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Securities and Exchange Commission
Washington, D. C. 20549
_______________
Form 10-SB/A
<R Amendment No. 2 R/>
______________
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
<R Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 R/>
<R Commission File Number 000 26973 R/>
WHOLE LIVING, INC.
(Name of Small Business Issuer in its charter)
NEVADA 87-0621709
(State of Incorporation) (I.R.S. Employer Identification No.)
1185 S. Mike Jense Circle
Provo, Utah 84601
(801) 342-3300
(Address and telephone number of principal executive
offices and principle place of business)
________________
Securities to be registered under Section 12(b) of the Act:
None
________________
Securities to be registered under Section 12(g) of the Act:
<R Common Stock, par value $.001 R/>
(Title of class)
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PART I
<R Item 1: Description of Business..........................................3
Item 2: Management's Discussion and Analysis or Plan of Operations.........11
Item 3: Description of Property............................................17
Item 4: Security Ownership of Certain Beneficial Owners and Management.....17
Item 5: Directors, Executive Officers, Promoters and Control Persons.......19
Item 6: Executive Compensation.............................................20
Item 7: Certain Relationships and Related Transactions ...................20
Item 8: Description of
Securities.............................................................21 R/>
PART II
<R Item 1: Market Price of and Dividends on Whole Living's Common Equity and
Other Shareholder Matters.................................................22
Item 2: Legal Proceedings.................................................23
Item 3: Changes In and Disagreements With Accountants on Accounting and
Financial Disclosures ....................................................23
Item 4: Recent Sales of Unregistered Securities...........................23
Item 5: Indemnification of Directors and Officers ....................24 R/>
PART F/S
<R Index to Financial
Statements..............................................................24 R/>
PART III
<R Item 1: Index to and Description of Exhibits.........................26 R/>
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In this registration statement references to "Whole Living," "we," "us," and
our" refer to Whole Living, Inc.
FORWARD LOOKING STATEMENTS
This Form 10-SB contains certain forward-looking statements. For this
purpose any statements contained in this Form 10-SB that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Whole Living's control. These factors include but are not limited to economic
conditions generally and in the industries in which Whole Living may
participate; competition within Whole Living's chosen industry, including
competition from much larger competitors; technological advances and failure
by Whole Living to successfully develop business relationships.
Whole Living's short operating history and operating losses raise
substantial doubt about its ability to continue as a going concern. This fact
is reported by the our independent auditors, Hammond and Company and Crouch,
Bierwolf & Chisholm.
<R PART I R/>
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Hystar Aerospace Marketing Corporation of Idaho was incorporated in the
state of Idaho on January 30, 1986 as a subsidiary of Nautilus Entertainment,
Inc. (the "Hystar Aerospace"). Hystar Aerospace was formed to lease, sell and
market the Hystar airship and the Burket Mill, a waste milling device.
However, the venture was found to be cost prohibitive and Hystar Aerospace
ceased such activities in 1986. Hystar Aerospace did not engage in any
further commercial operations. On March 5, 1998 Hystar Aerospace changed its
name to Brick Tower Corporation.
<R On November 25, 1998, our five principal shareholders formed Whole
Living, Inc., a Utah corporation, (the "Whole Living Utah"). Shortly
thereafter, Whole Living Utah acquired a major portion of the business assets
of Brain Garden, LLC, a Utah limited liability company operated by Don Tolman.
The assets acquired by Whole Living Utah included the products and formulas
presently being marketed by Whole Living as well as the trademark "Brain
Garden." R/>
Whole Living was incorporated in the state of Nevada on March 18, 1999.
On March 19, 1999 Brick Tower Corporation merged with Whole Living for the
sole purpose of changing Brick Tower's domicile from Idaho to Nevada. In May
of 1999, Whole Living completed a reverse merger with Whole Living Utah. The
properties, trademarks, and related assets of Whole Living Utah were acquired
by Whole Living, Inc., a Nevada corporation, which is the surviving
corporation as a result of the reverse merger. This merger was accomplished
by the Nevada corporation's issuance of 6,000,000 shares of its restricted
common stock to the five shareholders of Whole Living Utah in exchange for
all of the issued and outstanding stock of the Whole Living Utah corporation.
Pursuant to the merger agreement, our parent company divested itself of its
controlling interest, the directors and officers of Whole Living resigned and
the management of Whole Living Utah filled the vacancies, and the former
shareholders of Whole Living Utah obtained 58% of the total voting power.
Our Business
Whole Living, doing business as Brain Garden , is a total lifestyle company
focused on improving mental and physical performance through a Whole Foods -
Whole Learning - Whole Living philosophy. Our message is a
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blend of cutting edge research and ancient wisdom and methods. By ancient
wisdom, we refer to certain dietary practices and specific whole-food
combinations that have been viewed for centuries as promoting health. These
include:
i. Jewish practice for nearly 4,000 years (Amos 9:14; Daniel 1:11-20),
their tradition and scriptures which state that eating certain foods,
including pulse, results in greater health and mental acuity; and
ii. Historic Christian practices, traditions and scriptures (1 Cor.
3:2; 1 Tim. 4:3; Heb. 5:12; D&C 89) which state that eating certain foods and
not others is healthier for the body.
In addition, the Surgeon General of the United States and the Physicians
Committee for Responsible Medicine have both concluded that the key to good
health is proper diet (defined in part as fruits, vegetables, nuts, seeds,
legumes and whole grains as opposed to processed foods), plenty of water and
regular exercise.
Our product philosophy is to combine the best of science and nature and
to produce food and personal care products that are 100% natural, and to the
extent possible, organic. We employ a network marketing system to sell our
products to customers and independent distributors, and we rely on our
distributors to sponsor new distributors. We are committed to developing and
providing quality products that are easy to use, easy to sell and effective.
Whole Foods. We promote an appreciation for earth's bounties and
encourage eating real foods, such as, fresh fruits and vegetables, legumes and
grains. Our line of Whole Foods snacks and meal replacements are convenient
and enjoyable and reduce or eliminate the need for nutritional supplements.
We believe that pills and supplements cannot replace Whole Foods and that
twentieth century convenience foods provide a high-fat, high-sugar, low-fiber
diet which may have resulted in increased cancer, heart disease and obesity
rates.
Whole Learning. We believe imagination is the key to unlocking learning
potential. Our Whole Learning products include interactive programs that help
the consumer create a "home-learning environment" for their family. We offer
a complete line of multi-media, interactive curriculum software for learners
from preschool through adulthood.
Whole Living. We provide personal development and life-balancing
programs to help people and families experience life more abundantly. We have
created all-natural, chemical-free product lines of personal care, skin care
and essential oils, to enhance the rituals of daily living.
Principal Products
Our major Whole Foods product is Pulse , which consists of a variety of
nuts, seeds, fruits and grains. The ingredients used in Pulse are combined
in specific mathematical ratios which we believe are based on a 2500 year old
formula which originated in Biblical times. (See, Chapter 1 of the King James
version of Daniel.) We believe nutritional science is strongly pointing to
frequent snacking throughout the day as opposed to "three square meals."
Pulse may be used as a snack or a meal replacement. Pulse has the proteins,
fibers, carbohydrates and other nutrients needed in a healthy diet and comes
in four different flavors. Pulse also is an integral part of our weight-loss
program called "Daniel's 10-day Challenge." Currently 55% of our product sales
revenue is derived from our Pulse products. Our other major Whole Foods
snack products include Parched Pulse and Brain Grain.
Our Whole Learning products include our interactive educational programs
which provide learning tools for learners from kindergarten through adulthood.
These programs cover such topics as spelling, math, science, reading, foreign
languages and parenting tools. These programs are multi-sensory and
interactive and are designed to involve the creative imagination of the
learner. We believe the "rote learning" model of education has been used to
routinize the learning process and control the mind set of the learner. We
believe rote learning fails to recognize the individuality of learners,
stifles creativity and robs the human mind. We believe our programs offer a
clear, imaginative alternative for learners of all ages.
Our Whole Living product line includes essential oils, and chemical-free
personal and home-care products which are made from the oils and tissues of
plants. Our new line of personal care and essential oils is called
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Earthborn Creations and will be introduced in the fall of 1999. We believe
that what is put on the skin is passed through the skin and finds its way into
other tissues in the body. Therefore, an individual should not put anything
on the body that cannot also be put in the body. Our most popular personal
care product is Pro L'eve which is a full strength progesterone cream made
from wild yams, soy and other natural ingredients. Pro L'eve is designed for
women who experience hormone imbalance.
Distribution Network
We currently have only one sales office located in Provo, Utah. We rely
on network marketing for the distribution of our products. Anyone can
purchase products from us for personal use or resell, but he or she does not
have the potential to earn commissions. Only those individuals who sign up as
a distributor can sponsor other distributors and earn commissions from the
resale of our products. Management believes that one of our key competitive
advantages is our "Unigen" distributor compensation plan (the "Unigen Plan").
Network marketing companies and their marketing plans have been around
for over 50 years. Many of the founding companies in this industry such as
Amway, Mary Kay, and Shaklee, have not made significant changes to their
marketing plans for decades. During the 1970s, 1980s and into the 1990s, new
companies in the industry such as Nuskin, Neways, Natures Sunshine Products,
Melaleuca, and many others have taken aspects of these original marketing
plans and added various twists and/or changes in order to make their
compensation plans more rewarding for distributors.
In the traditional networking system such as that used by Nuskin, a group
of people occupy a single level within the compensation plan. Under the
"unilevel" plan, a single person occupies a level within the compensation
structure. Nature's Sunshine Products, Inc. and Young Living Essential Oils
represent two of our competitors who use versions of this "unilevel" plan.
Under this structure, a distributor's down line is composed of numerous levels
consisting of separate individuals. As more individuals come on line below
these levels, each becomes a "leg" for the first distributor.
Under our system, any distributor on any level can receive compensation.
Each individual distributor can qualify for compensation on a monthly basis.
Therefore, if they qualify by purchasing the requisite quantity of product and
establishing the necessary number of legs, a distributor could receive
compensation in his or her first month with Whole Living.
We combine this single person/single level approach with what we call a
"deep generational pay program." Generational pay programs are currently
being used by Young Living Essential Oils, Neways, LifeForce International and
New Vision. Under a generational program, a distributor receives a small
percentage from other distributors that are brought on line below them, both
directly and indirectly via the "legs." In our system, this generational
concept is tied into our Captain, Team Captain and All Star classifications.
