AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2001
REGISTRATION NO. 333-44982
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Amendment No. 3
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THEHEALTHCHANNEL.COM, INC.
(Name of small business issuer in its charter)
DELAWARE 4812 33-0728140
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
260 Newport Center Drive, Suite 250 260 Newport Center Drive, Suite 250
Newport Beach, California 92660 Newport Beach, California 92660
(949) 631-8317 (949) 631-8317
(Address and telephone number of (Address of principal place
principal executive office) of business)
The Company Corporation
1013 Centre Road
Wilmington, DE 19805
(302) 636-5440
(Name, address and telephone number of agent for service)
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COPIES TO:
Lawrence W. Horwitz, Esq.
Senn Palumbo Meulemans
18301 Von Karmen Avenue, Suite 850
Irvine, CA 92612-1009
(949) 442-0300
Approximate Date of Proposed Sale to the Public.
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES TO BE NUMBER OF SHARES PROPOSED OFFERING PROPOSED AGGREGATE AMOUNT OF
REGISTERED TO BE REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE REGISTRATION FEE
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Shares of Common Stock, $.001 par value (3) 2,741,617 $0.08 $219,329 $ 58.99
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Shares of Common Stock, $.001 par value, 4,046,177 $0.08 $323,694 $ 87.04
underlying warrants (4)
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TOTAL 6,787,794 $872,616 $1,406.03
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(1) thehealthchannel.com, Inc. conducted a one for three reverse stock split on
November 20, 2000. The share numbers set forth herein are based on
post-split calculations.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 and based upon the average of the
high and low prices for the Common Stock on April 23, 2001, as reported by
the over-the-counter Pink Sheets. We expect that in the event the
registered shares are sold, such shares will be sold at the then-current
market price.
(3) 2,215,284 shares to be sold from time to time by other Selling Shareholders
and, 526,556 shares to be sold from time to time by Les Dube and Irene
Dube.
(4) 2,382,427 shares underlying warrants to be sold from time to time by other
Selling Shareholders, and 1,663,750 shares underlying warrants to be sold
from time to time by Laguna Pacific Partners, L.P. The warrants held by
Laguna Pacific Partners, L.P. are subject to monthly increases under the
terms of the warrant agreement by and between Laguna Pacific Partners, L.P.
and thehealthchannel.com, Inc. The number of shares underlying the warrant
set forth herein is based on adjustments made for February and March 2001.
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 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION, DATED APRIL 25, 2001
PROSPECTUS
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THEHEALTHCHANNEL.COM, INC.
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6,787,794 Shares of Common Stock
This prospectus covers 6,787,794 shares of the common stock, of
thehealthchannel.com, Inc. The common stock will be sold solely
by the selling stockholders.
The securities offered hereby involve a high degree of risk.
Please read the "Risk factors" beginning on page 2.
Our common stock is currently trading on the pink sheets under "THCH".
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Our principal executive offices are located at 260 Newport Center Drive,
Suite 250, Newport Beach, California 92660. Our telephone number is
(949) 631-8317
The date of this prospectus is April 25, 2001.
TABLE OF CONTENTS
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PROSPECTUS SUMMARY ......................................................... 1
THE OFFERING ............................................................... 2
SUMMARY FINANCIAL INFORMATION .............................................. 2
RISK FACTORS ............................................................... 3
TERMS OF THE OFFERING ...................................................... 9
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS .................... 10
DIVIDEND POLICY ............................................................ 10
SELECTED FINANCIAL DATA .................................................... 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................. 12
ORGANIZATION OF THEHEALTHCHANNEL.COM ....................................... 15
BUSINESS OF THE COMPANY .................................................... 17
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ............... 22
EXECUTIVE COMPENSATION ..................................................... 23
CERTAIN TRANSACTIONS ....................................................... 24
INTEREST OF NAMED EXPERTS AND COUNSEL ...................................... 24
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL OWNERS ...................... 25
SELLING SHAREHOLDERS ....................................................... 26
PLAN OF DISTRIBUTION ....................................................... 30
DESCRIPTION OF SECURITIES .................................................. 31
LEGAL MATTERS .............................................................. 31
EXPERTS .................................................................... 31
FINANCIAL STATEMENTS ....................................................... 32
INFORMATION NOT REQUIRED IN PROSPECTUS ..................................... 33
EXHIBITS ................................................................ 38
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UNDERTAKINGS ............................................................ 41
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PROSPECTUS SUMMARY
The following summary is only a summary and should be read in conjunction
with, the more detailed information and the financial statements, including its
notes, appearing elsewhere in this prospectus. Unless otherwise specifically
referenced, all references to dollar amounts refer to United States dollars.
OUR BUSINESS
We operate thehealthchannel.com web site. We focus exclusively upon the
development of business strategies and the acquisition of existing operations
which satisfy the following three part test:
-- is the business strategy/acquisition candidate in the healthcare
industry?
-- does implementation of the Internet materially improve the business?
strategy/acquisition candidate?
-- will the proposed plan generate projected revenues within six months
and a return on our investment within twelve months of the deployment
of our capital.
While we are continuously researching potential business strategies consistent
with our own criteria set forth above, this prospectus describes four such
strategies we are currently implementing:
-- deployment of the Physicians Automated Attendant, a wireless based
software system intended to automate multiple facets of a physician's
practice and interface with large internet based information sites;
-- deployment of continuing medical education programs by transmitting
over the Internet virtual classrooms allowing healthcare industry
professionals to comply with their continuing education requirements;
-- providing broad healthcare information on our Internet site, coupled
with advertising, on a variety of topics, with an increasing focus
upon breast cancer; and
-- making our web site easily accessible to wireless devices.
THE SELLING SHAREHOLDERS
This prospectus has been prepared to register shares of common stock that were
previously issued to various individuals and entities. These securities are
being registered because the holders of these securities have piggyback
registration rights. A list of the securities being registered in this
prospectus and the people and entities that own them appears in the "Selling
Shareholders" section of this prospectus.
SECURITIES ISSUED TO LES DUBE AND IRENE DUBE AND TO LAGUNA PACIFIC PARTNERS
This prospectus will also register 526,556 shares of commons stock for sale from
time to time by Les Dube and Irene Dube, as well as 1,663,750 shares of common
stock underlying warrants for sale from time to time by Laguna Pacific Partners.
Les Dube and Irene Dube and Laguna Pacific Partners are receiving these
securities in connection with loans made to thehealthchannel.com.
SECURITIES ISSUED TO SENN PALUMBO MEULEMANS, LLP
This prospectus will also register 240,000 shares of common stock for the sale
from time to time by Senn Palumbo Meulemans, LLP. Senn Palumbo Meulemans were
issued these shares as a retainer for legal services to be performed by them for
thehealthchannel.com.
1
THE OFFERING
Common Stock Outstanding as of December 31, 2000 27,610,954
Common Stock and Shares Underlying Warrants Offered by
Selling Shareholders 6,787,794
Common Stock underlying warrants issued in connection
with loans made by Laguna Pacific Partners 1,663,750
Risk Factors The securities offered hereby
involve a high degree of risk and
immediate substantial dilution. See
"Risk Factors."
OTC pink sheets trading symbol THCH
SUMMARY FINANCIAL INFORMATION
The following table presents our selected historical financial data derived
from our financial statements. The historical financial data presented herein
only summarizes basic data and should be read in conjunction with our financial
statements and notes. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes included elsewhere in this
prospectus.
Fiscal Year Ended Fiscal Year Ended
December 31, 2000 December 31, 1999
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Statement of
Operations Data:
Revenue $ 10,765 $ -0-
Net Loss $ 3,874,017 $ 3,926,992
Net loss per share $ 0.15 $ 0.18
December 31, 2000 December 31, 1999
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Balance Sheet Data:
Total assets $ 570,995 $ 1,081,060
Total liabilities $ 1,639,857 $ 510,967
Stockholder's equity $ (1,068,862) $ 570,093
2
RISK FACTORS
THE SECURITIES OFFERED IN THIS PROSPECTUS ARE VERY SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK. THESE SECURITIES SHOULD BE PURCHASED ONLY BY PEOPLE WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. BEFORE PURCHASING THESE
SECURITIES, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE
OTHER INFORMATION CONCERNING THEHEALTHCHANNEL.COM AND ITS BUSINESS CONTAINED IN
THIS PROSPECTUS.
OUR INDEPENDENT ACCOUNTANT HAS ISSUED A GOING CONCERN OPINION. UNLESS WE CAN
RAISE SUFFICIENT CAPITAL TO FUND OUR OPERATIONS, WE WILL BE FORCED TO CURTAIL
AND/OR CEASE OPERATIONS.
Since our inception through December 31, 2000, we have not generated income from
operations. As a result, out independent accountants issued a going concern
opinion on the December 31, 2000 financial statements. In order to implement our
business plane, w will need to raise equity and/or debt capital during calendar
year 2001. If we are unable to raise such capital, we will be forced to reduce
or delay implementation of our business plan. However, there is no guarantee
that the curtailment of our business plan would be sufficient to permit us to
continue as a going concern.
WE HAVE ONLY A LIMITED OPERATING HISTORY HAVE INCURRED FINANCIAL LOSSES SINCE
INCEPTION AND THERE IS NO ASSURANCE WHEN, IF EVER, WE WILL BEGIN GENERATING
PROFITS.
TheHealthChannel.com commenced implementation of its current business plan
during the fourth quarter of 1999. Prior to July 1999 the assets currently
comprising the internet site had been owned and operated by BioLogix, Inc. In
April 1999, BioLogix launched a health oriented web site relying upon
advertising on the website to generate revenues. We were unable to attract
advertisers. As a result, in July 1999, we commenced development of the new
business plan described in this prospectus. This new business plan has virtually
no operating history and its financial success will be subject to all the risks
inherent in the establishment of a new business enterprise. Additionally,
thehealthchannel.com has operated at a loss for all of the periods for which
financial statements are presented in this prospectus. It is uncertain whether
consumers will be willing to pay for products and services over the internet at
a level that will allow us to sustain long-term profitability. Further, many of
our business plans for medical professionals we are currently implementing have
never been deployed over the internet, thus it would be highly speculative to
predict revenues or any level of profitability. We cannot assure you that we
will ever operate profitably.
THERE IS INTENSE COMPETITION IN THE ON-LINE HEALTHCARE BUSINESS. MANY OF OUR
COMPETITORS ARE MORE EXPERIENCED AND MUCH BETTER FINANCED. WE ANTICIPATE THAT
COMPETITION WILL BECOME INCREASINGLY SEVERE IN THE FUTURE AS OTHER COMPANIES
DEPLOY MEDICALLY ORIENTED WEBSITES.
We compete with other companies which have health care websites. These
competitors include WebMD, DrKoop.com, InteliHealth, OnHealth, and
YourHealth.com. These competitors have longer operating histories, larger
customer bases, greater brand name recognition and significantly greater
financial, marketing and other resources than we do. In addition, other
companies with superior financing to our company may elect to enter the Internet
health field. Competitors may devote greater resources to marketing and
promotional campaigns, and devote substantially more resources to website and
systems development than we can. We cannot assure you that we will be able to
compete successfully against current and future competitors, and competitive
pressures may have a material adverse effect on our business, prospects,
financial condition and results of operations. Further as a strategic response
to changes in the competitive environment, our management may, from time to
time, make certain service or marketing decisions or acquisitions that could
have a material adverse effect on our business, prospects, financial condition
and results of operations. New technologies and the expansion of existing
technologies may increase the competitive pressures on us.
3
WE ARE DEPENDENT UPON THE EFFICIENT DEPLOYMENT OF OUR INTERNET SITE AND RELATED
BUSINESS STRATEGIES. IN THE EVENT OUR INTERNET TECHNOLOGY IS NOT ACCESSIBLE BY
THE PUBLIC, FOR TECHNICAL REASONS, WE WILL SUFFER SEVERE NEGATIVE BUSINESS
CONSEQUENCES.
Our business plans depend on the efficient and uninterrupted operation of our
computer and communications hardware and software systems. Similarly, the
ability to track, measure, and report the delivery of advertisements, data and
other information on our website depends on the efficient and uninterrupted
operation of our system. These systems and operations are vulnerable to damage
or interruption from human error, natural disasters, telecommunication failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. While we have implemented certain systems intended to back-up our
website and its data, despite these precautions, there is always the danger that
human error or sabotage could substantially disrupt our website which could
cause a loss of visitors to our site, damage to our systems, and bad publicity.
4
WE MAY ACQUIRE BUSINESSES THAT ARE SUBJECT TO GOVERNMENTAL REGULATIONS, SUCH AS
LAWS ASSOCIATED WITH THE REGULATION OF THE DISTRIBUTION OF DRUGS, THE PRACTICE
OF MEDICINE AND THE DISSEMINATION OF INFORMATION TO THE PUBLIC AND MEDICAL
PROFESSIONALS.
The Federal Drug Administration and the various state-level medical licensing
boards may regulate components of our business as our business plan is deployed.
It is uncertain how these governmental agencies will react to the newly
established Internet healthcare field. There can be no assurance that any such
regulatory requirements will not have a adversely effect our business, financial
condition or results of operations.
THE INTERNET HAS BEEN THE SUBJECT OF CONSTANT TECHNOLOGICAL CHANGE. IF WE ARE
UNABLE TO SUCCESSFULLY AND TIMELY INCORPORATE THESE CHANGES INTO OUR BUSINESS
PLAN, OUR SERVICES MAYBE RENDERED OBSOLETE.
The Internet is at an early stage, especially associated with the medical
industry. Technological changes will occur which virtually immediately impact
upon our business strategies. If we are unable to either predict such changes in
advance or rapidly adjust our plans and technologies to reflect these changes,
our business plans and internet site could be rendered obsolete within a very
short period of time. These changes include both the development of hardware
which will allow more information to be sent using less of the bandwidth
available to send information over the Internet, the development of software
which may improve the presentation to users of the Internet or the deployment of
business strategies focusing upon these changes, rendering the companies
business plan noncompetitive.
OUR BUSINESS IS DEPENDENT ON THE CONTINUED GROWTH AND USE OF THE INTERNET, AS
WELL AS THE EFFICIENT OPERATION OF THE INTERNET.
The Internet based information market is new and rapidly evolving. Our business
is heavily dependent upon an increasing Internet usage, particularly by
consumers and physicians. Our business would be materially adversely affected if
Internet usage does not continue to grow or grows slower than currently
projected. Further our business will be adversely effected if consumers or
professionals fail to use the Internet in sufficient numbers to allow our
business plans to be successfully implemented. Internet usage may be inhibited
for a number of reasons, such as:
o Inadequate network infrastructure;
o security concerns;
o inconsistent quality of service; and,
o unavailability of cost-effective, high-speed access to the Internet.
While these problems may occur in deploying any Internet business plan, risks
unique to our specific business plan focusing upon the Internet healthcare
sector include:
o Many consumers may have privacy concerns regarding placing personal
medical information over the Internet, thus decreasing the potential
traffic that our Internet site may generate and the information we may
be able to secure from this traffic.
o Certain business strategies deployed by us toward medical
professionals may require that such professionals substantially change
their methods of operating, many of which may be ingrained in their
professional practice for many years. These professionals may resist,
or even refuse to implement the changes that our new technologies and
business methods present. Such resistance could prohibit the success
of the Company in marketing its products and services to medical
professionals, thus materially and adversely effecting our financial
operations.
5
THERE ARE CURRENTLY LEGAL UNCERTAINTIES RELATING TO THE INTERNET. AS A RESULT,
IT IS DIFFICULT TO PREDICT WHAT, IF ANY IMPACT THESE REGULATIONS WILL HAVE UPON
OUR OPERATIONS. IT IS POSSIBLE THAT SOME OF THESE REGULATIONS MAY SUBSTANTIALLY
INCREASE OUR COSTS OF DOING BUSINESS AND PROHIBIT CERTAIN BUSINESS STRATEGIES WE
WISH TO DEPLOY.
Federal and state laws and regulations addressing issues such as:
o user privacy;
o pricing;
o online content regulation;
o taxation and the characteristics; and,
o quality of online products and services.
OUR DATABASE WILL CONTAIN EXTREMELY SENSITIVE INFORMATION REGARDING THE HEALTH
CONDITION AND INTERESTS OF OUR USERS. TO THE EXTENT WE ARE UNABLE TO ASSURE
ABSOLUTE PRIVACY TO THESE USERS, OUR BUSINESS MAYBE SEVERELY AND ADVERSELY
EFFECTED.
While most Internet companies have concerns about protecting the privacy of
their users, these concerns are one of the primary business problems facing us.
These concerns include:
o An individual's personal health and interests in healthcare
information are viewed as extremely private. Any indication that such
information might be available to a third party might materially
reduce traffic and interest in our internet site;
o The increasingly aggressive and creative attacks by third parties to
enter Internet data bases may increase the concerns of parties who
might otherwise access our Internet site; and,
o We will be forced to continuously monitor and upgrade our security
precautions imposing increased operating costs upon our budget.
WE ARE DEPENDENT UPON THE KEY SERVICES OF MESSRS. SHEA AND LONERGAN WITH WHOM WE
HAVE EMPLOYMENT AGREEMENTS, BUT THEY, MAY DESIRE TO TERMINATE THEIR RELATIONSHIP
WITH THE COMPANY AT ANY TIME, CAUSING A SEVERE DISRUPTION IN OUR OPERATIONS.
Our success depends, to a significant extent, upon a number of key employees,
including our President, Donald Shea, and our Vice President, Chief Operations
Officer, Secretary, and Chief Financial Officer, Thomas Lonergan. Specifically,
Mr. Shea has been involved in the development of the company's new business plan
including its increasing focus on wireless medical industry applications. Mr.
Lonergan has been very active in identifying strategic joint venture and
advertising opportunities, as well as, fundraising and investor relations. The
loss of services of one or more of these employees could have a material adverse
effect on our business. We believe that our future success will also depend in
part upon our ability to attract, retain, and motivate qualified personnel.
Competition for such personnel is intense. There can be no assurance that we can
attract and retain such personnel. We do not have "key person" life insurance on
any of our employees.
OUR COMMON STOCK IS CURRENTLY CLASSIFIED AS A "PENNY STOCK" WHICH COULD CAUSE
INVESTORS TO EXPERIENCE DELAYS AND OTHER DIFFICULTIES IN TRADING SHARES IN THE
STOCK MARKET
Our common stock is quoted and traded on the Over-the-Counter Pink Sheets ("Pink
Sheets"). As a result, an investor could find it more difficult to dispose of,
or to obtain accurate quotations as to the market value of, the stock as
compared to securities which are traded on the NASDAQ trading market or on an
exchange. While it is our intention to apply for quotation on the
Over-the-Counter Bulletin Board upon approval of this registration statement,
there is no assurance that we will successfully recommence trading on the
bulletin board.
6
In addition, trading in our common stock is covered by what is known as the
"Penny Stock Rules." The penny stock rules require brokers to provide additional
disclosure in connection with any trades involving a stock defined as a "penny
stock," including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. The regulations governing penny stocks could limit the ability of
brokers to sell the shares offered in this prospectus and thus the ability of
the purchasers of this offering to sell these shares in the secondary market.
Our stock will be covered by the penny stock rules until it has a market price
of $5.00 per share or more, subject to certain exceptions The trading price of
our stock could be subject to wide fluctuations in response to quarterly
variations in operating results, announcement of technological innovations or
new products by us or our competitors, and other events or factors. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations that have had a substantial effect on the market prices for many
Internet companies, which may be unrelated to the operating performance of the
specific companies.
MOST OF OUR SHARES OF COMMON STOCK OF WILL BECOME ELIGIBLE FOR PUBLIC SALE OVER
THE NEXT YEAR, WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE STOCK.
As of December 31, 2000, thehealthchannel.com had outstanding approximately
27,610,954 shares that are classified as "restricted securities" as that term is
defined under Rule 144 of the Securities Act of 1933, as amended. Most of these
shares have been held by shareholders for at least one year and may be entitled
to be sold under Rule 144. In addition, we are registering:
-- 2,741,617 shares and 4,046,177 shares underlying warrants for other
Selling Shareholders which include:
-- 526,556 shares for Les Dube and Irene Dube, and
-- 1,663,750 shares underlying warrants for Laguna Pacific Partners, L.P.
If a significant number of shares are offered for sale through the public
securities markets simultaneously, it would have a depressive effect on the
trading price of common stock. See "Description of Securities."
WE MAY HAVE CONTINGENT LIABILITIES RESULTING FROM OUR RECENT PRIVATE PLACEMENT.
We have engaged in a private placement of securities from September 1999 up to
the date of this prospectus. During this period of time, we sold securities to
investors based on our most recent closing price on the OTC Bulletin Board or
the Pink Sheets. The prices at which these securities were sold fluctuated
widely, based on fluctuations in our closing prices. We cannot preclude the
possibility that an investor or investors who purchased securities in the
private placement will claim that we failed to fully disclose the fact that
fluctuation in the market for our stock would cause adjustment in the price of
the private placement. In the event any shareholder were to successfully
prosecute an action against us on this issue, the shareholders who were
investors in this private placement may be entitled to damages including a right
to rescind their investment entitling them to a return of their gross
investment. The net amount raised in the private offering was $1,410,780.
