U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Amendment No. 5
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" Streets, 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 4,000,000 (1) $1.25 $5,000,0000 $633.00
no par value
3,705,206 (1) $1.25 $4,631,507.50 $469.00
(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 4,000,000 shares of our common stock in a direct public offering and we
are registering 3,705,206 common shares on behalf of the selling shareholders.
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 $9,631,507. 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 4,000,000 (1) $1.25 $5,000,000
Common Stock 3,705,206 (2) $1.25 $4,631,507
- --------------------- ------------------- -------------------- ----------------
(1) Shares offered by Global. (2) Shares offered by the selling shareholders.
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___________,2005
Subject to completion.
3
TABLE OF CONTENTS
Prospectus Summary ...........................................................6
Risk Factors..................................................................7
Use of Proceeds..............................................................14
Determination of Offering Price..............................................14
Dilution.....................................................................16
Capitalization...............................................................17
Selling Security Holders.....................................................17
Plan of Distribution.........................................................18
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 .....................................................32
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................47
Description of Property......................................................57
Certain Relationships and Related Transactions...............................57
Market for Common Equity and Related Stockholder Matters.....................59
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.........................................................59
Experts......................................................................59
Legal Matters................................................................59
Additional Information.......................................................60
Financial Statements................................................F-1 to F-36
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 ___________, 2005, 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, 2004 to December 31, 2004
Revenue $11,041,215
Net Income (Loss) $(1,965,521)
Net Income (Loss) Per Share $ (0.08)
Balance Sheet December 31, 2004
Total Assets $2,529,427
Total Liabilities $2,526,220
Shareholders' Equity $ 3,207
Number of shares being offered: 7,705,206 shares
are being offered. 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 25,105,206 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 $2,005,030 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 2004 and 2003 are $1,965,521 and $233,231
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 December 31, 2004, our current cash and cash equivalents are
$600. Current cash provided from operations are sufficient to meet existing
obligations of an ongoing nature, but provide minimum support for meeting growth
expectations. The year ended December 31, 2004 was unusual in that it
experienced negative cash from operations due principally to advance inventory
purchases and consulting fees. Regardless, without proceeds from the offering,
it is anticipated that the company will be required to reduce operational
overhead and thereon experience slow and sustained growth for the foreseeable
future. Areas where the company would initially consider reducing expenses are
salaries and outside consulting services. In their report in connection with our
2004 financial statements, our auditors included an explanatory paragraph
stating that, because we have incurred a net loss of $1,965,521 and a negative
cash flow from operations of $334,943 for the year ended December 31, 2004, and
had a working capital deficiency of $786,463 the year ended December 31, 2004,
there is substantial doubt about our ability to continue as a going concern.
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 2004 and 2003 are
$1,965,521 and $233,231 respectively.
We could go out of business unless we raise cash either from this offering or
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
December 31, 2004, we raised approximately $2,005,030 from the sale of 3,705,207
shares 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 claims in advertising and labeling in the sales of our vitamins,
mineral supplements and other products 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"). Advertising is primarily regulated by the
Federal Trade Commission. 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 with
resulting liability to Global. 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.
If access to our supplier of Threelac were terminated, which accounts for
approximately 51% of our gross sales, our profitability would be impacted until
a replacement product were found. The consequences of losing this source of
Threelac would be a loss of approximately 51% of gross sales for approximately
three months, which is our estimate of the time it would take to find a similar
or improved replacement product. Through an exclusivity agreement with Snowden
Co., Ltd., Overseas Division, located in Tokyo, Japan, the supplier of Threelac,
we have exclusive rights of sale in several countries, including the United
States of America, Canada, Mexico, Australia and New Zealand. 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, although there can be no assurance of this. If we
were to lose our Threelac supplier, there would be a decrease in the related
gross product of a Threelac replacement product until sales volume were
recovered. We do not maintain business interruption insurance.
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. However, since we intend do
intend to use most of the proceeds for working capital, if our assumptions about
product sales providing cash flows are incorrect, Global's business would be
detrimentally impacted since we will not have a cash reserve from this offering.
In that event, we would be forced to curtail some of our operations in order to
save cash and our projected growth would be substantially and detrimentally
impacted.
The extent to which our existing and new products will gain foreign market
acceptance will be based upon our ability to maintain existing collaborative
relationships and enter into new collaborative relationships. Our
commercialization efforts will depend upon relative costs involved in acquiring,
prosecuting, maintaining, enforcing and defending intellectual property claims,
developments related to regulatory issues and entering into collaborative
agreements such as our agreements with Snowden Co., Ltd and Paradigm World
Marketing. If we are unable to enter into such agreements our ability to
effectively market our products outside of the United States could be severely
compromised since the capital expenditure required to enter foreign markets
without partners could be prohibitive. In that event, the future growth of
Global could be limited to our marketing efforts in the United States.
To maintain a competitive advantage we must be able to continually develop and
market new products and there can be no assurance we will be able to do so. Our
industry is characterized by constant product innovation and change. To remain
competitive, we must be able to continually update our products and respond to
market demand with new and innovative products. 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. Any
failure or inability to raise capital when needed could have a material adverse
effect on our business, 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.
9
We may be required to raise additional funds through public or private financing
to meet projected marketing efforts domestically and internationally. The
issuance of additional equity financing would be potentially dilutive to
existing stockholders at the time of issuance of additional equity financing.
There can be no assurance we will be able to raise additional funds through
pubic or private financing. Any failure or inability to raise capital when
needed could have a material adverse effect on our business, 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.
Debt financing may be sought after to leverage the Company's assets in the
securing of additional funding for domestic and international growth. Debt
financing may involve significant restrictive covenants such as specified cash
and other liquidity limits as well as debt limits. These types of restrictive
covenants could limit the Company's ability to enter into other business
ventures which may create a condition in violation of specified covenants. Any
failure or inability to raise capital when needed could have a material adverse
effect on our business, 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.
Collaborative arrangements may be sought to raise additional funds for both
domestic and international growth. It is possible that these arrangements 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, 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 Paradigm World Marketing in
Japan to access the markets related to our business in that arena. With the
agreement for Paradigm World Marketing to assist in the establishment of a
business presence for us, managing the product approval process, and development
of a sales base, we anticipate that we will begin seeing results by the second
quarter of 2005. Should this collaborative agreement fail, we must make up for
these operations through other alliances. Accordingly, additional time and funds
would be required to develop any new Japanese market alliance. The impact upon
the earnings of the company from sales in Japan due to a change of collaborative
alliance would be to temporarily slow sales growth in that territory, but it
would not reduce existing sales elsewhere.
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. Patented products comprise 28%
of gross sales leaving 72% of Global's gross sales as being derived from
non-patented products.. That our other products are not patented implies that
our sales are not as strong as they could be since other manufacturers and
distributors can develop and sell similar products. In fact there are many
sources of vitamins, minerals, enzymes, colostrum, noni juice and other products
we sell. Failure to secure anticipated funding through the offering would limit
the marketing of Global's image and strengthening of brand loyalty which could
allow competitors to increase their 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
Investors in our offering will suffer immediate substantial dilution. Investors
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."
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
shares 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
Competition for our products is intense thus 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 our many
competitors since the supplement industry is largely privately held and highly
fragmented. 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 risks normally associated with
manufacturing nutritional products. Normal risks of nutritional product
manufacturing include areas such as the sourcing of quality ingredients, testing
of new products in quantities necessary for increased sales viability, and not
having intellectual property rights in the manufacturing processes for our
products.
Failure to source the necessary ingredients for the manufacture of nutritional
products at levels of quality and cost acceptable to the Company could delay
manufacturing or reduce profit margins until the right quality and cost mix can
be found. This factor could delay the sale of products developed and
commercialized by us, entail higher costs and result in our being unable to
effectively sell effected products. As of this filing, there have been no
negative impacts identified relative to this risk in our manufacturing
operations.
New products developed by Global as part of an aggressive marketing plan will
require significant testing in quantities appropriate for the market penetration
effort. The testing of large quantities of new products with the required
feedback, modifications and follow-up may require more time and expense than
planned. This factor could delay the sale of products developed and
commercialized by us, entail higher costs and result in our being unable to
effectively sell a new product. As of this filing, there have been no negative
impacts identified relative to this risk in our manufacturing operations.
Not having intellectual property rights in the manufacturing processes for our
products is as a great a risk for Global as for any competitor. If the
ingredients of our non-patented products and their formulation can be
determined, competitors may be able to duplicate the product. This factor could
delay the sale of products developed and commercialized by us, entail higher
costs and result in our being unable to effectively sell effected products. As
of this filing, there have been no negative impacts identified relative to this
risk in our manufacturing operations.
12
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, 2004, is
approximately $0.0001 per share based upon 25,105,206 shares outstanding as of
December 31, 2004. 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, 2004 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 $4,900,000 in anticipated
proceeds, including converted debt, in addition to 5,205,207 shares issued in
our recent private offering, the pro forma net book value of Global would be
approximately $4,903,207 or $0.17 per share, including adjustments for shares
issued through December 31, 2004. 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 $1.08 per share to investors in
the Notes offered hereby. The following table illustrates this per share
dilution.
Assumed offering price................................................. $ 1.2500
Pro forma net book value per share
Prior to Offering ................................................ $ 0.0001
Increase per share attributable to new investors.................. $ 0.1684
Pro forma net book value after Offering................................ $0.1685
Dilution per share to new investors....................................($1.0780)
All per share figures are rounded to the nearest penny.
The following table sets forth at December 31, 2004, 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 25,105 86 % $2,015 29 % $0.080
New Stockholders 4,000 14 % 4,900 71 % 1.225
------------- ----------- -------------- ------------- --------------------
------------- ----------- -------------- ------------- --------------------
Total 29,105 100 % $6,916 100 % $0.238
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 31,2004
ACTUAL AS ADJUSTED
----------------- --------------
------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE DATA)
Current portion of notes payable $ 155 $ 100
Current portion of notes payable, related parties 100 -
Other short-term obligations 1,646 1,281
----------------- --------------
----------------- --------------
Total short-term obligations 1,901 1,381
Long-term debt:
Notes payable 364 145
Notes payable, related parties 145 -
Other 116 -
----------------- --------------
----------------- --------------
Total long-term debt 625 145
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 25,105,206 at December 31, 2004. 1,988 6,888
Stock subscriptions receivable (187) (187)
Additional Paid-in capital 1,343 1,343
Deferred stock based compensation (384) (384)
Retained earnings (deficit) (2,757) (2,757)
----------------- --------------
----------------- --------------
Total stockholders' equity 3 4,903
----------------- --------------
----------------- --------------
Total capitalization $2,529 $6,429
================= ==============
(1) As of December 31, 2004 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)
- ------------------------------------------------ --------------------- ---------------------- ------------------------
The Catherine M. Dockerty Trust (A) 55,556 55,556 -
Baluyot, Julius 44,444 44,444 -
Beck, William 22,222 22,222 -
TTEES FBO Lloyd C. Betker & Elizabeth Betker Revocable 5,556 5,556 -
Inter-Vivos Trust (B)
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 -
The Tom E. Dixson Trust (C) 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 -
The Everett Phillip Hale Trust (D) 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 -
J. Vincent Construction (E) 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 -
To The Rescue (F) 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. (G) 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 -
The Summers Living Trust DTD 01/12/92 (H) 88,888 88,888 -
Summers, Sharon 43,333 43,333 -
Summers, Susan 24,444 24,444 -
Tritten, Larry E. 5,556 5,556 -
The Larry E. Tritten Trust (I) 100,756 100,756 -
The Emil and Virginia Tritten Family Trust (J) 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.
