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January 28, 2011
In this Issue
Letter from the Chairman | Letter from the CEO | Finance Update
Mission and Values
| Growth Strategy | Subsidiary Company Updates
Board of Advisors | One Final Note: Building a Track Record
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Happy New Year Fellow Shareholders,
As we kick off 2011, with all the changes we have implemented over the course of the past year, and on the heels of the Guava Home & Health Care Services acquisition
this week, I wanted to start by bringing you up-to-speed and sharing with you my excitement for the road ahead. 2010 was not without its challenges, but we managed our way through what adversity we met and at the same time took great measures to set the company up for significant growth. This year we had to make some tough decisions, discontinuing operations of the Animal Wellness and the Organics and Sustainables Groups, but these moves were made at the right time in the best interests of the business.
While difficult, divesting of our investments in those areas allowed for a strategic shift in our corporate mission which we are eager to share with you. In modifying the focus of our mission, we are positioning the company to sit in the sweet spot of the ever-expanding $600 billion global health and wellness industry, an arena in which we have grown roots but not yet flourished. Going forward, concentrating our attention on the consumer in light of evolving preferences and purchasing habits among an increasingly health-conscious, beneficent global population, we see a tidal wave of innovation and niche, high-yield acquisition opportunities on the horizon. We are in a great position to seize on these opportunities.
We have taken major strides this year to build a solid platform from which to launch a re-tooled, re-fueled corporation optimized for rapid growth. In April, we moved from trading on the pink sheets to the OTC Bulletin Board to provide more visibility for our stock, to help improve our trading liquidity and to enhance shareholder value. That same month we acquired White Hat Brands, LLC, a functional beverage manufacturer focused on children’s health issues, operated by an exceptional management team we were keen to bring into the fold. Tasked with transitioning our company to a more consumer-minded portfolio, White Hat Chairman Gil Peter, CEO Kevin Quirk, and their team have had an immediate impact as the details below will demonstrate.
In light of their impressive contribution over the past 9 months, in December I and the rest of our Board of Directors voted Kevin to be CEO – effective immediately – based on undeniable evidence that he has the skills and leadership qualities to take this company to the next level. With credentials spanning general management and senior marketing roles from Fortune 500’s (Coca-Cola, Anheuser-Busch) to start-up ventures, on top of a first-class business education, Kevin is the right choice to lead us.
He heads up a core management team with decades of diverse industry experience and functional disciplines and a proven track record of stewarding growth in companies ranging from better-for-you consumer products, to leading technology providers. I am confident we now have the right people in place to build a world-class company that will prosper from a unique formula for success, applying deep operating expertise and a holistic business perspective with unwavering attention to financial performance.
There is much work to be done and many strategic initiatives already underway. I would urge you to read on and let this update serve as an invitation to respond with questions and comments. We welcome a deeper dialogue with our investors and are confident a greater understanding of our strategic roadmap will help you see the bright future upon which this company is embarking.
A happy and healthy 2011 to you and your family,
Tad Ballantyne
Chairman
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Shareholders,
Let me first begin by saying that I am honored and humbled by the confidence the Board has placed in me and will do everything in my power to make this the kind of company we can all be proud of. I am fully committed to realizing the refined corporate mission Tad summarized above and very encouraged by the opportunities already before us. While underperforming business units and persistently tight capital markets have weighed on our ability to address some of our legacy debt issues (discussed in greater detail in the Finance Update below), we have begun to implement a comprehensive business plan which will enable us not only to overcome past missteps but also build on our equity in health and wellness and create a more robust company.
First, to ensure our company reflects our evolved strategic direction in the most obvious way, in September with the Board’s approval we re-launched Mach One as Capsalus Corp., after “Salus,” the Roman goddess of health and prosperity. The name-change brought with it a new corporate identity, ticker symbol (OTCBB: WELL) and website; collectively, this represents the core of the renewed mission of the company. Capsalus is a public company focused on providing greater access to products and services that we believe will uniquely enhance the well-being of consumers and give people new opportunities to make positive contributions to the world around them. I encourage you to visit www.Capsalus.com for more details. I’d be remiss not to add that this new vision could not have been achieved without the tireless work of our partner The Star Group, a world-class strategic
marketing agency out of Philadelphia.