According, assuming that the shareholders were entitled to a return of their
investment damages to the company would, at the minimum, be equal to $1,410,780
and could exceed that amount. Such a damage award would have a severe and
adverse effect on our business, including but not limited to impacting our
ability to continue as a going concern.
7
OUR TERMINATION OF THE SWARTZ TRANSACTIONS MAY EXPOSE US TO LIABILITY TO SWARTZ
UNDER THE TERMS OF THE SWARTZ AGREEMENTS.
We obtained a $30 million equity line from Swartz Private Equity LLC, subject to
registration with the SEC and governed by a percentage of our trading volume.
This equity line was governed by our investment agreement with Swartz that
provided that we may place puts to Swartz over a three-year period. As a result
of a conversation with the SEC, we determined that it was highly unlikely that
the Swartz transaction would clear comments based upon certain insurmountable
aspects of the Swartz deal. As such, we determined that it as not in the best
interest of the company to continue with this transaction and have terminated
the agreement with Swartz. We remain willing to work with Swartz on future
dealings should they be able to demonstrate that their transaction structure
could pass scrutiny. Nonetheless, the termination of the Swartz agreement,
according to its terms, requires the payment of a "break-up" fee of $200,000.
While we believe that no fee is due Swartz, based on the legal impossibility of
this agreement, Swartz may attempt to pursue remedies against the company. While
we firmly believe that Swartz would not prevail in any action against us, there
is no guarantee that they will not recover substantial damages against us. Given
the current lack of revenues and funding available to us, a damage award could
have an adverse effect on our business operations.
WE HAVE BEEN ADVISED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") THAT
CERTAIN TRANSACTIONS INVOLVING THEHEALTHCHANNEL.COM MAY HAVE BEEN IN VIOLATION
OF THE SECURITIES LAWS.
We have been advised by the Securities Exchange Commission ("SEC") that the
exchange of BioLogix shares for shares of thehealthchannel.com may have
constituted an unregistered public offering in violation of applicable state and
federal securities laws. While we have provided correspondence to the SEC
denying these allegations, the SEC has indicated that it continues to disagree
with our position. If we have engaged in an unregistered public offering, this
would constitute a violation of the Securities Act of 1933 and applicable state
laws and would make us potentially liable to legal action by the SEC and state
security regulators and our shareholders. In the event any of these parties were
to successfully prosecute an action based on these allegations, it would have a
severe and adverse effect on our business. We may be required to pay monetary
damages and penalties, and may be subject to a court-imposed injunction, or may
be forced to enter into a consent decree with the SEC. At the very least,
damages could take the form of a rescission order permitting the shareholders
who exchanged their shares of BioLogix for shares; of thehealthchannel.com,
Inc., to receive a return of their BioLogix shares or, damages could be
monetary; requiring the company to pay to the investors the fair market value of
their shares at the time of the exchange. This dollar amount would be so high a
number that there would be a substantial likelihood that we would be forced to
cease operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.
Statements made in this prospectus regarding our funding requirements and the
timing of and potential for our business constitute forward-looking statements
under federal securities laws. Such statements are subject to certain risks and
uncertainties that could cause the rate at which we incur expenses and conduct
our business to differ materially from those projected. Our ability to proceed
with the marketing and development of our business in accordance with the dates
anticipated is subject to all of the risks discussed in this prospectus and our
ability to estimate the time period for which revenues will fund our operations
is subject to substantial uncertainty. Undue reliance should not be placed on
the dates and time periods discussed in this prospectus. These estimates are
based on the current expectations of our management, which may change in the
future due to a large number of unanticipated future developments.
8
TERMS OF THE OFFERING
Each selling shareholder is free to offer and sell his or her common shares
at such times, in such manner and at such prices as he or she may determine. The
types of transactions in which the common shares are sold may include
transactions on the pink sheets, or the OTC Bulletin Board in the event the
Company is relisted on the OTC Bulletin Board. The sales will be at market
prices prevailing at the time of sale or at negotiated prices. Such transactions
may or may not involve NASD licensed broker-dealers.
The selling shareholders may effect such transactions by selling common
stock directly to purchasers or to or through broker-dealers, which may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions, or commissions from the selling shareholders. They
may also receive compensation from the purchasers of common shares for whom such
broker-dealers may act as agents or to whom they sell as principal, or both.
Such compensation as to a particular broker-dealer might be in excess of
customary commissions.
Each selling shareholder and any broker-dealer that acts in connection with
the sale of common shares may be deemed to be, an "underwriter" within the
meaning of Section 2(11) of the Securities Act. Any commissions received by such
broker-dealers and any profit on the resale of the common shares sold by them
while acting as principals might be deemed to be underwriting discounts or
commissions.
We have notified the Selling Shareholders of the prospectus delivery
requirements for sales made pursuant to this prospectus and that, if there are
material changes to the stated plan of distribution, a post-effective amendment
with current information would need to be filed before offers are made and no
sales could occur until such amendment is declared effective.
We are informing the Selling Shareholders that the anti-manipulation rules
of the SEC, including Regulation M promulgated under the Securities Exchange
Act, may apply to their sales in the market and have provided the Selling
Shareholders with a copy of such rules and regulations.
Selling Shareholders also may resell all or a portion of the common shares
in open market transactions in reliance upon Rule 144 under the Securities and
Exchange Act, provided they meet the criteria and conform to the requirements of
such rule.
9
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our common stock was quoted on the over-the-counter bulletin board system
since April 1998, formerly under the symbol IVTX. Following our name-change to
thehealthchannel.com, our symbol was changed to THCL. On November 17, 2000, when
our one for three reverse stock split went effective, we received our current
symbol, THCH. Our common stock is currently quoted on the over-the-counter pink
sheets published by the National Quotation Bureau under the symbol THCH.
The following table sets forth the high ask and low bid prices for our
common stock as reported on the OTC bulletin board until January 12, 2000 and as
reported on the over-the-counter pink sheets as of January 13, 2000 and through
the present.
The prices below also reflect inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not represent actual transactions:
Period Reported High Ask Low Bid
--------------- -------- -------
Quarter ended June 30, 1998* 7.50 3.33
Quarter ended September 30, 1998* 6.33 2.625
Quarter ended December 31, 1998* 5.25 1.69
Quarter ended March 31, 1999* 9.00 1.69
Quarter ended June 30, 1999* 9.75 0.50
Quarter ended September 30, 1999 13.875 0.94
Quarter ended December 31, 1999 2.44 0.80
Quarter ended March 31, 2000 4.22 0.66
Quarter ended June 30, 2000 1.69 0.47
Quarter ended September 30, 2000 1.41 0.80
Quarter ended December 31, 2000 0.06 0.05
Quarter ended March 31, 2001 0.09 0.085
*We believe the price prior to July 1999 may not be relevant in evaluating
our current operations as this was prior to our acquisition of
thehealthchannel.com website.
Since January 2000 there has been little market making activity on the pink
sheet market for our stock. The price of the stock has fluctuated between $0.20
and $1.00 per day during this time period. As of April 23, 2001, our common
stock closed at $.08.
As of December 31, 2000, there were approximately 481 holders of our common
stock, as reported by our transfer agent.
DIVIDEND POLICY
We have never paid any cash dividends on our Common Stock and do not
anticipate paying any cash dividends in the future. We currently intend to
retain future earnings, if any, to fund the development and growth of our
business.
10
SELECTED FINANCIAL DATA
The following selected financial data is a summary and should be read in
conjunction with, the financial statements, related notes to financial
statements and Report of Independent Public Accountants, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere. The following tables summarize certain selected financial
data of thehealthchannel.com for the fiscal years ended December 31, December
31, 2000 (audited). The data has been derived from financial statements included
elsewhere in this prospectus. No dividends have been paid for any of the periods
presented.
Period from Inception
Fiscal Year Fiscal Year Ended (September 6, 1996) to
December 31, 1999 December 31, 2000 December 31, 2000
----------------- ----------------- -----------------
Statement of
Operations Data:
Revenue $ 10,765 $ -0- $ 10,765
Net Loss $ 3,874,017 $ 3,926,992 $ 9,548,393
Net loss per share $ 0.15 $ 0.18
December 31, 2000 December 31, 1999
----------------- -----------------
Balance Sheet Data:
Total assets $ 570,995 $ 1,081,060
Total liabilities $ 1,639,857 $ 510,967
Stockholder's equity $ (1,068,862) $ 570,093
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion regarding our financial statements should be read
in conjunction with our financial statements included herewith.
OVERVIEW
We are engaged in the business of providing healthcare information over the
Internet.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information:
---------------------------------------------------------------------------------------------
Year Ended Year Ended Period from Inception
December 31, December 31, (September 4, 1996)
1999 2000 to December 31, 2000
---------------------------------------------------------------------------------------------
Total revenue $ -0- $ 10,765 $ 10,765
---------------------------------------------------------------------------------------------
Cost of revenue $ -0- $ -0- $ -0-
---------------------------------------------------------------------------------------------
Gross profit $ -0- $ 10,765 $ 10,765
---------------------------------------------------------------------------------------------
General, administrative,
and selling expenses $ (3,460,728) $ (3,884,782) $ (7,345,510)
---------------------------------------------------------------------------------------------
Loss from continuing
operations $ (3,460,728) $ (3,874,017) $ (7,334,745)
---------------------------------------------------------------------------------------------
Loss on discontinued
operations $ (466,264) $ (--) $ (2,213,648)
---------------------------------------------------------------------------------------------
Loss before taxes $ (3,926,992) $ (3,874,017) $ (9,548,393)
---------------------------------------------------------------------------------------------
Taxes on income $ -0- $ -0- $ -0-
---------------------------------------------------------------------------------------------
Net loss $ (3,926,992) $ (3,874,017) $ (9,548,393)
---------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER
31, 1999.
REVENUE
We are a development stage company. Revenues for the fiscal year ended
December 31, 1999 of $10,765 were derived from advertising associated with our
wireless strategy compared to no revenues for the fiscal year ended December 31,
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $3,884,782 for the
year ended December 31, 2000 as compared to $3,460,728 in 1999. This included
expenses for website development of $450,000 in 2000 as compared to $196,000 in
1999, depreciation and amortization expense of $333,830 in 2000 as compared to
$135,230 in 1999, rent of $45,000 in 2000 as compared to $1,000 in 1999,
non-cash stock based compensation of $1,290,671 in 2000 as compared to
$2,611,423 in 1999 and compensation of $477,000 in 2000 as compared to $96,000
in 1999. The increases reflect our upgraded website which was launched in July
2000, and the continued development of our wireless strategy, renting of our new
facility effective April 2000, and an increase in staffing as we are implemented
our planned growth and development strategy. Additionally, the following
expenses were also
12
recorded during the year ended December 31, 2000, (a) an expense of
approximately $345,000 in interest was recorded in relation o our bridge loan
financing in 2000, of which $330,835 was non-cash related and (b) a non-cash
expense of approximately $300,000 was recorded as settlement of litigation
expense related to Michael Grandon.
This included expenses for website development of $450,000 in 2000 as
compared to $196,000 in 1999, depreciation and amortization expense of $333,830
in 2000 as compared to $135,230 in 1999, rent of $45,000 in 2000 as compared to
$1,000 in 1999, non-cash stock based compensation of $1,290,671 in 2000 as
compared to $2,611,423 in 1999 and compensation of $477,000 in 2000 as compared
to $96,000 in 1999. The increases reflect our upgraded website which was
launched in July 2000, and the continued development of our wireless strategy,
renting of our new facility effective April 2000, and an increase in staffing as
we our implemented our planned growth and development strategy. Additionally,
the following expenses were also recorded during the year ended December 31,
2000, (a) an expense of approximately of $345,000 in interest was recorded in
relation to our bridge loan financing in 2000, of which $330,835 was non-cash
related and (b) a non-cash expense of approximately $300,000 was recorded as
settlement of litigation expense related to Michael Grandon.
LOSS FROM OPERATIONS
We incurred a loss from operations of $3,874,017 for the year ended
December 31, 2000 compared to a loss of $3,460,728 for 1999. The operations of
our predecessor company, Innovative Tracking Solutions Corporation ("IVTX") in
1999 are presented as discontinued operations as a result of the transfer of its
assets and liabilities to a private company. The operations of the old IVTX are
not related to the operation of thehealthchannel.com business going forward.
NET LOSS
We had a net loss of $3,874,017, for the year ended December 31, 2000,
compared to a loss of $3,926,992 in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily funded our capital requirements
through private equity infusions. Commencing in September of 1999 and closing in
August, 2000, we conducted a private offering, to accredited investors only, of
units, each unit consisting of one share of our common stock and one warrant
exercisable for a term of two years. All shares purchased in this offering, as
well as all shares underlying warrants purchased in this offering, have
piggyback registration rights and are entitled to be included in this
prospectus. As adjusted for our one for three reverse split, we originally
priced this offering at $2.25 per unit with a $2.25 exercise price on the
warrants. However, the price of our publicly traded stock dropped precipitously
since the beginning of this private offering and we subsequently offered the
units at lower prices.
Company management has raised net proceeds of $1,410,780 under this private
offering. No NASD-registered broker-dealers were involved in this offering. This
private offering is exempt from the registration requirements pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
We obtained a $30 million equity line from Swartz Private Equity LLC,
subject to registration with the SEC and governed by a percentage of our trading
volume. This equity line was governed by several agreements with Swartz. As a
result of our conversations with the SEC, we determined that it is highly
unlikely that the Swartz transaction would clear comments. As such, we
determined that it as not in the best interest of the company to continue with
this transaction and have terminated the agreement with Swartz and canceled the
warrants provided to Swartz as part of the transaction. We remain willing to
work with Swartz on future transactions should they be able to demonstrate that
their transaction structure could pass scrutiny. Nonetheless, termination of the
Swartz agreement, according to its terms, requires the payment of a "break-up"
fee of $200,000. While we believe that no fee is due Swartz and, we have the
legal right to cancel the warrants and terminate the agreements, Swartz may
attempt to pursue remedies against the company. While we firmly believe that
Swartz would not prevail in any action against us, there is no guarantee that
they will not recover substantial damages against us. These damages at a minimum
would include the break up fee and an order to reissue the warrants. Given the
current lack of revenues and funding available to the company, a damage award
could have an adverse effect on our business operations.
13
We received a loan in the amount of $250,000 from Laguna Pacific Partners
L.P., a Delaware limited partnership. This loan is made pursuant to a secured
note that bears interest at the rate of 6% and is payable on the earlier of
February 3, 2001 or the effective date of this prospectus. The due date of this
loan has been extended to the earlier of May 1, 2001, or the effective date of
this prospectus. The loan is secured by all of our assets. In consideration for
making this loan to us, Laguna Pacific Partners received a warrant for common
stock equal to the quotient of $250,000 divided by the closing bid of our stock
immediately preceding the effective date of this prospectus. The term of this
warrant is five years and the exercise price is $1 in the aggregate. The warrant
agreement contains terms, which increase the number of shares underlying the
warrants commencing February 1, 2001 at the rate of 10% per month, compounding
on a monthly basis, until the effective date of our registration statement. The
number of shares being registered under this registration statement includes the
monthly increase for February, March and April, 2001.
On August 18, 2000, we received a loan in the amount of $250,000 from Les
Dube and Irene Dube. This loan is made pursuant to a note, which bears interest
at the rate of 6% and is payable on the earlier of February 18, 2001 or the
effective date of this prospectus. The due date of this loan has been extended
to the earlier of May 23, 2001, or the effective date of this prospectus. This
loan was issued in consideration for 526,556 shares of common stock. These
shares are being registered in this prospectus, and, upon repayment of this
loan; these shares are to be retained by Les Dube. On the effective date of this
prospectus, Les Dube may sell these shares.
As of December 31, 2000, we had outstanding current liabilities of
$1,639,857 of which $788,349 has been approved by the Board of Directors to be
settled by issuance of stock. The balance of $856,508 consists mainly of
accounts payable of approximately $145,000, accrued professional fees of
approximately $143,000, of which $95,000 will be satisfied by the issuance of
common stock, and accrued officers' salaries $190,000. All officers of the
company have agreed to defer their compensation or receive their compensation in
the form of equity until such time as the company has the financial ability to
pay them. It is anticipated that loans payable will be repaid from online and
wireless revenue. Our current ratio is .01. After adjusting for items that will
be satisfied by stock issuance and loans payable, the new current liabilities
would be $273,672 resulting in a current ratio of .09.
We recognize that the company must generate additional resources to enable
it to continue operations. Our plans include the sale of additional equity and
debt securities to various private equity funds ranging from $1,000,000 to
$15,000,000. In addition, with infusion of capital from equity funding, we plan
to generate significant revenues resulting in positive cash flows by year-end.
However, no assurance can be given that we will be successful in raising
additional capital. Further, there can be no assurance, assuming we successfully
raise additional funding, that we will achieve profitability or positive cash
flow. If management is unable to raise additional capital and expected
significant revenues do not result in positive cash flow, we will not be able to
meet our obligations and will have to cease operations.
During January 2001, we changed the estimated useful life of our Website
and related technology from 3 years to 2 years. The effect of this change in
accounting estimate will result in an accelerated amortization of our website
and related technology in full by June 30, 2001. The net book value of
approximately $525,000 as of December 31, 2000, will be fully amortized by June
30, 2001.
We do not believe that inflation has had a significant impact on our
operations since our inception.
FUTURE PLAN OF OPERATION
The company's overall plan of operations for the next 12 months include
significant website development in four primary areas:
a) Further develop, promote and increase product offerings in its industry
leading "Anywhere, Anytime(TM)" mobile and wireless strategy.
Thehealthchannel.com was a first time mover in the health sector with this
technology application.
b) Broaden overall content offerings in the areas of general health content
and delivery of health goods and services.
c) Deliver a number of "deep vertical" products in specific health topics.
d) Implement the business-to-business revenue generating products covering a
number of health areas including some unique products not currently in the
marketplace.
The company's overall plan of operation also includes completion of
strategic acquisitions for the purposes of revenue/profit enhancement, content
development, and increased traffic to the website.
We are currently conducting product research and development in the areas
of general health content, broadening and strengthening our health information
delivery, as well as conducting research and development in the areas of premier
health product offerings (deep verticals) and mobile and wireless communication.
In addition we will continue to develop its business-to-business goods and
services products.
14
We recently purchased (through the inclusion of our new operations center
lease) the necessary infrastructure to grow and reduce our operational costs by
bringing a majority of our software development in-house.
We expect to add approximately 5-10 new employees in the next fiscal year.
AVAILABLE INFORMATION
We are presently subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended. We have filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 along with all amendments and
exhibits to it under the Securities Act of 1933, as amended, with respect to the
securities offered by this prospectus. This prospectus, which constitutes a part
of the Registration Statement, omits certain information contained in the
Registration Statement on file with the SEC pursuant to the Act and the rules
and regulations of the thereunder.
The Registration Statement, including the exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies
of such material may be obtained by mail at prescribed rates from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, you should refer to the filed
document for the complete details. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. thehealthchannel.com's securities are currently quoted on
the over-the-counter market under the symbol "THCH."
FORWARD LOOKING STATEMENTS
This registration statement contains forward-looking statements. The
company's expectation of results and other forward-looking statements contained
in this registration statement, involve a number of risks and uncertainties.
Among the factors that could cause actual results to differ materially from
those expected are the following: business conditions and general economic
conditions; and competitive factors, such as pricing and marketing efforts.
These and other factors may cause expectations to differ.
ORGANIZATION OF THEHEALTHCHANNEL.COM
HISTORY
Innovative Tracking Solutions Corporation, also known as "IVTX" was
incorporated under the laws of the state of Delaware on September 4, 1996.
In March 1998, a market maker filed a 15c2-11 statement with the National
Association of Securities Dealers, Inc. and IVTX's stock was cleared for
quotation on the Over-the-Counter Bulletin Board under the symbol "IVTX" on
April 21, 1998.
In early 1999, IVTX management determined that the "public" status of IVTX
was detrimental to IVTX's operations due to the time and expense burdens of
being a public company.
On April 14, 1999, IVTX transferred all of its assets and liabilities based
on majority stockholder approval to a newly formed private company, Innovative
Tracking Solutions, Inc., a Nevada corporation.
In June 1999, IVTX met the management of BioLogix, Inc. BioLogix was a
diversified public company which owned a number of assets, including a
consumer-based health care website located at http://www.thehealthchannel.com.
IVTX and BioLogix each reorganized as follows:
o In July 1999 IVTX completed a 28.2 for 1 forward stock split. The
officers of IVTX were paid $250,000 cash in exchange for their shares
for the purpose of financing the operation of the IVTX assets, which
had been transferred to a private corporation in April 1999.
15
o The other 36 IVTX shareholders were provided with the alternative of
either retaining two of their post-split IVTX shares and contributing
the balance to an exchange pool (as discussed more fully below) or
exchanging their shares for shares in Innovative Tracking Solutions,
Inc., a Nevada corporation, the privately held corporation into which
the IVTX operating assets had been transferred. Thirty-five of these
36 IVTX shareholders elected to retain two shares and contribute the
balance to the exchange pool.
o In July 1999 the Internet website and associated technology located at
www.thehealthchanel.com were transferred by BioLogix, Inc. to IVTX.