(2) Natural persons with voting and investment control: (A) Ask, Patricia (B)
Betker, Lloyd & Elizabeth (C) Dixson, Tom E. (D) Hale, Francis & Everett P. (E)
Jones, James (F) McCaa, Pam (G) Robar, Susan (H) Summers, Rosa (I) Tritten,
Larry E. (J) Tritten, Virginia
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
21
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
22
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.
23
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.
On January 26, 2005 Global was sued in San Diego County Superior Court by
Solutions Consulting Group, Inc. for delcaratory and injunctive relief arising
out of a consulting contract for implementing accounting software and
programming needs for an order entry system. Global believes the contract was
breached and had thereon declined to make the balance of payments due. The total
amount in dispute is approximately $45,000. The dispute was settled out-of-court
for $35,000.
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. Global
does not currently have any director committees but intends to establish such
committees prior to June 30, 2005. Until that time, all nominating and audit
matters are considered by the entire board.
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.
24
Russell Chiasson (Vice President Training and Marketing and Director)has
extensive sales experience. He was 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 and Director) brings over fifteen
years of business experience and is a practicing Certified Public Accountant,
licensed in California, Hawaii and Florida. Mr. Leonard's accounting practice
operates as H. S. Leonard, C.P.A. 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.
None of the officers or directors serve on the Board of Directors of any other
company with the exception of Global's wholly owned subsidiary, Health
Specialties International, Inc. (HSI). HSI is a separate company that owns
Global's manufacturing facility. A separate company is used for manufacturing to
permit Global to do contract manufacturing for other brands without implicating
Global's name to make contract manufacturing more attractive and as a safeguard
for liability purposes. The officers and directors of HSI are identical to
Global.
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,
2004, our executive officers and directors.
Summary Compensation Table Long-Term Compensation Awards
25
COMPENSATION 2003
NAME AND PRINCIPAL POSITION SALARY ($)NONSALARY COMPENSATION ($) NUMBER OF SHARES AND
UNDERLYING OPTIONS (1)
Everett Hale, CEO, Director 97,900 0 11,000,000
Lorin Dyrr, Vice President, Director(2) 97,900 0 10,900,000
Kennan Kaeder, Legal Counsel, Director 0 32,000 0
Russell Chaisson, Vice President, Director 0 110,383 1,000,000
Henry Leonard, CFO 27,415 0 15,556
COMPENSATION 2004(3)
NAME AND PRINCIPAL POSITION SALARY ($) NONSALARY COMPENSATION ($) NUMBER OF SHARES AND
UNDERLYING OPTIONS (1)
Everett Hale, CEO, Director 141,502 0 11,000,000
Lorin Dyrr, Vice President, Director (2) 138,580 0 10,900,000
Kennan Kaeder, Legal Counsel, Director 0 49,217 20,000
Russell Chaisson, Vice President, Director 93,600 93,600 1,000,000
Henry Leonard, CFO, Director 92,000 21,500 590,556
Art Thompson, Director 0 1,000 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) 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:
26
- ----------------------------------------- ----------------------- -------------------
Number of Shares
Shareholder Beneficially Owned Percentage Owned
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Everett Hale 10,000,000 34.3%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Lorin Dyrr 9,900,000 34.0%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Kennan Kaeder 0 0.0%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Russell Chaisson 1,000,000 3.4%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Henry Leonard 500,000 1.7%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Tom Dixson 2,000,000 6.9%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Art Thompson 0 0.0%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
Selling shareholders 1,699,649 5.8%
- ----------------------------------------- ----------------------- -------------------
- ----------------------------------------- ----------------------- -------------------
All officers and directors as a group 21,400,000 73.6%
- ----------------------------------------- ----------------------- -------------------
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.
27
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 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 Five Million Shares (5,000,000). 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
28
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. 3,453,650 of incentive stock
options were granted in 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 2,000,000 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
29
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
30
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.
31
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 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.
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
32
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. According to historical and forecasted data as
presented by The Nutrition Business Journal, Multi-Level Marketing of Nutrition
Products and related Natural Personal Care Products in the U.S. in 2003 was
approximately $10.2 billion, which represents approximately 16.6% of the total
U.S. industry of $61.8 billion in 2003 and grew at 4.9% in 2003 from 2002 and is
estimated to grow at a combined average growth rate in excess of 11.0% 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 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 fiscal years 2004, 2003, 2002 and
2001:
33
FYE 2004 FYE 2003 FYE 2002 FYE 2001
---------------------- --------------------- ---------------------- -----------------------
------------ --------- ------------ -------- --------- ---------
Life Support $3,428,278 31.1% $3,228,998 39.3% $3,467,774 66.7% $4,824,527 74.8%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- --------------------- ------------ --------- ------------ -------- ------------ --------- -------------
Nature's Turn 5,840,889 52.9% 3,541,787 43.1% 1,336,445 25.7% 935,646 14.5%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Technological 213,329 1.9% 131,705 1.6% 89,185 1.7% --- ---
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Marketing Aids 53,387 .5% 150,594 1.8% 92,634 1.8% 65,951 1.0%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Packs 522,789 4.7% 501,811 6.1% --- --- --- ---
- --------------------- ------------ --------- ------------ -------- ------------ --------- -------------
- ------------------------------
Other 982,540 8.9% 667,098 8.1% 210,545 4.1% 622,371 9.7%
- --------------------- ------------ --------- ------------ -------- ------------ --------- ------------- ---------
- ---------------------
Total $11,041,212 100.% $8,221,993 100.% $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| Product testing.
We perform the following tests on our products and new formulations:
Viscosity- Measures the internal resistance to flow exhibited by a liquid. pH-
Measures the acidity or alkalinity of an aqueous solution. Brix- Measures the
concentration of sugar solutions. Specific Gravity- Measures the density of a
liquid. Visual- Inspection for color, clarity and uniformity of product Taste-
Evaluation for flavor. Total Aerobic Plate Count- Enumeration of aerobic
bacteria in product. Yeast- Detection for the presence or absence of yeast in
the product. Mold- Detection for the presence or absence of mold in the product.
Escherichia coli- Detection for the presence or absence of E coli in the
product. Coliform- Detection for the presence or absence of coli form in the
product.
We require a Certificate of Analysis of all raw materials purchased. The
certificate is supplied by the vendor and tests the raw material against the
vendor's specifications. The testing performed varies according to the raw
material ingredient and supplier.
|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
34
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, of which all produced internally and both Threelac and
ProgestAroma are outsourced. Threelac, which is imported through a strategic
agreement with Snowden, currently represents approximately 51% of Global's gross
sales. ProgestAroma is outsourced domestically with no reorder requirements from
the manufacturer and represents about .5% of Global's gross sales. 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.
35
Emerging Business
Global Health Trax, Inc. has entered into a license agreement with H2O Group,
Inc. (HGI), a Utah company. The license agreement provides exclusive rights of
market development and sales of the patented HGI product throughout the world
except for Japan and Taiwan. It is anticipated that Japan and Taiwan will also
become available in the near future. The license agreement will commence on
April 1, 2005 and continue through December 31, 2006 for the first period and
renew automatically for two years thereafter, so long as the terms of the
license agreement are met. It involves a commitment of a $150,000 license fee to
secure the license agreement to be paid by June 30, 2005. The license agreement
will require a 7% royalty to HGI on monthly net sales. The license agreement has
initial sales requirements of 10,000 units from April 1, 2005 through December
31, 2006, then 30,000 units the second twelve months and 100,000 units in
subsequent annual periods. The H2O device is a patented water conservation high
energy toilet (HET). The HET is a new generation of toilets considered superior
to the Ultra-Low Flush Toilets (ULFT) primarily due to using less water. On July
13, 2001, the United States Patent and Trademark Office issued a Notice of
Recordation of Assignment Document relating to the assignment of United States
Letters Patent entitled "Supply Tank for Toilet", patent number 6237164 (the
"U.S. Patent") by Joseph A. LaFontaine et al. to H2O, through which assignment,
the Patent was assigned to H2O. Global anticipates running the H2O Group
operations as a division within GHT through December 31, 2005. Currently, Global
is having the International Association of Plumbing and Mechanical Officials
(IAPMO) 5001 E. Philadelphia St., Ontario, CA 91761, perform independent tests
of performance. Their website is www.iapmo.org. Once the initial tests are
completed, Global will be in a better position to prepare a valid marketing plan
for 2005 and beyond. At this point, no sales projections have been anticipated
or considered for 2005.
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
36
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. From the year ended December 31, 2003 to December 31,
2004, research and development expenditures increased over 3% to $17,743.
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.
New flavors of minerals and vitamins along with a daily vegetables and greens
product are material innovations and new products currently under review. 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 net sales in our first full year to
$5,200,000 in 2002, $8,222,000 in 2003, $11,041,000 in 2004 and we expect to
generate approximately $16,000,000 net sales in 2005. Global strongly believes
it will be able to achieve sales of $1,500,000 to $3,000,000 per month, within
24-30 months of completion of its securities offerings. The "Projections"
section and related schedule presented further on highlights the basic
assumptions and projections through 2007. The following summarizes the monthly
sales and expenses projected at $1,500,000 to $4,000,000 in monthly sales:
( 000's omitted )
-------------------------------------------------------------------------
------------- ----------- ----------- ----------- ----------- -----------
Net Monthly Sales $1,500 $2,000 $2,500 $3,000 $3,500 $4,000
Cost of goods sold 870 1,140 1,400 1,650 1,890 2,120
------------- ----------- ----------- ----------- ----------- -----------
Gross Profit 630 860 1,100 1,350 1,610 1,880
Operating expenses 570 740 900 840 945 1,040
------------- ----------- ----------- ----------- ----------- -----------
$ $ $ $ $
Net Income Before Taxes $ 60 120 200 510 665 840
============= =========== =========== =========== =========== ===========
The projection summary presented above reflects both a decreasing cost of goods
sold and decreasing operating expenses relative to volume.