As a distributor gains more "qualified legs" which qualify through monthly
purchasing volume, his status changes and his percentage of generational
compensation increases. For example, to obtain the status of Captain, a
distributor needs at least one "active" leg which is defined as a leg that has
at least the minimum monthly purchasing volume. As a distributor adds new
"active" legs, his or her status moves from Captain to Team Leader, All Star,
etc. At each new level, the generational compensation percentages and amount
of compensation increases. Therefore, an established distributor may receive
a percentage of sales generated by an ever growing number of new distributors
that are brought into the program in his or her down line. In our system,
these levels can extend downward in many different directions as new
distributors build their own legs or "generations." At a predetermined point,
the founding distributor can be blocked from receiving new compensation
directly from a portion of a successful, active leg. While the original
distributor will continue to receive a percentage of the sales generated by
other down line distributors, he or she will stop receiving compensation from
distributors below this predetermined cut-off generation of a successful leg.
Because this block can only occur after several generations, we have
classified our program as a "deep generational pay program."
By combining the unilevel approach with this deep generational pay
program, we have developed our "Unigen" marketing plan which we believe takes
the best aspects of each approach and combines them into a new,
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more competitive distributor compensation plan. Several companies have
developed and implemented plans similar to ours, such as Young Living
Essential Oils, New Vision and LifeForce International. We believe that our
approach, while similar to these approaches, improves on their models and
represents a competitive advantage for our distributors. It is designed to
offer a simple method for a distributor to earn compensation from development
of his or her business. As the distributor is rewarded financially, he or she
is motivated to continue developing an organization and, as a result, we
continue to grow.
Our revenue depends directly upon the efforts of our distributors. We
distribute our products exclusively through independent distributors who have
contracted directly with us. Our revenue is directly dependent upon the
efforts of these independent distributors, and growth in the total number of
our distributors. As a distributor who purchases a defined minimum volume of
product per month (which we refer to as personal sales volume or "PV") and
brings on new distributors below him and thus establishes "legs," that
distributor becomes eligible for additional monthly compensation. If one
person in a leg purchases the defined minimum monthly volume or PV, that leg
becomes "active." To attain the rank of "Captain", a distributor must attain
a minimum PV and have at least three "active" legs. A Team Captain is a
distributor who has built a down line sales organization which includes at
least three "active" Captain legs and has personal monthly sales of at least
150 PV units. To attain the All Star level, a distributor has to build a down
line sales organization which includes at least three "active" legs, each of
which must have at least one "Team Captain" level distributor somewhere in the
down line. In addition, an All Star distributor has to have personal monthly
sales of at least 200 PV units.
<R In addition to the highest levels, we have two lower level distributor
classifications consisting of Team Builder and Team Leader. To qualify as a
Team Builder, a distributor must have personal monthly purchases totaling over
50 PV units and one "active" 50 PV leg. A Team Leader is a distributor that
has attained the Team Leader level of 75 PV units in personal purchases and
has established two "active" legs. R/>
<R For management purposes such as product purchasing, sales estimating,
forecasting, and incentive planning, we use a second distributor definition
known as "currently active distributors" which includes those distributors
who, by their recent level of activity, are most likely to purchase products
and sell our products in the near future. We use the last six months as the
critical time frame within which we classify any distributor who has purchased
any products from us as "currently active". Approximately 8,000 of our
distributors fall in this category. Twenty (20) distributorships have
achieved Team Captain and All-Star (3) executive distributor levels, which are
our two highest executive distributor levels. These distributorships have
extensive downline networks and account for the majority of our revenue. R/>
Sponsoring. Sponsoring activities are encouraged but not required of
distributors. While we provide product samples, brochures, magazines,
audiotapes, videotapes, and other sales materials, distributors are primarily
responsible for educating new distributors with respect to our products, the
Unigen Plan and how to build a successful distributorship. The sponsoring of
new distributors creates multiple levels in the network marketing structure.
Persons whom a distributor sponsors are referred to as "active legs,"
"downline" or "sponsored" distributors. If downline distributors also sponsor
new distributors, they create additional levels in the structure, but their
downline distributors remain in the same downline network as their original
sponsoring distributor.
We promote sponsoring by using a "three-thirty-three" program which
encourages distributors to sponsor at least three new distributors within
thirty days and continue that approach for three months. We believe that
most of our distributors attempt, with varying degrees of effort and success,
to sponsor additional distributors because of the financial incentives
provided to those who succeed in building a distributor network that consumes
and resells products. Generally, distributors invite friends, family members,
and acquaintances to sales meetings, which we call Garden Parties. Our
products are represented and the Unigen Plan is explained at the Garden
Parties. People are often attracted to become distributors after using our
products and becoming regular retail consumers. Once a person becomes a
distributor, he or she is able to purchase products directly from us at
wholesale prices for resale to consumers or for personal consumption. The
distributor is also entitled to sponsor other distributors in order to build a
network of distributors and product users.
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<R In November of 1998 Whole Living Utah acquired a distributors list
from Brain Garden LLC which contained 23,800 names. From December 1998
through February of 1999, Whole Living Utah attempted to contact and encourage
these distributors to participate in their business. During that period Whole
Living Utah determined 22,500 of these distributors were inactive. Inactive
status was established by the fact that the distributor had not ordered
products or participated in Brain Garden LLC and Whole Living Utah for a
period of six months. Accordingly, by the end of February 1999, Whole Living
Utah acquired 1,300 active distributors from Brain Garden LLC and during that
time had signed 1,400 new distributors of its own. Since March of 1999 we
have acquired an additional 5,848 new distributors, resulting in 8,548
currently active distributors as of September 2, 1999. R/>
At the present time, it is not possible to quantify the amount of revenue
provided by each type or classification of distributorship. We are in the
process of developing the capability to generate that type of report, but, at
this time, do not have that ability. Because our program is based on monthly
sales volume, the amount of revenue generated by an individual distributor and
his down line will vary from month to month based on the fluctuating activity
of the levels below that distributor.
Examples of revenues generated by four "Captain" level distributors for
the month of August, 1999 are:
Name Sales Volume Commission
---- ------------ ----------
1.) Paragon Health $ 945.00 $ 80.45
2.) Mark Thomas $ 1,327.00 $ 109.45
3.) Delores Ludwick $ 3,448.00 $ 293.95
4.) Garden Health Ministries $8,863.00 $ 850.35
As is typical in the direct selling industry, there is turnover in
distributors from year to year, which requires the sponsoring and training of
new distributors by existing distributors to maintain or increase the overall
distributor force and motivate new and existing distributors. We may
experience seasonal decreases in distributor sponsoring and product sales
because of holidays and customary vacation periods. We cannot predict the
timing or degree of fluctuations because of the number of factors that impact
the sponsoring of new distributors, and the fact that we have little control
over the level of sponsorship of new distributors. We cannot assure that the
number or productivity of our distributors will be sustained at current levels
or increased in the future.
Our most successful distributors use current technology to increase their
sponsoring activities. They use lead generation systems which focus on target
databases. They assist their sales organization in processing and closing the
leads through use of automated voice mail systems, interactive web sites and
other technological tools.
We believe that our distributors will need to adapt their business models to
integrate the Internet into their operations as more and more consumers
purchase goods and services over the Internet instead of through traditional
retail and direct sales channels.
Compensation. Each product carries a specified number of sales volume
points. Commissions are based on a distributor's personal and group volume.
A distributor receives commissions based on a percentage of sales volume of
his or her downline each month. Sales volume points are essentially based
upon a percentage of the product's wholesale cost, net of any point-of-sale
taxes. As a distributor's retail business expands and as he or she
successfully sponsors other distributors into the business, which in turn
expand their own businesses, he or she receives more commissions from downline
sales. Generally, a distributor can receive commission bonuses only if, on a
monthly basis, (i) the distributor achieves at least 50 points (approximately
$71) in personal sales volume, and (ii) the distributor is not in default of
any material policies or procedures.
Rules Affecting Distributors. A potential distributor must enter into a
standard distributor agreement which obligates the distributor to abide by our
policies and procedures. Any person who wants to can join us as a
distributor, to purchase products for personal use or to build a down line
sales organization. There are two different distributor sign-up fee options
from which a person may choose in order to become a distributor. The Garden
Starter Kit sells for $14.95. With this option, the new distributor receives
basic literature, training materials, guidelines, order forms, price lists, a
press kit, home "party" information and handouts, and other helpful
literature.
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The second option is the Garden Basket Kit which sells for $49.95. With this
option the new distributor receives all of the materials in the Garden Starter
Kit plus several packages of the actual food products, a 90 minute videotape,
three audiotapes, two product sample kits and more materials for holding a
home "party". No distributor is required to purchase a large inventory of
products when he/she starts. However, in order to receive compensation as a
distributor and thereby become "active," personal monthly purchases are
required. The minimum level for such purchases varies within the five
compensation plan levels from 50 PV units for the lowest and 200 PV units for
the highest. To purchase 50 PV units, an individual would have to pay
approximately $71.00.
Our standard distributor agreement, policies and procedures, and
compensation plan contained in every Garden Starter Kit outline the scope of
permissible distributor marketing activities. Our distributor rules and
guidelines are designed to provide distributors with maximum flexibility and
opportunity within the bounds of governmental regulations regarding network
marketing and prudent business policies and procedures. Distributors are
independent contractors and are thus prohibited from representing themselves
as our agents or employees. Distributors are obligated to present our
products and business opportunity ethically and professionally. Distributors
agree to abide by all local, state and federal laws and regulations pertaining
to the advertising, sale and distribution of our products. All advertising
must be factual and not misleading and a distributor will be terminated for
making false claims about the income potential, the compensation plan, or
product efficacy.
Distributors must represent to potential distributors that the receipt of
commissions is based on retail sales and substantial efforts. Distributors
may not use any form of media advertising to promote products without our
written consent. Products may be promoted by personal contact or by
literature produced or approved by us. Products generally may not be sold,
and the business opportunity may not be promoted, in traditional retail
environments.
We are not in a position to provide the same level of direction,
motivation, and oversight to our distributors as we would our own employees
because the distributors are independent contractors. We systematically
review alleged reports of distributor misbehavior, but the large number of
distributors and their independent status make it difficult to enforce
distributor policies and procedures. If we determine that a distributor has
violated any of the distributor policies or procedures, we may either
terminate the distributor's rights completely or impose sanctions such as
warnings, probation, withdraws or denial of an award, suspension of privileges
of a distributorship, withholding commissions until specified conditions are
satisfied, or other appropriate injunctive relief. To date, no distributors
have been terminated for violation of distributor policies or procedures. A
distributor may voluntarily terminate his or her distributorship at any time.