The name of IVTX was changed to thehealthchannel.com
o The BioLogix shareholders were provided with the alternative of
retaining their BioLogix shares or retiring their BioLogix shares, on
a one for one basis, in exchange for IVTX shares contained in the
exchange pool (which as noted above had changed its name to
TheHealthChannel.com). There were approximately 800 BioLogix
shareholders and approximately 650 of these shareholders elected to
exchange their BioLogix shares for THCL shares.
The SEC has expressed certain concerns regarding whether the above
reorganization was conducted in accordance with applicable state and federal
securities laws. The SEC has alleged that the exchange of BioLogix shares for
shares of thehealthchannel.com may have constituted an unregistered public
offering. While we have provided correspondence to the SEC denying these
allegations, the SEC has indicated that it continues to disagree with our
position. If we have engaged in an unregistered public offering, this would
constitute a violation of the Securities Act and would make us liable to legal
action by both the SEC and our shareholders.
In the event the SEC or any shareholder was to take and successfully
prosecute an action based on these allegations, it would have a severe and
adverse effect on the company. We may be required to pay monetary damages and
penalties and may be subject to a court-imposed injunction, or may be forced to
enter into a consent decree with the SEC. If any of these events were to occur
it would likely immediately and severely impact our operations and business,
possibly impairing our ability to continue as a going concern.
In addition, we may be subject to contingent liabilities arising form our
private placement of securities, which commenced in September 1999 and continued
to August 2000. During this private placement, shares were sold based on our
stock's most recent closing cost on the OTC Bulletin Board or on the pink sheets
after we were no longer quoted on the OTC Bulletin Board. Therefore, the price
of the securities sold in this private placement fluctuated widely, following
fluctuations in our closing prices. It is possible that an investor or investors
who participated in the private placement may claim that we did not fully
disclose that the price to be paid under the private offering fluctuated with
the market price for our stock. In the event such investor or investors
successfully prosecuted such an action against us, we may be forced to refund
investor's money and pay damages.
Finally, our conversations with the SEC has led us to conclude that
transactions involving Swartz Equity will not clear comments and that there are
serious problems with the legality of Swartz's form of transaction.
We obtained a $30 million equity line from Swartz Private Equity LLC,
subject to registration with the SEC and governed by a percentage of our trading
volume. This equity line was governed by several agreements with Swartz. We
determined that it is highly unlikely that the Swartz transaction would clear
comments. As such, we determined that it as not in the best interest of the
company to continue with this transaction and have terminated the agreement with
Swartz and canceled the warrants provided to Swartz as part of the transaction.
Termination of the Swartz agreement, according to its terms, requires the
payment of a "break-up" fee of $200,000. While we believe that no fee is due
Swartz and, we have the legal right to cancel the warrants and terminate the
agreements, Swartz may attempt to pursue remedies against the company. While we
firmly believe that Swartz would not prevail in any action against us, there is
no guarantee that they will not recover substantial damages against us. These
damages at a minimum would include the break up fee and an order to reissue the
warrants. Given the current lack of revenues and funding available to the
company, a damage award could have an adverse effect on our business operations.
16
BUSINESS OF THE COMPANY
THE HEALTHCARE INDUSTRY
The healthcare industry is comprised of a myriad of physicians practicing
through a variety of organizational entities and payment plans, hospitals,
operated both for profit and not for profit, owned by a variety of small and
large operators; and ancillary service providers, such as laboratories and
out-patient surgical clinics, again owned and operated by many different types
and sizes of companies. Large insurance companies who offer a variety of payment
plans to the consumer substantially control the revenue and costs of this giant
conglomeration of companies and professional personnel.
This industry generates an enormous amount of information, paperwork, data
and transactions, none of which is standardized nor controlled by any single
entity or organizational protocol. Different insurance companies require
different forms; different providers require different intake information for
patients, different hospitals require different approvals be obtained by
consumers from their insurance companies.
At first glance, it would seem that such an enormous, information intensive
industry would be an obvious candidate for the launch of a successful Internet
company. The exact opposite has actually been the case.
THE HEALTHCARE INTERNET INDUSTRY
While many Internet healthcare companies have deployed extensive health
information libraries useful to both consumers and medical professionals, it is
our belief that none of these companies have taken the promise of the Internet
and profitably applied it in the healthcare field.
In fact, a number of publicly held Internet healthcare companies, such as
Dr. Koop, Healtheon/WebMD, and Onhealth.com have sustained large losses
recently. We believe these losses have been generated primarily through the
expenditure of enormous marketing budgets intended to create "brand awareness"
and deliver visitors to the website among healthcare professionals and
consumers.
We believe that the large losses suffered by these healthcare Internet
companies demonstrate that their business models, to date, may be failing. In
July 1999, simultaneous with the acquisition of thehealthchannel.com Web site by
thehealthchannel.com, Inc., our management began to consider the financial and
business consequences of the healthcare industry business plans deployed
throughout the Internet. We focused exclusively upon deploying a diversified
business plan throughout various sectors of the healthcare industry utilizing
the Internet and associated technologies. This plan would focus upon immediate
requirements to generate potential profits, while avoiding the massive marketing
budgets currently plaguing the leading companies in the healthcare Internet
sector. While there is no assurance that such profits will ever eventually be
generated, the plan set forth below is intended to attempt to accomplish
profitability within six months of each project's full deployment and a return
on our investment within one year.
THEHEALTHCHANNEL.COM SOLUTION
INTRODUCTION
As of July 1999 we have focused exclusively upon the development of
business strategies and acquisition of existing operations, which satisfy the
following three-part test:
o Is the business strategy/acquisition candidate in the healthcare
industry which may be controlled by us?
o Does implementation of the Internet materially improve the business
strategy/acquisition candidate?
o Can the proposed plan generate projected revenues within six months
and a return on our investment within twelve months of the deployment
of our capital?
We believe that the following discussion of our business plan provides the
infrastructure that is now prepared to efficiently deploy a substantial capital
raise into the healthcare Internet sector. Our plans diversify among both
healthcare industry consumers and healthcare industry professionals.
17
PRODUCTS MARKETED TO HEALTHCARE PROFESSIONALS
We have focused our product development efforts in identifying Internet
based products and services which will increase the productivity of healthcare
professionals by either automating traditional paper-based or manual processes,
or by providing additional revenue sources for the healthcare professional
community.
We are currently developing three products specifically directed toward
physicians:
o Our revenue sharing program with the Institute for Medical Studies,
Inc., a continuing medical education company;
o The Physicians Automated Attendant, a software system which will be
integrated into our internet site, accessible through wireless
portable devices, automating the process of drug prescription and
insurance billing; and,
o Physician Pro Care obesity program.
thehealthchannel.com has entered into a revenue sharing agreement with the
Institute of Medical Studies to exchange Internet links and to jointly create
Internet continuing education programs. This agreement terminates on September
29, 2002. Under the terms of the agreement, thehealthchannel.com will give IMS
10% of the revenue received by thehealthchannel.com for the continuing medical
education programs. In addition, IMS will receive a fee for accreditation
services which is 10% of any such program's budget. As consideration for
entering into the agreement, IMS received warrants to purchase 400,000 common
shares at $.30 per share.
According to their management, the Institute for Medical Studies has for
more than ten years provided physicians throughout the world with continuing
medical education programs involving virtually every area of the medical
practice, from new surgical techniques to certifications for prescribing new
drugs. These programs have typically been provided in a traditional classroom
setting requiring physicians to travel to the class's location. The preparation
of these classes involves the development of extensive materials and the hiring
of a number of prominent physicians in each field. Classes will be both "real
time" allowing Internet participants to interact with the presenter, as well as
archived, allowing physicians to view classes previously provided. Providing
such classes over the Internet involves extremely new technologies and business
models. There is no assurance that we will successfully provide such classes
over the Internet or if we are successful in providing such classes that
physicians will regularly access these classes through our Internet site, rather
than continue to attend traditional classroom presentations. To date,
thehealthchannel.com has not offered any such classes, nor has it received any
revenues from the agreement.
We are also developing a web-based product entitled the Physicians
Automated Attendant. This product is at an early stage of development. However,
it is our intention that this software system would be installed on wireless
devices which shall access our website providing patient prescriptions and
adjudication of insurance claims. We anticipate that the initial prototypes of
this product will be completed during the first quarter of the year 2001. We
believe that there are a number of companies developing products, which will
directly compete with the Physicians Automated Attendant. Further, since this
product involves newly deployed technology, there is no assurance that the
technology will be successfully developed or that if it is successfully
developed, that physicians will utilize such technology at a level that will be
financially practicable for our business plan.
Medical professionals are embracing handheld devices to write
prescriptions, access drug databases, remotely access and manage front office
operations and communicate more effectively with patients, staff and other
health care providers. No company is currently providing medical professionals
with up to the minute news and information about the profession and/or their
medical specialty.
Physician Pro Care is one of the leading professional obesity programs
designed for people who are clinically obese (50 lbs. overweight). The
supplemental products that are offered as part of the program will be further
distributed through our website. It is anticipated that this can be significant
revenue enhancement due to the increased exposure related to the distribution
through the Internet.
18
HEALTHCARE INDUSTRY CONSUMER PRODUCTS
The centerpiece of our consumer products strategy is our website located at
www.thehealthchannel.com. We have engineered our website completely in-house,
through the efforts of our web design team and in close collaboration with new
content and database integration partners. The site provides increased ease of
navigation, enhanced personalization, and interaction through on-line chat
communities, increased ad and sponsorship banner space and healthcare management
via the "Conditions & Symptoms" research tool. The site focuses on alternative
care as well as traditional medicine and provides offerings for consumer and
professional users. The site was built utilizing the latest hardware and back
end systems that have been tested and configured for optimal performance,
reliability, stability and efficiency. We have entered into an agreement with
NewsEdge, to provide eHealth content consisting of approximately 90 articles
daily, which are added to thehealthchannel.com's growing content database. Our
agreement requires that we pay NewsEdge one installment of $15,000. We have
entered into an agreement with Integrative Medicine, to provide various eHealth
content databases and weekly medical-alert newsletters. Our agreement requires
that we pay Integrative Medicine an annual fee of $80,000 in monthly
installments of $6,667 each. To date, we have made three installment payments
totaling $20,001. We have renegotiated this agreement to decrease the amount
owed on a monthly basis to $5,000 per month commencing February 1, 2001 and
continuing until June 30, 2002.
We have entered into an agreement with EarthLink.com, a general Internet
portal, to provide ready access to our site for EarthLink subscribers clicking
the healthcare heading on the EarthLink portal. Our agreement with EarthLink
provides for a one-year commitment and requires that we pay EarthLink.com
$36,000 in four installments of $9,000 each. To date, we have made three
installment payments to EarthLink.com totaling $27,000. Lastly,
thehealthchannel.com has an arrangement with the National Institute of Health to
incorporate, publish and "private label" content and content links from the
National Library of Medicine's MEDLINEplus web site. Our agreement with the
National Institute of Health requires no payment of money.
We also develop health-related content and programming for the World Wide
Web targeted at consumer access vis-a-vis the Internet, web-TV and/or other
means of network access.
We intend to enter into strategic alliances and business relationships.
These come in many different forms. For example, medical education, alternative
medicine, pharmacy, library, and journals may enter into relationships with us
to provide information to our web site. We currently have such relationships
with NewsEdge and Integrative Medicine as discussed above.
We also expect to have numerous relationships with third party e-commerce
companies offering their products and services to thehealthchannel.com users.
This will either be through direct advertising of the third party e-commerce
site on thehealthchannel.com site or through a commission agreement whereby we
would receive a commission for any product purchased from the third party
e-commerce site by thehealthchannel.com user. In this regard, we have entered
into eight affiliate agreements with other health oriented websites such as
vitamins.com and mothernature.com. These agreements provide us with revenues
(ranging from 10% to 20% of the sale) in the event users are introduced to our
affiliate sites through our website and products or services are ordered. We
have only recently commenced these affiliate relationships and have received
only a nominal amount of revenue as of the date of this prospectus. As a result
of the recent commencement of these relationships, it would be speculative to
forecast any future sales or sales growth.
On September 9, 1999, we entered into an agreement with 24/7 Media, Inc.
24/7 operates a network of Internet websites (the "24/7 Network") for which it
solicits advertisers, advertising agencies, buying services or others
("Advertisers") regarding the placement of advertising banners and similar
devices and sponsorships ("Advertising") for display on pages, screens, and
other segments or spaces on Internet websites. We granted 24/7 the worldwide
exclusive right to sell all Advertising on the Company's website for a term of
one year. For all advertising revenues generated by 24/7, we will pay 24/7 a
percentage based upon the number of impressions on our website according to the
following chart:
Number of Impressions Percentage Retained by 24/7
Delivered in Preceding Month for Current Month
---------------------------- -----------------
0 to 2,000,000 50%
2,000,000 to 2,999,999 45%
3,000,000 to 4,999,999 40%
5,000,000 to 14,999,999 35%
15,000,000+ 30%
19
To date, we have generated only minimal revenue from this agreement with
24/7. We have begun accruing advertising revenue from the 24/7 agreement since
July 2000. We have received additional revenue from website development
projects.
We have implemented an "anywhere, anytime" strategy whereby we intend to
attract a segment of the market that may not be reachable through traditional
browser limited websites. Our website is already available to Palm and Pocket PC
device users through http://www.avantgo.com and to wireless Palm devices through
http://www.palm.net as well as http://www.omnisky.com. We intend to extend our
reach in this market by launching WAP (wireless application protocol) or
web-enabled phone applications in the coming weeks. We are the only healthcare
website to receive a four star rating on the palm.net web site. A four star
rating is only awarded to web sites that are considered to be "good" in meeting
3Com's criteria (see http:// beta. palm. net/ apps/ users/ main/ 1,10190,00.
html/ ?ACTION = Rating) (see http:// beta. palm. net/ apps/ users/ download/
1,1051,1477,00.html).
The emergence of the Internet as a significant communications medium is
driving the development and adoption of web content and commerce applications
that offer both convenience and value to consumers, as well as unique marketing
opportunities and reduced operating costs to business. A growing number of
consumer and trade customers have begun to conduct business on the Internet
including paying bills, booking airline tickets, trading securities and
purchasing consumer goods such as personal computers, consumer electronics,
compact disks, books, groceries and vehicles. Moreover, online transactions can
be faster, less expensive and more convenient than transactions conducted
through a human intermediary.
COMPETITION
The online commerce industry, particularly on the Internet, is new, rapidly
evolving and intensely competitive, which we expect to intensify in the future.
Barriers to entry are minimal, allowing current and new competitors to launch
new websites at a relatively low cost. We currently or potentially compete with
other companies which have health care websites. These competitors include
InteliHealth, OnHealth, Web MD, Koop.com, and YourHealth.com.
We believe that the principal competitive factors in this market are brand
name recognition, wide selection, personalized service, ease of use, 24-hour
accessibility, customer service, convenience, reliability, quality of search
engine tools, and quality of editorial and other site content. Many of our
current and potential competitors have longer operating histories, larger
customer bases, greater brand name recognition and significantly greater
financial, marketing and other resources than we do. In addition, other websites
may be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of our competitors
may be able to devote greater resources to marketing and promotional campaigns,
and devote substantially more resources to website and systems development than
we do.
Increased competition may result in reduced operating margins, loss of
market share and a diminished franchise value. There can be no assurance that we
will be able to compete successfully against current and future competitors, and
competitive pressures that we face may have a material adverse effect on our
business, prospects, financial condition and results of operations. Further as a
strategic response to changes in the competitive environment, we may, from time
to time, make certain service or marketing decisions or acquisitions that could
have a material adverse effect on its business, prospects, financial condition
and results of operations. New technologies and the expansion of existing
technologies may increase the competitive pressures on us. In addition,
companies that control access to transactions through network access or Web
browsers could promote our competitors or charge us a substantial fee for
inclusion.
We face well-financed competition from other companies competing in the
health sector on the Internet, such as Healtheon, WebMD, and Dr. Koop. Recently,
Healtheon and WebMD merged. There is no guarantee that we will be able to
compete against these companies or any other companies that might enter the
Internet health sector.
20
INTELLECTUAL PROPERTY
We currently have an application pending with the United States Patent and
Trademark Office for registration of the name "thehealthchannel.com" as a
trademark. We have also registered the website domain name of
www.thehealthchannel.com.
We do not rely on proprietary technology in providing its healthcare
information over the Internet. We have developed some proprietary technology
related to our wireless applications and strategy. While we use technology which
has been customized for its own purposes, we have deliberately avoided becoming
overly dependent on any one technology. By avoiding reliance on any one
technology, we will be able to take advantage of technological advances to
provide improved accessibility to its content.
During January 2001, we changed the estimated useful life of our Website
and related technology from 3 years to 2 years. The effect of this change in
accounting estimate will result in an accelerated amortization of our website
and related technology by June 30, 2001. The net book value of approximately
$525,000 as of December 31, 2000, will be fully amortized by June 20, 2001.
We have no collective labor agreements.
EMPLOYEES
As of the date hereof, we have five full-time employees and five part-time
employees. We hire independent contractors on an "as needed" basis only. We have
no collective bargaining agreements with our employees. We believe that our
employee relationships are satisfactory. Long term, we will attempt to hire
additional employees as needed based on our growth rate.
PROPERTIES AND FACILITIES
Our main administrative offices are located at 260 Newport Center Drive,
Suite 250, Newport Beach, California 92660, consisting of 1,284 square feet,
with a monthly lease payment of $3,852 per month, pursuant to a sublease
agreement.
LITIGATION
To the best knowledge of management, there is currently no material
litigation pending or threatened against the Company.
21
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors and officers are as follows:
Name Age Office
--------------------------------------------------------------------------------
Donald J. Shea 67 Chief Executive Officer, President, and
Chairman of the Board of Directors
Thomas Lonergan 50 Chief Operating Officer, Vice
President, Secretary, Chief
Financial Officer, and Director
Balazs Imre Bodai,
M.S., M.D. 45 Director
Jeffrey H. Berg,
MBA, Ph.D. 59 Director
Joseph Song, M.D.,
F.A.C.C. 40 Director
DONALD J. SHEA, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN. From 1995
through 1997, Mr. Shea was Marketing Consultant to Marketing Insights, Inc., a
new product development Company in Princeton, New Jersey. Prior to that he was
President of Avonwood Capital Corporation, Philadelphia, Pennsylvania, a Venture
Capital/Management Consulting firm; and President of Brilliant Enterprises,
Inc., Philadelphia, Pennsylvania, a dental products manufacturer. Mr. Shea was
also the former President and CEO of Clairol, Inc., a Division of Bristol-Myers
Squibb and former Vice-President of Bristol-Myers Squibb.
THOMAS F. LONERGAN, MA, CHIEF OPERATING OFFICER, VICE PRESIDENT, SECRETARY,
CHIEF FINANCIAL OFFICER, AND DIRECTOR. Mr. Lonergan was the co-founder and Vice
Chairman of The IQ NOW Corporation, a deliverer of healthcare information on the
Internet from 1992 through 1999. Previously, he was a Regional Director of
Cardiology for Tenet Medical Group, former Director of Clinical Services at
Downey Community Hospital, and has been a hospital administrator for 20 years.
For 11 years he has been an instructor and director of medical technology at
Coast College. Mr. Lonergan is co-founder of the American College of
Cardiovascular Administrators. He has an Associate of Arts (Pre-Medicine) from
Cerritos Junior College (1971), a Bachelor of Science (Pre-Medicine) from the
University of California, Irvine (1973), and an Executive Masters Degree of
Business Administration from Pepperdine University (1990).
BALAZS IMRE BODAI, M.D., DIRECTOR. From 1985 and continuing through the present,
Dr. Bodai is the Chief of Surgery at Kaiser Permanente Medical Center,
Sacramento, California. He is also President of B and B Medical Research
Technology, Inc., Sacramento, California; an Associate Clinical Professor of
Surgery at the University of California at Davis; a Consultant to COAT, Johnson
& Johnson, Newark, New Jersey; and a Senior Consultant to Sontek Medical, Inc.,
Higham, and Massachusetts. "Ernie" holds a Bachelor of Science and Master of
Science Degrees from the School of Medicine at the University of California at
Los Angeles, and a Doctor of Medicine Degree from the University of California
at Davis. He is author and co-author of over 120 scientific and clinical
publications in several of the leading medical journals, and author of a surgery
textbook.
22
JEFFREY H. BERG, PH.D., Annual Awards DIRECTOR. Dr. Berg COMPENSATION Payouts
holds an MBA and Ph.D. in Chemistry from New York University. From September
1995 through the present, he is a senior research analyst for M.H. Meyerson &
Co., Inc. From 1991 through the present, he is the President of Health Care
Insights. Mr. Berg was Chicago Corporation's senior medical advisor from 1991 to
1992. Mr. Berg was security analyst for William K. Woodruff & Co. from 1990 to
1991 and Vice-President of Research for J.C. Bradford & Co. from 1987 to 1990.