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. To open business in Japan, we
entered into an agreement with Paradigm World Marketing to access markets in
Japan. With the expectation of selling fully in Japan by mid-2005, fully in
Canada by mid-2005 and partially in Australia by mid-2005, the sales in these
three markets are believed to match Global's domestic sales. Primarily due to
having English as a common language, there are no agreements with any business
owners located in either the Canadian or Australian markets. We are submitting
the required documents of each province in Canada and the country of Australia
for product registration. Our business model for these markets allows anyone to
buy products, as in the United States, once Global's products are properly
registered. The process of registering a new product for sale in Canada and
Australia is very time consuming and regulations, although similar, vary by
jurisdiction. With the anticipated combined increased domestic sales matched
with new international sales, having an anticipated 43% gross profit for the
year of 2005, 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
37
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. 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 Henry Leonard, Chief Financial Officer. 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 an oral agreement
with a privately owned company, GHT-Indonesia offering continued exclusivity for
GHT products so long as sales show reasonable annual increases. Neither Global
nor any of its current owners have any ownership interest in GHT-Indonesia.
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 2006 and expanded
programs in 2007 and 2008 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 are 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, 2004 and
38
2003, 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 registered public accounting firm, whose report thereon is included
elsewhere in this prospectus. In their report in connection with our 2004
financial statements, our auditors included an explanatory paragraph stating
that, because we have incurred a net loss of $1,965,521 and a negative cash flow
from operations of $334,943 for the year ended December 31, 2004, and had a
working capital deficiency of $786,463 the year ended December 31, 2004, there
is substantial doubt about our ability to continue as a going concern Selected
unaudited consolidated financial data at December 31, 1997, 1998, 1999, 2000 and
2001 and audited 2002, 2003 and 2004 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."
39
Fiscal Year Ended
December 31,
---------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004
---------------------------------------------------------------------------------------
INCOME STATEMENT DATA Unaudited Unaudited Unaudited Unaudited Unaudited
Net Sales $22,241 $995,372 $3,087,134 $5,541,063 $6,448,495 $5,196,583 $8,221,996 $11,041,215
Cost of goods sold 16,657 691,154 2,012,549 3,679,754 4,456,206 3,388,991 4,986,793 7,015,596
----------------------------------------------------------------------------------------
Gross Profit 5,584 304,218 1,074,585 1,861,309 1,992,289 1,807,592 3,235,203 4,025,619
Total operating expenses 16,867 463,607 1,060,900 1,690,433 2,087,855 2,123,084 3,398,052 5,916,474
----------------------------------------------------------------------------------------
Income (loss) from
operations (11,283) (159,389) 13,685 170,876 (95,566) (315,492) (162,849) (1,890,855)
Other Income (Expenses)
Interest, net - - - (5,293) (22,007) (64,240) (91,085) (74,666)
Other - - - - - 92,653 20,703 -
-----------------------------------------------------------------------------------------
Total - - - (5,293) (22,007) 28,413 (70,382) (74,666)
I(L)BITP (11,283) (159,389) 13,685 165,583 (117,573) (287,079) (233,231) (1,965,521)
Provision for income taxes - - - 27,414 (27,582) (800) - -
-----------------------------------------------------------------------------------------
Net Income (loss) $(11,283) $(159,389) $13,685 $138,169 $(89,991) $(287,879)$(233,231)$(1,965,521)
=========================================================================================
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) (0.08)
Diluted $ (56.42) (796.96) 45.62 0.00 (0.01) (0.01) (0.01) (0.08)
Pro forma weighted average
Common and
equivalent shares
Basic 200 200 300 40,000,000 10,000,000 20,000,000 21,267,956 25,105,206
Diluted 200 200 300 40,000,000 10,000,000 20,000,000 21,267,956 25,105,206
OTHER DATA
Capital expenditures 3,771 74,056 156,367 148,467 265,259 147,104 611,227 400,200
Net sales increase - 4375% 210% 79% 16% -19% 58% 34%
Income from operations
increase - -1313% 109% 1149% -169% -168% 49% (1061%)
Income from operations
margin -51% -16% 0% 3% -2% -6% -2% (17%)
BALANCE SHEET DATA:
Cash and cash equivalents,
net of cash overdraft 6,538 38,943 83,404 (98,892) (21,847) (45,641) 600 600
Working capital deficiency (6,434) (115,816) (220,457) (206,613) (256,756) (524,839) (281,571) (786,463)
Total assets 34,221 272,655 492,240 555,513 852,461 1,179,320 2,159,806 2,529,427
Total debt (1) 45,504 397,341 635,095 637,568 1,006,272 1,713,721 1,509,479 2,526,220
Total stockholders' equity (11,283) (124,686) (142,855) (82,055) (153,811) (534,401) 650,327 3,207
40
(1) 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.
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.
41
o International Governmental Relationships - Approved to ship for personal use
consumption in Australia, Canada, China, Indonesia, Japan, Mexico, South Korea
and Taiwan. In each country there are similar needs to obtaining approval to do
business there. There are licenses and product registrations.
Currently, Global is looking to gain product registration for wholesale and
resale distribution within Australia, Canada, China, Indonesia, Japan, Mexico,
South Korea and Taiwan. Each country has a personal use law which allows
individuals to basically order for their own consumption "PUC," and we are
shipping to many individuals in this manner. Our goal is to register the
products which we have that do not require any modifications of formulation to
be in compliance with that country's laws. Afterwards, we would analyze the
cost-to-benefit of reformulating any products for a specific country.
Generally, the process is similar in each country. The country's applicable
regulatory agencies are contacted for information and forms. The required forms
are completed and returned to the applicable agencies. Once the products are
reviewed by that country for content to insure no restricted supplements or
ingredients are included, they issue a temporary product registration approval
which is followed up with a final approval after substantive testing by them.
Following is a summary by country of our current progress:
AUSTRALIA We can currently ship all products into Australia for personal usage
consumption. We have not begun to actually register individual products for
wholesale and retail distribution in Australia.
CANADA: We have registered and were granted corporate registrations for the
following Provinces in Canada: British Columbia, Ontario, Alberta, Saskatchewan,
Manitoba, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince
Edward Island..
We have tentative product approval and have been issued product license numbers
for the following products:
PRODUCT FILE # SUBMISSION #
Oxygen Elements Plus 100903 100903
Silica Plus 100882 100882
Super Sea Essentials 100907 100907
Mega Minerals Plus 100908 100908
HGH-At-Night 100904 100904
Daily Vita-Veg 100881 100881
Noni Juice 100899 100899
Coral Complete 101153 101153
Mineral Milk Powder 101094 101094
L-H-B 101098 101098
Colostrum FM 101099 101099
Active Enzymes 101101 101101
ThreeLac 101328 101328
We are seeking Site Licensing approval in Canada and are in the process
ofcompleting the application and submitting it to the Natural Health Product
Division.
42
We are applying for Direct Selling license applications and submitting a bond in
the following provinces: British Columbia, Ontario, Alberta, Saskatchewan,
Manitoba, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince
Edward Island..
CHINA: We can currently ship all products into China for personal usage
consumption. We have not begun to actually register individual products for
wholesale and retail distribution.
INDONESIA: We can currently ship all products into Indonesia for personal usage
consumption. We have not begun to actually register individual products for
wholesale and retail distribution.
JAPAN: Utilizing Paradigm World Marketing, we are allowing a local foreign
company to handle the product registration process. We are able to ship all of
our products in Japan at the current time for personal usage consumption. We are
applying for a branch office in Japan which should be formalized by the end of
the first quarter of 2005.
MEXICO: We can currently ship all products into Mexico for personal usage
consumption. We have not begun to actually register individual products for
wholesale and retail distribution. We are negotiating an agreement with existing
distributors to allow them to have our products registered and give them
exclusive selling rights under currently undetermined criteria.
SOUTH KOREA: We can currently ship all products into South Korea for personal
usage consumption. We have not begun to actually register individual products
for wholesale and retail distribution. We are negotiating an agreement with
existing distributors to allow them to have our products registered and give
them exclusive selling rights under currently undetermined criteria.
TAIWAN: We can currently ship all products into Taiwan for personal usage
consumption. We have not begun to actually register individual products for
wholesale and retail distribution. We are negotiating an agreement with existing
distributors to allow them to have our products registered and give them
exclusive selling rights under currently undetermined criteria.
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. Our membership
base is composed of both retail and wholesale customer, and Independent Business
Owners. Retail and Wholesale customers are typically members who purchase for
personal consumption. Independent Business Owners typically build a business
selling to retail and wholesale customers. Anyone desiring to become a member
need only apply and pay the annual membership fee. The annual membership fees
are $14.95 for wholesale customer members and $29.95 for Independent Business
Owner members. The retail customers have no cost savings in purchasing product,
whereas the wholesale members cans save up to 33% in purchases and the
Independent Business Owner can save up to 33% in purchases and earn up to 61% in
43
commissions off of the sales of members in their personal sales organization.
Support services such as processing orders, live product information assistance,
auto-emails, announcements, scheduled conference calls with executives and
guests from the health industry and business websites are included in the annual
fees for all members. With the member's annual membership fee, Global offers
free training and support in marketing efforts including a personalized website,
training in business building through its Fast Trax Business Plan and online
videos to educate members on products and marketing strategies. For a fee of
around $150, both members and non-members can attend training programs through
its motivational and educational regional events that provide one-on-one
interaction with executives of the company and other motivational speakers.
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 have lowered the overall
product Cost of Sales by up to 4% in 2004 for products manufactured in-house.
Global has three full time programmers and two part time programmers on staff.
44
Marketing Plan
Global 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.
Members are not a traditional sales force, because as members, they are able to
operate their own businesses and sell Global's products. Our members concentrate
on selling the Company's products.
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. 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
45
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 5% monthly through 2005 and approximately
8.3% monthly in 2006,
o Cost of sales will decline with increased utilization of current manufacturing
capacity, the current installed manufacturing capacity is believed more than
adequate for the company's anticipated needs through 2006, Global's facility has
been up and running since mid-2003,
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 General and administrative expense are expected to decline. Over a two year
period, general and administrative expenses are anticipated to decline
significantly as a percentage of net sales due to not needing proportionately
more employees to handle increased workloads.
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, the impact on sales of adding new products will be minimal in the
beginning months of availability and more sustained after six or more months of
availability to the members and releasing fewer or more new products within a
twelve month period would not be expected to negatively impact sales,
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.