Concurrent to this campaign, with the support of a newly assembled Board of Advisors (see further details below), Capsalus Director Gil Peter implemented an aggressive fundraising campaign in August to finance a series of “health, wellness and goodness” investments which will serve as the first few pillars upon which our new corporate platform will stand. In October, in expanding our business previously comprised of Pantheryx and White Hat Brands, we took a 30 percent stake in Wish Upon A Hero (www.wishuponahero.com), a one-of-a-kind online social network designed to connect people in need with those who want to help. In November, we put a Letter of Intent (LOI) out to acquire 100% of Prescription Audio (www.prescriptionaudio.com), makers of an innovative vibration + sound therapy program for people and wellness professionals who seek a natural, non-medical alternative
to existing sleep- and stress-management solutions. In December, we put an additional LOI out to acquire 100% of an emerging franchising business called Guava Home and Healthcare (www.guavahomecare.com) which, as Tad suggests above, we just closed on this week. Incidentally, like the Guava LOI, the Prescription Audio LOI is not binding and there is no assurance we will acquire this company.
By the conclusion of the first quarter, I am anticipating we will have completed the first major campaign of the new business plan, including the closing of the Guava acquisition, and will be operating a very different company than existed a year ago. From here we will spend the foreseeable future managing our subsidiaries, focusing what deep operating expertise we possess in-house on driving the growth of our subsidiary companies, generating cash, and managing down our debt load. With a host of new assets at our disposal, we expect to vastly improve our financials and, accordingly, the performance of your holdings in Capsalus.
Given all of this, we are very bullish about our future, and you should be too. We look forward to showcasing the good things that are happening here and demonstrating our ability to execute on our plans. I will continue to keep you appraised with regular updates each trimester and am available to answer questions and field comments along the way. It is up to all of us to make Capsalus a huge success.
Thank you in advance for your continued support and I look forward to guiding Capsalus…WELL INTO THE FUTURE!
Kevin P. Quirk
CEO
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2010 Year-in-Review
As both Tad and Kevin suggest above, 2010 was a year of operational challenges and opportunities for Capsalus Corp. This summation applies to our financial position as well. During 2010, we discontinued the operations of our Animal Wellness and the Organics and Sustainables Groups; acquired the assets of White Hat Brands; settled debt through conversion to equity and payment; and acquired funding through convertible debt instruments. Each of these transactions had significant impact on our financial position.
We impaired intangible assets on our balance sheet in relationship to the discontinuance of our Organics and Sustainables Group operations. This write down, of approximately $650,000, allows us to resolve the financial effect these assets on our operations going forward, giving management and, more importantly, you a clearer financial picture of the Company.
We entered into an agreement to sell substantially all of the assets of our Animal Wellness Group to Hi-TIgG, Inc., a company owned by the Company’s former CEO. In return, Hi-TIgG assumed certain liabilities of the Company, including, but not limited to, existing and future liabilities related to our former Animal Wellness Group and wages accrued and other liabilities on the Company’s balance sheet related to the Company’s former CEO. We recorded a non-cash gain on the sale of the assets of approximately $266,000.
We acquired certain assets and liabilities of White Hat Brands for common stock. All of the issued and outstanding shares of common and preferred stock of White Hat were converted into approximately 155 million shares of Capsalus common stock and distributed to the White Hat shareholders pro rata. In addition, $1,175,000 of WhiteHat indebtedness was cancelled and converted into approximately 15 million shares of Capsalus common stock.