From 1981 to 1987, he was Vice-President of the Health Care Division of PA
Consulting Services, Inc. of London, England, specializing in international
technology and new product surveillance, venture capital investment, acquisition
studies, and state-of-the-art for diverse areas of health care. During the
1970s, Mr. Berg developed products and conducted research for General Foods, the
Patient Care Division of Johnson & Johnson Products, Inc., the Consumer Products
Division of Ortho Pharmaceutical Corporation; and staffed and supervised
scientists and engineers at the R&D laboratories for development of varied
medical and health care products within the Johnson & Johnson family of
companies. Dr. Berg holds several patents in the area of biosensor and
disposable electrode technology. He has published a number of articles on topics
such as biosensors, cancer therapy, biopharmaceuticals, drug infusion devices
and industrial biotechnology. Dr. Berg serves as a liaison with the investment
banking and scientific communities.
JOSEPH SONG, M.D., F.A.C.C., DIRECTOR. From 1994 through the present, Dr. Song
has his own practice in Interventional Cardiology. From 1991 through 1994, he
was an Interventional Cardiologist with Internal Medicine Specialists Medical
Group, Inc. He is a Lecturer and Moderator at Downey Foundation Hospitals. Dr.
Song is Clinical Assistant Professor of Medicine/Cardiology at the College of
Osteopathic Medicine of the Pacific in California and a member of the Teaching
Staff of the Family Practice Internship/Residency Program at Rio Hondo/Downey
Community Hospital, California. He is certified by the American Board of
Internal Medicine and the American Board of Cardiovascular Diseases. Dr. Song
received an A.B. in Physics from Washington University in St. Louis Missouri in
1982 and his M.D. from University of Missouri-Columbia School of Medicine in
1986.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table and attached notes sets forth the compensation of our
executive officers and directors during the last fiscal year.
---------------------------------------------------------------------------------------------------------------------
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ------------------------- ----------------------
Name and Principal Year Other Restricted Securities LTIP All other
Position Salary Bonus annual Stock Underlying Payouts Compensation
Compensation Awards Options/SARs
---------------------------------------------------------------------------------------------------------------------
Donald J. Shea, Chief 1999 -0- -0- None 32,000 -0- None None
Executive Officer(1) 2000 $144,000 -0- None 486,957 -0- None None
---------------------------------------------------------------------------------------------------------------------
Thomas P. Lonergan,
Chief Operating 1999 -0- -0- None 52,000 -0- None None
Officer, Vice 2000 $144,000 -0- None 486,957 -0- None None
President, Chief
Financial Officer,
Secretary
---------------------------------------------------------------------------------------------------------------------
All officers as a group 1999 -0- -0- None 84,000 -0- None None
(2 persons) 2000 $288,000 -0- None 973,914 -0- None None
---------------------------------------------------------------------------------------------------------------------
23
NOTES TO EXECUTIVE COMPENSATION
-------------------------------
The remuneration described in the table does not include our cost for
benefits furnished to the named executive officers, including premiums for
health insurance, reimbursement of expenses, and other benefits provided to such
individual that are extended in connection with the ordinary conduct of the
Company's business. The value of such benefits cannot be precisely determined,
but the executive officers named below did not receive other compensation in
excess of the lesser of $25,000 or 10% of such officer's cash compensation.
During the 1999 fiscal year, beginning July 28, 1999 (inception) through
December 31, 1999, no Officer or Director received any cash consideration for
salary, nor any aggregate remuneration for health insurance and expenses, in
excess of $40,000.
During the 1999 fiscal year, beginning July 28, 1999 through December 31,
1999, even though their employment agreements provide for salary on an annual
basis, all officers agreed to forego their cash compensation until we were
better financed. During the 2000 fiscal year, Thomas P. Lonergan received cash
compensation of $60,000 and took the remainder of his salary in common stock in
lieu of cash. Mr. Shea took his full 2000 salary in stock in lieu of cash.
EMPLOYMENT AGREEMENTS
---------------------
We have an employment agreement with Donald J. Shea, its President, dated
September 1, 1999. This agreement has a term of three years and provides for
salary of $144,000 per year, four weeks of vacation per year, and eligibility to
participation in all our benefit programs. There is no severance provision.
We have an employment agreement with Thomas P. Lonergan, our Vice
President, Chief Operations Officer, Secretary, and Chief Financial Officer,
dated September 1, 1999. This agreement has a term of three years and provides
for salary of $144,000 per year, four weeks of vacation per year, and
eligibility to participation in all our benefit programs. There is no severance
provision.
We have entered into an employment agreement with Mr. Minh Chau Pham
wherein Mr. Pham receives a salary of $95,000 per year and options to purchase
300,000 shares of common stock of the company at $.06 per share. These options
vest on November 1, 2001 and are exercisable for a period of 2 years from the
vesting date. The options vest only if Mr. Pham is employed with the company on
the vesting date.
CERTAIN TRANSACTIONS
We have a Consulting Agreement with Jeffrey Berg, a director of the
Company, whereby, for a one-time payment of 2,444 shares of common stock, Mr.
Berg assists us in locating, negotiating, and managing our financing.
INTEREST OF NAMED EXPERTS AND COUNSEL
We have received a loan from Laguna Pacific Partners, L.P., a Delaware
Limited Partnership for $250,000. In connection with this loan, we issued a
warrant to Laguna Pacific Partners. Lawrence W. Horwitz, a consultant to the
company and a member of the company's legal firm, Senn Palumbo Meulemans, is one
of the two persons who have voting and investment control over Laguna Pacific
Partners, L.P.
On January 5, 2000, we entered into a consulting agreement with Lawrence W.
Horwitz pursuant to which Mr. Horwitz agreed to provide business development and
advisory services to us. For services rendered under the consulting agreement,
we issued Mr. Horwitz 666,667 shares of common stock of the company. In
accordance with the terms of Mr. Horwitz's consulting agreement, he is providing
general business consulting services to thehealthchannel.com, Inc., including,
but not limited to: identifying potential key employees (he introduced
thehealthchannel.com, Inc. to its current Chief Financial Officer); identifying
potential investment opportunities for the company; identifying potential joint
venture candidates; he has also provided specific legal services associated with
drafting key contracts for the company, including proposed joint venture
agreements; distribution agreements; consulting agreements and employment
agreements. These shares issued pursuant to this consulting agreement were
registered on Form S-8. Mr. Horwitz is a member of Senn Palumbo Meulemans, LLP,
which is legal counsel to the Company.
24
On February 20, 2001, we executed a retainer agreement with Senn Palumbo
Meulemans, LLP. We issued to the firm 240,000 shares of common stock as a
retainer fee for the services of the firm. These shares are registered
hereunder.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL OWNERS
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of December 1, 2000 by each stockholder known
by us to be the beneficial owner of more than five percent of the outstanding
Common Stock, each of our directors, and all directors and officers as a group.
Shares of Percent of
Name and Address Common Stock(1) Class(2)
---------------- --------------- --------------
Donald J. Shea(2) 211,828 *
Thomas P. Lonergan(2) 742,003 2.7%
Balazs Imre Bodai, M.S., M.D.(2) 171,522 *
Jeffrey H. Berg, MBA, Ph.D.(2) 155,133 *
Joseph Song, M.D.(2) 845,208 3.1%
All Officers and Directors
as a Group (5 persons) 2,125,694 8.0%
-----------------------------
* Less than one percent
(1) Except as otherwise indicated, we believe that the beneficial owners of
common stock listed above, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject
to community property laws where applicable. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable, or exercisable
within 60 days, are deemed outstanding for purposes of computing the
percentage of the person holding such options or warrants, but are not
deemed outstanding for purposes of computing the percentage of any other
person. Shares of Common Stock approved for issuance but not yet issued is
deemed outstanding.
(2) c/o our address: 260 Newport Center Drive, Suite 250, Newport Beach,
California 92660.
25
SELLING SHAREHOLDERS
The following table sets forth the number of shares of Common Stock which
may be offered for sale from time to time by the Selling Shareholders.
--------------------------------------------------------------------------------------------------------------------------------
NAME OF SELLING STOCKHOLDER SHARES OF SHARES OF PERCENTAGE
COMMON COMMON STOCKS OWNED IF
UNDERLYING MORE THAN 1%
THE WARRANTS
--------------------------------------------------------------------------------------------------------------------------------
1 Laguna Pacific Partners, L.P.(1) 0 1,663,750 *
--------------------------------------------------------------------------------------------------------------------------------
2 Les Dube and Irene Dube 526,556 0 *
--------------------------------------------------------------------------------------------------------------------------------
3 Institute for Medical Studies, Inc. defined Benefit Pension 0 400,000 *
Plan(2)
--------------------------------------------------------------------------------------------------------------------------------
4 Institute for Medical Studies, Inc. defined Benefit Pension 44,444 444,444 *
Plan
--------------------------------------------------------------------------------------------------------------------------------
5 R & R Enterprises, a Corporation Attn: John Peter McBride 15,555 15,555 *
--------------------------------------------------------------------------------------------------------------------------------
6 Daniel Stryker 18,018 18,018 *
--------------------------------------------------------------------------------------------------------------------------------
7 Eric Garcia 2,000 2,000 *
--------------------------------------------------------------------------------------------------------------------------------
8 Sandrine Cassidy 2,000 2,000 *
--------------------------------------------------------------------------------------------------------------------------------
9 J.L. Sommier 333 333 *
--------------------------------------------------------------------------------------------------------------------------------
10 Dorothy Ernst 333 333 *
--------------------------------------------------------------------------------------------------------------------------------
11 Jeffrey J. Heilman, an individual 4,273 4,273 *
--------------------------------------------------------------------------------------------------------------------------------
12 William L. Heilman, TTEE or Marilyn B. Heilman, TTEE FBO The 8,547 8,547 *
Heilman Living Trust
--------------------------------------------------------------------------------------------------------------------------------
13 Charles J. Najarian & Adlene L. Ichien Joint Account 23,148 23,148 *
--------------------------------------------------------------------------------------------------------------------------------
14 David Stanley, an individual 2,273 2,273 *
--------------------------------------------------------------------------------------------------------------------------------
15 Christopher Armstrong, an individual 7,576 7,576 *
--------------------------------------------------------------------------------------------------------------------------------
16 Douglas J. Winters, an individual 7,576 7,576 *
--------------------------------------------------------------------------------------------------------------------------------
17 Leslie Dube, an individual 42,735 42,735 *
--------------------------------------------------------------------------------------------------------------------------------
18 James C. Bridgeman, an individual 8,547 8,547 *
--------------------------------------------------------------------------------------------------------------------------------
19 Troy M. Pelfey, an individual 3,788 3,788 *
--------------------------------------------------------------------------------------------------------------------------------
20 Jeffrey Scott Greene, an individual 7,576 7,576 *
--------------------------------------------------------------------------------------------------------------------------------
21 Fred Brader, an individual 25,641 25,641 *
--------------------------------------------------------------------------------------------------------------------------------
22 Wayne A. Frost, an individual 8,547 8,547 *
--------------------------------------------------------------------------------------------------------------------------------
23 Dan W. Stephens, an individual 46,296 46,296 *
--------------------------------------------------------------------------------------------------------------------------------
24 Bruce and Chieko Planck TTEES FBO The Planck Family Trust 1,616 1,616 *
--------------------------------------------------------------------------------------------------------------------------------
25 Lucy Wells, an individual 25,252 25,252 *
--------------------------------------------------------------------------------------------------------------------------------
26 Jim Achen Jr., an individual 4,629 4,629 *
--------------------------------------------------------------------------------------------------------------------------------
27 Joe Engelbrecht, an individual 27,778 27,778 *
--------------------------------------------------------------------------------------------------------------------------------
28 Daniel B. Guinn, an individual 18,518 18,518 *
--------------------------------------------------------------------------------------------------------------------------------
29 Les Couchman, an individual 3,788 3,788 *
--------------------------------------------------------------------------------------------------------------------------------
30 A.G. Edwards & Sons Custodian for Paula S. Blum 11,111 11,111 *
--------------------------------------------------------------------------------------------------------------------------------
26
--------------------------------------------------------------------------------------------------------------------------------
NAME OF SELLING STOCKHOLDER SHARES OF SHARES OF PERCENTAGE
COMMON COMMON STOCKS OWNED IF
UNDERLYING MORE THAN 1%
THE WARRANTS
--------------------------------------------------------------------------------------------------------------------------------
31 Patty Brader, an individual 4,274 4,274 *
--------------------------------------------------------------------------------------------------------------------------------
32 Lesley & Steven Olswang 14,881 14,881 *
--------------------------------------------------------------------------------------------------------------------------------
33 Mark Adrian 14,881 44,642 *
--------------------------------------------------------------------------------------------------------------------------------
34 Stephen & Laura Knight 1,190 1,190 *
--------------------------------------------------------------------------------------------------------------------------------
35 Wayne Samarzich, an individual 33,333 33,333 *
--------------------------------------------------------------------------------------------------------------------------------
36 Greg Boston, an individual 758 758 *
--------------------------------------------------------------------------------------------------------------------------------
37 Craig Hoad, an individual 530 530 *
--------------------------------------------------------------------------------------------------------------------------------
38 Charles J. Najarian & Adlene L. Ichien 41,019 41,019 *
--------------------------------------------------------------------------------------------------------------------------------
39 Ronald and/or Jeanette Bear 1,190 1,190 *
--------------------------------------------------------------------------------------------------------------------------------
40 Jesse DeCastro, an individual 12,821 12,821 *
--------------------------------------------------------------------------------------------------------------------------------
41 James William McInroy 12,578 12,578 *
--------------------------------------------------------------------------------------------------------------------------------
42 Jayne Clark, an individual 12,346 12,346 *
--------------------------------------------------------------------------------------------------------------------------------
43 Leslie and Irene Dube, Individual 83,333 83,333 *
--------------------------------------------------------------------------------------------------------------------------------
44 Robert D. Sarno, an individual 15,873 15,873 *
--------------------------------------------------------------------------------------------------------------------------------
45 David Poncoe, an individual 18,116 18,116 *
--------------------------------------------------------------------------------------------------------------------------------
46 Marcela D. Uson, an individual 3,401 3,401 *
--------------------------------------------------------------------------------------------------------------------------------
47 The Kellin Revocable Living Trust (3) 66,667 66,667 *
--------------------------------------------------------------------------------------------------------------------------------
48 James E. Scrimger, an individual 3,876 3,876 *
--------------------------------------------------------------------------------------------------------------------------------
49 The Dowell Revocable Inter Vivos Trust (4) 27,778 27,778 *
--------------------------------------------------------------------------------------------------------------------------------
50 Daniel B. Guinn, an individual 17,544 17,544 *
--------------------------------------------------------------------------------------------------------------------------------
51 Michael Osburn, an individual 7,333 7,333 *
--------------------------------------------------------------------------------------------------------------------------------
52 Wayne Samarzich, an individual 16,667 16,667 *
--------------------------------------------------------------------------------------------------------------------------------
53 Wayne & Cheryl Samarzich 11,000 11,000 *
--------------------------------------------------------------------------------------------------------------------------------
54 LifeSpan International 66,667 66,667 *
--------------------------------------------------------------------------------------------------------------------------------
55 LifeSpan International 28,736 28,736 *
--------------------------------------------------------------------------------------------------------------------------------
56 Clell Gladson, an individual 15,152 15,152 *
--------------------------------------------------------------------------------------------------------------------------------
57 Allen Thayer, an individual 5,555 5,555 *
--------------------------------------------------------------------------------------------------------------------------------
58 Roger Thayer, an individual 3,704 3,704 *
--------------------------------------------------------------------------------------------------------------------------------
59 Margarita S. Pham, an individual 18,519 18,519 *
--------------------------------------------------------------------------------------------------------------------------------
60 Kimberly S. Thayler, an individual 27,778 27,778 *
--------------------------------------------------------------------------------------------------------------------------------
61 David Sun, an individual 3,704 3,704 *
--------------------------------------------------------------------------------------------------------------------------------
62 David and Edna Thayer 120,370 120,370 *
--------------------------------------------------------------------------------------------------------------------------------
63 W. Craig & Gretchen A. Hoad 19,627 19,627 *
--------------------------------------------------------------------------------------------------------------------------------
64 Christopher T. Lane and Sonia R. Lane 10,417 10,417 *
--------------------------------------------------------------------------------------------------------------------------------
65 Ashok Chopra, M.D. 31,250 31,250 *
--------------------------------------------------------------------------------------------------------------------------------
66 David Keschner, M.D. 14,583 14,583 *
--------------------------------------------------------------------------------------------------------------------------------
27
--------------------------------------------------------------------------------------------------------------------------------
NAME OF SELLING STOCKHOLDER SHARES OF SHARES OF PERCENTAGE
COMMON COMMON STOCKS OWNED IF
UNDERLYING MORE THAN 1%
THE WARRANTS
--------------------------------------------------------------------------------------------------------------------------------
67 Rich Scrimger, an individual 3,876 3,876 *
--------------------------------------------------------------------------------------------------------------------------------
68 Mr. D.W. Barrick - Barrick Properties, LLC 13,889 13,889 *
--------------------------------------------------------------------------------------------------------------------------------
69 Michael Y. Meganck, an individual 47,619 47,619 *
--------------------------------------------------------------------------------------------------------------------------------
70 Elaine D. Thayer, an individual 333 333 *
--------------------------------------------------------------------------------------------------------------------------------
71 Phillip N. Miller, IV, an individual 1,071 1,071 *
--------------------------------------------------------------------------------------------------------------------------------
72 Luis and Angela Saavedra 28,571 28,571 *
--------------------------------------------------------------------------------------------------------------------------------
73 Joseph Ynfante, an individual 15,152 15,152 *
--------------------------------------------------------------------------------------------------------------------------------
74 Robert Herthel, an individual 12,821 12,821 *
--------------------------------------------------------------------------------------------------------------------------------
75 Ross Thayer, an individual 11,905 11,905 *
--------------------------------------------------------------------------------------------------------------------------------
76 Charles Najarian , an individual 16,667 16,667 *
--------------------------------------------------------------------------------------------------------------------------------
77 Kimberly S. Thayler, an individual 9,091 9,091 *
--------------------------------------------------------------------------------------------------------------------------------
78 Less and Irene Dube, JTWROS 66,667 66,667 *
--------------------------------------------------------------------------------------------------------------------------------
79 Shaker Radman, Jr., an individual 12,821 12,821 *
--------------------------------------------------------------------------------------------------------------------------------
80 Richard M. Fematt, an individual 12,821 12,821 *
--------------------------------------------------------------------------------------------------------------------------------
81 Salah Yacomb, an individual 12,821 12,821 *
--------------------------------------------------------------------------------------------------------------------------------
82 Ali Awad, an individual 6,410 6,410 *
--------------------------------------------------------------------------------------------------------------------------------
83 Terrie Mitchell, an individual 15,185 15,185 *
--------------------------------------------------------------------------------------------------------------------------------
84 Wail S. Radwan, an individual 7,692 7,692 *
--------------------------------------------------------------------------------------------------------------------------------
85 Vang Lai, an individual 14,103 14,103 *
--------------------------------------------------------------------------------------------------------------------------------
86 Terri Mitchell, an individual 8,333 8,333 *
--------------------------------------------------------------------------------------------------------------------------------
87 Eric G. Lee, an individual 6,061 6,061 *
--------------------------------------------------------------------------------------------------------------------------------
88 Regina Marie Hovey & Leland Dele Ronningen, individual 18,182 18,182 *
--------------------------------------------------------------------------------------------------------------------------------
89 Charlotte Anderson, an individual 3,333 3,333 *
--------------------------------------------------------------------------------------------------------------------------------
90 Clell Gladson, an individual 10,000 10,000 *
--------------------------------------------------------------------------------------------------------------------------------
91 Randall and Pamela Bertz 33,333 33,333 *
--------------------------------------------------------------------------------------------------------------------------------
92 Leslie and Irene Dube, JTWROS 0 7,143 *
--------------------------------------------------------------------------------------------------------------------------------
93 Greg Martinez, an individual 4,167 4,167 *
--------------------------------------------------------------------------------------------------------------------------------
94 Jeff Delmonte, an individual 4,167 4,167 *
--------------------------------------------------------------------------------------------------------------------------------
95 Richard Peters & Madeline I. Peters 7,843 7,843 *
--------------------------------------------------------------------------------------------------------------------------------
96 Ivan Barrett & Marsha Barrett 3,922 3,922 *
--------------------------------------------------------------------------------------------------------------------------------
97 Bob Ludovise, an individual 33,333 33,333 *
--------------------------------------------------------------------------------------------------------------------------------
98 Lars Krogius, an individual 3,788 3,788 *
--------------------------------------------------------------------------------------------------------------------------------
99 Tris Krogius, an individual 3,788 3,788 *
--------------------------------------------------------------------------------------------------------------------------------
100 Wendy Baldyga, an individual 8,333 8,333 *
--------------------------------------------------------------------------------------------------------------------------------
101 Dan E. Reiders, MD, an individual 66,667 66,667 *
--------------------------------------------------------------------------------------------------------------------------------
102 Ivan Barrett, an individual 4,386 4,386 *
--------------------------------------------------------------------------------------------------------------------------------
28
--------------------------------------------------------------------------------------------------------------------------------
NAME OF SELLING STOCKHOLDER SHARES OF SHARES OF PERCENTAGE
COMMON COMMON STOCKS OWNED IF
UNDERLYING MORE THAN 1%
THE WARRANTS
--------------------------------------------------------------------------------------------------------------------------------
103 Richard Peters, an individual 4,386 4,386 *
--------------------------------------------------------------------------------------------------------------------------------
104 Kenneth M. Greenberg, an individual 5,208 5,208 *
--------------------------------------------------------------------------------------------------------------------------------
105 Mario Pastorello, an individual 9,259 9,259 *
--------------------------------------------------------------------------------------------------------------------------------
106 Joseph E. Weisz, an individual 13,889 13,889 *
--------------------------------------------------------------------------------------------------------------------------------
107 Joseph E. Weisz, an individual 2,778 2,778 *
--------------------------------------------------------------------------------------------------------------------------------
108 Mario Pastorello, an individual 15,490 15,490 *
--------------------------------------------------------------------------------------------------------------------------------
109 Paul Dunn, an individual 3,333 3,333 *
--------------------------------------------------------------------------------------------------------------------------------
110 Gregory J. Martinez, an individual 4,167 4,167 *
--------------------------------------------------------------------------------------------------------------------------------
111 Steven J. Weisel, an individual 3,333 3,333 *
--------------------------------------------------------------------------------------------------------------------------------
112 Tim D. Branner, an individual 1,667 1,667 *
--------------------------------------------------------------------------------------------------------------------------------
113 Trevor J. Greenberg & Henry S. Greenberg 1,667 1,667 *
--------------------------------------------------------------------------------------------------------------------------------
114 Henry S. Greenberg, an individual 3,333 3,333 *
--------------------------------------------------------------------------------------------------------------------------------
115 Henry S. Greenberg, an individual 12,500 12,500 *
--------------------------------------------------------------------------------------------------------------------------------
116 Henry S. Greenberg, an individual 6,250 6,250 *
--------------------------------------------------------------------------------------------------------------------------------
117 Kenneth M. Greenberg, an individual 5,208 5,208 *
--------------------------------------------------------------------------------------------------------------------------------
118 Mario Pastorello, an individual 9,259 9,259 *
--------------------------------------------------------------------------------------------------------------------------------
119 Kevin C. Gilbert, an individual 8,333 8,333 *
--------------------------------------------------------------------------------------------------------------------------------
120 Andrew M. Ames & Lisa D. Ames 9,259 9,259 *
--------------------------------------------------------------------------------------------------------------------------------
121 Amer Ali, an individual 10,417 10,417 *
--------------------------------------------------------------------------------------------------------------------------------
122 Carlos Tarin Garcia, an individual 3,968 3,968 *
--------------------------------------------------------------------------------------------------------------------------------
123 Ruben T. Garcia, an individual 3,968 3,968 *
--------------------------------------------------------------------------------------------------------------------------------
124 David L. Thayer & Edna L. Thayer 18,519 18,519 *
--------------------------------------------------------------------------------------------------------------------------------
125 Ryan Matthew Adams, an individual 333 333 *
--------------------------------------------------------------------------------------------------------------------------------
126 Laura Vega, an individual 15,789 15,789 *
--------------------------------------------------------------------------------------------------------------------------------
127 Carolyn Kildes Trustee 34,722 34,772 *
--------------------------------------------------------------------------------------------------------------------------------
128 Joseph G. Urquhart, an individual 69,445 69,445 *
--------------------------------------------------------------------------------------------------------------------------------
129 Jay and Tana Boersma 20,833 20,833 *
--------------------------------------------------------------------------------------------------------------------------------
130 Senn Palumbo Meulemans, LLP (5) 240,000 240,000 *
--------------------------------------------------------------------------------------------------------------------------------
TOTAL SHARES 2,741,617 4,046,177
--------------------------------------------------------------------------------------------------------------------------------
o PERCENT OWNED IS LESS THAN 1%
(1) Laguna Pacific Partners, L.P. is controlled by both Mr. Lawrence W. Horwitz
and Mr. Thomas Ehrlich.