46
2005 2006 2007
--------------------------- -------------------------- ---------------------------
--------------- ----------- --------------- ---------- ---------------- ----------
Revenue $16,000,000 $32,000,000 $50,000,000
Cost of sales 9,120,000 57.0% 17,600,000 55.0% 26,500,000 53.0%
Gross profit 6,880,000 43.0% 14,400,000 45.0% 23,500,000 47.0%
Operating expenses 6,500,000 40.6% 8,650,000 27.0% 14,720,000 29.4%
Net income (loss)before taxes 380,000 2.4% 5,750,000 17.9% 8,780,000 17.6%
Income tax provision * - 2,260,000 7.1% 3,472,000 6.9%
Net income (loss) 380,000 2.4% 3,490,000 10.9% 5,308,000 10.6%
Earnings before interest,
taxes, depreciation, amortization
and stock compensation expense 951,233 5.9% 4,102,900 12.8% 5,920,900 11.8%
* 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 and 2004. 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.
With the funding from this offering, Global is not anticipating the need to
raise additional funds within the next twelve months outside of operating
results. Should the results of this offering be less than anticipated, Global
will need to reassess its long term goals relative to offering proceeds.
Regardless, Global feels confident it can meet its cash requirements over the
next twelve months without raising additional funds through the public arena.
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 mid-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
47
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 approximate existing monthly contractual
obligations which are not sales related:
$210,000 Payroll
20,700 Capital leases
50,700 Operating leases
Commissions vary directly with sales and averaged approximately $285,000 per
month during 2004.
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,
----------------------------------------------------------------------------------
--------------- ------------- --------------- --------------
2001 2002 2003 2004
Unaudited
--------------- ------------- --------------- -------------
(DOLLARS IN THOUSANDS)
Net Sales $ 6,448 100.0 % $ 5,196 100.0 % $ 8,222 100.0 % $ 11,041 100.0 %
Cost of goods sold 4,456 69.1 3,388 65.2 4,987 60.6 7,016 63.5
------- ------- ------ ------ ------- ------- ------- ------
Gross profit 1,992 30.9 1,808 34.8 3,235 39.3 4,025 36.5
=======================
Total operating
expenses 2,088 32.4 2,123 40.9 3,398 41.3 5,916 53.6
------- ------- ------ ------ ------- ------- ------- ------
Income (loss) from
operations (96) (1.5) (315) (6.1) (162) (1.9) (1,891) (17.1)
=======================
Other income (expense) (22) (0.3) 28 0.5 (70) (0.9) (75) (0.7)
Provision for income
taxes 28 0.4 (1) - - - - -
------- ------- ------ ------ ------- ------- ------- ------
Net income (loss) $ (90) (1.4) % $ (288) (5.5) % $ (233) (2.8) % $ (1,966) (17.8) %
======= ======= ====== ====== ======= ======= ======= ======
48
Results of Operations
Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December 31,
2004 Net Sales.
The following table shows comparative net sales results categorized by product
line for the fiscal years indicated:
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
----------------------- ------ ---- -----------------------
2003 2004
----------------------- -----------------------
-----------------------------------------------------------
(DOLLARS IN THOUSANDS)
Life Support $ 3,229 39.3 % $ 3,428 31.1 %
Nature's Turn 3,542 43.1 5,841 52.9
Technological 132 1.6 213 1.9
Marketing Aids 150 1.8 53 0.5
Packs 502 6.1 523 4.7
Other 667 8.1 983 8.9
----------- ----------- ----------- -----------
Total $ 8,222 100.0 % $ 11,041 100.0 %
=========== =========== =========== ===========
Life Support product sales increased about 6% in 2004 from 2003. 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.
49
The Nature's Turn product line increased in total sales by over 64% from 2003 to
2004. Its contribution to the total mix of products rose over 10% to 52.9% of
total sales in 2004. Threelac sales represent the greatest portion of Global's
sales at over 50% of total sales for 2004.
Technological sales evidenced an increase in sales of 61% in 2004 over 2003.
Smart Magnets are currently the only technological products offered. There are
over twelve Smart Magnets available with more being developed and tested for
specific health and wellness support.
Sales of Marketing Aids decreased over 64% in 2004 from 2003. Flyers, samples,
videos and tape sales represented the majority of this decline. Global is
currently reviewing the existing sales aids for possible improvements to
increase sales. It appears that as the Company website is improved with more
downloadable items, members are preferring to refer to the website for their
sales aids. This added benefit to our members may become company policy with a
greater emphasis in providing downloadable sales aids rather than formal
literature and other items.
Packs represent a commodity used by members to generate sales through volume
purchases. As packs increase, there is a direct correlation to the efforts of
members to generate sales. There was an increase in pack sales of over 4% in
2004 over 2003.
Other sales items increased in volume by over 47%. The increase in 2004 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
2005, all product sales and other related sales will continue to increase.
The Gross Profit increased in dollars but decrease by nearly 3% of net sales to
24.4% in 2004 compared to 2003's 39.3% as a percentage of sales. Global
experienced a delay in receiving its Threelac product in the second quarter of
2004. This delay resulted in fewer sales of our leading product, consequently a
reduced profit margin.
Operating Expenses as a percentage of sales increased approximately 73% in 2004
over 2003. Stock compensation costs of $953,101 represented 16% of operating
expenses and are not expected to be recurring after 2004 in this magnitude.
Salaries and wages increased 46% and represent over 38% of operating expenses.
Current personnel levels including additional information technology personnel
and salaries are considered adequate. Advertising increased over 132% and
contributed to the Company's 2004 increased sales. Amortization and depreciation
saw over a 60% increase due to capital expenditures made during 2004. General
computer and programming expenses decreased around 38% as existing personnel and
equipment are being utilized. Consulting fees increased over 263% due
50
to the use of programming experts to help plan the replacement of existing
applications. Legal expenses continued to increase over 11% due to 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 7% in 2004 over 2003.
Other Income (Expense) primarily consists of interest expense. Interest expense
decreased nearly 28% for the year 2004 over 2003. This decrease is primarily
attributed to the notes and leases payable carried by the Company being held for
a shorter period of time.
Provision for Income Taxes. For the years ended 2004 and 2003, Global Health
Trax, Inc. did not incur any federal income tax liability. Net operating loss
carryforwards totaling approximately $1,558,000 federal and $366,000 state
amounts at December 31, 2004 are being carried forward. The net operating loss
carryforwards expire at various dates through 2025 for federal purposes and 2015
for state purposes.
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 % $ 3,229 39.3 %
Nature's Turn 1,336 25.7 3,542 43.1
Technological 89 1.7 132 1.6
Marketing Aids 93 1.8 150 1.8
Packs --- --- 502 6.1
Other 210 4.0 667 8.1
----------- ----------- ----------- -----------
Total $ 5,196 100.0 % $ 8,222 100.0 %
=========== =========== =========== ===========
Life Support product sales decreased about 7% in 2003 from 2002. The flagship
products of Oxygen Elements Plus(TM) and Silica Plus(TM) experienced a period of
four months of interrupted delivery from the Company's provider. The
interruptions stopped when Global began manufacturing its own products in the
summer of 2003. Until early 2003, Global Health Trax, Inc. had been outsourcing
the 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 165% from 2002
to 2003. Its contribution to the total mix of products rose over 17% to 43.1% 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 increased over 61% 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 270%. 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
continue to increase.
The Gross Profit increase to 39% in 2003 over 2002's 34% 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 59% 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 75% 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
51
to the hiring of personnel in-house. Equipment rental increased 117% partly in
response to moving into the new facility. Legal expenses increased 16% due to
actions taken by Global Health Trax, Inc. in relation to its efforts to become a
public entity. Rent expense rose about 106% with the higher rent costs of the
new facility. With the new facility, repairs and maintenance expenses rose 391%.
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 nearly 100% 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, 2003 and 2004, Global's primary capital
requirements were as follows:
YEAR ENDED DECEMBER 31,
----------- --- ----------- --- ---------------
2002 2003 2004
----------- --- ----------- --- ---------------
(DOLLARS IN THOUSANDS)
Working capital deficit $ 525 $ 282 $ 786
Capital expenditures 147 611 400
----------- ----------- ------------
Total capital requirements $ 672 $ 893 $ 1,186
=========== =========== ============
These capital requirements, which primarily reflect the growth of Global, were
satisfied through internally generated funds, and loans. These proceeds were as
follows:
52
YEAR ENDED DECEMBER 31,
---------- --- ----------- --- ------------
2002 2003 2004
---------- --- ----------- --- ------------
(DOLLARS IN THOUSANDS)
Cash from the sale of stock $ - $ 531 $ 365
Working capital provided by (used in) operations (243) 90 (335)
Proceeds from loans 525 400 501
---------- ----------- ------------
Total $ 282 $ 1,021 $ 531
========== =========== ============
Global's cash requirements through fiscal 2005 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. The Company incurred a net loss of $1,965,521 and negative cash flows
from operations of $334,943 for the year ended December 31, 2004 and had a
working capital deficiency of $786,463 at December 31, 2004. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The Company's ability to continue as a going concern is dependent upon
it achieving profitability and generating sufficient cash flows to meet its
obligations as they come due. Management believes that its plan to diversify and
to control its overhead will enable it to achieve profitability. Management is
also pursuing additional capital financing. We have raised capital to meet our
working capital needs in the past and are in the process of filing this
offering. Should the Company not raise the entire offering amount, operations
will be maintained with slower growth expectations. However, if we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity, and
financial condition. In their report in connection with our 2004 financial
statements, our auditors included an explanatory paragraph stating that, because
we have incurred a net loss of $1,965,521 and a negative cash flow from
operations of $334,943 for the year ended December 31, 2004, and had a working
capital deficiency of $786,463 the year ended December 31, 2004, there is
substantial doubt about our ability to continue as a going concern
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.
With the funding from this offering, Global is not anticipating the need to
raise additional funds within the next twelve months outside of operating
results. Should the results of this offering be less than anticipated, Global
will need to reassess its long term goals relative to offering proceeds.
Regardless, Global feels confident it can meet its cash requirements over the
next twelve months without raising additional funds through the public arena.
53
Critical Accounting Policies
Revenue recognition and deferred revenue
The Company recognizes revenue when risk of loss and title to the product is
transferred to the customer, which occurs at shipment. Shipping and handling
fees are included in sales. Payments received for unshipped products are
deferred until shipment and are included in accounts payable.
The Company collects an annual membership fee from new members and an annual
renewal fee from existing members that are recognized on a straight-line basis
over a twelve-month period. Annual renewal fees totaled $405,696 and $217,682
for the years ended December 31, 2004 and 2003, respectively, and are included
in sales in the accompanying consolidated statement of operations. Annual
renewal fees the Company has received but which have not been recognized in
revenue are recorded as deferred membership fees.