Payment. Distributors pay for products prior to shipment, therefore we
carry minimal accounts receivable. Distributors place orders by phone using
an automated system or by placing the order with our order takers. They
usually pay for the products with a credit card. Less than 2% of our sales
are paid for with cash.
Product Guarantees. We provide a 100% satisfaction guarantee. For 30
days from the date of purchase, our product return policy allows a retail
purchaser to return any product to the distributor through whom the product
was purchased for a full refund. After 30 days from the date of purchase, the
return privilege is in the discretion of the distributor. If, for any reason,
the customer of a distributor does not want to keep a product purchased by the
customer from the distributor, we encourage the distributor to take back the
product and either replace it with another product or return the customer's
money, whichever the customer prefers.
<R If, for any reason, and within thirty days, the distributor does not
want to keep a product purchased by said distributor, in accordance with our
thirty-day return policy, we will replace the product or take back the product
and reimburse the distributor for the product, whichever the distributor
prefers. We warrant any item that is not date stamped for a period of one
year. Our product return policy is a material aspect of the success of the
distributors in developing a retail consumer base. Our experience with actual
product returns has averaged approximately 1% of sales during the first half
of 1999.R/>
Product Liability. We maintain an insurance policy for product liability
claims with a $1,000,000 per claim and $2,000,000 annual aggregate limit.
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Product Development.
We are committed to expanding our Whole Foods - Whole Learning - Whole
Living product lines with products that are easy to use, easy to sell and
which are effective. We anticipate that we will expend approximately $48,000
each year for the next two years for research and development of our product
lines. We have several products in development that we expect to launch in
late 1999. These products are part of our Earthborn Creations personal care
line. The Earthborn Creations product line will provide creams, lotions,
cleansers and shampoos made from essential oils and mixing powders that are
all natural and chemical-free, and made entirely from plants.
Competition
Product Lines. The market for products designed to enhance mental and
physical performance is large and intensely competitive. Our primary
competition includes other network marketing companies that manufacture and
market herbal remedies, personal care and nutritional products and educational
products. We also compete with major retail businesses that provide the same
types of products that we offer. We compete with these other companies by
emphasizing our uniqueness, the effectiveness and quality of our products and
the convenience of our distribution system. We emphasize products that
improve health through a diet of real food rather than pills and supplements.
All of our products are and will be 100% natural and to the extent possible,
organic. Also, our educational products are significantly different than most
offered by our competitors because they emphasize imagination rather than rote
learning.
Our Whole Foods snack products compete with "health bars" and nutritional
supplements offered by companies such as Amway, Nuskin, Nature's Sunshine
Products and Shaklee. Big Planet and Amway offer educational products which
compete with our Whole Learning product line. Nuskin, Amway and Young Living
Essential Oils dominate the essential oils and personal care product market
for our Whole Living products.
Many of our competitors have much greater name recognition and financial
resources. In addition, herbal remedies, personal care and nutritional
products can be purchased in a wide variety of channels of distribution.
While we believe that consumers appreciate the convenience of ordering
products from home through a sales person or through a catalog, the buying
habits of many consumers accustomed to purchasing products through traditional
retail channels are difficult to change. Our product offerings in each
product category are also relatively small compared to the wide variety of
products offered by our competitors.
Network Marketing Companies. We also compete for distributors with other
direct selling organizations, many of which have a longer operating history
and higher visibility, name recognition, and financial resources. The
dominant network marketing companies in our existing markets are Amway
Corporation and NuSkin Enterprises, Inc. We also compete with many smaller
network marketing companies who offer personal care products. We compete for
new distributors on the strength of our product line, compensation plan and
management strength. Management envisions the entry of many more direct
selling organizations into the marketplace as this channel of distribution
expands over the next several years.
Raw Materials and Suppliers
A majority of our products are currently produced by manufacturers
unaffiliated with us, however, the products are produced according to
specifications provided by us or developed by the manufacturers for us. Our
profit margins, and our ability to deliver our existing products on a timely
basis, are dependent upon the ability of these outside manufacturers to
continue to supply products in a timely and cost-efficient manner. Also, the
development of additional new products in the future will depend in part on
the services of suitable outside manufacturers.
We use approximately twelve major suppliers and vendors for food
ingredients, packaging, and printing. Future 500 Corporation, (the "Future
500") a food processing and packaging company, currently supplies us with
approximately 75% of our products. On September 14, 1999 we renegotiated our
contract with Future 500 which
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will require Future 500 to provide us with fresh food products manufactured to
our specifications. Our business would be materially adversely affected if we
lost Future 500 as a supplier.
MCB Printing, Inc. supplies the majority of our printing services and
Nature's Best supplies the majority of our food ingredients. We may purchase
our raw materials from several different sources and most of the raw materials
we use are readily available in the market place. We maintain our product
inventory using a system in which we keep a 4-8 week inventory based on the
product's anticipated movement. Typically, we experience back orders with
less than 1% of our orders.
Trademarks, Patents and Intellectual Property
We are in the process of securing trademarks for our Brain Garden logo,
Brain Garden , Pulse , Earthborn Creations and several other trademarks. We
consider our trademark protection to be very important to brand name
recognition and distributor and consumer loyalty to our business. We intend
to register our important trademarks in the United States. In addition, a
number of our products utilize proprietary formulations, but we do not own any
patents for these products.
Government Regulations
Direct Selling Activities. Direct selling activities are regulated by
various federal, state and local governmental agencies in the United States
and foreign countries. We believe that our method of distribution is in
compliance in all material respects with the laws and regulations relating to
direct selling activities in the United States. These laws and regulations
are generally intended to prevent fraudulent or deceptive schemes, often
referred to as "pyramid," "money games," "business opportunity" or "chain
sales" schemes, that promise quick rewards for little or no effort, require
high entry costs, use high pressure recruiting methods, and/or do not involve
legitimate products. The laws and regulations in our current markets often
(i) impose certain cancellation/product return, inventory buy-backs and
"cooling-off" rights for consumers and distributors, (ii) require us or our
distributors to register with the governmental agency, (iii) impose certain
requirements on us, and/or (iv) impose various requirements, such as requiring
distributors to have certain levels of retail sales to qualify to receive
commissions. The purpose of these laws and regulations is to ensure that
distributors are being compensated for sales of products and not for
recruitment of new distributors. The extent and provisions of these laws vary
from state to state and internationally. International laws may impose
significant restrictions and limitations on our business operations. For
example, in Canada the government does not allow distributors to purchase
product for resale in Canada. All products purchased by Canadian consumers
must be purchased for personal use only.
Any assertion or determination that we are not in compliance with
existing laws or regulations, could potentially have a material adverse effect
on our business and results of operations. We cannot assure that regulatory
authorities in our existing markets will not impose new legislation or change
existing legislation that might adversely affect our business in those
markets. Also, we cannot assure that new judicial interpretations of existing
law will not be issued that adversely affects our business. Regulatory
action, whether or not it results in a final determination adverse to us, has
the potential to create negative publicity, with detrimental effects on the
motivation and recruitment of distributors and, consequently, on our revenue
and net income.
Regulation of Personal Care and Nutritional Food Products. Our products
and related marketing and advertising are subject to some governmental
regulation by various domestic agencies and authorities, including the Food
and Drug Administration (the "FDA"), the Federal Trade Commission (the "FTC")
and Consumer Product Safety Commission, and the United States Department of
Agriculture. To date, we have not experienced any complications regarding
health and safety and food and drug regulations for our products.
Our markets have regulations concerning product formulation, labeling and
packaging. These laws and regulations often require us to, among other
things, conform product labeling to the regulations, and register or qualify
products with the applicable government authority or obtain necessary
approvals or file necessary notifications for the marketing of such products.
Many of our existing markets also regulate product claims and
10
<PAGE>
advertising. These laws regulate the types of claims and representations that
can be made regarding the capabilities of products. For example, in the
United States we are unable to make any claim that our whole foods will
diagnose, cure, mitigate, treat, or prevent disease.
Employees
We have nineteen (19) full time employees. Five of these employees
directly support the distributor network. We do not anticipate increasing the
number of employees at this time. However, if we experience significant
growth, we may be required to hire new employees as necessary. Our employees
are not presently covered by any collective bargaining agreement. We believe
our relationships with our employees are good and we have not experienced any
work stoppages.
Reports to Security Holders
We have voluntarily filed this registration statement. Following the
effective date of this registration statement, we will be required to comply
with the reporting requirements of the Securities and Exchange Act of 1934.
We will file annual, quarterly and other reports with the SEC. We also will
be subject to the proxy solicitation requirements of the Exchange Act and,
accordingly, will furnish an annual report with audited financial statements
to our stockholders. Interested persons may also visit our web site at
www.thebraingarden.com.
Available Information
Copies of this registration statement may be inspected, without charge,
at the SEC's Public Reference Room at 450 Fifth Street N.W., Washington D.C.
20549 and at the Denver Regional offices of the SEC located at 1801 California
Street, Suite 4800, Denver, Colorado 80202. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC
0300. Copies of this material also should be available through the Internet
by using the SEC's EDGAR Archive, the address of which is http://www.sec.gov.
<R ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS R/>
The following Management's Discussion and Analysis contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors discussed below.
<R Whole Living is a network marketing company involved in the
distribution and sale of proprietary, whole food, personal care and
educational products. Our revenue is primarily dependent upon the efforts of
a network of independent distributors who purchase products and sales
materials from us for personal use or for resale to customers or sponsored
distributors. We recognize revenue upon the receipt of the sales order, which
is simultaneous with the payment and delivery of such goods. Revenue is net
of returns, which have historically been less than 1% of gross sales.