(2) Mr. Robert Ludovise has voting and/or investment control of the Institute
for Medical Studies, Inc., defined Benefit Pension Plan.
(3) Ms. Sally Kellin is the trustee of the Kellin Revocable Living Trust.
(4) Mr. George A. Dowell and Evelyn H. Dowell are co-trustees of the Dowel
Revocable Inter Vivos Trust.
(5) Ms. Sally Kellin has voting and/or investment control of LifeSpan
International.
(6) Mr. David Barrick has voting and/or investment control of Barrick
Properties, LLC.
(7) Voting and investment control of Senn Palumbo Meulemans, LLP is held by
Kevin Senn, Diane Palumbo and Cathleen Meulemans.
29
PLAN OF DISTRIBUTION
This Offering relates to:
o The possible sale, from time to time, of 526,556 shares of stock
issued in connection with a loan to the company made by Les Dube and
Irene Dube;
o The possible sale, from time to time, of 1,663,750 shares underlying
warrants issued in connection with a bridge to the company made by
Laguna Pacific Partners, and;
o The possible sale, from time to time, by other selling shareholders of
thehealthchannel.com, Inc. of up to 2,215,061 shares of common stock
and 2,382,427 shares underlying warrants of thehealthchannel.com, Inc.
SELLING SHAREHOLDERS
The Shares will be offered and sold by the Selling Shareholders for their
own accounts. We will not receive any of the proceeds from the sale of the
Shares pursuant to this prospectus. We will pay all of the expenses of the
registration of the Shares, but shall not pay any commissions, discounts, and
fees of underwriters, dealers, or agents. See "Terms of the Offering."
The Selling Shareholders may offer and sell the Shares from time to time in
transactions in the over-the-counter market or in negotiated transactions, at
market prices prevailing at the time of sale or at negotiated prices. The
Selling Shareholders have advised us that they have not entered into any
agreements, understandings, or arrangements with any underwriters or
broker-dealers regarding the sale of their Shares, nor are there an underwriter
or coordinating broker acting in connection with the proposed sale of Shares by
the Selling Shareholders. Sales may be made directly or to or through
broker-dealers who may received compensation in the for of discounts,
concessions, or commissions from the Selling Shareholders or the purchasers of
the Shares for whom such broker-dealers may act as agent or to whom they may
sell as principal, or both. Such compensation for a particular broker-dealer may
be in excess of customary commissions.
The Selling Shareholders, Les Dube and Irene Dube, Laguna Pacific Partners
and any broker-dealers acting in connection with the sale of the Shares
hereunder may be deemed to be "underwriters' within the meaning of Section 2(11)
of the Act. Any commissions received by underwriters and any profit realized by
underwriters on the resale of Shares as principals may be deemed underwriting
compensation under the Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Shares offered by this prospectus may not
simultaneously engage in market making activities with respect to the Common
Stock of the Company during the applicable "cooling off" periods prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Shareholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Common Stock by the Selling Shareholders.
Selling Shareholders may also use Rule 144 under the Act to sell the Shares
if they meet the criteria and conform to the requirements of such Rule.
LES DUBE AND IRENE DUBE
In return for making a loan to us, we are issuing shares to Les Dube and
Irene Dube. These shares are being registered in this prospectus and Les Dube
and Irene Dube may continue to hold these shares or sell them on the market if
this prospectus is effective.
LAGUNA PACIFIC PARTNERS, L.P.
In return for making a loan to us, we issued warrants to Laguna Pacific
Partners, L.P. The warrant provides for the ability to purchase common stock of
the company equal to the quotient of $250,000 divided by the closing bid of our
stock immediately preceding the effective date of this prospectus. The warrant
agreement contains terms which increase the number of shares underlying the
warrants commencing February 1, 2001 at the rate of 10% per month, compounding
on a monthly basis, until the effective date of our registration statement. The
shares, adjusted
30
for February, March and April 2001 are being registered in this prospectus and
once it exercises these warrants, Laguna Pacific Partners may sell the
underlying shares on the market if this prospectus is effective.
DESCRIPTION OF SECURITIES
Our authorized capital stock currently consists of 110,000,000 shares of
Common Stock, no par value. We have no shares of Preferred Stock.
Our Transfer Agent is Continental Stock Transfer & Trust Company, 2
Broadway, 19th Floor, New York, New York 10004.
The following summary of certain terms of the Common Stock does not purport
to be complete and you should consult our articles of incorporation and bylaws
which have been filed with the SEC for the complete details.
COMMON STOCK
As of December 31, 2000 there were 27,610,954 shares of common stock
outstanding. On November 17, 2000, our common stock underwent a one for three
reverse split.
Holders of Common Stock are each entitled to cast one vote for each share
held of record on all matters presented to shareholders. Cumulative voting is
not allowed; therefore the holders of a majority of the outstanding Common Stock
can elect all directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the board of directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of our assets
after payment of liabilities. The board of directors is not obligated to declare
a dividend and it is not anticipated that dividends will be paid until we are
profitable.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares if we issue new shares. There are no conversion, redemption,
sinking fund or similar provisions regarding the Common Stock. All of the
outstanding shares of Common Stock are fully paid and non-assessable and all of
the shares of Common Stock offered hereby will be, upon issuance, fully paid and
non-assessable.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Senn Palumbo Meulemans, LLP, Irvine, California.
EXPERTS
The financial statements that we include in this registration statement,
have been included in reliance on the report of Stonefield Josephson, Inc. and
of Roger Castro, C.P.A., and upon the authority of said firms as experts in
accounting and auditing.
31
FINANCIAL STATEMENTS
The following financial statements are included herein:
Balance Sheet of the Company as of December 31, 2000(audited).
Statements of Operation of the Company for the fiscal years ended December
31, 2000 and 1999 (audited), and the Period from Inception (September 6, 1996)
to December 31, 2000 (audited).
Statement of Stockholder's Deficit for the Period from Inception (September
6, 1996) to December 31, 2000 (audited).
Statement of Cash Flows of the company for the fiscal years ended December
31, 2000 and 1999 (audited), and the Period from Inception (September 6, 1996)
to December 31, 2000 (audited).
32
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT 1-2
FINANCIAL STATEMENTS:
Balance Sheet 3
Statements of Operations 4
Statement of Stockholders' Deficit 5-6
Statements of Cash Flows 7-8
Notes to Financial Statements 9-18
INDEPENDENT AUDITORS' REPORT
Board of Directors
thehealthchannel.com, Inc.
Newport Beach, California
We have audited the accompanying balance sheet of thehealthchannel.com, Inc. (a
development stage enterprise) as of December 31, 2000, and the related
statements of operations, stockholders' deficit and cash flows for the two 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 audit. The financial statements for the period from
inception of operations on September 4, 1996 to December 31, 1998 was audited by
other auditors whose report dated April 1, 1999, included an explanatory
paragraph which expressed substantial doubt about the Company's ability to
continue as a going concern.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of thehealthchannel.com, Inc. as
of December 31, 2000, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses from operations, has negative cash flows
from operations, and its current liabilities exceeds its current assets. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
January 26, 2001
REPORT OF INDEPENDENT AUDITOR
To the Shareholders and Board of Directors
thehealthchannel.com, Inc. (formerly
Innovative Tracking Solutions Corporation)
I have audited the balance sheets of thehealthchannel.com, Inc. (formerly
Innovative Tracking Solutions Corporation and a Development Stage Company) as of
December 31, 1998, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for periods then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of thehealthchannel.com, Inc.
(formerly Innovative Tracking Solutions Corporation and a Development Stage
Company) at December 31, 1998, 1997 and 1996, and the results of operations and
cash flows for the periods then ended, in conformity with generally accepted
accounting principles.
The financial statements have been prepared assuming the Company will continue
as a going concern. As discussed in Note 1, the Company has an accumulated
deficit at December 31, 1998. These factors raise substantial doubt about the
Company's ability to continue as going concern. Management's plan in regard to
these matters is also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Roger G. Castro
Oxnard, California
April 1, 1999
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - DECEMBER 31, 2000
ASSETS
CURRENT ASSETS:
Cash $ 2,429
Prepaid expenses and other receivables 20,855
----------
Total current assets $ 23,284
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 543,859
DEPOSITS 3,852
----------
$ 570,995
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 500,672
Loans payable, stockholders 25,000
Loans payable, net of unamortized discount
of $169,164 330,836
Accrued stock based compensation 783,349
----------
Total current liabilities $1,639,857
STOCKHOLDERS' DEFICIT:
Common stock; $.001 par value, 175,000,000 shares
authorized, 27,610,954 shares issued and outstanding 27,611
Additional paid-in capital 8,451,920
Deficit accumulated during the development stage (9,548,393)
----------
Total stockholders' deficit (1,068,862)
----------
$ 570,995
==========
See accompanying notes to financial statements.
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
From inception on
Year ended Year ended September 4, 1996 to
December 31, 2000 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
NET REVENUES $ 10,765 $ -- $ 10,765
COST OF REVENUES -- -- --
------------ ------------ ------------
GROSS PROFIT 10,765 -- 10,765
------------ ------------ ------------
OPERATING EXPENSES:
Depreciation 333,830 135,230 469,060
Consulting and professional fees 1,509,420 2,512,039 4,021,459
Website related 561,914 195,829 757,743
Interest expense 343,335 -- 343,335
General and administrative 1,136,283 617,630 1,753,913
------------ ------------ ------------
3,884,782 3,460,728 7,345,510
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (3,874,017) (3,460,728) (7,334,745)
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss on discontinued operations -- (367,014) (2,114,398)
Loss on disposal of segment -- (99,250) (99,250)
------------ ------------ ------------
Total discontinued operations -- (466,264) (2,213,648)
------------ ------------ ------------
NET LOSS $ (3,874,017) $ (3,926,992) $ (9,548,393)
============ ============ ============
NET LOSS PER SHARE, BASIC AND DILUTED:
Continuing operations $ (0.15) $ (0.16)
============ ============
Discontinued operations $ -- $ (0.02)
============ ============
Net loss per share $ (0.15) $ (0.18)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, BASIC AND DILUTED 26,332,188 22,125,497
============ ============
See accompanying notes to financial statements.
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
Deficit
Accumulated
Common stock Additional Stock during the Total
------------ paid-in subscriptions development stockholders'
Shares Amount capital receivable stage equity/ (deficit)
------ ------ ------- ---------- ----- -----------------
DESCRIPTION
-----------
Balance at December 31, 1997, restated for
1:3 stock split on October 12, 2000 11,388,007 $ 11,388 $ 379,859 $ -- $ (274,783) $ 116,464
Shares sold for cash 3,334,252 3,334 473,130 476,464
Shares issued in exchange for services 6,998,481 6,999 1,054,540 1,061,539
Common stock subscription 184,413 184 59,816 (60,000)
Net loss for the year ended
December 31, 1998 (1,472,601) (1,472,601)
---------- -------- ---------- -------- ------------ ------------
Balance at December 31, 1998 21,905,153 21,905 1,967,345 (60,000) (1,747,384) 181,866
IVTX
----
Issuance of common stock from IVTX
private placement offering (Note 4) 113,043 113 112,086 60,000 172,199
Issuance of shares for services rendered on
behalf of the Company (Note 4) 34,800 35 52,165 52,200
THEHEALTHCHANNEL.COM (FORMERLY IVTX)
------------------------------------
Contribution of asset from Biologix
International, Ltd. (Note 3) 947,835 947,835
Issuance of common stock from private
placement offering (Note 4) 405,934 406 510,134 (25,000) 485,540
Issuance of common stock related to
settlement agreements (Note 4) 501,667 502 1,796,843 1,797,345
(Continued)
See accompanying notes to financial statements.
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)
Deficit
Accumulated
Common stock Additional Stock during the Total
------------ paid-in subscriptions development stockholders'
Shares Amount capital receivable stage equity/ (deficit)
------ ------ ------- ---------- ----- -----------------
Shares given directly by shareholders for
services rendered on the Company's
behalf (Note 4) 860,100 860,100
Net loss for the year ended
December 31, 1999 (3,926,992) (3,926,992)
---------- -------- ---------- -------- ------------ ------------
Balance at December 31, 1999 22,960,597 22,961 6,246,508 (25,000) (5,674,376) 570,093
Shares exchanged from pools (See Note 4) 1,528,369 1,528 (1,528) --
Private placement offering, net 1,524,651 1,525 898,715 900,240
Proceeds received from stock subscriptions 25,000 25,000
Shares issued in settlement of debt (Alphabet
Media) 53,333 53 46,987 47,040
Shares issued for services - consultants 22,105 22 25,978 26,000
Shares issued for services (National
Securities) 5,170 5 7,333 7,338
Shares issued for services (Quinn Emanuel) 27,633 27 30,645 30,672
Shares issued in settlement of legal matter
(Benning and Fields) 21,365 21 23,310 23,331
Shares issued in settlement (Marshall
Redding) 274,508 275 172,666 172,941
Shares issued for bridge loan (Les Dube) 526,556 527 251,973 252,500
Warrants issuable for bridge loan (Laguna Pacific) 250,000 250,000
Shares issued to Larry Horwitz for
consulting services 666,667 667 499,333 500,000
Net loss for the year ended
December 31, 2000 (3,874,017) (3,874,017)
---------- -------- ---------- -------- ------------ ------------
Balance at December 31, 2000 27,610,954 $ 27,611 $8,451,920 $ -- $ (9,548,393) $ (1,068,862)
========== ======== ========== ======== ============ ============
See accompanying notes to financial statements.
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended September 4, 1996 to
December 31, 2000 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $ (3,874,017) $ (3,926,992) $ (9,548,393)
------------ ------------ ------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 333,830 135,230 469,060
Loss on disposal of division -- 99,250 99,250
Interest expense 330,835 -- 330,835
Non cash expenses from stock issuances 1,290,671 2,611,423 5,096,232
Settlement of litigation 300,000 -- 300,000
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable -- 189 3,147
Inventory -- (10,312) 83,077
Prepaid expenses (60,620) (108,447) (190,020)
Deposits (3,852) 2,597 (6,449)
(INCREASE) DECREASE IN LIABILITIES -
accounts payable and accrued expenses 261,371 661,157 615,789
------------ ------------ ------------
Total adjustments 2,452,235 3,391,087 6,800,921
------------ ------------ ------------
Net cash used for operating activities (1,421,782) (535,905) (2,747,472)
------------ ------------ ------------
(Continued)
See accompanying notes to financial statements.
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended September 4, 1996 to
December 31, 2000 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
payments to acquire property, equipment
and other assets (39,266) (25,818) (65,083)
------------ ------------ ------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Assets and liabilities transferred out (See Note 1) -- (26,329) (26,329)
Stock subscription receivable 25,000 (25,000) --
Loans receivable 21,000 -- --
Proceeds from loans, including related parties 425,000 -- 425,000
Proceeds from issuance of capital stock, net 900,240 682,738 2,416,313
------------ ------------ ------------
Net cash provided by financing activities 1,371,240 631,409 2,814,984
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (89,808) 69,686 2,429
CASH, beginning of year 92,237 22,551 --
------------ ------------ ------------
CASH, end of year $ 2,429 $ 92,237 $ 2,429
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES -
Non-cash consideration from debt and equity transactions $ 1,990,671 $ 2,611,423 $ 5,999,401
============ ============ ============
Proceeds from loan payable paid directly to Horwitz
and Beam by Laguna Pacific on behalf of the Company $ 100,000 $ -- $ 100,000
============ ============ ============
Acquisition of website technology and related assets $ -- $ 947,835 $ 947,835
============ ============ ============
See accompanying notes to financial statements.
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GOING CONCERN:
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The Company has no current source of
material revenues. Without realization of additional capital, it would be
unlikely for the Company to continue as a going concern. This factor raises
substantial doubt about the Company's ability to continue as a going
concern.
Management recognizes that the Company must generate additional resources
to enable it to continue operations. Management's plans include the sale of
additional equity and debt securities to various private equity funds
ranging from $2,000,000 to $15,000,000. In addition, with infusion of
capital from equity funding, the Company's management plans to generate
significant revenues resulting in positive cash flows by year end. However,
no assurance can be given that the Company will be successful in raising
additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional funding, that the Company will
achieve profitability or positive cash flow. If management is unable to
raise additional capital and expected significant revenues do not result in
positive cash flow, the Company will not be able to meet its obligations
and will have to cease operations.
GENERAL:
With headquarters in Newport Beach, California, thehealthchannel.com
(formerly Innovative Tracking Solutions Corporation or "IVTX") is a
comprehensive health information Internet portal that offers a one-step
access point for consumers and professionals who want to explore a broad
array of health topics. The portal currently indexes other Internet health
and health-related sites, has direct links with online health-care
information service centers and provides detailed coverage of medical
conditions. Consumers may access a global library of health-care
information while searching for products and services. The site offers a
complete Internet portal for state-of-the-art continuing medical education
for professionals.