We issued approximately 25 million shares of common stock for the conversion of approximately $1.6 million in short and long-term debt. Doing so reduces future interest expense by over $15,000 per month and shows the continued commitment of our creditors and shareholders.
Our remaining debt includes $1.6 million of convertible short term notes, approximately $3.0 million in convertible long-term debt and approximately $0.2 million in long term debt related to a product license we hold.
In conjunction with our operational changes, we have taken major strides this year to build a clarified and solid financial platform from which to support our future growth on operations.
Patrick G. Sheridan
CFO
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As part of the re-tooling and re-branding exercise, the Star Group led us through a comprehensive corporate identity development exercise that led to a revised corporate mission statement and values platform. In big picture terms, this is the foundation of who we are as a company and how we intend to operate. As stated on the corporate website, “The Capsalus mission is to provide greater access to products and services that uniquely enhance the well-being of consumers and give people new opportunities to make positive contributions to the world around them.
We do this by providing operating infrastructure, strategic path and financial support to visionary “gazelle” enterprises in the health and wellness space producing progressive, broad-based solutions for better physical, mental, and emotional health.”
Our core Capsalus values are as follows:
• Dynamic: We will be adaptable to the ever-shifting trends and game-changing technologies driving the rapid growth of our industry at large.
• Disciplined: We will practice the highest degree of financial responsibility in upholding all stakeholders’ interests.
• Courteous: We will demonstrate the highest level of professionalism in working with our portfolio companies and business partners.
• Pragmatic: We will build a company in which all new ideas are welcome and given their just consideration but only the most commercially viable are embraced.
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Capsalus’ core management team leverages decades of diverse industry experience and functional disciplines to build a world-class company with deep operating expertise focused on the global health and wellness industry. With a proven track record of stewarding growth in companies ranging from better-for-you consumer products to leading technology providers, and in light of shifting preferences and purchasing habits among increasingly health-conscious, beneficent consumers, the Capsalus team recognizes the tidal wave of innovation and niche, high-yield investment opportunities on the horizon as well as the attractive long-term characteristics of the industry.
Applying best practices in operations and brand marketing with unwavering attention to financial performance, we are dedicated exclusively to opportunities in the health and wellness industry -- specifically in the consumer products, biotech/pharmaceuticals, and media and technology sectors. Within this scope, and in keeping with our corporate mission, we seek businesses working to make a greater degree of health, wellness, and goodness more attainable by more people.
Capsalus management has extensive experience in building robust companies marketing innovative, branded products and services addressing changing consumer demands. As entrepreneurs, we’ve demonstrated keen trend-spotting capabilities and enjoyed successes in raising capital for, and starting, re-structuring, sustaining and exiting lucratively, the types of businesses we are now partnering with /acquiring.
We are looking for start-up businesses that have identified gaps in the consumer health and wellness marketplace and are delivering pragmatic, proprietary solutions in response, to acquire. In evaluating prospective Capsalus portfolio companies, we look for those that have:
• achieved a leadership position in their niche, or have the potential for leadership based on innovation and operational excellence;
• assembled a battle-tested management team with combined corporate and entrepreneurial experience;
• established a distinct competitive advantage supported by a compelling brand platform;
• developed a proven business model, demonstrated through new customer acquisition and recurring revenue streams;
• displayed potential for rapid growth, given sound planning methodologies and strategic partnership development;
• formulated a clear exit strategy consistent with Capsalus investment goals.
Note: While we consider the above to be our core criteria, every start-up is unique on some level. Given the comprehensive spectrum of Capsalus services reflecting the hybrid of capabilities we bring to the table, we are flexible in terms of the approach and level of participation we take in each acquisition; we will not look at every opportunity through the same lens.
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As discussed above, the Capsalus portfolio is growing signficantly. Kevin discusses these plans and answers questions about our existing investments in the current issue of CEOCFO.com - http://www.ceocfointerviews.com/interviews/WELL-Capsalus11.htm. What follows is a news summary from our three current portfolio companies.
