $385,936 and $242,455, respectively, and
most of these amounts were deposited with two banks. The majority of the
Company's sales are made to members and retail customers. Consequently, the
exposure to credit risks relating to trade receivables is limited. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. An appropriate allowance for doubtful accounts is included
in trade accounts receivable.
20. Reclassification
Certain 2003 balances have been reclassified to conform to the 2004
presentation.
21. Recent accounting pronouncements
In January 2003, the FASB issued Interpretation Number 46, "Consolidation of
Variable Interest Entities" ("FIN No. 46"). This Interpretation of Accounting
Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements," provides
guidance for identifying a controlling interest in a variable interest entity
("VIE") established by means other than voting interests. FIN No. 46 also
requires consolidation of a VIE by an enterprise that holds such a controlling
interest. In December 2003, FASB completed its deliberations regarding the
proposed modification to FIN no. 46 and issued Interpretation Number 46 (R)
"Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51"
("FIN No. 46 (R)"). The decisions reached included a deferral of the effective
date and provisions for additional scope exceptions for certain types of
variable interests. Application of FIN No. 46 (R) is required in financial
statements of public entities that have interests in VIEs or potential VIEs
commonly referred to as special-purpose entities for periods ending after
December 15, 2004. The adoption of FIN No. 46 (R) is not expected to have an
impact on the Company's consolidated financial position, results of operations
or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments embedded
F-28
in other contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." It is effective for
contracts entered into or modified after June 30, 2003, except as stated within
the statement, and should be applied prospectively. Management believes the
provisions of this Standard currently have no effect on our financial position
or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after September 15, 2003. Management believes the provisions of
this Standard currently have no effect on our financial position or results of
operations.
22. Interim consolidated financial statements
The consolidated financial statements as of and for the six months ended June
30, 2004 and 2003 are unaudited. In the opinion of management, such consolidated
financial statements include all adjustments (consisting only of normal
recurring adjustments) considered necessary for the fair presentation of the
consolidated financial position and the consolidated results of operations have
been included. The consolidated results of operations for the six months ended
June 30, 2004 and 2003 are not necessarily indicative of the results to be
expected for the full year. The consolidated balance sheet information as of
December 31, 2003 was derived from the audited consolidated financial statements
for the year ended December 31, 2003. The interim consolidated financial
statements should be read in conjunction with that report.
NOTE B - INVENTORY
Inventory consisted of the following:
June 30, 2004 December 31, 2003
------------------- -------------------
Raw materials $ 46,077 $ 64,510
Work in process 108,065 32,866
Finished goods 529,271 535,658
------------------- -------------------
$ 683,413 $ 633,034
=================== ===================
NOTE C - STOCK-BASED COMPENSATION
The Company has applied the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure -- An Amendment of FASB Statement No. 123," for the
quarters ended June 30, 2004 and 2003. Issued in December 2002, SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
F-29
accounting for stock-based employee compensation and the effect of the method
used on reported results. As permitted by SFAS No. 148, the Company continues to
account for stock options under APB Opinion No. 25. For the six month period
ended June 30, 2004, as there was no active public market or other indication of
the value of the shares underlying the options, the Company has not assigned any
additional fair market value to the options in excess of its intrinsic value
calculated in accordance with APB No. 25. For the six month period ended June
30, 2004, the intrinsic value of the 3,195,500 stock options calculated in
accordance with APB No. 25 was determined to be $479,325 and was recorded as
deferred compensation and additional paid-in capital in the stockholders' equity
(deficiency) section of the accompanying financial statements. Amortization of
the deferred compensation related to the stock options totaled $227,689 for the
six month period ended June 20, 2004. For the six month period ended June 30,
2004, the stock options did not have any additional fair value beyond their
intrinsic value calculated in accordance with APB No. 25 and therefore there are
no pro forma compensation costs presented.
In 2003, the Company adopted a stock option plan, the 2003-2004 Employee Stock
Option Plan (the Plan), that provides for the granting of incentive stock
options or nonstatutory stock options, as defined. The Plan authorizes the Board
of Directors or a committee appointed by the Board of Directors to grant
incentive stock options to certain qualifying key employees. The aggregate
number shares of common stock that may be optioned and sold under incentive
stock options is 3 million shares. Optionees have the right to exercise the
incentive stock options no sooner than the second anniversary date of hire by
the Company, or, if the optionee has been an employee of the Company for over
two years, then no sooner than one year from the date of grant. All incentive
stock options granted expire 36 months from the date of grant. 2,495,500 of
incentive stock options were granted in the six months ended June 30, 2004,
including 2,075,000 incentive stock options granted to executives of the
Company.