Distributor commissions are paid to several levels of distributors on each
product sale. The amount and recipient of the commission varies depending on
the purchaser's position within the Unigen Plan. (See "Business -
Distribution Network," above.) These incentives are classified as operating
expenses. R/>
<R Costs of sales primarily consist of the cost of the products purchased
from third-party vendors. Selling expenses include distributor commissions,
the cost of computing and paying commissions as well as the cost of various
incentive programs for distributors which may include the cost of trips to our
conventions and other incentives paid to distributors for achieving certain
sales goals. Distributor commissions are paid to distributors on a monthly
basis based upon their personal and group sales volume. The overall payout
average has been approximately 35% of product sales, but as the distributor
organizations develop, we expect the payout average to increase to
approximately 45%.R/>
<R Reverse Merger Treatment R/>
11
<PAGE>
<R In May of 1999 Whole Living merged with Whole Living, Inc., a Utah
corporation, doing business as Brain Garden ("Whole Living Utah"). Whole
Living, the Nevada corporation, was the surviving entity following the
statutory merger. Prior to the date of the merger, Whole Living Utah had
obtained the principal assets, products and trademarks of Brain Garden LLC, a
Utah limited liability company, owned by Don Tolman. As a result of the
merger Whole Living acquired the business operations, products and assets of
Whole Living Utah which are a significant part of our ongoing business and the
products that we sell. In conformance with generally accepted accounting
principles, the merger has been accounted for as a "reverse merger" and the
accounting survivor is Whole Living Utah. R/>
<R The reverse merger was completed pursuant to the statutory
requirements of Utah and Nevada through the exchange of 6,000,000 shares of
the Whole Living's common stock for all the outstanding stock of Whole Living
Utah. For tax purposes, the merger was a tax free exchange pursuant to
Section 368 (a)(1) (A) of the Internal Revenue Code. For accounting purposes,
Whole Living was acquired for approximately 4.3 million shares in exchange for
$800,000 of its net monetary assets, $650,000 of which were advances due from
Whole Living Utah. The merger provided cash necessary to support the
operations of Whole Living Utah prior to the merger and the operations of
Whole Living after the merger. R/>
<R In summary, Whole Living had no commercial operations until it merged
with Whole Living Utah in May of 1999. Whole Living Utah had been in business
only since late November of 1998 and it had acquired most of its product and
services from Brain Garden LLC in November of 1998. R/>
Liquidity and Capital Resources
<R We have funded our cash requirements primarily through revenues,
loans, and private placements of equity securities. Whole Living Utah
initially entered into a purchase agreement in November of 1998 in which it
agreed to acquire many of the assets of Brain Garden LLC in exchange for
paying off then-current payables in the amount of just over $260,000. Funds
for the purchase came primarily from the sales of a key distributorship for
$50,000, a $150,000 investment by Mark Comer, and a $50,000 loan to Whole
Living Utah from Mark Comer. R/>
<R The subsequent merger of Whole Living Utah with Whole Living provided
an infusion of cash. Whole Living sold 300,000 common shares for $800,000
cash and advanced $650,000 of those funds to Whole Living Utah to fund its
operations until the merger was effected. After the merger Whole Living
obtained a loan for $340,000 in May of 1999 and then another loan for $150,000
in September of 1999. R/>
<R A summary of the balance sheets for the years ended December 31, 1997
and 1998 and for the six month interim period ended June 30, 1999 are as
follows. Note that the summary reflects the status of Brain Garden LLC at the
end of 1997. The figures for the fiscal year ended 1998 show the status of
Whole Living Utah after it had acquired a majority of the assets of Brain
Garden LLC and had been in operations for only one month. The figures for the
interim period ended June 30, 1999 show the status of Whole Living after we
had completed the reverse merger with Whole Living Utah in May of 1999 and had
operated as a consolidated entity for approximately one month. R/>
<R Brain Garden Whole Living
LLC Whole Living Utah Interim Period
December 31, December 31, Ended
1997 1998 June 30, 1999
(unaudited) (audited) (unaudited)
----------- --------- -----------
Cash/Cash Equivalents 0 68,205 44,905
Current Assets 0 163,244 396,234
Total Assets 19,707 373,861 716,719
Total Current
Liabilities 6,177 220,401 691,400
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<PAGE>
Total Stockholder's
Equity 23,530 145,743 25,319
Total Liabilities &
Stockholder Equity 19,707 373,861 716,719 R/>
<R As of June 30, 1999, Whole Living had $44,905 cash on hand and had
$716,719 in total assets. 29.2% of the total assets was represented by our
inventory of food products and ingredients and 36.3% was allocated to property
and equipment. Our current liabilities were $691,400, with 64.8% of those
current liabilities allocated to the current portion of our long-term
liabilities. Our principal commitments consisted of notes payable and office
and equipment leases. As of June 30, 1999 future minimum cash payments under
lease commitments were $11,253 through the year 2002. Future minimum
principal payments on the notes payable were $437,051 through 1999. R/>
<R If our growth remains relatively moderate (below 50% per month) we
anticipate internal cash flows will be sufficient to continue our operations
and sales and marketing development for the next twelve months. However, if
we experience growth rates in excess of 50% per month, we will need to seek
additional financing. We might also require additional financing to fund
product development, such as our Whole Learning programs, if market research
shows strong demand for the proposed products. R/>
<R If we experience growth rates in excess of 50% per month, we will need
to seek additional external financing to establish and maintain adequate
inventories. Although our distributors pay prior to shipment of products,
several of our products carry a fairly long lead time from our manufacturers
and suppliers. Because of this lead time and the possibility of temporary
shortages of one or more ingredients, we have planned to carry enough
completed inventory or inventory in progress to last eight (8) weeks. As
growth occurs, eight-week projections will necessarily increase and the cost
of producing this additional inventory will in turn increase. A sudden upward
swing in projected sales above our current growth rate projections per month
would require that we produce and warehouse more inventory than our internal
cash flow will pay for.R/>
<R For example, suppose that in August we had forecast sales for
September of $400,000 and projected 20% growth for the next two months. Based
on this assumption, we would be projecting October sales of $480,000 and
November sales of $576,000. Assuming that cost of goods is 20% of net sales,
we would need a beginning inventory on October 1, costing $211,000 to cover
the next two months under projected sales model (an increase of $35,000 over
the previous month). Assuming a net cash flow of 10% of sales, cash flow from
September would be adequate to fund this increase in our inventory.R/>
<R However, if we assume that sales in October and November will increase
by 50% each month rather than 20% (i.e., we project revenues of $600,000 in
October and $900,000 in November), we would need to accumulate a beginning
inventory on October 1 costing $300,000 ($1,500,000 x 20%). In other words,
our inventory expenses would be increased by $124,000. The $40,000 obtained
from September's cash flow would fall far short of what would be required
under these circumstances. R/>
<R Internal cash flows will be dependent on a number of factors: 1) our
ability to encourage our distributors to sponsor new distributors and increase
their own personal sales; 2) our ability to promote our product lines with
our distributors; 3) our ability to develop successful new product lines; 3)
effects of regulatory changes, if any; and 4) our ability to remain
competitive in our markets. Actual costs and revenues could vary from the
amounts we expect or budget, possibly materially, and those variations are
likely to affect how much additional financing we will need for our
operations.R/>
<R If additional funds are needed, we can not assure that funds will be
available from any source, or, if available, that we will be able to obtain
the funds on terms agreeable to us. We have not investigated the
availability, source or terms for external financing. Also, the acquisition
of funding through the issuance of debt could result in a substantial portion
of our cash flows from operations being dedicated to the payment of principal
and interest on the indebtedness, and could render us more vulnerable to
competitive and economic downturns. R/>
<R In the event we elect to raise additional capital through the sale of
our common stock, we will issue such stock pursuant t o the exemptions
provided by federal and state securities laws. The purchasers and manner of
issuance will be determined according to our financial needs and the available
exemptions. At this time we have not
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<PAGE>
decided to offer securities and, accordingly, have not determined the type of
offering or the type or number of securities which we will offer, if any. We
also note that if we issue more shares of our common stock our shareholders
may experience dilution in the value per share of their common stock. R/>
Results of Operations
<R As a result of the acquisition and merger of the three different
companies, we are unable to present a meaningful comparative analysis of our
operations from year-to-year or quarter-to-quarter. The following table
summarizes the operations of Brain Garden LLC for the year ended December 31,
1997. The pro forma consolidated statement of operations through December 31,
1998 shows the operations of Brain Garden LLC for eleven months consolidated
with Whole Living Utah's operations for one month. The interim period ended
June 30, 1999 consolidates five months of operations of Whole Living Utah and
one month of the combined entities as Whole Living Nevada.R/>
<TABLE>
<CAPTION>
<R Brain Garden LLC &
Whole Living Utah Whole Living
Brain Garden LLC Pro Forma Consolidated Interim
December 31 December 31, Period Ended
1997 1998 June 30, 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues 69,514 1,491,826 1,033,498
Cost of Sales 47,647 425,321 288,321
Gross Profit 21,876 1,066,508 745,177
Selling Expenses 11,554 594,835 675,477
Research &
Development -- 10,370 1,047
General &
Administrative 69,774 828,039 982,777
Total Operating Expense 81,328 1,433,244 1,659,301
Operating Income/Loss (59,461) (366,735) (914,124)
Net Profit (loss) (59,461) (366,962) (970,423)
R/>
</TABLE>
<R A review of the figures indicates that as revenues have increased,
costs of sales, selling expenses and general and administrative expenses have
increased substantially. At the end of 1997 selling expenses were 16.6% of
revenues, on December 31, 1998 they were 39.8% of revenues and as of June 30,
1999, they were 65.3% of revenues. R/>
<R General and administrative expenses, which include general office
expense, management and employees'salaries, and the support systems for the
distributor network, were 100.3% of revenues at the end of 1997, 55.5% of
revenues at the end of 1998 and 95.1% of revenues as of June 30, 1999. The
fluctuations reflect changes in operations due to the acquisitions and mergers
and different stages of development for the various companies. The increase
in the operating expenses for the interim period ended June 30, 1999 is due
primarily to: 1) expenditures to create and support the infrastructure and
systems to support expected revenue levels; 2) costs to develop the
distributor network, and 3) product and sales and marketing program
development. R/>
<R We anticipate our operating losses to continue until we develop a
larger distributor network, produce new marketing and sales materials and
develop new product lines. We expect our revenues to increase as a result of
our efforts to build a larger distributor network and expand our product
lines. However, this rise in revenues will likely be offset by increased
operating expenses due to additional burdens on our managerial, accounting,
and support personnel. Also, by becoming a fully reporting company we will
add additional expenses to our operations, including the expense of filing
this registration statement, preparing annual reports and preparation and
filing of
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<PAGE>
Form 10K's and 10Q's. R/>
Seasonal Aspects
<R In the direct selling industry, the summer months of June, July and
August, and the holiday months of November and December are relatively soft.