• White Hat Brands – Acquired in April, the White Hat team has since been focused on supporting the transition from Mach One to Capsalus, specifically in leading back office systems integration between corporate headquarters in Atlanta, our satellite offices and portfolio companies, as well as in managing the Star Group through the corporate re-branding initiative and current corporate marketing and PR efforts. The team expects to get back to the business of developing and marketing healthy beverages later this year once the current fundraising campaign has been completed.
• Pantheryx – Capsalus owns 5 percent, or 105,000 shares, of PanTheryx; the company presently has a valuation of $4.35 million. Pantheryx produces and sells localized branded pharmaceuticals and proprietary U.S. originated products and technologies designed for the world’s expanding healthcare market. PanTheryx is in the process of launching D-Care, an orally administered biologic therapeutic for treatment of pediatric diarrhea, into the emerging Indian market. Preliminary test trials have been very favorable. PanTheryx is just completing a $1 million capital raise to support the D-Care business and other pipeline initiatives.
• Wish Upon A Hero – Capsalus finalized a 30 percent stake in Wish Upon a Hero (WUAH) in October. Per the terms of the deal, in exchange for the equity position Capsalus is infusing WUAH with $600,000 over six months. The proceeds will be used to fund specific revenue-driving initiatives, including (1) the launch of several new site features, (2) an aggressive affiliate marketing campaign to extend the reach of the site, drive site traffic and new membership fees and (3) the launch of Charity Builder, a program geared towards enabling emerging non-profits to get off the ground by allowing them to create and host a website and process credit card donations, as well as promote themselves to the Wish community.
Being that the above companies are fairly new to Capsalus, no plans have been made yet to profit from these acquisitions. With Pantheryx and WUAH, all options are on the table but Capsalus management feels it is necessary to steward these businesses further along in their development and create more value for our shareholders.
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Since the acquisition of White Hat Brands, a core team of executives from within and outside Capsalus has come together to develop the refined vision and strategy for the company, as well as to raise capital, oversee corporate development and focus on increasing shareholder value. Led by Tad and Kevin, this group draws on extensive experience from Main Street to Wall Street in operating consumer businesses, negotiating and financing mergers and acquisitions in a variety of industries, and in driving stock performance.
• Tad M. Ballantyne / Chairman – Mr. Ballantyne has been chairman of Capsalus Corp. (formerly Mach One) since September 2009, after serving as director of the company. He continues to serve as an officer and/or director at numerous listed and private enterprises in the chemical, agricultural machinery, oil and gas, and financial services industries throughout the U.S. as well as in Africa, Asia, Australia, China, Eastern Europe and India. These companies include: Hoopeston Foods, Inc., Thomsen Group LLC, Pacific Rim Foods Ltd., Creat Resources Holdings Limited (formerly, Zeehan Zinc Limited), American Lorain Corporation, Life Partners Holdings Inc., Euro-Industrial LLC, Mackay Limited Partnership, Jilin Jimei Foods Ltd., Empire Energy Corporation International, and Texas Steel Partners.
Over the last two decades, Ballantyne has been active in acquiring and operating troubled companies or assets being divested by public and private companies. More recently, he has focused on food plants in the U.S. and Asia. Ballantyne holds a BS in business management from the University of Wisconsin.
• Kevin P. Quirk / CEO – Mr. Quirk assumes this position with more than two decades of consumer products operating experience spanning general management and senior marketing roles in Fortune 500 corporations and start-up ventures. As CEO he is responsible for determining Capsalus’ strategic direction and managing performance against overall business objectives in keeping with the company’s mission.