The Plan also authorizes the Board of Directors to grant nonstatutory stock
options to certain key employees and independent contractors who make
significant contributions to the Company's growth and development. The aggregate
number shares of common stock that may be optioned and sold under nonstatutory
stock options is 1 million shares. Optionees have the right to exercise no more
than one half of the total nonstatutory stock options granted no sooner than the
first anniversary date of the grant. Optionees have the right to exercise the
remaining nonstatutory stock options granted no sooner than the second
anniversary date of the grant. All nonstatutory options granted herein shall
expire 36 months from the date of this grant. The selection of recipients, the
exercise price and the number of nonstatutory option shares to be allocated to
each recipient is strictly within the discretion of the Board of Directors.
700,000 of nonstatutory stock options were granted in the six months ended June
30, 2004, including 400,000 nonstatutory options granted to the Company's
landlord (an 8.0% shareholder of the Company) and 125,000 nonstatutory options
granted to relatives of executives of the Company.
The following summarizes information about stock options of the Company granted
and outstanding at June 30, 2004:
F-30
-------------------------------------------- --- ----------------- ---- --- -------------------
Options Exercise Price
-------------------------------------------- --- ----------------- ---- --- -------------------
-------------------------------------------- --- ----------------- ---- --- -------------------
Outstanding at January 1, 2004 $ - $ -
-------------------------------------------- --- ----------------- ---- --- -------------------
-------------------------------------------- --- ----------------- ---- --- -------------------
Granted 3,195,500 0.25
-------------------------------------------- --- ----------------- ---- --- -------------------
-------------------------------------------- --- ----------------- ---- --- -------------------
Exercised - -
-------------------------------------------- --- ----------------- ---- --- -------------------
-------------------------------------------- --- ----------------- ---- --- -------------------
Expired - -
-------------------------------------------- --- ----------------- ---- --- -------------------
-------------------------------------------- --- ----------------- ---- --- -------------------
Outstanding at June 30, 2004 $ 3,195,500 $ 0.25
-------------------------------------------- === ================= ---- === ===================
NOTE D - PLANT AND EQUIPMENT
Plant and equipment consisted of the following:
June 30, 2004 December 31, 2003
Plant and Equipment (A)
----------------------------------------------------------- -- ---------------- -------------------
----------------------------------------------------------- -- ---------------- -------------------
Computer $ 460,583 $ 391,143
Equipment 405,583 389,453
Furniture and fixtures 81,683 69,463
Vehicles 19,182 70,441
Leasehold improvements 393,706 346,351
---------------- -------------------
---------------- -------------------
Total 1,360,737
Accumulated depreciation (480,079) (385,061)
---------------- -------------------
---------------- -------------------
Net plant and equipment $ 880,658 $ 881,790
================ ===================
Depreciation expense for the six months ended June 30, 2004 and 2003 was
$108,147 and $53,804, respectively.
(A) Includes assets held under capital leases payable (See Note G).
F-31
NOTE E - INTANGIBLE ASSETS
Intangible assets consisted of the following:
June 30, 2004 December 31,
Intangible Assets 2003
--------------------------------------------------------- -------------- ----------------
--------------------------------------------------------- -------------- ----------------
Software development $ 110,186 $ 110,186
Patents and formulas 159,139 159,139
Website development 174,450 139,557
Good manufacturing practices 85,000 85,000
Training system development 40,000 40,000
-------------- ----------------
-------------- ----------------
Total 568,775
Accumulated amortization (289,906) (224,077)
-------------- ----------------
-------------- ----------------
Net intangibles $ 278,869 $ 309,805
============== ================
Amortization expense for the six months ended June 30, 2004 and 2003 was $65,830
and $31,632, respectively.
NOTE F - NOTES PAYABLE
During the first quarter of 2004, the Company entered into two additional notes
payable with an existing lender. The notes totaling $50,000, have a stated
interest rate of 10% and mature in 2005.