The Company was incorporated under the laws of the state of Delaware on
September 4, 1996.
BUSINESS ACTIVITY:
In early 1999, IVTX management determined that the "public" status of IVTX
was detrimental to IVTX' operations due to the time and expense burdens of
being a public company. IVTX management then decided to take the operations
of IVTX "private" by transferring all IVTX assets and liabilities to a
newly formed private company and selling the public shell to a suitable
company, preferably in the healthcare industry. On April 13, 1999, IVTX
obtained written approval of 64.4% of the total voting stock of IVTX,
voting "for" taking the operations of IVTX private and selling the public
shell to a suitable company.
9
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
BUSINESS ACTIVITY, CONTINUED:
On April 14, 1999, IVTX transferred all of its assets and liabilities based
on majority stockholder approval to a newly formed private company,
Innovative Tracking Solutions Corporation, a private Nevada corporation,
incorporated on March 29, 1999. Innovative Tracking Solutions Corporation
was formed by IVTX management specifically for the purpose of taking the
operations of IVTX private. The former IVTX officers and directors, Dianna
Cleveland, Lee Namisniak and Lou Weiss are the officers and directors of
Innovative Tracking Solutions Corporation, the private company. The
consideration for the transfer of assets was the assumption of all IVTX's
liabilities by the newly formed private company. As a result of this
transfer of assets and liabilities and the disposal of the segment of
business on April 14, 1999 (which is unrelated to the present business of
thehealthchannel.com), the Company recorded a loss on discontinued
operations of $367,014 and a loss on disposal of a segment of $99,250 for
the year ended December 31, 1999.
In June 1999, IVTX was introduced to thehealthchannel.com, a consumer-based
health Internet web site (http://www.thehealthchannel.com). On July 28,
1999, IVTX, pursuant to its bylaws and general Delaware corporate law,
acquired a certain asset of Biologix International, Ltd., a Delaware
corporation ("Biologix") consisting of thehealthchannel.com web site and
its related technology in exchange for the controlling interest in IVTX. In
connection with this change of control, IVTX's name was changed to
thehealthchannel.com, Inc. on July 28, 1999. The acquisition closed on July
28, 1999.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
FAIR VALUE:
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments, none of which are held
for trading purposes, approximate the carrying values of such amounts.
CASH:
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
10
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred, whereas, additions, renewals,
and betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are
removed from the respective accounts, and any gain or loss is included in
operations. Depreciation is computed using the straight-line method over
the estimated useful lives of the related assets. Website and related
technology is being amortized straight-line over its estimated useful life
of three years.
INCOME TAXES:
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which adopts
the asset and liability approach to measurement of temporary differences
between financial reporting and income tax return reporting. The principal
temporary difference is the net operating loss carryforward of
approximately $8,000,000 at December 31, 2000. Due to business activity
during 1999 (Note 1), there are significant limitations on the Company's
ability to utilize this operating loss carryforward. A deferred asset has
been provided and completely offset by a valuation allowance, because its
utilization does not appear to be reasonably assured. The federal net
operating loss carryforward starts to expire on December 31, 2019 and the
California state net operating loss carryforward starts to expire on
December 31, 2004.
DEVELOPMENT STAGE ENTERPRISE:
The Company is a development stage company as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially all
of its present efforts to establish a new business, which is unrelated to
the business of Innovative Tracking Solutions Corporation ("IVTX"), and its
planned principal operations have not yet commenced. All losses accumulated
since inception of thehealthchannel.com (Note 1) have been considered as
part of the Company's development stage activities. The operations of IVTX
are presented as discontinued operations as a result of the transfer of its
assets and liabilities to a private company (Note 1).
NET LOSS PER SHARE:
Net loss per share has been computed using the weighted average number of
shares outstanding. Common stock equivalents have been excluded since their
inclusion would reduce loss per share.
11
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission (the Commission)
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, which is to be applied beginning with the fourth fiscal quarter
of fiscal years beginning after December 15, 1999, to provide guidance
related to recognizing revenue in circumstances in which no specific
authoritative literature exists. The adoption by the Company in the
application of the Staff Accounting Bulletin to the Company's financial
statements did not have a material change in the amount of revenues the
Company ultimately realized.
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), "Accounting for Certain
Transactions Involving Stock Compensation". Interpretation 44 provides
criteria for the recognition of compensation expense in certain stock-based
compensation arrangements that are accounted for under APB Opinion No. 25,
Accounting for Stock-Based Compensation. Interpretation 44 is effective
July 1, 2000, with certain provisions that are effective retroactively to
December 15, 1998 and January 12, 2000. Interpretation 44 is not expected
to have any material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. SFAS No. 133 requires the Company to recognize all
derivatives as either assets or liabilities and measure those instruments
at fair value. It further provides criteria for derivative instruments to
be designated as fair value, cash flow and foreign currency hedges and
establishes respective accounting standards for reporting changes in the
fair value of the derivative instruments. Upon adoption, the Company will
be required to adjust hedging instruments to fair value in the balance
sheet and recognize the offsetting gains or losses as adjustments to be
reported in net income or other comprehensive income, as appropriate. The
Company is evaluating its expected adoption date and currently expects to
comply with the requirements of SFAS 133 in fiscal year 2001. The Company
does not expect the adoption will be material to the Company's financial
position or results of operations since the Company does not believe it
participates in such activities.
(2) PROPERTY AND EQUIPMENT:
On July 28, 1999, the Company acquired an asset from Biologix
International, Ltd., consisting primarily of thehealthchannel.com website
and related technology in exchange for 850,000 restricted shares of the
Company's common stock. Website technology cost includes the design
(including software configuration and interfaces), coding, installation
costs to hardware and testing. The website asset (a non-monetary asset)
acquired was recorded at the transferors' (Biologix International, Ltd.)
historical cost basis determined under generally accepted accounting
principles.
12
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(2) PROPERTY AND EQUIPMENT, CONTINUED:
Property and equipment is comprised of the following:
Website and related technology $ 987,100
Software 25,819
----------
1,012,919
Less accumulated depreciation and amortization 469,060
----------
$ 543,859
==========
Depreciation and amortization expense for the years ended December 31, 2000
and 1999 amounted to $333,830 and $135,230, respectively.
(3) STOCKHOLDERS' DEFICIT:
Biologix paid $250,000 for 850,000 shares of common stock of IVTX,
representing the majority controlling interest held by the officers and
directors of IVTX (see Note 2 for the recording of this issuance). This
purchase was made pursuant to the exemption from registration set forth in
Section 4(1) of the Securities Act of 1933, as amended (the "Act"), as a
non-issuer transaction. This exemption was available since the officers and
directors of IVTX sold their stock to Biologix; IVTX itself did not issue
any new stock. Further, Biologix agreed to contribute thehealthchannel.com
assets and technology to IVTX in exchange for the IVTX shareholders
agreeing to split their stock and exchange shares with the shareholders of
Biologix. This exchange was made pursuant to the exemption set forth in
Section 4(1) of the Act as a non-issuer transaction. This exemption was
available since IVTX shareholders transferred their shares of IVTX (newly
named thehealthchannel.com, Inc.) to the shareholders of Biologix who
elected to exchange their shares. The shares of stock of IVTX were forward
split 28.22-for-one and the IVTX shareholders opted to exchange each share
they held of IVTX stock for two shares of common stock of IVTX under its
new name of thehealthchannel.com, Inc. and contributed the remaining 26.22
shares each into a share exchange pool as presented in the statement of
stockholders' equity. Then approximately 800 Biologix shareholders were
provided with the alternative of retaining their Biologix shares or
retiring their Biologix shares in exchange for IVTX shares
(thehealthchannel.com shares) contained in the exchange pool on a one for
one share basis. Approximately 630 Biologix shareholders elected to
exchange their Biologix shares for thehealthchannel.com shares from the
pool (the "Exchange").
During October 2000, the shareholders approved a stock split of 1:3 shares,
the effect of which has been retroactively applied in the accompanying
financial statements. The number of authorized shares of common stock was
increased to 175,000,000.
13
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(3) STOCKHOLDERS' DEFICIT, CONTINUED:
The Exchange was announced to shareholders of both IVTX and Biologix
through press releases and a letter to IVTX shareholders. After the forward
stock split, the Company (thehealthchannel.com, Inc. formerly Innovative
Tracking Solutions Corporation) had 35,606,519 post split shares of common
stock issued and outstanding. The Exchange began on August 6, 1999 and
ended on October 31, 1999 to ensure that all shareholders had enough time
and notice to exchange their shares. Following the conclusion of the
Exchange period, the Company had approximately 12,667,000 post split shares
reserved for exchange with Biologix shareholders that were not exchanged.
During 2000, 1,528,369 shares were exchanged with Biologix shareholders.
During the year ended December 31, 1998, the Company sold 3,334,252
restricted (post split) shares of the Company's common stock for total
proceeds of $476,464 under Regulation D of the Securities Act of 1933.
During the year ended December 31, 1998, the Company recorded an expense
from the issuance of approximately 7,000,000 post split shares in exchange
for services and license agreements. Expense amounts totaling $1,061,539
were determined based on share value of consideration given and/or
consideration received, which ever was more clearly determinable.
Prior to the April 14, 1999 transfer of the IVTX assets and liabilities
(Note 1), the Company had concluded a private placement offering under Rule
504 of Regulation D, whereby 113,043 (post split) shares of common stock
were sold at an offering price of $1.52 (post split) per share. This
offering resulted in net proceeds of $172,199. Also, the Company issued
34,800 (post split) shares of common stock for services rendered. The
services have been recorded at a fair value of $1.50 (post split) per share
for a total of $52,200.
In September 1999, the Company initiated a Rule 506, Regulation D private
placement of 1,930,585 (post split) restricted shares of the Company's
common stock from shares available from the forward stock split and
1,930,585 (post split) warrants to purchase restricted shares of the
Company's' common stock with an exercise price determined at 70% of the
trading value at the date of grant, for net proceeds of $1,410,780. The
private placement offering was closed on August 29, 2000. The shares issued
and the shares issuable upon exercise of the warrants have piggyback
registration rights in the event the Company files a Registration Statement
with the Securities and Exchange Commission. The warrants vest immediately
and expire two years from the date of issuance.
The Company issued 501,667 shares of common stock for satisfaction of legal
settlement agreements the Company entered into for a total of $1,797,345.
During July 1999, the Company entered into a Consulting Agreement with
Ocean View Management, LLC. Under the Consulting Agreement, Ocean View
Management received a one time payment of 25,000 post split shares of
common stock of the Company, which is recorded in accrued stock based
compensation on the balance sheet. This issuance was exempt from the
registration provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering. The securities
issued pursuant to the Consulting Agreement are restricted securities as
defined in Rule 144.
14
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(3) STOCKHOLDERS' DEFICIT, CONTINUED:
During August 1999, the Company entered into an Agreement for Financial
Public Relation Services with Market Pathways Financial Relations
Incorporated. Under the Agreement for Financial Public Relations Services,
Market Pathways Financial Relations Incorporated received a one time
payment of 28,333 post split shares of common stock of the Company and is
included in accrued stock based compensation on the balance sheet. This
issuance was exempt from the Registration provisions of the Act by virtue
of Section 4(2) of the Act, as transactions by an issuer not involving any
public offering. The securities issued pursuant to the Agreement are
restricted securities as defined in Rule 144.
On December 15, 1999, shareholders conveyed 519,738 post split shares of
common stock to certain individuals and 84,000 shares of common stock to
officers of the Company for satisfaction of expenses and payment of
salaries these individuals and officers had rendered on the Company's
behalf. This resulted in recording a charge to expense and additional paid
in capital of $860,100 for the year.
During 2000, the Company entered into a Consulting Agreement with Lawrence
W. Horwitz pursuant to which Mr. Horwitz agreed to provide business
development and advisory services. For services rendered under this
Consulting Agreement, the Company issued 666,667 post split shares of
common stock of the Company (the "Shares"). The Shares were registered on
Forms S-8, for which, an expense of $500,000 has been recorded.
On August 5, 2000, the Company approved the issuance of 508,319 post split
restricted shares to 12 officers, directors and consultants in payment for
services rendered to the Company. The related expense amounts of $457,487
have been recorded in accrued stock based compensation as shares had not
yet been issued.
Bridge Financing
----------------
During August 2000, the Company entered into an agreement to borrow
$250,000 from Laguna Pacific Partners L.P., ("Laguna Partners") a Delaware
limited partnership. This loan is secured by all assets of the Company,
bears interest at 6% per annum and is payable on the earlier of 180 days or
within 30 days from the effective date of the Form SB-2 above. This loan
has been extended to May 1, 2001. In consideration for this loan, Laguna
Partners will receive warrants for common stock equal to the quotient of
$250,000 divided by the closing bid of the Company's stock price
immediately preceding the effective date of the Form SB-2 above. The term
of this warrant is five years and the exercise price is $1. The Company
will record interest expense using the fair value of $0.165 per warrant
granted, measured at the date of grant using the Black Scholes model with a
70% volatility. This discount of $250,000 is being amortized over the loan
term using the imputed interest method.
During August 2000, the Company entered into an agreement to borrow
$250,000 from Les and Irene Dube, ("Dube") individuals. This loan bears
interest at 6% per annum and is payable on the earlier of 180 days or
within 30 days from the effective date of the Form SB-2 above. This loan
has been extended to May 23, 2001. In consideration for this loan, Dube
received 526,556 (post-split) common stock shares for which an amount of
$250,000 is being amortized over the life of the loan using the imputed
interest method.
15
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(3) STOCKHOLDERS' DEFICIT, CONTINUED:
Stock Options
-------------
On July 27, 2000, the Company enacted the 2000 Incentive and Nonstatutory
Stock Option Plan (the "Plan"), which has reserved for issuance, 5,000,000
options to purchase shares of Common Stock of the Company for key employees
and consultants. To date, no options have been granted under the plan.
(4) ADVERTISING COSTS:
Advertising costs are expensed when incurred and amounted to approximately
$615,000 and $400,000 for the years ended December 31, 2000 and 1999,
respectively.
(5) EMPLOYMENT AGREEMENTS:
The Company has employment agreements with its chief operating officer and
president. The employment agreements provide for a monthly salary of
$12,000 each. The agreements commenced on September 1, 1999 and are in
effect for three years from that date.
(6) CONTINGENCIES:
The Company is involved in other various routine legal proceedings
incidental to the conduct of its normal business operations. The Company's
management believes that none of these legal proceedings will have a
material adverse impact on the financial condition or results of operations
of the Company.
The Securities and Exchange Commission ("SEC") has alleged that the
exchange of shares involving the Biologix shareholders may have been in
violation of the Securities Act of 1933 and thereby constituted the making
of an unregistered public offering to which the Company continues to
disagree. If the SEC were to prevail in its position, it would have a
severe and adverse impact on the Company, and the Company's ability to
continue as a going concern would be adversely affected. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty, as the amounts are not estimable.
The Company initiated a private placement of securities during September
1999 which closed on August 29, 2000. During this period of time, the
Company sold securities to investors based on the most recent closing price
on the OTC Bulletin Board or the Pink Sheets. The prices at which these
securities were sold fluctuated widely, based on fluctuations in the
closing prices. The Company is contingently liable in the event that an
investor or investors who purchased securities in this private placement
asserts a claim that the Company failed to fully disclose the fact that
fluctuations in the market would cause adjustments in the price of the
private placement. The Company believes that they fully disclosed this
risk, however, in the event any shareholder(s) were to successfully
prosecute an action against the Company, it may have a severe and adverse
effect on the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty, as the amounts are not estimable.
16
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(6) CONTINGENCIES, CONTINUED:
Termination of Swartz Equity Line
---------------------------------
During 2000, the Company entered into an agreement with Swartz Private
Equity LLC ("Swartz") for a $30,000,000 equity offering, subject to
registration with the SEC and governed by a percentage of our trading
volume. This equity line was governed by the investment agreement with
Swartz that provided that the Company may place puts to Swartz over a
three-year period. The Company has determined that it was highly unlikely
that the Swartz transaction would clear comments based upon certain
insurmountable aspects of the Swartz deal. As such, the Company terminated
the agreement with Swartz. Termination of the Swartz agreement, according
to its terms, requires the payment of a "break-up" fee of $200,000. While
the Company believes that no fee is due Swartz, based on the legal
impossibility of this agreement, Swartz may attempt to pursue remedies
against the company. Based on discussions with legal counsel, management
does not believe that Swartz would prevail in any action against the
Company. Accordingly, no amounts have been recorded in the accompanying
financial statements as the probability of a negative outcome is remote.
Litigation
----------
During 2000, the Company was named as a cross-defendant in a
cross-complaint filed by its Former President in an action pending in the
Superior Court State of California for the County of San Francisco, Case
No. 307364. This action was initiated by Biologix International, Ltd.
("Biologix") against the Former President on October 22, 1999 alleging
causes of action against the former President for: (1) temporary
restraining order and preliminary and permanent injunction; (2) breach of
fiduciary duty; (3) fraud by intentional misrepresentation; (4) conversion;
(5) possession of personal property; (6) declaratory relief; and (7)
accounting. The claims alleged by Biologix relate to the actions and
conduct of the former President as an officer and director of Biologix.
Thehealthchannel.com was named as a cross-defendant in the cross-complaint
of the former President in a cause of action for breach of contract based
upon an alleged employment agreement between the former President and
Biologix. The former President claimed that the alleged employment
agreement was the responsibility of thehealthchannel.com based upon
thehealthchannel.com's purchase of the internet related assets from
Biologix. Thehealthchannel.com was served with the cross-complaint on
December 14, 1999. The former President seeks $400,000 in damages and
options to purchase one million shares of Biologix stock. The Company
entered into a Settlement Agreement and Release with its Former President.
Pursuant to the settlement agreement, (a) the Former President was required
to transfer 266,667 thehealthchannel.com post split shares which had
erroneously been issued to a Company under his control and contribute the
proceeds from the sale of 66,667 thehealthchannel.com post split shares to
the Company, withdraw all pending claims or rights to any monetary
compensation, whether asserted or unasserted, stock options or stocks and
waive his right to future claims or lawsuits against the Company and (b)
the Company was to issue approximately 333,333 post split shares
immediately, 166,667 post split shares if the weighted average trading
price as determined in the agreement was at least $2.25, 166,666 post split
shares if the weighted average trading price as determined in the agreement
was at least $3.75 and 66,667 post split shares if the weighted average
trading price as determined in the agreement was at least $6.00. Pursuant
to this agreement, the Company recorded an obligation of $300,000 arising
from the initial 333,333 shares at $0.90 per share, which approximated the
post split trading price per share. The transfer of 266,667 shares under
the Settlement Agreement and Release with the Former President is not
classified as redeemable equity in the balance sheet, as no cash payment
are attached to redeem his stock. This obligation of $300,000 is included
in accrued stock based compensation on the balance sheet. The Company is
contingently liable to issue 400,000 additional post split shares based
upon certain stock price goals as disclosed above, and no amounts have been
recorded in the accompanying financial statements
17
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000 AND 1999
(6) CONTINGENCIES, CONTINUED:
Litigation, Continued
---------------------
To the best knowledge of management, there is no other material litigation
pending or threatened against the Company.
INNOVATIVE TRACKING SOLUTIONS CORPORATION
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
REPORT OF INDEPENDENT AUDITOR
To the Shareholders and Board of Directors Innovative Tracking Solutions
Corporation
I have audited the accompanying balance sheets of Innovative Tracking
Solutions Corporation (A Development Stage Company) as of December 31, 1998,
1997 and 1996, and the related statements of operations, stockholders' equity,
and cash flows for periods then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audits provide a reasonable basis for my opinion.
The accompanying financial statements have been prepared assuming the
Company will continues as going concern. As discussed in Note H, the Company has
an accumulated deficit at December 31, 1998. These factors raise substantial
doubt about the Company's ability to continue as going concern. Management's
plan in regard to these matters is also discussed in Note H. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Innovative Tracking
Solutions Corporation (A Development Stage Company) at December 31, 1998, 1997
and 1996, and the results of operations and cash flows for the years then ended,
in conformity with generally accepted accounting principles.
Roger G. Castro
Oxnard, California
April 1, 1999
Innovative Tracking Solutions Corporation
(A Development Stage Company)
Consolidated Notes to Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------
This summary of significant accounting policies of Innovative Tracking Solutions
Corporation (a development stage company) is presented to assist in
understanding the Company's financial statements. The financial statements and
notes are representations of the Company's management who is responsible for
their integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
Business Activity:
Innovative Tracking Solutions Corporation (a development stage company) was
incorporated in Delaware on September 4, 1996. The Company is licensed to
manufacture and market patented products. The Company has devoted substantially
all of its efforts in establishing its business and has not generated
significant revenues.
Accounts receivable:
Although the Company employs the full accrual method of accounting, there were
no receivables at the end of the year .
Inventory:
Inventories are stated at cost. Cost is determined by specific identification of
each unit.
Furniture & Equipment:
Furniture and equipment are stated at cost. Depreciation is computed using the
straight-line method for both financial statement purposes and income tax
purposes.