Quirk is the founder of White Hat Brands LLC, a functional beverage manufacturer focused on children’s health and wellness issues, which he sold to Capsalus earlier this year after raising multiple rounds of financing and stewarding the business to a successful exit. Before White Hat, he held a variety of senior-level marketing positions for The Coca-Cola Company, initially hired into the Coca-Cola Accelerated Program, the company’s coveted management training program, from which he was charged with running the New England market. He also served as director of marketing for Minute Maid brands prior to his departure. In addition, Quirk spent nearly a decade at Anheuser-Busch, working in brand management, field sales and marketing, wholesaler development and strategic planning, most notably as market development manager of the Wisconsin territory, and as founder of the
company’s business development group, providing internal management consulting to a network of more than 800 distributors. Quirk earned a BS in marketing and a BA in communications from Saint Louis University, and a letter of MBA equivalence from Harvard Business School.
• Gilbert Peter / Director - Mr. Peter has long been an entrepreneur with holdings in many companies in both the private and public sector. As director of Fidelity Holdings, Inc., a venture capital firm he founded, Mr. Peter's focus has been on developing companies from seed stage to acquisition or public offering. Peter has helped successfully launch companies in many sectors, although his main areas of concentration have been in Business Services, Healthcare, Real Estate Communications and Software. Mr. Peter is a founding member of White Hat Brands, LLC, and the Bank of Florida, headquartered in Ft Lauderdale. He has formed personal relationships with major banks worldwide including Merrill Lynch, Morgan Stanley, UBS Paine Webber, CIBC Oppenheimer and W.R Hambrecht. He has built similar relationships with various venture capital firms as well as a vast array of private
investors. He is actively involved in many non-profit activities and is currently a board member of both The Children's Cancer Center in Tampa, Fla., and the Mellanby Autism Foundation.
• Steven M. Grubner / President & COO – Mr. Grubner has been president and chief operating officer of Capsalus Corp. since January 2009. With more than 20 years experience in the technology industry, Grubner previously was chief financial officer and principal accounting officer of TapSlide, Inc. (also known as Almadoro Minerals Corp.), and president of NVO Solutions, Inc. He also served as president of finance and administration and chief financial officer of HH Communications, Inc. and as vice president and general counsel at Datatec, a position that led to his becoming director of GeneThera Inc.'s public SEC filings, vendor contract negotiations and internal employee agreements, as well as its chief financial officer and principal accounting officer. For more than a decade, Grubner has been in the private and public equity markets, raising capital for technology,
biotech and software companies. Grubner received a BA in economics from the University of Michigan and a JD from the John Marshall Law School.
• Patrick G. Sheridan / CFO – Mr. Sheridan is chief financial officer of Capsalus Corp. Mr. Sheridan also serves as secretary and principal accounting officer of the company. Prior to joining the company, Sheridan was a consultant for Hudson Financial Solutions, a division of Hudson Highland Group, one of the world's largest professional staffing firms. At Hudson, Sheridan advised publicly-held companies in a variety of areas, including research, restructuring, acquisitions, financing and SEC reporting. Sheridan previously served as president and chief financial officer to various privately held companies, providing them with operational, financial, and administrative management services. Prior to that, he was a manager of business assurance for Coopers & Lybrand (now PricewaterhouseCoopers, LLP). Prior to his career in accounting and finance, Sheridan served six
years in the U.S. Navy as a hospital corpsman. A CPA, Sheridan holds a bachelor of business administration degree in accounting from the University of North Florida.
• Andrew Roth / Director – Mr. Roth has run his own real estate operations for over 40 years. His work encompasses acquiring, managing and developing residential and commercial properties throughout New York City. Mr. Roth is also an active investor in development stage companies. For seven years, Mr. Roth has volunteered as Chairman of the Credit Committee at P&S Federal Credit Union in New York. He attended the City College of New York School of Engineering.
• Kevin Sallstrom / Director - For the past 25 years, Mr. Sallstrom has been an independent trader and floor broker on the Minneapolis Grain Exchange. Mr. Sallstrom has been a director of the Minneapolis Grain Exchange and serves on various committees. Mr. Sallstrom is presently a director on the board of Minnesota Energy. Mr. Sallstrom also owns and operates a grain farm in southern Minnesota raising corn and soybeans. After graduating from the University of Minnesota with a Bachelor of Science degree in Agricultural Business, Mr. Sallstrom worked 5 years for Archer Daniels Midland as a grain merchandiser in Illinois and Kansas.