Shipping and handling fees
Shipping and handling costs billed to customers are included in sales and the
related costs are included in cost of goods sold. Shipping and handling costs
are charged to expense as incurred. Total shipping and handling costs of
$586,615 and $402,160 are included in cost of goods sold for the years ended
December 31, 2004 and 2003, respectively.
Product returns
Product returned within the first 60 days of purchase will be refunded at 100
percent of the sales price to 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. Product returns are tracked for a potential reserve
founded on historical experience.
Member incentives
The Company's commission structure is based on a multi-level membership force.
Commissions are recorded for sales, including commissions based on bonus points
assigned to products which are independent of the product's price. Commissions
totaled $3,424,333 and $2,485,571 for the years ended December 31, 2004 and
2003, respectively, and are included in cost of sales in the accompanying
consolidated statements of operations
Inventory
Inventory is stated at the lower of cost or market using the first-in, first-out
method.
Stock - based expense
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosures" as well as those outlined in SFAS No. 123,
"Accounting for Stock-Based Compensation". As permitted by SFAS 148 and SFAS
123, the Company continues to apply the provisions of Accounting Principles
Board Opinion (APB) No. 25, "Accounting for Stock issued to Employees" and
related interpretations in accounting for the Company's stock option plan.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the estimated fair value of the Company's stock at the date of the
grant, over the amount an employee must pay to acquire the stock. Stock based
54
awards for non-employees are accounted for at fair value equal to the excess of
the estimated fair value of the Company's stock over the option price using an
estimated interest rate to calculate the fair value of the option.
Recent Accounting Pronouncements
In November 2004, the FASB issued Statement of Financial Accounting Standards
No. 151, "Inventory Costs". This Statement amends the guidance in ARB No. 43
Chapter 4 Inventory Pricing, to require items such as idle facility costs,
excessive spoilage, double freight and rehandling costs to be expensed in the
current period, regardless if they are abnormal amounts or not. This Statement
will become effective for us in the first quarter of 2006. The adoption of SFAS
No. 151 is not expected to have a material impact on our financial condition,
results of operations, or cash flows.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" (SFAS 123R), which revises SFAS No. 123. SFAS 123R also supersedes APB
No. 25 and amends SFAS No. 95, "Statement of Cash Flows". In general, the
accounting required by SFAS 123R is similar to that of SFAS No. 123. However,
SFAS No. 123 gave companies a choice to either recognize the fair value of stock
options in their income statements or disclose the pro forma income statement
effect of the fair value of stock options in the notes to the financial
statements. SFAS 123R eliminates that choice and requires the fair value of all
share-based payments to employees, including the fair value of grants of
employee stock options, be recognized in the income statement, generally over
the option vesting period. SFAS 123R must be adopted no later than July 1, 2005.
Early adoption is permitted.
The Company is currently evaluating the timing and manner in which it will adopt
SFAS 123R. As permitted by SFAS 123, the Company currently accounts for
share-based payments to employees using APB 25's intrinsic value method.
Accordingly, adoption of SFAS 123R's fair value method will have an effect on
results of operations, although it will have no impact on overall financial
position. The impact of adoption of SFAS 123R cannot be predicted at this time
because it will depend on levels of share-based payments granted in the future.
However, had SFAS 123R been adopted in prior periods, the effect would have
approximated the SFAS 123 pro forma net loss and loss per share disclosures as
shown above. SFAS 123R also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as currently required, thereby reducing net
operating cash flows and increasing net financing cash flows in periods after
adoption.
Agreements
Global has two strategic agreements with vendors at the present; Paradigm World
Marketing (Paradigm) and Snowden Co., Ltd.(Snowden), both of which are
headquartered in Japan.
Paradigm is being contracted to assist Global in entering the Japanese market
with its product line. They are contracted to use their best efforts to solicit
and promote the sale of Global's products to customers in Japan including
product registration, corporate office representation, initiation of promotional
and recruiting programs to attract business leaders, maintain a call center,
process interim banking needs, and develop and translate collateral material for
use in Japan. The contract calls for $29,700 in one-time fees for office setup,
$10,000 in monthly fees for office maintenance, $10,000 per product registration
and a graduated commission structure based on gross sales payable within ten day
s of each succeeding month's end. The agreement contains performance clauses for
one and two years. Paradigm is obligated to produce gross sales in Japan of
$50,000 for the year within the first year of operation beginning in the first
quarter of 2005 and $100,000 per month within two years of beginning operations.
If Paradigm does not attain the $100,000 per month in sales by the end of the
second year of operations, Global is only required to pay an incentive bonus for
two years after the second performance year has ended. The agreement is ongoing
indefinitely after August 26, 2004 and is terminable by either party with
ninety-day notice. The future effect on Global's financial condition of this
agreement should be positive.
Snowden is the supplier of Threelac which currently represents 51% of Global's
gross sales. The agreement with Snowden extends through June 30, 2005. The price
is established for this period and provides for exclusivity to Global to sell
Threelac in the United States of America, Canada, Mexico, Australia and New
Zealand during the term of the agreement. Global has agreed to purchase 900,000
individual units per month through the agreement for a total cost per annum of
approximately $1,080,000. The agreement is renewable so long as the minimum
purchase amount is maintained, and it is anticipated that Global will continue
to renew the agreement over the next ten years through 2014. The future effect
on Global's financial condition of this agreement should be positive.
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.
55
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
("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 claims in
advertising and labeling in the sales of our vitamins, mineral supplements and
other products 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"). Advertising
is primarily regulated by the Federal Trade Commission.
56
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.
57
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 2005. A skin care line is being researched for introduction in 2005 with
possible household cleaning products and functional foods in 2006.
Employees.
As of the date of this prospectus Global Health Trax, Inc. employed 67 persons,
of whom approximately 9 were in management, 16 in sales, 6 in marketing, 1 in
research and development, 9 in warehouse, 3 in manufacturing and 23 in
administration. Global is not party to, and does not expect to be a party to,
any collective bargaining arrangements. Global currently enjoys very good
relations with its employees and is not aware of any pending or threatened legal
actions or disputes of any kind.
Facilities.
Global leases a 47,550 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. The lease is triple net and
contains a cost of living increase as well as a cost of living decrease. A
triple net lease is one 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. Since the inception of the lease, the monthly base rent has
increased $588.04 to $26,720.04 as a result of a 2.3% increase in the Corporate
Offices, Research Laboratories, Light Manufacturing index. Should the index
utilized have reflected a decrease of 2.3%, the base rent would have declined to
$25,530.96 per month.
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,
58
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. Pursuant to a stockholders'
meeting on November 15, 2003, a 2 for 1 forward stock split increased Mr.
Chiasson's 500,000 shares to 1,000,000 shares issued. The promissory note of
$125,000 continues to be secured by the full amount of shares issued of
1,000,000 shares after November 15, 2003.
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.
Further, we have recently completed our capitalization with a private offering
that resulted in $1,817,530 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 3,705,207
shares of common stock.
The Tom E. Dixson Trust, the trustee of whom is Tom E. Dixson, 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
7.9% of the Company's outstanding common stock at December 31, 2004. The
facility lease agreement is a non-cancelable operating lease and extends into
2012. Mr. Dixson has also been granted an option on 400,000 shares of common
stock at $.25 per share. None of these options have been exercised. 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 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 Five Million Shares (5,000,000). 2,534,150 incentive stock
options were granted during the year ended December 31, 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 2,000,000 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. 919,500 non-statutory
stock options were granted during the year ended December 31, 2004.
59
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
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 57 record holders of our common
stock.
There are 25,105,206 outstanding shares of our common stock which can be sold
pursuant to Rule 144. There are also 3,453,650 options outstanding to purchase
shares of our common stock. There are not outstanding warrants or outstanding
securities convertible into 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.
On January 26, 2005 Global was sued in San Diego County Superior Court by
Solutions Consulting Group, Inc. for delcaratory and injunctive relief arising
out of a consulting contract for implementing accounting software and
programming needs for an order entry system. Global believes the contract was
breached and had thereon declined to make the balance of payments due. The total
amount in dispute is approximately $45,000. The dispute was settled out-of-court
for $35,000.
EXPERTS
Our consolidated financial statements which appear in this prospectus and in the
registration statement have been audited by Weinberg & Company, P.A. with
respect to the balance sheets at December 31, 2004 and 2003, and the statements
of operations and cash flows for the years ended December 31, 2004 and 2003, and
are included in reliance upon the report of said firm as experts in accounting
and auditing.
60
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.
61
CONTENTS
PAGE 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PAGES 2 - 3 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003
PAGE 4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
PAGE 5 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIENCY) FOR THE YEARS ENDED
DECEMBER 31, 2004 AND 2003
PAGES 6 - 7 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
PAGES 8 - 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 AND 2003
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Global Health Trax Inc.:
We have audited the accompanying consolidated balance sheets of Global Health
Trax Inc. and subsidiaries (the "Company"), as of December 31, 2004 and 2003,
and the related consolidated 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 audit 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 subsidiaries as of December 31, 2004 and 2003, 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.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company incurred a net loss of $1,965,521
and a negative cash flow from operations of $334,943 for the year ended December
31, 2004, and had a working capital deficiency of $786,463 at December 31, 2004.
These matters raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 4, 2005
GLOBAL HEALTH TRAX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2004 and 2003
ASSETS
2004 2003
---------------- ---------------
---------------- ---------------
CURRENT ASSETS
Cash $ 600 $
600
Inventory 879,154 633,034
Deposit held by credit card processor 151,406 122,415
Accounts receivable, net 29,174 24,977
Prepaid expenses 35,803 87,097
Advances to employees 18,249 1,714
---------------- ---------------
Total current assets 1,114,386 869,837
---------------- ---------------
Property and equipment, net
1,065,348 881,790
---------------- ---------------
Intangible assets, net 291,042 309,805
---------------- ---------------
OTHER ASSETS
Deposits 50,839 63,030
Interest receivable 7,812 1,562
Other receivable, related parties - 33,782
---------------- ---------------
Total other assets 58,651 98,374
---------------- ---------------
Total assets $2,529,427 $2,159,806
================ ===============
The accompanying notes are an integral part of
these financial statements.