Years
Furniture and equipment 7
Patents, trademarks:
Patents and trademarks are carried at costs and only include current costs
subsequent to licensing agreements. Amortization of patents and trademarks are
provided using the straight-line method for financial reporting purposes at
rates based on the remaining legal lives:
Years
Patents and trademarks 17 - 20
Revenue & Expense Recognition:
Revenue is recognized when the earning process is complete. Expenses are
recognized as incurred.
Primary Net Income Per Common Share:
Primary net income per share is based on the average number of shares of common
stock outstanding during the year.
NOTE B - RELATED PARTY TRANSACTIONS
-----------------------------------
Loan receivable is cash advances made to the Company by certain officers and
stockholders of the Company.
Note payable to officer and principal stockholder in the amount of $15,000 is
payable in full plus interest at the rate of 8% per annum on October 15, 1998.
Interest expense related to this note was $350 for 1998 and $250 for 1997. The
Company issued 4,000 shares of restricted common stock to the officer in lieu of
cash in satisfaction of the accrued interest on the loan. The amounts related to
this transaction are reflected on the income statement as an interest expense
recorded at a value of $.90 per share representing a discount from the $1.00
offering price of the Company's then current private placement offering. The
discount for these restricted securities was based on the restrictive nature of
the stock being held by the affiliate who is also a Director of the Company. The
values recorded represented 6 months of interest accrued during the later of
1998 and the beginning of 1999.
Licensing Agreements: The Company issued 500,000 shares of restricted common
stock in satisfaction of licensing agreement contracts to licensors who are also
officers and shareholders of the Company. The amounts related to these
transactions are reflected on the income statement as an expense and were valued
at $.90 per share representing a discount from the $1.00 offering price of the
Company's then current private placement offering. The discount for these
restricted securities was based on the restrictive nature of the stock being
held by the affiliates who are also founders of the Company.
The Company issued 488,000 shares of restricted common stock to officers of the
Company pursuant to the terms of their employment agreements. The amounts
related to these transactions are reflected on the income statement as an
expense and were valued at $.90 per share representing a discount from the $1.00
offering price of the Company's then current private placement offering. The
discount for these restricted securities was based on the restrictive nature of
the stock being held by the affiliates who are also founders of the Company.
NOTE C - INCOME TAXES
---------------------
As of December 31, 1998, the Company had available for federal income tax
purposes a net operating loss carry forward of approximately $1,747,384, which
expired in various years through 2013.
NOTE D - LEASING ARRANGEMENTS
-----------------------------
The Company conducts its operations from facility that is leased under a two-
year noncancelable operating lease expiring in April 1999. In addition, the
Company is leasing office equipment under a three year lease expiring in
November 2000.
The following is a schedule of future minimum rental payments under the above
operating leases as of December 31, 1998:
Year Ending
December 31 Amount
----------- ------
1999 $ 6,994
2000 3,394
$10,388
Rental expense amounted to $15,861 in 1997 and $21,456 in 1998.
NOTE E - OFFERING EXPENSES
--------------------------
Costs are directly attributable to offering of securities and costs of the
offering are charged to expense as incurred.
NOTE F -NONCASH CONSIDERATION
-----------------------------
The Company issued stock for consulting, engineering, design and professional
services to non-affiliates of the Company. The amounts related to these
transactions are reflected on the income statement as expenses and were valued
at a fair value of $.25 per share for stocks issued for services in 1996 and
early 1997, prior to any private securities offerings made by the Company.
Stocks issued for services later in 1997 and in 1998, during or after the
Company began its private placement, were valued at $2.00 per share for any Rule
504 issuances and $1.00 per share for any Section 4 (2) restricted issuances
which is consistent with the Company's then current offering price for those
securities.
NOTE G - PAID IN CAPITAL ADJUSTMENTS
------------------------------------
Certain shareholders, who are also officers of the Company, elected to draw
funds against the original basis of their stocks.
NOTE H - GOING CONCERN
----------------------
The Company has no current operations with which to create sufficient operating
capital. The Company seeks to raise operating capital to develop and market the
technology it has acquired. As of December 31, 1998, the deficit accumulated
during the development stage amounts to $1,747,384.
NOTE I - CONTINGENCIES
----------------------
The Company and certain related parties who are also officers and shareholders
of the Company entered in to an employment contract agreement wherein the
Company will pay them certain amounts of compensation as funds are readily
available. The total amounts due are $147,917 for 1998, and $61,875 for 1997.
Innovative Tracking Solutions Corporation
(A Development Stage Company)
Balance Sheet
As of December 31, 1997 and 1996 1998 1997 1996
------------ ------------ ------------
ASSETS
Current Assets
Cash in Banks $ 22,551 $ 42,191 $ (1,268)
Accounts Receivable 3,336 -- --
Loan receivable - officers 41,952 -- --
Inventory 76,982 76,199 47,110
Prepaid Expenses 2,475 1,525 --
------------ ------------ ------------
Total Current Assets 147,296 119,915 45,842
Fixed Assets:
Furniture & Equipment 38,512 9,408 2,866
Less: Accumulate Depreciation (4,769) (1,346) (136)
------------ ------------ ------------
Total Fixed Assets 33,743 8,062 2,730
Other Assets:
Patents, trademarks and rights 28,786 10,931 --
Less accumulated amortization (1,215) (104) --
------------ ------------ ------------
Total Other Assets 27,571 10,827 --
------------ ------------ ------------
TOTAL ASSETS $ 208,610 138,804 48,572
Liabilities & Stockholders' Equity
Current Liabilities:
Accounts payable $ 19,450 7,340 4,922
Accrued expenses 7,294 -- --
Note payable -- 15,000 --
------------ ------------ ------------
Total Current Liabilities 26,744 22,340 4,922
Contingencies - NOTE J
Stockholders' Equity:
Common stocks , $.001 par value
Authorized shares - 10,000,000
Issued and outstanding shares:
3,563,490 shares, 1,852,580
shares, and 1,537,000 shares,
respectively 3,533 1,853 1,537
Common Stock Subscribed 30 --
Paid in capital 1,985,687 389,394 123,785
Subscriptions receivable (60,000) -- --
Deficit accumulated during the
development stage (1,747,384) (274,783) (81,672)
------------ ------------
------------
Total Stockholders' Equity 181,866 116,464 43,650
------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 208,610 $ 138,804 $ 48,572
See Notes to Consolidated Financial Statements
Innovative Tracking Solutions Corporation
(A Development Stage Company)
Statement of Loss and Accumulate Deficit For the
years ended December 31, 1998, 1997 and 1996
Cumulative
During
Development December 31, December 31, December 31,
Stage 1998 1997 1996
------------ ------------ ------------ ------------
Sales $ 11,938 $ 11,938 $ -- $ --
Cost of Goods Sold (6,371) (6,371) -- --
------------ ------------ ------------ ------------
Gross Profit 5,567 5,567 -- --
Operating Expenses:
Advertising & marketing 118,191 82,432 34,713 1,046
Amortization 1,215 1,111 104 --
Auto Expense 6,042 5,394 648 --
Bank Charges 3,968 2,873 722 373
Contributions 410 60 319 31
Depreciation 4,769 3,423 1,210 136
Education 5,115 4,026 393 696
Entertainment 3,563 3,209 331 23
Insurance 19,233 13,871 5,362 --
Inventory Write-offs 40,214 40,214 -- --
Legal and Professional 59,475 57,906 1,238 331
Misc. Expenses 22,891 6,794 13,639 580
Offering Expenses 80,105 54,806 25,299 --
Office Expense 31,094 20,774 8,714 1,606
Outside Service 133,676 96,980 26,321 10,375
Payroll Expense 29,334 29,334 -- --
Postage and Copies 7,880 5,166 2,277 437
Promotions-product samples expense 6,450 6,450 -- --
Rent 37,317 21,456 15,861 --
Repairs 1,938 1,599 264 75
Research and Development 158,436 57,415 38,969 62,052
Shipping 18,525 14,848 3,509 168
Stock Awards 889,200 889,200 -- --
Taxes and Licenses 9,105 8,489 438 178
Trade Shows & conventions 20,168 19,134 565 469
Travel 7,546 7,546 -- --
Utilities and Telephone 34,189 21,119 9,974 3,096
------------ ------------ ------------ ------------
Total Operating Expenses $ 1,748,171 $ 1,475,629 $ 190,870 $ 81,672
Net loss from operation $ (1,742,604) $ (1,470,062) $ (190,870) $ (81,672)
Other Income (Expenses)
Interest income 1,195 1,183 12 --
Interest expense (5,975) (3,722) (2,253) --
------------ ------------ ------------ ------------
Total Other Income (Expenses) (4,780) (2,539) (2,241) --
------------ ------------ ------------ ------------
Net loss $ (1,747,384) (1,472,601) (193,111) (81,672)
Earnings(loss) per share $ (0.41) $ (0.10) $ (0.05)
See Notes to Financial Statements
Innovative Tracking Solutions Corporation
(A Development Stage Company)
Statement of Stockholders' Equity
Deficit
Accumulated
Number Common Common Additional Subscrip- During the
of Shares Stock at Stock Paid-in- tions Development
Outstanding Par Value Subscribed Capital Receivable Stage Total
----------- ---------- ---------- -------- --------- -------- -----
Balance at
September 6, 1996 (inception)
Net loss - September 6, 1996
through December 31, 1996 - - $(81,672) $(81,672)
Stocks issued for cash - from
September 6, 1996 (inception)
to December 31, 1996
Restricted shares 1,495,500 $1,496 $113,451 114,947
Stocks issued for past, present,
and future services - from
September 6, 1996 to
December 31, 1996 - 41,500 41 10,334 10,375
--------- -------- -------- -------- -------- -------- --------
Balance at
December 31, 1996 1,537,000 1,537 123,785 (81,672) 43,650
Net loss - January 1, 1997
Through December 31, 1997 - (193,111) (193,111)
Stocks issued for cash -
from January 1, 1997 to
December 31, 1997 240,080 240 294,548 294,788
Paid in capital adjustments (52,866) (52,866)
(NOTE G)
Stocks issued for past, present,
and future services - from
January 1, 1997 to
December 31, 1997 - (NOTE F) 71,000 71 17,679 17,750
Stocks issued for payments
in lieu of cash - (NOTE F)
January 1, 1997 to
December 31, 1997 2,000 2 3,998 4,000
Interest expense (NOTE B) 2,500 3 2,250 2,253
--------- -------- --------- -------- -------- -------- --------
Balance at December 31, 1997 1,852,580 $1,853 - 389,394 - (274,783) 116,464
Net Loss for 1998 (1,472,601) (1,472,601)
Stocks issued for cash -
From January 1, 1998
to December 31, 1998 542,410 542 516,718 517,260
Paid in capital adjustments (40,796) (40,796)
(NOTE G)
Stocks issued for services in lieu
of cash - January 1, 1998 to
December 31, 1998 (NOTE F) 149,000 149 169,851 170,000
Restricted Stocks issued in lieu of
Cash as per contract agreements -
from January 1, 1998 to
December 31, 1998
Licensing Agreements
(NOTE B) 500,000 500 450,000 450,500
Employment Agreements
(NOTE B) 488,000 488 439,200 439,688
Interest expense (NOTE B) 1,500 1 1,350 1,351
Common stock subscription 30,000 30 59,970 (60,000) -
--------- ------- ----- -------- -------- -------- --------
Balance at December 31, 1998 3,563,490 $ 3,533 30 $ 1,985,687 $(60,000) $(1,747,384) $181,866
See Notes to Consolidated Financial Statements
Innovative Tracking Solutions Corporation
(A Development Stage Company)
Statements of Cash Flows
For the period September 6, 1996 (inception) to December 31, 1998
Cumulative September 6,
During 1996 (inception)
Development December 31, December 31 to December 31
Stage 1998 1997 1996
----------- ----------- ----------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,747,384) $(1,472,601) $ (193,111) $ (81,672)
Adjustments to reconcile Net Loss
to net cash provided by operating
activities:
Depreciation & amortization 5,984 4,534 1,314 136
Services paid by stocks 1,095,917 1,061,539 24,003 10,375
Increase in accounts receivable (3,336) (3,336) - -
Increase in loans receivable - officers (41,952) (41,952) - -
Increase in inventory (76,982) (783) (29,089) (47,110)
Increase in prepaid expenses (2,475) (950) (1,525) -
Increase (decrease) in accounts payable 19,450 12,110 (2,418) 4,922
Increase (decrease) in accrued expenses 7,294 7,294 - -
--------- -------- -------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $(743,484) $(434,145) $ (195,990) $ (113,349)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets (38,512) (29,104) (6,542) (2,866)
Acquisition of other assets (28,786) (17,855) (10,931) -
--------- -------- ------- ---------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES $ (67,298) $ (46,959) $ (17,473) $ (2,866)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable - (15,000) 15,000 -
Proceeds from issuance of common stock 926,995 517,260 294,788 114,947
Reduction in paid in capital (93,662) (40,796) (52,866) -
--------- -------- -------- -------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 833,333 461,464 256,922 114,947
INCREASE (DECREASE) IN CASH 22,551 (19,640) 43,459 (1,268)
BEGINNING CASH - 42,191 (1,268) -
--------- ------- -------
ENDING CASH $ 22,551 $ 22,551 $ 42,191 $ (1,268)
Schedule of noncash transactions
Issuance of stock in exchange for
Services $1,095,917 $1,061,539 24,003 $ 10,375
Stock Subscription receivable 78,700 60,000 18,700 -
--------- --------- ------- --------
$1,174,617 $1,121,539 $ 42,703 $ 10,375
See notes to Financial Statements
THEHEALTHCHANNEL.COM, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
---------------------------------------------------
We are required by our Bylaws and Certificate of Incorporation to
indemnify, to the fullest extent permitted by law, each person that the Company
is permitted to indemnify. Our Charter requires it to indemnify such parties to
the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware
General Corporation Law.
Section 145 of the Delaware General Corporation Law permits us to indemnify
its directors, officers, employees, or agents against expenses, including
attorneys fees, judgments, fines and amounts paid in settlements actually and
reasonably incurred in relation to any action, suit, or proceeding brought by
third parties because they are or were directors, officers, employees, or agents
of the corporation. In order to be eligible for such indemnification, however,
our directors, officers, employees, or agents must have acted in good faith and
in a manner they reasonably believed to be in, or not opposed to, our best
interests. In addition, with respect to any criminal action or proceeding, the
officer, director, employee, or agent must have had no reason to believe that
the conduct in question was unlawful.
In derivative actions, we may only indemnify our officers, directors,
employees, and agents against expenses actually and reasonably incurred in
connection with the defense or settlement of a suit, and only if they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
our best interests . Indemnification is not permitted in the event that the
director, officer, employee, or agent is actually adjudged liable to the
Corporation unless, and only to the extent that, the court in which the action
was brought so determines.
Our Certificate of Incorporation permits us to indemnify our directors
except in the event of:
o a breach of the duty of loyalty to us or our stockholders;
o an act or omission that involves intentional misconduct or a knowing
violation of the law and an act or omission not in good faith;
o liability arising under Section 174 of the Delaware General
Corporation Law, relating to unlawful stock purchases, redemption, or
payment of dividends; or
o a transaction in which the potential indemnity received an improper
personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to our controlling directors, officers, or
persons pursuant to the foregoing provisions, we have been informed 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.
Item 25. Other Expenses of Issuance and Distribution
----------------------------------------------------
All the following numbers are approximations only.
SEC Registration Fee $ 12,887.56
Accounting Fees and Expenses $ 50,000
Legal Fees and Expenses $ 100,000
Printing Expenses $ 10,000
Miscellaneous $ 5,000
------------
Total $ 177,887.56
33
Item 26. Recent Sales of Unregistered Securities
------------------------------------------------
All share numbers, warrant numbers, unit numbers, and prices have been
adjusted to retroactively reflect the one for three reverse stock split
implemented on November 17, 2000.
A. Sales of Unregistered Securities to Officers & Directors
-------------------------------------------------------------
1. In September 1996 upon the inception of IVTX, IVTX issued 266,667
shares of restricted Common Stock to a founder of IVTX and 215,167 shares
of restricted Common Stock to a co-founder of IVTX. There was no
underwriter involved in this issuance and no commissions were paid to any
person. The issuances were exempt from the registration provisions of the
Act by virtue of Section 4(2) under the Act.
2. In September 1996 through March 1997, IVTX issued 54,167 shares of
restricted Common Stock to a director of IVTX, in consideration of
consulting services rendered. There was no underwriter involved in this
issuance and no commissions were paid to any person. This issuance was
exempt from the registration provisions of the Act by virtue of Section
4(2) under the Act.
3. In March 1997, IVTX conducted a private offering of 8,333 shares of
restricted Common Stock at a total offering price of $20,000 to a director
of IVTX. IVTX sold and issued the 8,333 shares to the director in exchange
for the total cash proceeds of $20,000. There was no underwriter involved
in this issuance and no commissions were paid to any person. This issuance
was exempt from the registration provisions of the Act by virtue of Section
4(2) under the Act.
4. In July 1998, IVTX granted options to purchase 83,333 and 66,667
shares respectively of Common Stock in IVTX at an exercise price of $1.50
per share to two founding officers, subject to the terms of their
employment agreements. The options expire on December 31, 2002. There was
no underwriter involved in this issuance and no commissions were paid to
any person. The issuances were exempt from the registration provisions of
the Act by virtue of Section 4(2) under the Act.
5. In August 1998, IVTX issued to two of its officers an aggregate of
156,000 shares of restricted Common Stock and 6,667 shares of restricted
Common Stock to one of the directors as a promotion bonus. There was no
underwriter involved in this issuance and no commissions were paid to any
person. The issuances were exempt from the registration provisions of the
Act by virtue of Section 4(2) under the Act.
6. In August 1998, IVTX issued 83,333 shares of restricted Common Stock
each to two licensors, who are also officers of IVTX, in partial
fulfillment of the terms of licensing agreements with these officers.
Before issuance, one officer, as licensor, assigned the total of all 83,333
shares to the other licensor. There was no underwriter involved in this
issuance and no commissions were paid to any person. The issuances were
exempt from the registration provisions of the Act by virtue of Section
4(2) under the Act.
7. On September 1, 1999, the Company entered into a Consulting Agreement
with Jeffrey H. Berg, one of its Directors. Jeffrey H. Berg agreed to
introduce potential investors and financial institutions to the Company. In
consideration of entering into this agreement, Mr. Berg received 7,333
shares of common stock. Mr. Berg is an accredited investor.
8. On July 5, 2000, the Company approved the issuance of 295,653
restricted shares to the Company's officers and directors.
34
B. Sales of Unregistered Securities to Private Investors
----------------------------------------------------------
1. In September 1996 through May 1997, in order to raise IVTX's initial
seed capital for research and development, IVTX conducted a private
offering of 212,333 shares of restricted Common Stock to six accredited
investors for a total offering price of $637,000. In the offering, IVTX
sold 45,667 shares to five accredited investors for the total proceeds of
$137,000 and the remaining 166,667 shares offered were subscribed for
investment intent by an additional accredited investor for purchase at
$3.00 per share. There was no underwriter involved in the issuances of the
45,667 purchased shares and no commissions were paid to any person for any
shares in the offering. None of the transactions involved general
solicitation or general advertising. Each investor was provided with the
Company's private placement memorandum and business plan. The issuances
were exempt from the registration provisions of the Act by virtue of
Section 4(2) under the Act.
2. In February 1997 through March 1999, in order to purchase services
necessary to the development and marketing of IVTX's product line and to
minimize reductions in IVTX's limited capital raised, IVTX conducted
private offerings of restricted Common Stock pursuant to Section 4(2) of
the Act to consultants, contract vendors and legal professionals in
exchange for product engineering and development, legal, consulting and
marketing services. IVTX issued a total of 61,400 shares of restricted
Common Stock to 12 accredited and 23 sophisticated purchasers in exchange
for services rendered or to be rendered on behalf of IVTX. The total value
of the shares issued (total offering price and proceeds) and the services
performed or to be performed was $184,200 and was based on a price of $3.00
per share. There was no underwriter involved in the issuances and no
commissions were paid to any person. None of the transactions involved
general solicitation or general advertising. Each investor was provided
with IVTX's private placement memorandum and business plan. The issuances
were exempt from the registration provisions of the Act by virtue of
Section 4(2) under the Act.
3. In July 1997 through February 1999, in order to raise capital that
would be needed to launch and maintain the marketing of IVTX' lead product,
IVTX conducted a private offering of Common Stock pursuant to Regulation D,
Rule 504. The pending sale of the 166,667 shares mentioned in Item B1 above
and the potential dilution of the sale once consummated was fully disclosed
in IVTX' offering circular which was provided to each investor in the
offering. IVTX initially offered 41,667 units of Common Stock at $2.00 per
unit. Each Unit consisted of one (1) share of Common Stock ($.001 par
value) and three (3) Stock Purchase Warrants. Each Warrant entitled the
holder thereof to purchase one (1) share of Common Stock of IVTX. The
Warrants were exercisable at $2.00 per share and were set to expire on July
21, 1998. The total offering price of the offering was $250,000 and upon
the exercise of all warrants, the total offering price and proceeds of the
offering would be $1,000,000. IVTX sold 30,904 units at $2.00 per unit
which included 93,179 warrants.