June 30, 2004 December 31,
2003
---------------- -- --------------
Notes payable at 10% interest, maturing at various dates at
the end of 2005. $ 313,181 $ 263,970
---------------- --------------
---------------- --------------
313,181 263,970
Less: current portion - -
---------------- --------------
$ 313,181 $ 263,970
================ ==============
Approximate principal repayments are as follows: June 30, 2004
--------------------------------------------------------------- ---------------
--------------------------------------------------------------- ---------------
2005 $
-
2006 313,181
---------------
$ 313,181
===============
F-32
NOTE G - CAPITAL LEASES PAYABLE
The Company follows the provisions of SFAS No. 13, "Accounting for Leases," in
determining the criteria for capital leases. Leases that do not meet such
criteria are classified as operating leases and related rentals are charged to
expense in the year incurred.
During 2003, the Company entered into four equipment leases of production
equipment that provided for bargain purchase options at the termination of the
lease. As a result of these bargain purchase options, the leases were classified
as capital leases. The present value of future minimum payments under these
capital leases totaled $103,042 and payments were scheduled through 2005, 2006
and 2008.
One vehicle has been capitalized due to its extended lease exceeding 75% of its
economic life of five years. The present value of future minimum payments under
this capital lease totaled $10,247 and payments were scheduled into 2004 and
2005.
The following is a summary by year of future minimum rental payments for
capitalized leases that have initial or remaining noncancelable terms in excess
of one year as of June 30, 2004:
Year ending June 30, Amount
--------------------------------------------------------------------------------- ---------------------
--------------------------------------------------------------------------------- ---------------------
2005 $ 59,487
2006 44,173
2007 21,695
2008 17,528
2009 -
---------------------
Total minimum lease payments 142,883
Less: Estimated amount representing interest (29,594)
---------------------
---------------------
Present value of net minimum capital lease payments 113,289
Less: Current portion (43,453)
---------------------
---------------------
Long-term obligations under capital leases at June 30, 2004 $ 69,836
=====================
At June 30, 2004 and December 31, 2003, capital lease assets as a component of
net property and equipment were as follows:
June 30, 2004 December 31, 2003
--------------- -------------------
-------------- -------------------
Capital lease assets $168,042 $ 168,042
Accumulated depreciation (40,500) (17,988)
--------------- -------------------
-------------- -------------------
Net capital lease assets $127,542 $ 150,054
=============== ===================
(See Note J for operating lease disclosures).
F-33
NOTE H - INCOME TAXES
The provision for taxes for the six months ended June 30, 2004 and 2003 consist
of the following:
June 30, 2004 June 30, 2003
-------------------- --------------------
-------------------- --------------------
Current:
Federal $ - $ 22,268
State - 3,930
-------------------- --------------------
-------------------- --------------------
- 26,198
Deferred:
Federal - (22,268)
State - (3,930)
-------------------- --------------------
-------------------- --------------------
-
(26,198)
-------------------- --------------------
Total tax provision $ - $ -
==================== ====================
Significant components of the Company's deferred income tax assets at June 30,
2004 and December 31, 2003 are as follows:
June 30, 2004 December 31, 2003
-------------------- --------------------
-------------------- --------------------
Deferred income tax asset:
Net operating loss carry forward $ 311,000 $ 219,000
-------------------- --------------------
Total deferred income tax asset 311,000 219,000
Valuation allowance ( 311,000 ) ( 219,000 )
-------------------- --------------------
-------------------- --------------------
Net deferred income tax asset $ - $ -
==================== ====================
Reconciliation of the effective income tax rate to the U. S. statutory rate is as follows:
June 30, 2004 December 31,
2003
--------------- ---------------
--------------- ---------------
Tax expense at the U.S. statutory
income tax rate (34.0) % (34.0) %
Utilization of net operating loss carryforwards
34.0 34.0
--------------- ---------------
--------------- ---------------
Effective income tax rate - % - %
=============== ===============
F-34
Deferred taxes are recorded to give recognition to temporary differences between
the tax bases of assets or liabilities and their reported amounts in the
financial statements. Deferred tax assets generally represent items that can be
used as a tax deduction or credit in future years. Deferred tax liabilities
generally represent items that we have taken a tax deduction for, but have not
yet recorded in the Consolidated Statement of Operations.