F-2
GLOBAL HEALTH TRAX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31, 2004 and 2003
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 70,793 $52,943
Accounts payable 779,814 642,501
Accrued commissions 375,720 244,462
Accrued expenses 168,997 63,864
Current portion of notes payable 155,437 -
Current portion of notes payable, related parties 100,000 -
Current portion of capital lease obligations 55,447 42,202
Deferred membership fees 194,641 105,436
----------------- ------------------
Total current liabilities 1,900,849 1,151,408
----------------- ------------------
LONG-TERM LIABILITIES:
Notes payable, net of current portion 364,500 263,970
Notes payable, related parties, net of current portion 145,000 -
Capital lease obligations, net of current portion 107,616 91,401
Other payable 8,255 2,700
----------------- ------------------
Total long-term liabilities 625,371 358,071
----------------- ------------------
Total liabilities 2,526,220 1,509,479
----------------- ------------------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares, no par value, no shares
issued and outstanding - -
Common stock, authorized 100,000,000 shares, no par value; 25,105,206
and 24,149,308 shares issued and outstanding 1,987,993 1,560,193
Stock subscription receivable (187,500) (125,000)
Additional paid-in capital 1,342,883 75,000
Deferred stock based compensation (384,016) (69,234)
Accumulated deficit (2,756,153) (790,632)
----------------- ------------------
Total stockholders' equity 3,207 650,327
----------------- ------------------
Total liabilities and stockholders' equity $ 2,529,427 $ 2,159,806
================= ==================
The accompanying notes are an integral part of
these financial statements.
F-3
GLOBAL HEALTH TRAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2004 and 2003
2004 2003
----------------- -----------------
Sales, net $ 11,041,215 $ 8,221,996
Cost of sales 7,015,596 4,986,793
----------------- -----------------
Gross profit 4,025,619 3,235,203
----------------- -----------------
Operating expenses
Selling, general and administrative 4,564,306 3,114,001
Stock-based compensation and expense 953,101 5,766
Depreciation and amortization 399,067 278,285
----------------- -----------------
Total operating expenses 5,916,474 3,398,052
----------------- -----------------
Loss from operations (1,890,855) (162,849)
----------------- -----------------
Other income (expense)
Interest expense (74,666) (91,085)
Gain on extinguishment of debt - 20,703
----------------- -----------------
Total other income (expense) (74,666) (70,382)
----------------- -----------------
$ (1,965,521) $ (233,231)
Net loss
================= =================
Loss per common share: Basic and diluted $ (0.08) $ (0.01)
================= =================
Weighted average common shares outstanding:
Basic and diluted 25,105,206 21,267,956
================= =================
The accompanying notes are an integral part of
these financial statements.
F-4
GLOBAL HEALTH TRAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIENCY)
For The Years Ended December 31, 2004 and 2003
Stock Additional Deferred
Common Stock Subscription Paid In Stock Based Accumulated
Number Amount Receivable Capital Compensation Deficit Total
----------- ---------- ------------ -------------- ------------- ------------- -------
Balance, January 1,
2003 20,000,000 $ 23,000 $ - $ - $ - $ (557,401) $ (534,401)
Net proceeds
from issuance
of stock 1,202,874 531,000 - - - - 531,000
Stock issued on
conversion of
notes payable 2,046,434 921,230 - - - - 921,230
Stock issued
for note
receivable 1,000,000 125,000 (125,000) 75,000 (75,000) - -
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
Net proceeds
from issuance
of stock 455,898 365,300 - - - - 365,300
Stock issued
for note
receivable 500,000 62,500 (62,500) 387,500 (387,500) - -
Fair value of
stock options
issued to
non-employees - - - 355,260 - - 355,260
Intrinsic value
of stock
options issued
to employees - - - 525,123 (525,123) - -
Amortization of
deferred
compensation - - - - 597,841 - 597,841
Net loss - - - - - (1,965,521) (1,965,521)
----------- ---------- ------------ -------------- ------------- ------------- ---------
----------- ---------- ------------ -------------- ------------- ------------- ---------
Balance, December
31, 2004 25,105,206 $ 1,987,993 $ (187,500) $ 1,342,883 $ (384,016) $ (2,756,153) $ 3,207
=========== ========== ============ ============== ============= ============= =========
The accompanying notes are an integral part of these financial statements.
F-5
GLOBAL HEALTH TRAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2004 and 2003
2004 2003
------------------ ------------------
Cash flows from operating activities
Net loss for the year $ (1,965,521) $ (233,231)
Adjustments to reconcile net loss for the year to net cash
(used in) provided by operating activities
Depreciation and amortization 399,067 278,285
Stock-based compensation and expense 953,101 5,766
Loss on disposal of property and equipment 46,640
-
Gain on extinguishment of debt (20,703)
-
Changes in operating assets and liabilities:
Inventory (246,120) (333,424)
Deposit held by credit card processor (28,991) (8,298)
Accounts receivable (4,197) 8,891
Prepaid expenses 51,294 10,525
Income tax receivable 27,582
-
Advances to employees (16,535) (566)
Deposits 12,191 (15,398)
Interest receivable (6,250) (1,562)
Accounts payable 137,313 245,797
Accrued expenses 107,047 46,158
Accrued commissions 131,258 35,946
Deferred membership fees 89,205 41,489
Other payable 5,555 2,700
------------------ ------------------
Net cash (used in) provided by operating activities (334,943) 89,957
------------------ ------------------
Cash flows from investing activities
Purchase of property and equipment (400,200) (611,227)
Decrease (increase) in other receivable, related parties 33,782 (41,845)
Purchase of intangible assets (138,815) (173,642)
------------------ ------------------
Net cash used in investing activities (505,233) (826,714)
------------------ ------------------
Cash flows from financing activities
Increase (decrease) in cash overdraft 17,850 (107,415)
Proceeds from notes payable 256,000 400,291
Proceeds from notes payable, related parties 245,000 -
Principal payments on notes payable (1,500) (21,670)
Principal payments on capital leases obligations (42,474) (65,449)
Net proceeds from issuance of stock 365,300 531,000
------------------ ------------------
Net cash provided by financing activities 840,176 736,757
------------------ ------------------
The accompanying notes are an integral part of
these financial statements.
F-6
GLOBAL HEALTH TRAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For The Years Ended December 31, 2004 and 2003
2004 2003
Increase in cash and cash equivalents during the year
- -
Cash and cash equivalents, beginning of year 600 600
--------------- ------------------
Cash and cash equivalents, end of year $ 600 $ 600
=============== ==================
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 74,655 $ 91,085
=============== ==================
Income taxes $ 800 $ 800
=============== ==================
Non-cash investing and financing activities:
Issuance of stock options $ 880,383 $ -
Intrinsic value of stock issued to officer 387,500 75,000
Stock issued for conversion of notes payable - 921,230
Stock issued to officer for note receivable 62,500 125,000
Stock cancelled for other receivable, related party 40,037
-
Acquisition of equipment through capital lease obligations 77,988 180,161
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 convertible notes payable 1,467 17,947
The accompanying notes are an integral part of
these financial statements.
F-7
GLOBAL HEALTH TRAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004 AND 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Global Health Trax Inc. and subsidiaries (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 independent
business owners (members) and other direct sales venues. The Company is an
international neutraceutical manufacturing and wholesale distributor of
proprietary health and wellness products, some of which are patented by the
Company.
The Company incurred a net loss of $1,965,521 and negative cash flows from
operations of $334,943 for the year ended December 31, 2004 and had a working
capital deficiency of $786,463 at December 31, 2004. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon it
achieving profitability and generating sufficient cash flows to meet its
obligations as they come due. Management believes that its plan to diversify and
to control its overhead will enable it to achieve profitability. Management is
also pursuing additional capital financing. We have raised capital to meet our
working capital needs in the past and are in the process of filing a Form SB-2
with the Securities and Exchange Commission in an Initial Public Offering.
However, if we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable to
us, this could have a material adverse effect on our business, results of
operations, liquidity, and financial condition. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Principles of consolidation
The consolidated financial statements include the accounts and operations of
Global Health Trax Inc., it's wholly owned subsidiary in Canada, GHT Canada, and
Health Specialties, Inc. Intercompany accounts and transactions have been
eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Accounts receivable
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. An appropriate allowance for doubtful accounts is
included in accounts receivable. Concentrations of credit risk with respect to
accounts receivable are limited due to the nature of the Company's receivables.
Inventory
Inventory is stated at the lower of cost or market using the first-in, first-out
method.
Property and equipment
F-8
Property and equipment are stated at cost less accumulated depreciation and
amortization. Expenditures for additions, renewals, and improvements are
capitalized. Costs of repairs and maintenance are expensed when incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
shorter of the lease term or the asset's useful life. Assets are depreciated
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
Intangible assets
Intangible assets with finite lives are amortized over their estimated useful
lives, which are three years for software development costs and website
development costs, generally three years for patents and formulas, and five
years for good manufacturing practices. In addition to amortization, intangible
assets are tested at least annually for impairment.
Impairment of long-lived assets
Property and equipment and other long-lived assets, including amortizable
intangible assets, are evaluated for impairment whenever events or conditions
indicate that the carrying value of an asset may not be recoverable. If the sum
of the expected undiscounted cash flows is less than the carrying value of the
related asset or group of assets, a loss is recognized for the difference
between the fair value and carrying value of the asset or group of assets. Such
analyses necessarily involve significant judgment. There were no impairment
losses recorded in 2004 or 2003.
Revenue recognition and deferred revenue
The Company recognizes revenue when risk of loss and title to the product is
transferred to the customer, which occurs at shipment. Shipping and handling
fees are included in sales. Payments received for unshipped products are
deferred until shipment and are included in accounts payable.
The Company collects an annual membership fee from new members and an annual
renewal fee from existing members that are recognized on a straight-line basis
over a twelve-month period. Annual renewal fees totaled $405,696 and $217,682
for the years ended December 31, 2004 and 2003, respectively, and are included
in sales in the accompanying consolidated statement of operations. Annual
renewal fees the Company has received but which have not been recognized in
revenue are recorded as deferred membership fees.
Shipping and handling fees
Shipping and handling costs billed to customers are included in sales and the
related costs are included in cost of goods sold. Shipping and handling costs
are charged to expense as incurred. Total shipping and handling costs of
$586,615 and $402,160 are included in cost of goods sold for the years ended
December 31, 2004 and 2003, respectively.
Product returns
Product returned within the first 60 days of purchase will be refunded at 100
percent of the sales price to first-time
F-9
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. Product
returns are tracked for a potential reserve founded on historical experience.
Member incentives
The Company's commission structure is based on a multi-level membership force.
Commissions are recorded for sales, including commissions based on bonus points
assigned to products which are independent of the product's price. Commissions
totaled $3,424,333 and $2,485,571 for the years ended December 31, 2004 and
2003, respectively, and are included in cost of sales in the accompanying
consolidated statements of operations
Concentration of suppliers
The Company purchased products from two vendors which accounted for 57% and 16%,
respectively, of product purchases in 2004, and 38% and 13%, respectively, of
product purchases in 2003. Any interruption in the Company's supply sources
could impact the Company's ability to meet customer demand and in turn adversely
affect future operating results.