After IVTX' stock became publicly traded, the price of the stock
dropped precipitously and IVTX cancelled all remaining unsold warrants and
offered individual shares at a reduced purchase price ranging from $4.50
per share to $1.50 per share. Specifically, IVTX sold 2,000 shares at $4.50
per share; 4,822 shares at $3.36 per share; 17,167 shares at $3.00 per
share; 6,666.67 shares at $2.70 per share; 20,000 shares at $2.25 per
share; and 10,000 shares at $1.50 per share. IVTX sold a total of 274,677
shares of Common Stock to 72 investors in consideration of total cash
proceeds of $339,938. IVTX extended the Warrants purchased to expire on
December 31, 1998. However, none of the Warrants purchased were ever
exercised and all Warrants expired on December 31, 1998.
Further and as part of the Rule 504 offering, in order to purchase
designs and services necessary to the development and marketing of IVTX'
product line and to minimize further reductions in IVTX' limited capital
raised, IVTX offered a portion of the Rule 504 shares to consultants,
vendors and professionals in exchange for product engineering and
development, mold design, equipment and production services and consulting
and marketing services. IVTX made such offers only when potential
contractors of service were not interested in restricted stock as payment
for services. IVTX issued a total of 42,667 shares of Common Stock to 10
purchasers in exchange for services rendered or to be rendered on behalf of
the Company and for total proceeds of $155. The total "value" of the shares
issued (total offering price and proceeds) and the services performed or to
be performed was $256,000 and was based on a price of $6.00 per share
consistent
35
with IVTX offering price for Rule 504 shares. The total shares issued in
the Rule 504 offering for both cash and services (all listed above) was
134,226 to 82 purchasers and the total proceeds of the offering for same
was $315,380 net of $24,713 of offering costs. Each purchaser in the total
offering was provided with IVTX' offering circular. There was no
underwriter involved in these issuances and no commissions were paid to any
person. None of the transactions involved general solicitation or general
advertising. The issuances were exempt from the registration provisions of
the Act by virtue of Regulation D, Rule 504.
4. In December 1997, the sale of the 166,667 shares subscribed to by an
accredited investor indicated in Item B1 above had not yet been consummated
by the investor. However, IVTX was still in need of additional research and
development capital. Therefore, the accredited investor who subscribed for
the shares offered and agreed to assign his $3.00 subscription rights back
to IVTX for all 166,667 shares for designation by IVTX to other investors
so that IVTX could continue to raise its ongoing Research & Development
capital for its expanding product line. From April 1998 to December, 1998,
IVTX offered these subscription rights to 166,667 shares of restricted
Common Stock at $3.00 per share via a private offering pursuant to Section
4(2) of the Act for a total offering price of $500,000. IVTX sold 146,779
of these shares to 23 accredited investors and 12 sophisticated investors
in consideration of cash proceeds totaling $375,916 net of $41,392 of
offering costs.
There was no underwriter involved in this issuance and no commissions
were paid to any person. Each purchaser was provided with IVTX's current
offering circular which disclosed all potential dilution. None of the
transactions involved general solicitation or general advertising. The
issuances were exempt from the registration provisions of the Act by virtue
of Section 4(2) under the Act.
All IVTX' sales of stock were made directly with purchasers whom IVTX'
officers had a pre-existing relationship with or that came from personal
referrals. None of the transactions involved general solicitation or
general advertising. Proceeds from the sale of the shares were applied
towards the continuing development and marketing of its products and
working capital.
5. In the Acquisition which closed on July 28, 1999, BioLogix paid
$250,000 for 850,000 shares of common stock of IVTX , representing the
majority controlling interests held by the officers and directors of IVTX.
This issuance was exempt from the registration provisions of the Act by
virtue of Section 4(1) of the Act, as transactions by any person other than
an issuer, underwriter, or dealer. Additionally, BioLogix agreed to
contribute its thehealthchannel.com assets and technology to IVTX in
exchange for the IVTX shareholders agreeing to split their stock and
exchange shares with the shareholders of BioLogix. This exchange was made
pursuant to the exemption set forth in Section 4(1) of the Act. The shares
of stock of IVTX were forward split 28.22-for-one and the IVTX shareholders
agreed to exchange each share they held of IVTX stock for two shares of
common stock of IVTX under its new name of thehealthchannel.com, Inc. and
exchange the remaining 26.22 shares each with the shareholders of BioLogix
on a three-for-one basis (the "Exchange").
6. On July 13, 1999, the Company entered into a Consulting Agreement with
Ocean View Management, LLC. Under the Consulting Agreement, Ocean View
Management received a one-time payment of 25,000 shares of common stock of
the Company. This issuance was exempt from the registration provisions of
the Act by virtue of Section 4(2) of the Act, as transactions by an issuer
not involving any public offering. Richard Wolpow is the beneficial owner
of Ocean View Management and had full access to Company information as a
consultant to the Company. The securities issued pursuant to the Consulting
Agreement are restricted securities as defined in Rule 144.
7. On August 11, 1999, the Company entered into an Agreement for
Financial Public Relation Services with Market Pathways Financial Relations
Incorporated. Under the Agreement for Financial Public Relations Services,
Market Pathways Financial Relations Incorporated received a one-time
payment of 28,333 shares of common stock of the Company. This issuance was
exempt from the registration provisions of the Act by virtue of Section
4(2) of the Act, as transactions by an issuer not involving any public
offering. The beneficial owner of Market Pathways Financial Relations
Incorporated is Shannon Squyres. Shannon Squyres is an accredited investor.
The securities issued pursuant to the Agreement are restricted securities
as defined in Rule 144.
36
8. On September 24, 1999, the Company commenced a private offering to
accredited investors only of units, each unit consisting of one share of
the Company's Common Stock and one Warrant exercisable for a term of two
years (the "Units"). The Company originally priced this offering at $2.25
per Unit with a $2.25 exercise price on the Warrants. However, the price of
the Company's publicly traded stock dropped precipitously since the
beginning of this private offering and the Company has lowered the purchase
price of the Units and the corresponding exercise price on the Warrants. To
date, the Company has sold a total of 1,927,283 Units to 120 accredited
investors for total gross proceeds of $1,410,779. To date, no investor has
exercised any warrants purchased in the current offering. The Private
Placement is exempt from the registration provisions of the Act by virtue
of Section 4(2) of the Act, as transactions by an issuer not involving any
public offering. The securities issued pursuant to the Private Placement
are restricted securities as defined in Rule 144. This Private Placement
was closed on August 29, 2000. See the "Selling Shareholders" section of
the prospectus for a complete list of the investors in the Private
Placement.
9. On January 5, 2000, we entered into a Consulting Agreement with
Lawrence W. Horwitz pursuant to which Mr. Horwitz agreed to provide
business development and advisory services to us. This consulting agreement
is attached as Exhibit 47. For services rendered under the consulting
agreement, we issued Mr. Horwitz 666,667 shares of common stock of the
Company. These shares were registered on Form S-8. Under the terms of the
consulting agreement, in October 2000, Mr. Horwitz was issued an additional
250,000 shares. This transaction is exempt from registration under Section
4(2) of the Act.
10. On July 5, 2000, the company approved the issuance of 200,000
restricted shares to 7 employees and consultants in payment for services
rendered to the company. The company relied on an exemption available under
4(2) of the Act in issuing the shares to these employees and consultants.
All seven employees and consultants were accredited investors, and because
of their relationships with the company, had access to information
regarding the company. These employees and consultants were provided with
complete access to the books and records of the company when accepting
these shares in lieu of cash payment for services rendered.
11. On June 19, 2000, the Company issued 1,150,000 warrants to purchase
common stock to Swartz Private Equity LLC in consideration of entering into
an Equity Line Letter of Agreement for a $30,000,000 equity line of credit.
These warrants were exercisable by Swartz Private Equity LLC as follows:
383,333 shares became exercisable after a 15 business day review period of
the documentation for the transaction, 383,333 shares became exercisable
after the execution of the Investment Agreement for the $30,000,000 equity
line of credit. The remaining 383,333 shares were exercisable upon the
earlier of (i) the date of effectiveness of Company's Form SB-2
registration statement filed to register the transaction, or (ii) December
19, 2000. As previously stated, the company has terminated its agreement
with Swartz and canceled the above referenced warrants.
12. On August 1, 2000, the company issued 833,333 shares of common stock
to Laguna Pacific Partners L.P. in consideration recently issued a loan in
the amount of $250,000 from Laguna Pacific Partners L.P., a Delaware
limited partnership. This loan is made pursuant to a secured note which
bears interest at the rate of 6% and is payable on the earlier of February
3, 2001 or the effective date of this prospectus. The payment date has been
extended until May 1, 2001. The loan is secured by all of the company's
assets. The company relied on an exemption available under 4(2) of the Act
in issuing the securities. Laguna Pacific Partners, L.P. is an accredited
investor and represented as such to the company in the documents
memorializing this transaction.
13. On August 15, 2000, the company entered into an Investment Agreement
with Swartz Private Equity LLC to put as much as $30,000,000 of Company
stock to Swartz, subject to the terms of the Investment Agreement which is
attached as Exhibit 28. The company has terminated its agreement with
Swartz. In entering into this agreement, the company relied upon an
exemption available under Section 4(2) of the Act. Swartz represented to
the company in the documents memorializing this transaction that it is an
accredited investor.
14. On August 18, 2000, in consideration for a loan of $250,000, the
Company agreed to issue 526,556 shares to Les Dube and Irene Dube and a
warrant for common stock for an amount equal to the quotient of $250,000
divided by the closing bid of our stock immediately preceding the effective
date of the Form SB-2 that the Company is currently being reviewed by the
SEC. The term of the warrant is five years
37
and the exercise price is $1 in the aggregate. The loan is made pursuant to
a note which bears interest at the rate of 6% and is payable on the earlier
of February 18, 2001, or the effective date of this prospectus. The payment
date has been extended until May 31, 2001. The shares and warrants issued
to Mr. and Ms. Dube are being registered in this prospectus and upon
repayment of this loan, these shares are to be retained by them. The loan
is secured by all of the company's assets. The company relied on an
exemption available under 4(2) of the Act in issuing the shares to these
securities. The Dubes are accredited investors and represented as such to
the company in the documents memorializing this transaction
15. In August and September of this year, the Company agreed to issue
34,482 shares of Company stock to Integrity Media, Inc. pursuant to an
agreement signed between the Company and Integrity Media, Inc. on August
18, 2000. The agreement provides for Integrity Media, Inc. to furnish
public relations services to the Company in return for 17,241 shares of
Company stock per month. The term of the Agreement is one month but it is
renewable on a month-to-month basis with the mutual consent of both
parties. This agreement was renewed by the parties in September, 2000. The
company relied on an exemption available under 4(2) of the Act in issuing
the shares to these warrants. Integrity Media, Inc. is an accredited
investors and represented as such to the company in the documents
memorializing this transaction.
The following documents that we filed with the SEC are incorporated by
reference in this prospectus:
SEC Filing Period or Date
---------- --------------
Current Report on Form 10QSB (File No. 0-29822) November 20, 2000
Item 27. Exhibits
-----------------
Exhibit
-------
3.1 Certificate of Incorporation of Innovative Tracking Solutions
Corporation, a Delaware corporation, dated September 4, 1996*
3.2 Amendment to Articles of Incorporation of Innovative Tracking
Solutions Corporation, a Delaware corporation, dated May 21, 1997*
3.3 Certificate of Correction to Articles of Incorporation of Innovative
Tracking Solutions Corporation, a Delaware corporation dated June 16,
1999*
3.4 Amendment to Articles of Incorporation of Innovative Tracking
Solutions Corporation, a Delaware corporation, dated July 28, 1999*
3.5 Amendment to Articles of Incorporation of thehealthchannel.com, Inc.,
a Delaware corporation, dated August 4, 1999*
3.6 Amendment to Articles of Incorporation of thehealthchannel.com, Inc.,
a Delaware corporation, dated August 5, 1999*
3.7 Amended Bylaws of thehealthchannel.com, Inc., dated August 19, 1999*
4.1 Stock Purchase Agreement and Warrant Agreement (form) for private
placement*
5 Opinion of Senn Palumbo Meulemans
10.1 Acquisition, Stock Purchase, and Exchange Agreement, dated July 28,
1999*
10.2 24/7 Media Inc. Network Affiliation Agreement, dated September 9,
1999*
10.3 Employment Agreement with Thomas P. Lonergan, dated September 1, 1999*
10.4 Employment Agreement with Donald A. Shea, dated September 1, 1999*
10.5 Consulting Agreement with Ocean View Management Group, LLC, dated July
13, 1999*
10.6 Custom Content Service Agreement with ScreamingMedia.Net, Inc., dated
September 27, 1999*
10.7 Agreement for Financial Public Relations Services with Market
Pathways, dated August 11, 1999*
10.8 DVCi Technologies, Inc. thehealthchannel.com Technical Requirements
and Content Specification dated October 22, 1999*
10.9 Asset & Liability Purchase and Sale Agreement between Innovative
Tracking Solutions Corporation, a Nevada corporation and Innovative
Tracking Solutions Corporation, a Delaware corporation, dated April
14, 1999*
10.10 Exodus Communications, Inc. Master Services Agreement, dated November
19, 1999*
10.11 Content Agreement with EarthLink Network, Inc., dated October 27,
1999*
38
10.12 On-Line License Agreement with Infoseek, dated March 1, 1999 and
Addendum dated November 22, 1999 for thehealthchannel.com, Inc.*
10.13 Consulting Agreement by and between Jeffrey Berg and
thehealthchannel.com, Inc. dated September 1, 1999*
10.14 Website and Revenue Sharing Agreement between The Institute for
Medical Studies, Inc. and thehealthchannel.com, dated September 29,
1999*
10.15 Warrant Agreement between Institute for Medical Studies, Inc. and
thehealthchannel.com dated September 29, 1999*
10.16 Healthcompass Services Agreement between thehealthchannel.com, Inc.
and HealthMagic, Inc., dated February 16, 2000*
10.17 Content License Agreement between Integrative Medicine Communications,
Inc. and thehealthchannel.com, dated March 24, 2000*
10.18 LIVEware5, Inc. Agreement for Services between Liveware5, Inc. and
thehealthchannel.com, Inc., dated March 24, 2000*
10.19 Office Lease*
10.20 NewsEdge Contract, dated May 27, 2000*
10.21 Swartz Private Equity Warrant to Purchase Common Stock dated June 19,
2000(Incorporated by reference from Exhibit 10.8 filed November 20,
2000, Registration Number 0-29822)*
10.22 thehealthchannel.com, Inc. Investment Agreement dated August 15, 2000*
10.23 Agreement between thehealthchannel.com, Inc. and Swartz Private
Equity, LLC, dated August 15, 2000 (Incorporated by reference from
Exhibit 10.7 filed November 20, 2000, Registration Number 0-29822)*
10.24 Acknowledgement & Agreement thehealthchannel.com, Inc. and Swartz
Private Equity, LLC dated August 15, 2000 (Incorporated by reference
from Exhibit 10.11 filed November 20, 2000, Registration Number
0-29822)*
10.25 Registration Rights Agreement between thehealthchannel.com and Swartz
Private Equity, LLC dated as of August 15, 2000 (Incorporated by
reference from Exhibit 10.10 filed November 20, 2000, Registration
Number 0-29822)*
10.28 Investment Agreement between thehealthchannel.com and Swartz Private
Equity, LLC, dated August 15, 2000 (Incorporated by reference from
Exhibit 10.9 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.29 Warrant Side Agreement between thehealthchannel.com and Swartz Private
Equity, LLC, dated August 15, 2000 (Incorporated by reference from
Exhibit 10.8 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.30 Warrant to Purchase Common Stock of thehealthchannel.com by Swartz
Private Equity, LLC, dated June 28, 2000 (Incorporated by reference
from Exhibit 10.7 to the Registration Statement Form 10QSB filed
November 20, 2000, Registration Number 0-29822)*
10.31 Registration Rights Agreement between thehealthchannel.com and Swartz
Private Equity, LLC, dated August 25, 20001(Incorporated by reference
from Exhibit 10.10 to the Registration Statement Form 10QSB filed
November 20, 2000, Registration Number 0-29822)*
10.32 Acknowledgement and Agreement between thehealthchannel.com and Swartz
Private Equity, LLC, dated August 15, 2000 (Incorporated by reference
from Exhibit 10.11 to the Registration Statement Form 10QSB filed
November 20, 2000, Registration Number 0-29822)*
10.33 6% Secured Note between thehealthchannel.com and Laguna Pacific
Partners, L.P.,dated August 1, 2000 (Incorporated by reference from
Exhibit 10.2 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.34 Unit Warrant Agreement between thehealthchannel.com and Laguna Pacific
Partners, L.P., dated August 1, 2000 (Incorporated by reference from
Exhibit 10.3 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.35 Security Agreement between thehealthchannel.com and Laguna Pacific
Partners, L.P., dated August 1, 2000 (Incorporated by reference from
Exhibit 10.4 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.36 Investor Representation and Warranties Agreement between
thehealthchannel.com and Laguna Pacific Partners, L.P., dated August
1, 2000 (Incorporated by reference from Exhibit 10.5 to the
Registration Statement Form 10QSB filed November 20, 2000,
Registration Number 0-29822)*
10.37 Subscription Agreement between thehealthchannel.com and Laguna Pacific
Partners, L.P., dated August 1, 2000 (Incorporated by reference from
Exhibit 10.6 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
-----------------------------
39
10.38 Subscription Agreement between thehealthchannel.com and Les Dube and
Irene Dube, dated August 21, 2000 (Incorporated by reference from
Exhibit 10.6 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.39 Investor Representation and Warranties Agreement between
thehealthchannel.com and Les Dube and Irene Dube dated August 21, 2000
(Incorporated by reference from Exhibit 10.15 to the Registration
Statement Form 10QSB filed November 20, 2000, Registration Number
0-29822)*
10.40 Employment Agreement with Minh-Chau Pham, dated May 15, 2000 *
10.41 Settlement Agreement and Release between thehealthchannel.com and
Michael Grandon dated August 31, 2000 (Incorporated by reference from
Exhibit 10.16 to the Registration Statement Form 10QSB filed November
20, 2000, Registration Number 0-29822)*
10.42 Consulting Agreement between thehealthchannel.com and Lawrence W.
Horwitz dated August 18, 2000 (Incorporated by reference from Exhibit
10.12 to the Registration Statement Form 10QSB filed November 20,
2000, Registration Number 0-29822)*
10.43 Content Partner Agreement between thehealthchannel.com and AvantGo,
dated July 31, 2000 (Incorporated by reference from Exhibit 10.1 to
the Registration Statement Form 10QSB filed November 20, 2000,
Registration Number 0-29822)*
10.44 Content Distribution Agreement between thehealthchannel.com and
OmniSky Corporation, dated September 6, 2000 (Incorporated by
reference from Exhibit 10.17 to the Registration Statement Form 10QSB
filed November 20, 2000, Registration Number 0-29822)*
10.45 Contractual Agreement between thehealthchannel.com and The Blaine
Group, Inc., dated October 16, 2000 *
10.46 Letter of Agreement between thehealthchannel.com and ServerLogic
Corporation, dated October 12, 2000 *
10.47 Consulting Agreement between thehealthchannel.com and Lawrence W.
Horwitz, dated January 5, 2000*
10.48 Regulation M Representation of Swartz Private Equity, LLC*
10.49 Letter from Mr. Don Shea to Swartz Private Equity, LLC dated February
20, 2001*
10.50 Memorandum regarding agreement with Horwitz & Beam dated August 31,
2001*
10.51 Retainer Agreement by and between thehealthchannel.com, Inc. and Senn
Palumbo Meulemans, LLP.*
10.52 Amendment to Agreement No 2 (two) to Content License Agreement by and
between with Integrative Medicine Communications, Inc. and
thehealthchannel.com, Inc. dated January 31, 2001*
10.53 Form of Stock Purchase Agreement*
10.54 Form of Warrant Agreement*
10.55 Form of letter to Biologix shareholders in exchange*
24.1 Consent of Senn Palumbo Meulemans, LLP (included in their opinion set
forth in Exhibit 5 hereto)
24.2 Consent of Stonefield Josephson, Inc.
24.3 Consent of Roger G. Castro
25 Power of Attorney (Incorporated by reference from Exhibit 25 to the
Registration Statement Form SB-2 filed August 31, 2000 Registration
Number 333-44982)*
* Previously filed
40
Item 28. Undertakings
---------------------
The undersigned registrant hereby undertakes to:
(1) Insofar as indemnification for liabilities arising under the Act 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. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 its 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 Act and will be governed by the
final adjudication of such issue.
(2) File, during any period in which it offers or sells securities, a post
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
For determining liability under the Securities, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
41
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 for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Newport
Beach, State of California on April 25, 2001.
THEHEALTHCHANNEL.COM, INC.
By: /s/ Donald J. Shea
-----------------------------------
By: Donald J. Shea
Its: President, Chief Executive
Officer, Director
42