Net operating loss carryforwards totaling approximately $799,000 federal and
$447,000 state amounts at June 30, 2004 are being carried forward. The net
operating loss carryforwards expire at various dates through 2024 for federal
purposes and 2014 for state purposes.
A full valuation allowance has been established due to the lack of earnings as
support for recognition of the deferred tax assets recorded.
NOTE I - STOCKHOLDERS' EQUITY
During the six months ended June 30, 2004, the Company issued 355,895 shares of
its stock for $275,300 in cash pursuant to a limited private placement at $0.45
and $.90 per share.
On June 28, 2004, the Company issued 500,000 shares of its stock to its Chief
Financial Officer for a note receivable of $62,500. The note receivable bears
interest at 5%, is collateralized by the stock issued, and is due December 31,
2006. In connection with this transaction, the Company recorded $137,500 as
deferred compensation and additional paid-in capital in the stockholders' equity
(deficiency) section of the accompanying financial statements. The deferred
compensation will be amortized over the note's term commencing in July, 2004.
NOTE J - COMMITMENTS AND CONTINGENCIES
1. Operating leases
Operations are currently conducted in leased facilities. The facility lease
agreement is a non-cancelable operating lease and extends into 2012. The rent
lease provides that property taxes, insurance, and maintenance expenses are the
responsibility of the Company. The total rent expense for the six months ended
June 30, 2004, and 2003 was $115,559 and $125,434, respectively. The Company
utilizes equipment under non-cancelable operating leases, extending through
2008. The equipment rental operating lease expense for the six months ended June
30, 2004 and 2003 was $23,124 and $24,671, respectively. The following amounts
contain the assumption that, in the normal course of business, any operating
leases that expire within the time frame represented will be renewed or replaced
by leases on other properties, assuming operations continue and will extend, at
a maximum, through 2012.
Year Ending June 30, Operating
---------------------------------------- -----------------
---------------------------------------- -----------------
2005 $ 497,126
2006 461,978
2007 423,617
2008 412,713
2009 380,541
Later years 1,227,252
-----------------
-----------------
Total minimum lease payments $ 3,403,227
=================
F-35
2. Contingencies
The Company is involved in a lawsuit arising in the normal course of business
regarding product liability. The Company, like any other retailer, distributor
and manufacturer of products that are designed to be ingested, faces an inherent
risk of exposure to product liability claims in the event that the use of its
products results in injury. With respect to product liability claims, the
Company has $1.0 million per occurrence and $2.0 million in aggregate liability
insurance subject to a self-insurance retention of $25,000. The Company was
named as a defendant in a products liability lawsuit, Gil v. Global Health Trax,
Inc., filed in the Superior Court of the State of Arizona on June 18, 2002. The
case went to trial on April 4, 2004. The Company's insurance carrier is
providing the defense. On April 12, 2004, the Company obtained a favorable court
decision in Gil v. Global Health Trax, Inc. In the opinion of management, it is
not anticipated that the plaintiffs will appeal.
NOTE K - EMPLOYEE BENEFIT PLAN
The Company has an employee benefit plan under Section 401(k) of the Internal
Revenue Code. This plan covers employees who are at least 18 years of age and
have been employed by the Company longer than three months. The Company is not
obligated to make matching contributions. The Company may make a discretionary
contribution based on earnings. The Company's discretionary contributions vest
at 25 percent per year beginning with the first year. There were no
contributions made by the Company to the plan for the six months ended June 30,
2004 and 2003.
NOTE L - RELATED PARTY TRANSACTIONS
The Company's Co-founder, Chairman of the Board, Chief Executive Officer and
President (the President) is the sole beneficial owner and single largest
shareholder of the Company owning 39.9% of the Company's issued and outstanding
shares as of June 30, 2004 and 50% as of June 30, 2003. The President is a 50%
owner of Health Specialties International, Inc. (HSI).
The Executive Vice President is the sole beneficial owner and second largest
shareholder of the Company, owning 39.6% of the Company's issued and outstanding
shares as of June 30, 2004 and 50% as of June 30, 2003. The Executive Vice
President is a 50% owner of HSI. The Company leases a residential unit for the
use of the Executive Vice President on a month-to-month basis (See Note M).
HSI owed the Company $35,187 at June 30, 2004 (See Note M).