However, in our short operating history we have not experienced a decrease in
sales during these time periods and are unsure how the industry-wide
fluctuations will affect our business in the future. R/>
Year 2000 Compliance
In early 1999, we created a Year 2000 committee and asked it to evaluate
the Year 2000 problems that we may encounter and take appropriate action to
address the possible material implications of those problems. This Year 2000
committee has developed and is implementing a plan to respond to the perceived
potential problems and attempt to render us Year 2000 ready.
The committee has identified three potential problem areas that could
have a material adverse impact on or financial condition, liquidity and
results of operations. These areas are: (1) our in-house informational
technologies which include our main computer system and partial information
collection and retrieval devices; (2) our contract suppliers who provide the
raw materials and services necessary to produce and distribute our products;
and (3) our distributors and customers who represent the ultimate sellers and
purchasers of our products.
As part of the Year 2000 initiative, we have established a testing
program to determine whether our assets are Year 2000 ready. Our testing
program is conducted in stages:
The initial stage consists of testing our in-house main computer server
and personal computers that are networked to the main server. For example,
testing a particular application to ensure that it correctly manipulates dates
and date-related data and properly operates in a Year 2000 ready environment.
The second stage includes testing interfaces between software providers and
our interactive touch-tone ordering system, called Interactive Voice Response
(IVR), to ensure that these interfaces will correctly send and receive date-
related data.
The final stage involves beginning-to-end validating of the ordering/shipping
process to ensure the total system has the capability to send and receive
date-related data.
We have not deferred any major information technology project as a result
of the implementation of the Year 2000 initiative.
As of June 30, 1999, we have completed a review of our internal computer
systems and associated devices and have concluded, based on this review of our
operations and computer systems, that our significant information technology
("IT") systems will not be affected by Year 2000 problems. Internally, the
only critical Y2K questions relate to our IT systems. We have determined that
our enterprise level database program, which hosts all order entry, inventory,
shipping and commissions functions is Year 2000 compliant. Also, our database
server and other computers have been checked and deemed Year 2000 compliant by
a third party computer systems consultant. All of our network stations are
very late model personal computers running on the latest version of Windows
NT. If affected at all, our internal IT systems will not be materially
affected and the minor problems will be solved by replacing or modifying the
programs at a cost that will not be significant.
The second potential problem area is represented by non-information
technology ('non-IT") assets. This encompasses (i) the third party vendors
who supply the raw materials needed to produce our various products; (ii) the
third party purveyors who provide marketing materials for our distributors and
customers; and (iii) other third parties that provide goods and services to
our operation. Examples of this last category include the local and national
telephone companies, the ground-based delivery companies including Federal
Express and UPS, and the
15
<PAGE>
local utility companies.
Over seventy percent of the raw materials that we use in blending our
products are supplied to us by a simple supplier. We have had various
discussions with that supplier, Future 500, concerning its Year 2000
compliance and have received initial written confirmation of that compliance.
We are in the process of contacting other suppliers in an effort to ascertain
their Year 2000 compliance and their state of readiness. To date, we have
received assurances from a majority of these suppliers that their IT and non-
IT assets are presently compliant or will be Year 2000 compliant by the end of
the fourth quarter of 1999. We are in the process of reviewing the responses
received from these vendors to evaluate the accuracy and adequacy of the
disclosures made by the vendors as to their Year 2000 compliance status. We
may need to seek additional information in October and November from some of
these vendors to substantiate their claims of Year 2000 readiness of their
non-IT assets. We believe that this review process will be completed by the
end of November, 1999.
As an additional safeguard to interruption in the supply of raw materials
for the formulation of our products, we have initiated an inventory reserve
program under which we plan to produce and inventory ten weeks worth of
completed product and maintain that level of inventory through the end of
February 2000. We believe that this expansion of our inventory reserve
coupled with the fact that 75% of our raw materials are supplied by Future 500
will provide a safeguard against any delay in our receipt of needed raw
materials due to third party supplier failure to become Year 2000 compliant.
In addition, all of our promotional materials are produced for us by a
related third party company, MCB Printing, Inc. We have completed our
assessment of that company's preparedness for material Year 2000 problems and
have concluded that our supply of promotional materials will not be materially
affected.
Our local utility company (Utah Power), our local phone service provider
(US West) and our bank (Zion's Bank) have made public statements of their
preparedness for the Year 2000. We have not undertaken any independent
conformation of those statements, but have relied upon them. Similarly, we
have relied upon but made no independent verification of statements made by
Federal Express and other ground-based carriers that they will not be
materially affected by Year 2000 problems.
The last category is composed of our distributors and their customers
which collectively make up our customer base. Interruption in the
distributor's ability to access their down lines could have a material adverse
impact on our financial condition, liquidity and results of operations. We
have engaged in discussions with our Team Captain, Captain and All Star
distributors regarding potential Year 2000 problems and the necessity of a
contingency plan to prevent significant interruption of our businesses. Due
to the size of our company and the nature of our distribution system, we have
concluded from these discussions that any eventual impact will not be
material. The majority of our distributors place orders telephonically
through our interactive voice response (IVR) system. We have initiated tests
of the interface between our software providers and this system to ensure that
the distributors will be able to access the system and place their orders.
We estimate that we have spent approximately $3,000 through June 30, 1999
on implementation of the Year 2000 initiative, with the majority of the work
being performed by outside consultants. These costs have been minimal since
most of our IT and non-IT assets have been purchased already Year 2000
compatible.
These costs do not include the costs of developing our Year 2000
contingency plans. Currently, we estimate that we will incur approximately
$1,000 to $1,500 in direct costs in connection with developing our contingency
plans.
These are our management's best estimates and may be revised as
additional information becomes available.
To date, we have not identified any material IT or non-IT assets critical
to our operations that present a material risk of not being Year 2000 ready,
that cannot be replaced with a suitable alternative, or for which we
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<PAGE>
do not have an acceptable contingency plan. As the Year 2000 initiative has
proceeded, we have identified our highest risk, third party providers that
present a potential risk of a Year 2000-related disruption. We will continue
to monitor those suppliers and develop contingency plans, as necessary. At
this point, we believe that our most reasonably likely worse case scenario
will result from challenges presented by Year 2000 disruptions experienced by
our utility providers. A significant disruption in services provided by such
a party could have a material adverse impact on our financial condition,
liquidity or results of operations.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and Liquidity and Capital Resources, and other parts of
this Report, contain "forward-looking" statements about matters that are
inherently difficult to predict. Those statements include statements
regarding our intent, belief or current expectations. Some of the important
factors that affect these statements have been described above as each subject
is discussed.
Such forward-looking statements involve risks and uncertainties that may
affect future developments such as, for example, the ability to deal with the
Year 2000 issue, including our ability to discovery and correct potential Year
2000 issues and the ability of third parties to appropriately address their
Year 2000 issues. If the modifications and conversions required to make us
Year 2000 ready are not made or are not completed on a timely basis, the
resulting problems could have a material adverse effect on the financial
condition, liquidity, or results of operations.
<R ITEM 3. DESCRIPTION OF PROPERTY R/>
We lease 6,727 square feet of administrative and office space, as well
as, 686 square feet of warehouse space from RDR Properties, LC. RDR
Properties, LC owns the real property outright and no encumbrances have been
placed upon it. The building is a two-story office building with an attached
airplane hanger. The building and large parking area is located at the Provo,
Utah airport. We have no plans, or need, to renovate, improve or develop the
existing property. The terms of the lease are as follows: two-year lease
ending February 28, 2001 which is renewable thereafter. The monthly payment
is $8,002.00 for the total 7,413 sq. feet. The fire insurance on the building
is covered by the landlord. We carry a $2,000,000 insurance policy for our
contents and for liability.
<R We were given a license by Provo City to occupy and use the office
portions of this building. That business license was issued on May 13, 1999
and is License No. 39760. We have not been given a license to use the
warehouse portion of this building for inventory and distribution purposes.
Provo City has notified us that we may have to vacate the warehouse portion of
the building. We are negotiating with the Provo City for a zoning exemption
that would allow us to remain in the warehouse during the term of our lease.
As a safeguard, we are negotiating with Mark Burdge, a shareholder and
Director of Whole Living, who owns MCB Printing, Inc. in Provo, Utah, for the
use of some of MCB Printing, Inc.'s property for warehousing and distribution.
A final decision as to whether we will move to MCB Printing, Inc.'s facility
has not yet been made. We expect to make a final decision by December 1,
1999. R/>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1999, the beneficial
ownership of our outstanding common stock of; (i) each person or group known
by us to own beneficially more than 5% of our outstanding common stock, (ii)
each of our executive officers, (iii) each of our director's and (iv) all
executive officers and directors as a group. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Except as indicated by
footnote, the persons named in the table below have sole voting power and
investment power with respect to the shares of common stock shown as
beneficially owned by them. The percentage of beneficial ownership is based
on 10,699,000 shares of common stock outstanding as of July 15, 1999.
17
<PAGE>
<R CERTAIN BENEFICIAL OWNERS R/>
-------------------------
<R Common Stock Beneficially Owned
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
- ----------------- ------------ -------------------
Mark Comer 918,920 8.6%
1185 S. Mike Jense Circle
Provo, Utah 84601
PHI Mutual Ventures, LLC 4,702,701* 43.9% R/>
525 South 300 East
Salt Lake City, Utah 84111
<R MANAGEMENT R/>
<R Common Stock Beneficially Owned
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
- ----------------- ------------ -------------------
Ron Williams 1,567,567* 14.7% R/>
1185 S. Mike Jense Circle
Provo, Utah 84601
<R Bruno Vassel III 1,567,567* 14.7% R/>
1185 S. Mike Jense Circle
Provo, Utah 84601
<R Bill Turnbull 1,567,567* 14.7% R/>
1185 S. Mike Jense Circle
Provo, Utah 84601
<R Mark Burdge 378,379 3.5% R/>
1185 S. Mike Jense Circle
Provo, Utah 84601
<R All executive officers
and directors as a group 5,081,080 47.5% R/>
*See, "Changes in Control," below.
Changes in Control.
On May 17, 1999 Whole Living borrowed $340,000 from PHI Mutual Ventures,
LLC. The promissory note for the loan is secured by our common stock held in
the name of Messrs. Williams, Turnbull and Vassel. If the loan is not repaid
with interest by Whole Living by May 1, 2000, PHI Mutual Ventures, LLC, or the
holder of the note, will acquire 4,702,701 shares, which currently represents
43.9% of our outstanding shares. (See, "Certain Relationships and Related
Transactions," below.)