Stock - based expense
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosures" as well as those outlined in SFAS No. 123,
"Accounting for Stock-Based Compensation". As permitted by SFAS 148 and SFAS
123, the Company continues to apply the provisions of Accounting Principles
Board Opinion (APB) No. 25, "Accounting for Stock issued to Employees" and
related interpretations in accounting for the Company's stock option plan.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the estimated fair value of the Company's stock at the date of the
grant, over the amount an employee must pay to acquire the stock. Stock based
awards for non-employees are accounted for at fair value equal to the excess of
the estimated fair value of the Company's stock over the option price using an
estimated interest rate to calculate the fair value of the option.
Had compensation cost for all stock option grants been determined based on their
fair value at the grant dates, consistent with the method prescribed by SFAS 148
and SFAS 123, our net loss and loss per share would have been adjusted to the
pro forma amounts indicated below:
Year ended December 31:
2004 2003
---- ----
Net loss $(1,965,521) $ (233,231)
Add: Stock-based expense included in net loss 953,101 -
Deduct: Fair value based stock-based expense (1,042,253) -
------------------ ------------------
------------------ ------------------
Pro forma net loss $(2,054,673) $ (233,231)
================== ==================
================== ==================
Basic and diluted earnings per share:
As reported $ (0.08) $ (0.01)
Pro forma under SFAS No. 123 $ (0.08) $ (0.01)
F-10
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. As of December 31, 2004, the Company had
granted stock options for 3,453,650 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 December 31, 2003, the
Company had no potentially dilutive securities.
Comprehensive income (loss)
The Company has no items of other comprehensive income (loss) for the years
ended December 31, 2004 and 2003.
Income taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized and
measured using enacted tax rates at the balance sheet date. Deferred tax expense
or benefit is the result of changes in deferred tax assets and liabilities.
Valuation allowances are established when necessary to reduce net deferred taxes
to amounts that are more likely than not to be realized.
Research and development
Research and development costs are charged to expense as incurred. Research and
development costs are included in selling, general, and administrative expenses
on the accompanying consolidated statements of operations and totaled $47,743
and $17,152 for the years ended December 31, 2004 and 2003, respectively.
Advertising
Advertising costs are charged to expense as incurred. Advertising costs are
included in selling, general, and administrative expenses on the accompanying
consolidated statements of operations and totaled $181,986 and $78,181 for the
years ended December 31, 2004 and 2003, respectively.
Fair value of financial instruments
The carrying value of the Company's cash and cash equivalents, accounts
receivable, payables, cash overdrafts, accrued liabilities, and related party
notes payable 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.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Recent Accounting Pronouncements
In November 2004, the FASB issued Statement of Financial Accounting Standards
No. 151, "Inventory Costs". This Statement amends the guidance in ARB No. 43
Chapter 4 Inventory Pricing, to require items such as idle facility costs,
F-11
excessive spoilage, double freight and rehandling costs to be expensed in the
current period, regardless if they are abnormal amounts or not. This Statement
will become effective for us in the first quarter of 2006. The adoption of SFAS
No. 151 is not expected to have a material impact on our financial condition,
results of operations, or cash flows.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" (SFAS 123R), which revises SFAS No. 123. SFAS 123R also supersedes APB
No. 25 and amends SFAS No. 95, "Statement of Cash Flows". In general, the
accounting required by SFAS 123R is similar to that of SFAS No. 123. However,
SFAS No. 123 gave companies a choice to either recognize the fair value of stock
options in their income statements or disclose the pro forma income statement
effect of the fair value of stock options in the notes to the financial
statements. SFAS 123R eliminates that choice and requires the fair value of all
share-based payments to employees, including the fair value of grants of
employee stock options, be recognized in the income statement, generally over
the option vesting period. SFAS 123R must be adopted no later than July 1, 2005.
Early adoption is permitted.
The Company is currently evaluating the timing and manner in which it will adopt
SFAS 123R. As permitted by SFAS 123, the Company currently accounts for
share-based payments to employees using APB 25's intrinsic value method.
Accordingly, adoption of SFAS 123R's fair value method will have an effect on
results of operations, although it will have no impact on overall financial
position. The impact of adoption of SFAS 123R cannot be predicted at this time
because it will depend on levels of share-based payments granted in the future.
However, had SFAS 123R been adopted in prior periods, the effect would have
approximated the SFAS 123 pro forma net loss and loss per share disclosures as
shown above. SFAS 123R also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as currently required, thereby reducing net
operating cash flows and increasing net financing cash flows in periods after
adoption.
NOTE 2 - INVENTORY
Inventory consists of the following as of December 31:
2004 2003
-------------- --------------
-------------- --------------
Raw materials $ 200,742 $ 64,510
Work in progress 3,964 32,866
Finished goods 674,448 535,658
-------------- --------------
-------------- --------------
$ 879,154 $ 633,034
============== ==============
NOTE 3 - PROPERTY AND EQUIPMENT
F-12
Property and equipment consists of the following as of December 31:
Property and equipment 2004 2003
----------------------------------------------------------- --------------- ------------------
----------------------------------------------------------- --------------- ------------------
Computer $ 638,191 $ 391,143
Equipment 555,495 389,453
Furniture and fixtures 82,683 69,463
Vehicles - 70,441
Leasehold improvements 398,229 346,351
--------------- ------------------
--------------- ------------------
Total $ 1,674,598
Accumulated depreciation and amortization (609,250) (385,061)
--------------- ------------------
--------------- ------------------
Property and equipment, net $ 1,065,348 $ 881,790
=============== ==================
Depreciation expense for the years ended December 31, 2004 and 2003 was $243,063
and $137,278, respectively.
Included in equipment is $304,299 and $168,042 of equipment under capital leases
at December 31, 2004 and 2003, respectively. Included in accumulated
depreciation and amortization is accumulated amortization of assets under
capital leases of $37,682 and $17,988 at December 31, 2004 and 2003,
respectively.
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 2004 and 2003:
Intangible Assets 2004 2003
--------------------------------------------------------- -------------- ----------------
--------------------------------------------------------- -------------- ----------------
Software development $ 173,767 $ 110,186
Patents and formulas 159,139 159,139
Website development 210,041 139,557
Good manufacturing practices 85,000 85,000
Training system development - 40,000
-------------- ----------------
-------------- ----------------
Total 627,947
Accumulated amortization (336,905) (224,077)
-------------- ----------------
-------------- ----------------
Intangible assets, net $ 291,042 $ 309,805
============== ================
Amortization expense of $156,005 and $141,007 for the years ending December 31,
2004 and 2003, respectively, is included in the accompanying consolidated
statements of operations.
Estimated amortization expense for the years ended:
December 31, 2005 $ 165,000
December 31, 2006 65,000
December 31, 2007 19,000
December 31, 2008 17,000
December 31, 2009 2,300
F-13
NOTE 5 - NOTES PAYABLE
Notes payable
2004 2003
---- ----
---------------- -- --------------
Notes payable to one investor, unsecured, interest payable monthly at 10%
per annum, due December 31, 2007. 354,500 250,000
Notes payables to various investors, unsecured, interest accruing at 10%
per annum, payable at various maturities through December 31, 2005. 100,437 13,970
Notes payable, unsecured, interest payable monthly at 10% per annum,
payable at various maturities through December 31, 2006 45,000 -
Note payable, secured by pledge of stock, interest accruing at 10% per
annum, due August 9, 2005. 20,000 -
---------------- --------------
519,937 263,970
Less: current portion (155,437) -
---------------- --------------
$ 364,500 $ 263,970
================ ==============
Approximate principal repayments are as follows:
--------------------------------------------------------------- ---------------
--------------------------------------------------------------- ---------------
2005 $ 155,437
2006 10,000
2007 354,500
---------------
$ 519,937
===============
Notes payable-related parties
2004 2003
---------------- -- --------------
Notes payable to officer and director, unsecured, interest at 15% per annum,
payable in monthly installments of $1,250, with all unpaid interest and
principal due January 15, 2005, and subsequently modified to a month
to month basis. $ 100,000 $ -
Note payable to officer and director, unsecured, interest payable monthly
at 10% per annum, due December 31, 2006. 45,000
Notes payable to officer and director, unsecured, interest payable monthly at
rates ranging from 10% 15% per annum, due December 31, 2007.
100,000
---------------- --------------
245,000 -
Less: current portion (100,000) -
---------------- --------------
$ 145,000
$
-
================ ==============
Approximate principal repayments are as follows:
--------------------------------------------------------------- ---------------
--------------------------------------------------------------- ---------------
2005 $ 100,000
2006 45,000
2007 100,000
---------------
$ 245,000
===============
F-14
NOTE 6 - CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital leases with monthly payments
ranging from $545 to $1,823 per month, including interest at rates ranging from
12% to 15.6% per annum. At December 31, 2004, monthly payments under these
leases aggregated $6,317.
Future minimum annual rental payments for capitalized leases are as follows:
Years ending December 31, Amount
--------------------------------------------------------------------------------- ---------------------
--------------------------------------------------------------------------------- ---------------------
2005 $ 76,101
2006 45,567
2007 42,780
2008 25,420
2009 19,341
---------------------
209,209
Amount representing interest (46,146)
---------------------
---------------------
Present value of minimum lease payments 163,063
Less: Current portion (55,447)
---------------------
---------------------
$ 107,616
=====================
(See Note 11 for operating lease disclosures).
NOTE 7 - INCOME TAXES
There is no income tax provision due to continuing tax losses.
Significant components of the Company's deferred income tax assets at December
31, 2004 and 2003 are as follows:
2004 2003
-------------------- --------------------
-------------------- --------------------
Deferred income tax asset:
Net operating loss carry forward $ 530,000 $ 219,000
Valuation allowance ( 530,000 ) ( 219,000 )
-------------------- --------------------
-------------------- --------------------
Net deferred income tax asset $ - $ -
==================== ====================
Reconciliation of the effective income tax rate to the U. S. statutory rate is as follows:
2004 2003
--------------- ---------------
--------------- ---------------
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-15
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 $1,558,000 federal and
$366,000 state amounts at December 31, 2004 are being carried forward. The net
operating loss carryforwards expire at various dates through 2025 for federal
purposes and 2015 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 8 - STOCKHOLDERS' EQUITY
During 2003, $40,037 was advanced to the Company's Co-founder, Director and
former 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 2003, the Company issued 1,202,874 shares of its stock at a price of
$0.45 per share for consideration of $531,000 (net of commissions) pursuant to a
limited private placement.
On October 1, 2003, the Company issued 1,000,000 shares of its stock to its
Director and Vice President of Training for a note receivable of $125,000 in
consideration of future services to be rendered. 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 of
deferred compensation and additional paid-in capital in the accompanying
financial statements due to the difference in the per share price and fair
market value of the stock at date of issuance. For the years ended December 31,
2004 and 2003, amortization of the deferred compensation related to the stock
issued to the Vice President of Training totaled $23,064 and $5,766,
respectively (See Note 13).