The Vice President of Training received, directly or through his wholly owned
corporation, for the six months ended June 30, 2004 and 2003, $45,000 and
$93,800, respectively, for services rendered to the Company. Amortization of
deferred compensation related to stock issued to the Vice President of Training
in 2003 totaled $11,532 for the six month period ended June 20, 2004.
The Company's landlord through notes payable conversions and purchases of stock
has accumulated 2,000,000 shares of the Company's common stock. This represents
8.0% of the Company's outstanding common stock at June 30, 2004. The Company's
landlord did not own any of the Company's outstanding common stock as of June
30, 2003.
NOTE M - SUBSEQUENT EVENT
Effective July 1, 2004, through a unanimous vote of its stockholders and
directors, Health Specialties International, Inc.'s (HSI) stockholders gave 100%
of their stock to the Company. In exchange for the stock, the Company
transferred production related assets to HSI, its new wholly owned subsidiary.
On August 13, 2004, the Company filed a Form SB-2 with the Securities and
Exchange Commission in an Initial Public Offering. The offering was for
7,699,649 shares of stock at $1.25 per share.
Effective October 26, 2004, the Executive Vice President resigned as a director
of the Company and from the executive offices held at the Company and HSI to
care for a family member. The resignation was tendered as a six-month leave of
absence.
F-37
GLOBAL HEALTH TRAX, INC.
[A Development Stage Company]
7,705,206 Shares
Common Stock
$1.25 Per Share
PROSPECTUS
GLOBAL HEALTH TRAX, INC.
2465 Ash Street, Vista, CA 92083
Telephone: 760-542-3000
Facsimile: 800-673-4883
Email: ght@globalhealthtrax.com
Website: www.globalhealthtrax.com
______________________, 2004
F-38
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
Article Twelve of our Articles of Incorporation provides, among other things,
that our officers and directors shall not be personally liable to us or our
shareholders for monetary damages for breach of fiduciary duty as an officer or
a director, except for liability:
For acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; or o for unlawful payments of dividends or
unlawful stock purchase or redemption by us. Accordingly, our directors may have
no liability to our shareholders for any mistakes or errors of judgment or for
any act of omission, unless the act or omission involves intentional misconduct,
fraud, or a knowing violation of law or results in unlawful distributions to our
shareholders.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Other Expenses of Issuance and Distribution
We will pay all expenses in connection with the registration and sale of our
common stock. None of the expenses will be paid by the selling security holders.
The estimated expenses of issuance and distribution are set forth below.
======================================== ==================== ===============
Registration Fees Approximately $ 1,219.43
- ---------------------------------------- -------------------- ---------------
Transfer Agent Fees Approximately $ 5,000.00
- ---------------------------------------- -------------------- ---------------
Legal Fees Approximately $ 40,000.00
- ---------------------------------------- -------------------- ---------------
Printing Fees Approximately $ 5,000.00
- ---------------------------------------- -------------------- ---------------
Accounting Fees Approximately $ 13,000.00
======================================== ==================== ===============
Recent Sales of Unregistered Securities
In connection with the organization of Global, and prior to any stock splits,
Everett Hale, a founding shareholder of our company, provided labor and services
in exchange for which for he was issued 20,000,000 shares of common stock. The
stock issuances was in reliance upon the exemption from registration provided
for Section 4(2) of the Securities Act of 1933. The aggregate value of the stock
issued was its par value. On June 15, 2003 Global conducted a 4 for 1 reverse
split of its outstanding common stock which reduced Mr. Hale's ownership to
5,000,000 shares. On November 15, 2003 we conducted a 2 for 1 forward split of
our common stock which increased Mr. Hales's ownership to 10,000,000 shares.
Similarly, in connection with the organization of Global, and prior to any stock
splits, Lorin Dyrr, a founding shareholder of our company, provided labor and
services in exchange for which for she was issued 20,000,000 shares of common
stock. The stock issuances was in reliance upon the exemption from registration
provided for Section 4(2) of the Securities Act of 1933. The aggregate value of
the stock issued was its par value. On June 15, 2003 Global conducted a 4 for 1
reverse split of its outstanding common stock which reduced Ms. Dyrr's ownership
to 5,000,000 shares. Ms. Dyrr also agreed at that time to sell 50,000 shares of
her stock to the corporation in exchange for the retirement of debt owed by her.