18
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our executive officers and directors and their respective ages and
positions with us are set forth below. Biographical information for each of
those persons is also presented below. Our executive officers are chosen by
our Board of Directors and serve at its discretion. There are no existing
family relationships between or among any of our executive officers or
directors.
Directors and Officers
Name Age Position Held
- ---- --- -------------
Ron Williams 38 President, C.E.O. and Director
Bruno Vassel III 55 Vice President, Treasurer, Chief
Operating Officer and Director
Bill Turnbull 42 Secretary and Director
Mark Burdge 42 Chief Financial Officer and Director
Ron Williams. President, C.E.O. and Director of Whole Living Utah since
November of 1998. Mr. Williams is a network marketing industry veteran,
having served from April 20, 1993 to September 20, 1997 as Vice President of
Marketing for Neways International, of Salem, Utah. Neways International is a
privately held network marketing company that sells personal care and
nutritional supplements. In September 1997, Mr. Williams left Neways to
accept the General Manager and Vice President of Marketing position at Young
Living Essential Oils, a company headquartered in Payson, Utah. From
September 1997 through November 1998, Mr. Williams served as General Manager
and eventually Vice President of Marketing for Young Living Essentials,
Payson, Utah. Young Living Essentials is a privately held network marketing
company which sells aroma therapy oils and personal care products.
<R Bruno Vassel III. Vice President, Treasurer and Chief Operating
Officer of Whole Living Utah since November 1998. From March 1, 1973 to July
4, 1986 Mr. Vassel was employed by Avon Products, Inc. in New York City. From
July 5, 1993 to May 1, 1996 Mr. Vassel served as Vice President of Human
Resources and as a member of the Executive Committee of Nature's Sunshine
Products, Provo, Utah. Natures Sunshine Products is a publicly traded network
marketing company which sells herbal nutritional products. Prior to joining
Nature's Sunshine Products, from March 1, 1987 to July 5, 1993, Mr. Vassel
managed his own international consulting company known as Human Resources
Services, Inc. Human Resources Services, Inc. provided consulting services to
more than fifty clients, including several Fortune 500 companies. Following
his employment with Nature's Sunshine Products, Inc. from May 6, 1996 through
November 30, 1998 Mr. Vassel concentrated his efforts on his consulting
business. Mr. Vassel received a Bachelor of Arts degree in 1969 from Brigham
Young University, Provo, Utah. He is the author of the book Lengthen Your
Leadership Stride.R/>
Bill Turnbull. Secretary/Treasurer and Director of Whole Living Utah
since November of 1998. Mr. Turnbull served as President and Chief Executive
Officer of Bonneville Foods, Inc. from December 10, 1989 through January 10,
1998. Bonneville Foods, Inc. is a privately held company that develops and
operates franchised restaurants. On January 12, 1998, Mr. Turnbull resigned
from Bonneville Foods, Inc. to found Insight, USA which is a direct sales
company which specializes in educational software and internet-based
educational programs. Mr. Turnbull worked for Insight, USA until it was
acquired by Whole Living Utah on November 30, 1998. From 1996 through the
present, Mr. Turnbull has served as President for TJ Development, a commercial
real estate investment company which he founded in early 1996. He received a
Bachelor of Science degree from Brigham Young University, Provo, Utah in 1982.
Mark Burdge. Director since March 15, 1999. Mr. Burdge is the primary
owner of MCB Printing, Inc., a printing business located in Provo, Utah which
specializes in the printing of product marketing materials for network
marketing companies. From January 13, 1994 through the present, Mr. Burdge
has served as the President and Chief Executive Officer of MCB Printing, Inc.
Mr. Burdge received a Bachelor of Science degree from Brigham Young University
in 1983. From September, 1984 through January, 1986, Mr. Burdge served as a
Regional marketing Director for Nuskin International, a private company
located in Provo, Utah.
19
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
During the fiscal year ended March 31, 1998 and 1997 none of our officers
received any cash compensation, bonuses, stock appreciation rights, long term
compensation, stock awards or long-term incentive rights. The following table
shows the compensation of our executive officers for the year ended March 31,
1999. We do not have any standard arrangement for compensation of our
directors for any services provided as director, including services for
committee participation or for special assignments.
COMPENSATION TABLE
Annual Compensation
Fiscal Other Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ----- ----- ------------
Ron Williams,
President, CEO 1999 $ 60,000 0 $ 6,000*
Bruno Vassel, III,
Vice President, Treasurer, COO 1999 60,000 0 6,000*
Bill Turnbull, Sr.,
Secretary, Director 1999 60,000 0 6,000*
Mark Burdge,
Director, CFO 1999 0 0 0
*Personal benefits: a leased automobile
Employment Contracts
We have adopted a policy of entering into employment agreements with our
senior management, and have entered into such agreements with Messrs.
Williams, Vassel and Turnbull. The term of the agreements start on March 15,
1999 and have initial terms of three years, with automatic renewal for one
year periods thereafter. Under the agreements each officer is entitled to
receive a base salary of $60,000 during the first year of the agreement. Each
is entitled to incentive bonuses, vacation time, insurance on an automobile,
stock options at the Board's discretion and reimbursement for expenses. We
may terminate the employment agreements for cause as that term is defined in
the agreements. If we terminate the employment at our discretion, each will
receive compensation due him for a period of twelve months. Each has promised
not to compete with Whole Living for a period of one year after termination.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes certain transactions either we
engaged in during the past two years or we propose to engage in involving our
executive officers, directors, 5% stockholders or immediate family members of
such persons.
On or about December 31, 1998, Mark Comer, a shareholder in Whole Living
Utah, advanced $50,000 to that entity. The advance was made informally
without the execution of a promissory note or other writing. Because no due
date or annual interest rate was stated, the obligation is due upon demand and
carries interest at the statutory rate of 10% per annum. To date, no portion
of this obligation has been paid and no demand for payment has been made.
20
<PAGE>
We lease our office and warehouse space from RDR Properties, LC for a
total lease price of $8,002.00 per month. Mark Comer, a shareholder, is a
fifty percent owner of RDR Properties, L.C. This rental rate is slightly lower
than the prevailing rate for comparable properties in Provo, Utah and the
usual rent deposit and tenant improvement expenses were waived by RDR
Properties, LC. Therefore, the rental terms are slightly more favorable for
us than we would have received from an independent third party.
All of our named executive officers own interests in MRB, LLC which
prepares sales aids and product kits for us. MRB's services include the
design and production of printing and packaging, and the production of video
and audio tapes. Mr. Burdge owns a 40% interest in MRB and Messrs. Williams,
Turnbull and Vassel each own 20%. MRB provides these products to Whole Living
on 90 day credit at competitive rates. Whole Living has paid MRB
approximately $73,000.00 from December 1, 1998 through July of 1999. The
terms of Whole Living's purchase of MRB products and services are no more
favorable than we could receive from an independent third party.
Whole Living advanced $650,000 to Whole Living Utah in March of 1999 in
anticipation of the merger. The advance was interest free.
In May of 1999 PHI Mutual Ventures, LLC loaned us $340,000. The loan is
represented by a promissory note which is payable, with 9% interest, on May 1,
2000. The note is secured by 4,702,701 shares of Whole Living common stock
originally issued to three of our executive officers, Messrs. Williams,
Turnbull and Vassel. The stock certificates representing these shares are
currently held in escrow pending repayment of the indebtedness. The terms of
that loan are no more favorable than we could receive from an independent
third party.
All services and products provided by MRB, LLC are provided to us and
other network marketing companies on the same terms. At the present time,
services and products provided to us by MRB, LLC constitute approximately 25%
of that company's net revenues. MRB, LLC's net revenues from all its
operations for the 1999 fiscal year total less than $10,000.
In the event we must vacate our present warehouse, we are negotiating
with Mark Burdge, a shareholder and Director of Whole Living, who owns MCB
Printing, Inc. in Provo, Utah, for the use of some of MCB Printing, Inc.'s
property for warehousing and distribution. A final decision as to whether we
will move to MCB Printing, Inc.'s facility and the final terms for such an
agreement have not yet been made. We expect to make a final decision by
October 15, 1999.
<R ITEM 8. DESCRIPTION OF SECURITIES R/>
Common Stock
We are authorized to issue 50,000,000 shares of common stock, par value
$.001 per share, of which 10,699,000 shares were issued and outstanding as of
July 15, 1999. We have not authorized or issued preferred stock. All shares
of common stock have equal rights and privileges with respect to voting,
liquidation and dividend rights. Each share of common stock entitles the
holder (i) to one non-cumulative vote for each share held of record on all
matters submitted to a vote of the stockholders, (ii) to participate equally
and to receive any and all such dividends as may be declared by the Board of
Directors out of funds legally available; and (iii) to participate pro rata in
any distribution of assets available for distribution upon liquidation of
Whole Living. Our stockholders have no preemptive rights to acquire
additional shares of common stock or any other securities. All outstanding
shares of common stock are fully paid and non-assessable.
Anti-Takeover Effective Nevada Law In Certain Provisions
Nevada law provides that any agreement providing for the merger,
consolidation or sale of all or substantially all of the assets of a
corporation be approved by the owners of at least the majority of the
outstanding shares of that corporation, unless a different vote is provided
for in the Articles of Incorporation. Our Articles of
21
<PAGE>
Incorporation do not provide for a super-majority voting requirement in order
to approve any such transactions. Nevada law also gives appraisal rights for
certain types of mergers, plans of reorganization or exchanges or sales of all
or substantially all of the assets of a corporation. Under Nevada law, a
stockholder does not have the right to dissent with respect to (a) a sale of
assets or reorganization, (b) any plan of merger or any plan of exchange, if
(i) the shares held by the stockholder are part of a class of shares which are
listed on a national securities exchange or the NASDAQ National Market
Systems, or are held of record by not less than 2,000 shareholders and (ii)
the stockholder is not required to accept for his shares any consideration
other than shares of a corporation that, immediately after the effective time
of the merger or exchange, will be part of a class of shares which are listed
on a national securities exchange or the NASDAQ National Market System, or are
held of record by not less than 2,000 holders.