During 2003, notes payable of $921,230, including accrued interest, were
converted into 2,046,434 shares of common stock.
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. On November 15, 2003, the Stockholders
voted to initiate a two for one forward common stock split. All share and per
share amounts included herein have been restated to reflect the effects of the
split as if had occurred at the beginning of the period.
During the year ended December 31, 2004, the Company issued 455,898 shares of
its stock for $365,300 in cash pursuant to a limited private placement ranging
in price of $0.45 and $0.90 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 in consideration of future
services to be rendered. 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 $387,500 of deferred compensation
and additional paid-in capital in the accompanying financial statements due to
the difference in the per share price and fair market value of the stock at date
of issuance. For the year ended December 31, 2004, amortization of deferred
compensation related to stock issued to the Chief Financial Officer totaled
$77,460 (See Note 13).
F-16
NOTE 9 - STOCK-BASED COMPENSATION
In 2003, the Company adopted a stock option plan, the 2003-2004 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 of 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. 2,534,150 of incentive stock options were granted in the twelve
months ended December 31, 2004, including 2,075,300 incentive stock options
granted to executives of the Company.
The Plan also authorizes the Board of Directors to grant nonstatutory stock
options to employees and consultants who make significant contributions to the
Company's growth and development. The aggregate number of shares of common stock
that may be optioned and sold under nonstatutory stock options is 2 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. 919,500 of nonstatutory stock options
were granted in the twelve months ended December 31, 2004, including 400,000
nonstatutory options granted to the Company's landlord (a 7.9% shareholder of
the Company) and 125,000 nonstatutory options granted to relatives of executives
of the Company.
For the year ended December 31, 2004, in accordance with APB No. 25, the
intrinsic value of the 2,534,150 stock options granted under this plan was
$525,193 and was recorded as deferred compensation and additional paid-in
capital in the accompanying financial statements (and is being amortized over
the vesting periods of the options.) Amortization of the deferred compensation
related to these stock options totaled $497,315 and is recorded as stock based
compensation expense on the accompanying consolidated statements of operations
for the year ended December 31, 2004.
For the year ended December 31, 2004, in accordance with SFAS No. 123, the fair
value of the 919,500 stock options granted to nonemployees for services rendered
was $355,260 and was recorded as stock based expense on the accompanying
consolidated statements of operations for the year ended December 31, 2004. The
fair value for options granted to nonemployees have been estimated on the date
of grant using the Black-Scholes option pricing model with the following range
of assumptions: Expected option lives 3 years; Risk-free interest rate 5%;
Dividend yield of zero.
F-17
At December 31, 2004, options outstanding were as follows:
Options Exercise Price
-------------------------------------------- ------------- -----------------
-------------------------------------------- ------------- -----------------
Outstanding at January 1, 2004 $ - $ -
Granted 3,453,650 0.25
Exercised - -
Expired - -
------------- -----------------
------------- -----------------
Outstanding at December 31, 2004 $ 3,453,650 $ 0.25
============= =================
Additional information regarding options outstanding as of December 31, 2004 is
as follows:
Options outstanding Options exercisable
Exercise price Number Weighted average Weighted Number exercisable Weighted average
outstanding remaining contractual average exercise price
life (years) exercise price
- ------------------ -------------- ------------------------ ---------------- ------------------- ------------------
- ------------------ -------------- ------------------------ ---------------- ------------------- ------------------
$0.25 3,453,650 1.0 $0.25 - -
NOTE 10 - EMPLOYEE BENEFIT PLAN
F-18
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 2004, and 2003 were
$13,105, and $10,135 respectively.
NOTE 11 - 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.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Operating leases
The Company's operations are currently conducted at a leased facility under a
non-cancelable operating lease that expires in 2012. The lease provides that
property taxes, insurance, and maintenance expenses are the responsibility of
the Company. The Company also rents equipment under operating leases extending
through 2008. At December 31, 2004, future minimum annual rental payments for
all operating leases are as follows:
Year ending December 31,
--------------------------------------------------------------------------------- ---------------------
--------------------------------------------------------------------------------- ---------------------
2005 $ 499,451
2006 455,964
2007 446,320
2008 393,277
2009 390,352
Later years 1,073,468
---------------------
Total minimum lease payments $ 3,258,832
=====================
The facility rent expense for the years ended December 31, 2004 and 2003 was
$323,824 and $308,238, respectively. Equipment rental expense for the years
ended December 31, 2004 and 2003 were $112,459 and $110,541, respectively
Contingencies
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.
On January 26, 2005 the Company was sued in San Diego County Superior Court by
Solutions Consulting Group, Inc. for declaratory and injunctive relief arising
out of a consulting contract for implementing accounting software and
programming needs for an order entry system. The Company believes the contract
was breached and had thereon declined to make the balance of payments due. The
total amount in dispute is approximately $45,000. The dispute was settled
out-of-court for $35,000, which is included in accounts payable in the
accompanying financial statements at December 31, 2004.
F-19
Agreements
The Company has two strategic agreements with vendors at the present; Paradigm
World Marketing (Paradigm) and Snowden Co., Ltd. (Snowden), both of which are
headquartered in Japan. Paradigm is being contracted to assist the Company in
entering the Japanese market with its product line. They are contracted to use
their best efforts to solicit and promote the sale of the Company's products to
customers in Japan including product registration, corporate office
representation, initiation of promotional and recruiting programs to attract
business leaders, maintain a call center, process interim banking needs, and
develop and translate collateral material for use in Japan. The contract calls
for $29,700 in one-time fees for office setup, $10,000 in monthly fees for
office maintenance, $10,000 per product registration and a graduated commission
structure based on gross sales payable within ten days of each succeeding
month's end. The agreement contains performance clauses for one and two years.
Snowden is the supplier of one of the Company's primary products. The agreement
with Snowden extends through June 30, 2005. The price is established for this
period and provides for exclusivity to the Company to sell its product in the
United States of America, Canada, Mexico, Australia and New Zealand during the
term of the agreement. Under the current agreement, the Company has agreed to
purchase 900,000 individual units per month through the agreement. As of
December 31, 2004, the Company has purchased half of the agreed upon amount
under contract. The agreement is renewable so long as the minimum purchase
amount is maintained. The Company expects to purchase the required minimum.
NOTE 13 - 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 39.8% of the Company's issued and outstanding
shares as of December 31, 2004 and 41.4% as of December 31, 2003.
The Executive Vice President is the sole beneficial owner and second largest
shareholder of the Company, owning 39.4% of the Company's issued and outstanding
shares as of December 31, 2004 and 40.9% as of December 31, 2003. In 2003, the
Company advanced $40,037 to the Executive Vice President (See Note 8). 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. Following
the Executive Vice President resignation in 2004, vehicles under capital leases
with capitalized costs of $71,441 and accumulated amortization of $19,329, and
the related lease obligations of $6,056, were transferred to the Executive Vice
President resulting in a loss of $46,056.
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 8).
The Vice President of Training received directly or through his wholly owned
corporation, $187,200 and $140,018 in 2004 and 2003, respectively, for services
rendered to the company. On October 1, 2003, the Company issued 1,000,000 shares
of its stock to its Director and Vice President of Training for a note
receivable of $125,000 in consideration of future services to be rendered. 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 of deferred compensation and additional paid-in capital in the
accompanying financial statements due to the difference in the per share price
and fair market value of the stock at date of issuance. For the years ended
December 31, 2004 and 2003,
F-20
amortization of the deferred compensation related to stock issued in 2003 to
the Vice President of Training totaled $23,064 and $5,766, respectively.
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 in consideration of future
services to be rendered. 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 $387,500 of deferred compensation
and additional paid-in capital in the accompanying financial statements due to
the difference in the per share price and fair market value of the stock at date
of issuance. For the year ended December 31, 2004, amortization of deferred
compensation related to stock issued in 2004 to the Chief Financial Officer
totaled $77,460.
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 7.9% of the Company's outstanding common stock at December 31, 2004.
For the year ended December 31, 2004, in accordance with SFAS No. 123, the fair
value of the 400,000 stock options granted to the Company's landlord for
services rendered was $92,000 and was recorded as noncash stock expense. The
fair value for options granted to the Company's landlord was estimated on the
date of grant using the Black-Scholes option pricing model with the following
range of assumptions: Expected option lives 3 years; Risk-free interest rate 5%;
Dividend yield of zero.
F-21
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
______________________, 2005
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 established at $11,500. 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. The aggregate value of the stock was established at $11,500. The stock
II-1
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 in
the amount of $40,037. 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
and Ms. Dyrr's ownership to 9, 900,000 shares. In addition, Global officer and
director Russell Chaisson was issued 1,000,000 shares (500,000 pre 2 for 1
forward split) of common stock in 2003 in exchange for 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 $2,005,030 in proceeds to Global, including the conversion of
debt for stock. The private offering was commenced on June 23, 2003 and closed
on August 12, 2004. The stock issuance in the private offering 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 Commission. 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 2,000,000 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.
During 2003 notes and debts 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 22,222 shares retire a debt of $10,000; Todd Dempsey was issued
10,084 shares to retire a debt of $4,538; Tom Dixson, Global's landlord of its
manufacturing facility, was issued 1,511,112 shares to retire a debt of
$680,000; Diana Dyrr was issued 11,204 shares to retire a debt of $5,084;
Frances and E. Phillip Hale were issued 336,164 shares to retire a debt of
$151,274; J. Vincent Construction was issued 55,920 shares to retire a debt of
$25,328; Ted McGinnis was issued 10,084 shares to retire a debt of $4,538; and
Larry Trinton was issued 89,644 shares to retire a debt of $40,340. On July 1,
2004 Dr. Gary Shima was issued an option to purchase 25,000 shares of common
stock as partial compensation for services performed for Global.
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*
10.2 Snowden Co., Ltd. Agreement*
10.3 Paradigm World Marketing Agreement*
10.4 Hydroflush Agreement*
23.1 Consent of Auditors
23.2 Consent of Counsel*
*Previously filed.
II-3
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
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.
II-4
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 May 5, 2005.
Global Health Trax, Inc.
By:
/s/Everett Hale
Everett Hale, Chief Executive Officer
/s/ Henry Leonard
Henry Leonard, Chief Financial Officer
/s/ Henry Leonard
Henry Leonard, Chief Accounting Officer
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 May 5, 2005.
/s/Everett Hale
Everett Hale, Director
/s/Henry Leonard
Henry Leonard, Director
/s/Russell Chaisson
Russell Chaisson, Director
II-5
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*
10.2 Snowden Co., Ltd. Agreement*
10.3 Paradigm World Marketing Agreement*
10.4 Hydroflush Agreement*
23.1 Consent of Auditors
23.2 Consent of Counsel*
*Previously filed.