On November 15, 2003 we conducted a 2 for 1 forward split of our common stock
which increased Mr. Hales's ownership to 10,000,000 shares and Ms. Dyrr's
ownership to 9, 900,000 shares. In addition, Global officer and director Russell
Chaisson was issued 1,000,000 shares of common stock in 2003 in exchange for
services and a promissory note in the amount of $125,000. The stock issuances
was in reliance upon the exemption from registration provided for Section 4(2)
of the Securities Act of 1933. The aggregate value of the stock issued was its
par value.
Further, we have recently completed our capitalization with a private offering
that resulted in $2,010,030 in proceeds to Global, including the conversion of
debt for stock. The stock issuances was in reliance upon the exemption from
registration provided for Section 4(2) of the Securities Act of 1933 and Rule
506 of Regulation D promulgated there under by the Securities And Exchange
Commisision. These proceeds were contributed by the selling shareholders set
forth elsewhere in this prospectus in exchange for an aggregate of 3,705,206
shares of common stock. We have also adopted a non-qualified employee and
independent contractor incentive stock option plan for which we have reserved a
total of 3,000,000 and 1,000,000 shares of common stock respectively. Mr. Hale
and Ms. Dyrr are eligible to participate in the employee incentive stock option
plan and were each issued 1,000,000 options under the plan on January 2, 2004.
The stock issuances was in reliance upon the exemption from registration
provided for Section 4(2) of the Securities Act of 1933.
II-1
In addition, during 2003 notes payable of $921,230, including accrued interest,
were converted into 2,046,434 shares of common stock in reliance on the
exemption from registration provided for by Section 4(2) of the Securities Act
of 1933. The shareholders and the amount of debt retired are as follows: William
Beck was issued 11,111 shares retire a $10,000; Russell Chiasson was issued
125,000 shares in exchange for a promissory note in the amount of $125,000; Todd
Dempsey was issued 5,042 shares to retire a debt of $4,500; Tom Dixson, Global's
landlord on its manufacturing facility, was issued 755,556 shares to retire a
debt of $670,000; Diana Dyrr was issued 5,602 shares to retire a debt of $5,042;
Frances and E. Phillip Hale were issued 168,082 shares to retire a debt of
$150,000; J. Vincent Construction was issued 27,960 shares to retire a debt of
$25,164; Ted McGinnis was issued 5,042 shares to retire a debt of $4,500; and
Larry Trinton was issued 44,822 shares to retire a debt of $40,000.
II-2
Exhibits
Copies of the following documents are filed with this registration statement,
Form SB-2, as exhibits:
Exhibit No.
1.1 Subscription Agreement
3.1 Articles of Incorporation*
3.2 Certificate of Amendment to Articles of Incorporation*
3.3 Certificate of Amendment to Articles of Incorporation*
3.4 Bylaws*
4.0 Specimen Stock Certificate*
5.0 Executed Opinion Re: Legality*
10.1 Manufacturing Facility Lease
23.1 Consent of Auditors*
23.2 Consent of Counsel*
*Previously filed.
Undertakings
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by us of expenses incurred or paid by
our director, officer or controlling person in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
B. We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(ii) To specify in the prospectus any facts or events arising after the
effective date of the registration statement, or most recent post-effective
amendment thereof, which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered, if the total dollar value of securities offered would not exceed that
which was registered, and any deviation from the low or high end of the
II-3
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b),
Section 230.424(b) of Regulation S-B, if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any additional or changed material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of Vista,
California on November 10, 2004.
Global Health Trax, Inc.
By:
/s/Everett Hale
Everett Hale, CEO
/s/ Henry Leonard
Henry Leonard, CFO
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
indicated on November 10, 2004.
/s/Everett Hale
Everett Hale, Director
/s/Henry Leonard
Henry Leonard, Director
/s/Russell Chaisson
Russell Chaisson, Director
II-4
Exhibits
Copies of the following documents are filed with this registration statement,
Form SB-2, as exhibits:
Exhibit No.
1.1 Subscription Agreement
3.1 Articles of Incorporation*
3.2 Certificate of Amendment to Articles of Incorporation*
3.3 Certificate of Amendment to Articles of Incorporation*
3.4 Bylaws*
4.0 Specimen Stock Certificate*
5.0 Executed Opinion Re: Legality*
10.1 Manufacturing Facility Lease
23.1 Consent of Auditors*
23.2 Consent of Counsel*
*Previously filed.
II-5