Control Share Acquisition Provision
<R Under Nevada law, when a person has acquired or offers to acquire a
controlling interest in a corporation a stockholders meeting must be held so
that the stockholders of the corporation can vote on whether the shares
proposed to be acquired (the "control shares") can exercise voting rights. A
controlling interest is statutorily defined to mean the ownership of
sufficient outstanding voting shares of an issuing corporation to enable the
acquiring person, directly or indirectly, to vote either (i) one-fifth or more
but less than a third of all voting shares; (ii) one- third or more than but
less than a majority of all voting shares; or (iii) a majority or more of all
outstanding voting shares, in the election of any director. The acquiring
person must deliver an "offeror's" statement to the stockholders at the
offeror's expense. Unless the corporation's Articles of Incorporation provide
otherwise, a majority of the outstanding stock not held by the offeror must
approve the voting rights for the stock held by the offeror. If an offeror
has a majority or more of all the outstanding voting shares, and such shares
are accorded full voting rights, a stockholder of record who votes against the
authorization shall have demand rights. R/>
<R The control share acquisition provisions are applicable to any
acquisition of a controlling interest, except acquisition pursuant to the laws
of descent or distribution, enforcement of a judgment, satisfaction of pledge
or other security interest, or a merger or reorganization in compliance with
Nevada law. A corporation may opt out of the control share acquisition
provisions if its Articles of Incorporation or by-laws so state and they are
in effect on the tenth day following the acquisition of a controlling interest
by an acquiring person. We have not elected out of the control share
acquisition provisions of Nevada law. R/>
<R PART II R/>
<R ITEM 1. MARKET PRICE OF AND DIVIDENDS ON WHOLE LIVING'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS R/>
<R Our common stock is traded over-the-counter and quoted on the National
Quotation Bureau's Pink Sheets under the symbol "WLIV." There has not been
any trading activity in our common stock until August 5, 1999. We cannot
assure that an active public market will develop in our common stock and a
shareholder may be unable to liquidate his investment without considerable
delay, if at all. R/>
Standard Transfer and Registrar Company of Draper, Utah, currently acts
as transfer agent for our common stock. As of July 15, 1999 we have
approximately 92 shareholders of record with 10,699,000 shares outstanding.
3,999,000 of such shares are freely tradeable (except for such shares as may
be acquired by our affiliates). The remaining 6,700,000 shares held by
existing shareholders are "restricted securities" as that term is defined by
Rule 144.
Dividends
We have not declared dividends on our common stock and do not anticipate
paying dividends on our common stock in the foreseeable future.
22
<PAGE>
OTC Bulletin Board Eligibility Rule
<R In January of 1999, the SEC granted approval of amendments to the NASD
OTC Bulletin Board Eligibility Rule 6530 and 6540. These amendments now
require a company listed on the OTC Bulletin Board to be a reporting company
and current in its reports filed with the SEC. As a result of this rule
change we have voluntarily filed this registration statement in order to
become a fully reporting company and maintain the listing of our common stock
on the OTC Bulletin Board. The rule requires that the SEC come to a position
of no further comment regarding the registration statement before a company is
considered compliant. We were not in compliance at our phase-in date and our
common stock listing was removed from the OTC Bulletin Board. We placed our
listing on the National Quotation Bureau's Pink Sheets. We intend to apply
for listing of the OTC Bulletin Board upon completion on the SEC comment
period. However, we cannot assure that the NASD will approve our application.
R/>
<R ITEM 2. LEGAL PROCEEDINGS R/>
<R On July 26, 1999, Sharon Baez, an individual, filed a complaint in the
Fourth District Court, Provo Department, State of Utah, naming Don V. Tolman,
individually and as agent for The Brain Garden, LLC, and Whole Living, Inc.
dba Brain Garden, a Nevada Corporation, as defendants. Ms. Baez alleges
breach of contract and unjust enrichment by the defendants. The complaint
claims that Mr. Tolman, as CEO and President of Brain Garden, LLC. entered
into an agreement with Ms. Baez on September 22, 1998. Per the agreement, Ms.
Baez loaned $121,264.34 to Mr. Tolman and he agreed to repay the principal
amount, with 10% interest, with monthly payments. Ms. Baez claims Mr. Tolman
failed to complete the repayment schedule. In addition, the complaint alleges
that Whole Living, Inc. contacted persons who had loaned money to Mr. Tolman
and had offered to refund their money. Ms. Baez claims she did not receive
such an offer. Ms. Baez seeks $113,966.81, pre-judgment interest of 10% per
annum and post-judgment interest at the maximum legal rate until all amounts
due and owing are paid in full. Whole Living's management believes we have no
liability and is defending the claim.R/>
<R Mr. Tolman was never employed by us. He was President of Brain Garden
LLC, a separate entity that was engaged in network marketing of nutritional
products. At the time we formed Whole Living Utah it purchased many of the
products, formulas, trademarks and other business assets of Brain Garden LLC,
including the Brain Garden mark. Following this purchase, Mr. Tolman worked
as an independent consultant and distributor for Whole Living Utah but was
never an employee. Mr. Tolman continues to maintain a distributorship and
provide consulting services to Whole Living.R/>
<R ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES R/>
Pursuant to the merger agreement, we continue to employ the accounting
survivor's (Whole Living Utah's) principal independent accountant, Crouch,
Bierwolf and Chisholm, located in Salt Lake City, Utah. For the past two
fiscal years we have not had any disagreements regarding accounting practices,
financial statement disclosure, or auditing scope or procedure with our former
independent accountant, Hammond & Company; nor have their reports contained an
adverse opinion or disclaimer of opinion.
<R ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES R/>
The following discussion describes all securities sold by us within the
past three years without registration: On July 13, 1999 our Board authorized
the issuance of 400,000 common shares to SGS Holdings, Inc. for $500,000 cash.
On March 24, 1999 as part of the reverse merger between Whole Living and Whole
Living Utah, Whole Living issued 6,000,000 shares of its restricted common
stock to the five shareholders of Whole Living Utah. In consideration for
this issuance, Whole Living received all of the issued and outstanding common
stock and thereby 100% ownership of Whole Living Utah. In March of 1999 at
Whole Living's organizational meeting, the Board authorized the issuance of
100 common shares each to our then President, Anita Patterson, and our then
23
<PAGE>
Secretary/Treasurer, April Marino, for $2.00 cash; on January 15, 1999 the
Board authorized the issuance of 300,000 shares to Daniel W. Jackson, as
escrow agent, for $800,000 cash.
In connection with each of these isolated issuances of our securities, we
believe that each purchaser (i) was aware that the securities had not been
registered under federal securities laws, (ii) acquired the securities for
his/her/its own account for investment purposes and not with a view to or for
resale in connection with any distribution for purpose of the federal
securities laws, (iii) understood that the securities would need to be
indefinitely held unless registered or an exemption from registration applied
to a proposed disposition and (iv) was aware that the certificate representing
the securities would bear a legend restricting their transfer. We believe
that, in light of the foregoing, the sale of our securities to the respective
acquirers did not constitute the sale of an unregistered security in violation
of the federal securities laws and regulations by reason of the exemptions
provided under Sections 3(b) and 4(2) of the Securities Act, and the rules and
regulations promulgated thereunder.
<R ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS R/>
Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751, our
Articles of Incorporation and bylaws provide for the indemnification of
present and former directors and officers and each person who serves at our
request as our officer or director. We will indemnify such individuals
against all costs, expenses and liabilities incurred in a threatened, pending
or completed action, suit or proceeding brought because such individual is our
director or officer. Such individual must have conducted himself in good
faith and reasonably believed that his conduct was in, or not opposed to, our
best interest. In a criminal action he must not have had a reasonable cause
to believe his conduct was unlawful. This right of indemnification is not
exclusive of other rights the individual is entitled to as a matter of law or
otherwise.
We will not indemnify an individual adjudged liable to us due to his
negligence or wilful misconduct toward us, or if he improperly received
personal benefit. Indemnification in a derivative action is limited to
reasonable expenses incurred in connection with the proceeding. Also, we are
authorized to purchase insurance on behalf of an individual for liabilities
incurred whether or not we would have the power or obligation to indemnify him
pursuant to our bylaws.
Our bylaws provide that individuals may receive advances for expenses if
the individual provides a written affirmation of his good faith belief that he
has met the appropriate standards of conduct and he will repay the advance if
he is adjudged not to have met the standard of conduct.
<R PART F/S R/>
<R Index to Financial Statements R/>
<R Whole Living, Inc. Financial Statements June 30, 1999 (unaudited) and
December 31, 1998 R/>
<R Independent Accountants Report
Balance Sheets
Statement of Operations
Statement of Stockholder's Equity
Statement of Cash Flows
Notes to Financial Statements
Whole Living, Inc. Pro Forma Consolidated Statement of Operations December 31,
1998 (unaudited)
Pro Forma Statement of Operations
Notes to Statement of Operations R/>
24
<PAGE>
<R Whole Living, Inc., Financial Statements, March 31, 1999 and 1998 and from
inception (January 30, 1986) through March 31, 1999.
Independent Accountants Report
Balance Sheets
Statement of Operations
Statement of Stockholder's Equity
Statement of Cash Flows
Notes to Financial Statements R/>
<R Whole Living, Inc. Pro Forma Consolidated Financial Statements March 31,
1999 (unaudited)R/>
Pro Forma Consolidated Balance Sheet
Pro Forma Statement of Operations
Notes to Financial Statements R/>
<R Brain Garden, LLC Financial Statements December 31, 1997 (unaudited)
Balance Sheet
Statement of Operations
Statement of Member's Equity
Notes to Financial Statements R/>
25
<PAGE>
Whole Living, Inc.
Financial Statements
December 31, 1998
<PAGE>
C O N T E N T S
Accountants' Report . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . . . . . 6
Statements of Stockholders' Equity . . . . . . . . . . . . . 7
Statements of Cash Flows . . . . . . . . . . . . . . . . . . 8
Notes to the Financial Statements . . . . . . . . . . . . . 9
Supplemental Information:
Proforma Financial Statements . . . . . . . . . . . . .16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Whole Living, Inc.
We have audited the accompanying balance sheet of Whole Living, Inc. as of
December 31, 1998 and the related statements of operations, stockholders'
equity and cash flows from inception on November 25, 1998 through December 31,
1998. 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.
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 Whole Living, Inc. as of
December 31, 1998 and the results of its operations and cash flows from
inception on November 25, 1998 through December 31, 1998 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 discussed in Note , the
Company's short operating history and operating losses raise substantial doubt
about its ability to continue as a going concern. Management's plans
in those matters are also described in Note . The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Salt Lake City, Utah
February 23, 1999
<PAGE>
Whole Living, Inc.