• Phil Holstein / Advisor – Mr. Holstein has had an active interest in complementary and alternative medicine for more than fifty years, beginning with his scientific studies at Cornell University in the 1950s. More recently, he was the lead investor and mentor to AlternativeMedicine.com and guided this publishing company to its successful acquisition by Inner Doorway, Inc. Mr. Holstein was also an owner of Syroco, Inc., America's largest manufacturer of decorative molded products. He is a board member of the Given Institute, an educational organization owned by the University of Colorado Medical School, which presents speakers and hosts seminars on health-related issues.
• Mark J. Sandler / Advisor – Since retiring from an accomplished career in financial services, Mr. Sandler now focuses his time advising non-profit organizations, including as a Trustee for Amherst College and Northfield Mount Hermon, a boarding and day school in Massachusetts, as Chairman of New Jersey Community Foundation and as Founding Trustee of New Jersey SEEDS, an enrichment program for gifted inner city children. Previously, he spent twenty years on Wall Street, most recently as a partner at Bear Stearns managing the limited partnership and research groups. Prior to that, also as a partner, he ran the international division of Donaldson, Lufkin and Jenrette from London after working in research and sales there. Mr. Sandler graduated from Amherst College then did his post graduate work at Columbia University Law and Business Schools.
• Chris J. Stanko / Advisor - Mr. Stanko is a private investor in venture capital. Most notably, he was one of the early-stage investors in Energy Brands (Vitamin Water/Smart Water) and currently sits on the board of directors of Life Style Beverages, makers of Trim Water, a national beverage brand in the weight management category. Now retired, Mr. Stanko worked in the financial services arena for 35 years, with 25 years as a Member of the New York Stock Exchange. He is a former partner of Stern & Kennedy, a broker dealer and market maker. Prior to that, he was an institutional broker/trader for Lehman Bros., Westminster Securities, and Shearson Hammill. Mr. Stanko attended the John Jay College of Criminal Justice before migrating to Wall Street.
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This inaugural newsletter would not be complete without acknowledging one of our top priorities and greatest challenges: to right the ship and build a track record of success the investment community will bank on. We do not underestimate the complexity of this objective in the fickle world of online chatter perpetuated by the 24-hour news cycle in which we are navigating and competing. In broad strokes, we have a three-point plan: (1) to improve upon shareholder relations through regular communications articulating new developments and successes as we execute on our business plan; (2) to generate awareness around Capsalus within the broader investment community; and (3) to bring forward our strength in executive leadership.
At this time, we are only just beginning to put this plan in motion. As the interview in the current issue of CEOCFO.com suggests (http://www.ceocfointerviews.com/interviews/WELL-Capsalus11.htm), we have initiated a PR campaign that will enable us to start to tell our story in a more forthcoming manner. We have also retained Opus Group Financial to compile an independent research report on Capsalus, particularly to provide the street guidance with respect to key metrics like valuation and future prospects; this too will be a tool we leverage in future investment community relations. These are just tactics, and we understand that these sorts of tactics only work when there is an over-arching strategy to leverage them towards greater visibility among our target audience as just one requirement in meeting our corporate objectives.
While there is much to be excited about as suggested in this update, we feel it is of paramount importance to flawlessly execute on our business plans and begin to build a track record of success before we should expect to see these successes translate into results you, our shareholders, seek. For now, please be patient as we work to get all the pieces in place and build momentum.
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Forward-looking Statements
This newsletter may contain “Forward-looking Statements” within the meaning of Section 21E of the United States Securities Exchange Act, as amended. All statements in this newsletter, other than statements of historical fact, are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. This notice expressly qualifies all forward-looking statements in this newsletter.
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