Balance Sheet
ASSETS
December 31
1998
CURRENT ASSETS
Cash (Note 1) $ 68,205
Accounts receivable 1,044
Inventory (Note 1) 93,995
Total Current Assets 163,244
PROPERTY & EQUIPMENT (Note 2) 167,322
OTHER ASSETS
Goodwill (Note 1) 43,295
TOTAL ASSETS $ 373,861
<PAGE>
Whole Living, Inc.
Balance Sheet continued
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31
CURRENT LIABILITIES 1998
Accounts payable $ 36,790
Accrued expenses 55,954
Current portion of long-term liabilities (Note 3) 127,657
Total Current Liabilities 220,401
LONG TERM LIABILITIES (Note 3)
Notes payable-related party 50,000
Notes payable 70,872
Capital lease obligations 14,502
Less current portion (127,657)
Total long term Liabilities 7,717
TOTAL LIABILITIES 228,118
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000 shares
no par value, issued and outstanding 11,100 shares 201,000
Retained earnings (55,257)
Total Stockholders' Equity 145,743
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 373,861
<PAGE>
Whole Living, Inc.
Statement of Operations
From inception
on November
25, 1998
through
December 31,
1998
REVENUES $ 163,074
COST OF SALES 65,407
GROSS PROFIT 97,667
SELLING EXPENSES 54,755
RESEARCH & DEVELOPMENT 10,040
GENERAL & ADMINISTRATIVE EXPENSES 87,902
TOTAL OPERATING EXPENSES 152,697
OPERATING LOSS (55,030)
OTHER INCOME AND (EXPENSES)
Interest expense (227)
Total Other Income and (Expenses) (227)
LOSS BEFORE INCOME TAXES (55,257)
PROVISION FOR INCOME TAXES (Note 1) -
NET LOSS $ (55,257)
NET LOSS PER SHARE $ (4.98)
WEIGHTED AVERAGE OUTSTANDING SHARES 11,100
<PAGE>
Whole Living, Inc.
Statement of Stockholders' Equity
From Inception on November 25, 1998 through December 31, 1998
Additional Retained
Common Stock Earnings
Shares Amount (Deficit)
Beginning Balance November 25, 1998 - $ - $ -
November 1998-Shares issued to
organizers for services 9,400 1,000 -
December 1998-Shares issued for cash 1,700 200,000 -
Net Income from inception on
November 25, 1998
through December 31,1998 - - (55,257)
Balance on December 31, 1998 11,100 $201,000 $(55,257)
<PAGE>
Whole Living, Inc.
Statement of Cash Flows
From inception
on November
25, 1998
through
December 31
1998
Cash Flows From Operating Activities
Net income (loss) $ (55,257)
Non-cash items:
Depreciation & amortization 2,581
Stock issued for services 1,000
(Increase)/decrease in current assets:
Accounts receivable (1,044)
Inventory (93,995)
Increase/(decrease) in current liabilities:
Accounts payable 36,790
Accrued expenses 55,954
Net Cash Provided (Used) by Operating Activities
(53,971)
Cash Flows from Investing Activities
Cash paid for Property and Equipment (71,510)
Cash paid for Goodwill (43,295)
Net Cash Provided (Used) by Investing Activities (114,805)
Cash Flows from Financing Activities
Cash received from stock issuance 200,000
Cash received from debt financing 50,000
Principal payments on long-term debt (13,019)
Net Cash Provided (Used) by Financing Activities 236,981
Increase/(decrease) in Cash 68,205
Cash and Cash Equivalents at Beginning of Period -
Cash and Cash Equivalents at End of Period $ 68,205
Supplemental Cash Flow Information:
Cash paid for interest $ -
Cash paid for income taxes $ -
Non-cash financing transaction:
Purchase of equipment with lease obligations and notes $ 101,393
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Whole Living, Inc. (the Company) was incorporated on November 25,
1998 in the state of Utah. On November 30, 1998, the Company acquired the
assets, leases, product line and name of Brain Garden, L.L.C., a Utah limited
liability company engaged in the marketing and distribution of various natural
food products, oils and bath salts. The Company does business under the name
of Brain Garden, and maintains its headquarters in Provo, Utah.
b. Recognition of Revenue
The Company recognizes income and expense on the accrual basis of
accounting.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
d. Provision for Income Taxes
No provision for income taxes has been recorded due to net operating
loss carryforwards totaling approximately $55,000 that will be offset against
future taxable income. Since the Company has yet to prove they can generate
taxable income, a valuation account has been created to eliminate the deferred
tax asset.
Deferred tax assets and the valuation account is as follows at
December 31, 1998:
December 31,
1998
Deferred tax asset:
NOL carryforward $ 18,700
Valuation allowance (18,700)
Total $ -
e. Cash and Cash Equivalents
The company considers all highly liquid investments with maturities
of three months or less to be cash equivalents.
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (Continued)
f. Property and Equipment
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of assets or
convert the assets to a new use, are capitalized at cost. Expenditures for
maintenance, repairs and other renewals of items are charged to expense. When
items are disposed of, the cost and accumulated depreciation are eliminated
from the accounts, and any gain or loss is included in the results of
operations.
The provision for depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Depreciation expense
for the period ended December 31,1998 is $2,581.
g. Inventory
Inventory is recorded at the lower of cost or market and consists
primarily of consumable food products and ingredients.
h. Fair Value of Financial Instruments
Unless other 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.
i. Goodwill
The Company recorded goodwill in the acquisition of the assets of
Brain Garden, LLC, due to the excess cost paid over the estimated value of
assets acquired. Goodwill is being amortized over 5 years on a straight-line
method, to begin in 1999.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the amounts reported in the financial statements and accompanying
notes. In these financial statements, assets, liabilities and earnings
involve extensive reliance on managements estimates. Actual results could
differ from those estimates.
<PAGE>
NOTE 2 - Property & Equipment
Property and equipment consists of the following at December 31,
1998:
December 31,
1998
Office equipment & furnishings $ 33,682
Office furniture & fixtures 34,829
Software 86,379
Leased equipment 15,014
169,904
Less:
Accumulated depreciation (2,332)
Accumulated depreciation - leased equipment (250)
Total Property & Equipment $ 167,322
NOTE 3 - Long-Term Liabilities
Long Term Liabilities are detailed in the following schedules as of
December 31, 1998:
Notes payable related party is detailed as follows:
December 31
1998
Note payable to a shareholder of the Company,
non-interest bearing, due upon demand and
unsecured $ 50,000
Total notes payable - related party 50,000
Notes Payable are detailed as follows:
Note payable to a corporation, non-interest
bearing, due within 60 days of delivery of
software, unsecured $ 70,872
<PAGE>
NOTE 3 - Long-Term Liabilities (continued)
Capital lease obligations are detailed in the following schedule as of
December 31, 1998:
December 31,
1998
Capital lease obligation to a corporation
for computer equipment, lease payments due
monthly of $435 through February 2000,
bears interest at 18%, secured by computer
equipment. $ 5,401
Capital lease obligation to a corporation
for computer equipment, lease payments
due monthly of $304 through April 2002,
bears interest at 18%, secured by equipment. 9,101
Total Lease Obligations 14,502
Total long term liabilities 135,374
Less current portion of:
Notes payable - related party 50,000
Notes payable 70,872
Capital lease obligations 6,785
Total current portion 127,657
Net Long Term Liabilities $ 7,717
Future minimum principal payments on notes payable and notes
payable-related party are as follows:
1999 $ 120,872
Total notes payable and notes payable-related party $ 120,872
Future minimum lease payments are as follows at December 31, 1998:
1999 8,871
2000 4,471
2001 3,651
2002 1,217
18,210
Less portion representing interest (3,708)
Total $ 14,502
NOTE 4 - Commitments and Contingencies
The Company is committed for their office facilities. Monthly lease
payments are due of $4,886 on a month to month basis. Subsequent to the
audit, the Company moved their facilities to Provo, Utah.
The Company sales and distributes its products through independent
distributors. The Company is committed to a guaranteed monthly distributors
bonus of $5,000 to one of its distributors. The agreement has no termination
date.
NOTE 5 - Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has a short
operating history and net operating losses since inception and is dependent
upon financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of this It is
management's plan to raise additional funds through a merger of a public
company and begin marketing it's product aggressively.
NOTE 6 - Related Party Transactions
Mark Comer, a shareholder of the Company, advanced $50,000 to the
Company for operating capital. The entire amount is payable at December 31,
1998 and is due upon demand.
NOTE 7 - Subsequent Events
Subsequent to the audit date, the Company received $650,000 in
advances from Whole Living, Inc., a Nevada public corporation in anticipation
of a merger to be completed by June 30, 1999.
<PAGE>
Whole Living, Inc.
Financial Statements
March 31, 1999 (unaudited)
and
December 31, 1998
<PAGE>
C O N T E N T S
Accountants' Report . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets 4
Statements of Operations . . . . . . . . . . . . . . . . . . 6
Statements of Stockholders' Equity . . . . . . . . . . . . . 7
Statements of Cash Flows . . . . . . . . . . . . . . . . . . 8
Notes to the Financial Statements . . . . . . . . . . . . . 9
Supplemental Information:
Proforma Financial Statements . . . . . . . . . . . . .16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Whole Living, Inc.
We have audited the accompanying balance sheet of Whole Living, Inc. as of
December 31, 1998 and the related statements of operations, stockholders'
equity and cash flows from inception on November 25, 1998 through December
31, 1998. 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.
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 Whole Living, Inc. as of
December 31, 1998 and the results of its operations and cash flows from
inception on November 25, 1998 through December 31, 1998 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 discussed in Note , the
Company's short operating history and operating losses raise substantial doubt
about its ability to continue as a going concern. Management's plans in those
matters are also described in Note . The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Salt Lake City, Utah
May 26, 1999
<PAGE>
Whole Living, Inc.
Balance Sheet
ASSETS
March 31 December 31
1999 1998
CURRENT ASSETS (unaudited)
Cash (Note 1) $ 93,812 $ 68,205
Accounts receivable 35,004 1,044
Inventory (Note 1) 134,602 93,995
Prepaid expenses 51,004 -
Total Current Assets 314,422 163,244
PROPERTY & EQUIPMENT (Note 2) 260,937 167,322
OTHER ASSETS
Goodwill (Note 1) 60,062 43,295
TOTAL ASSETS $ 635,421 $ 373,861
<PAGE>
Whole Living, Inc.
Balance Sheet continued
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
1999 1998
CURRENT LIABILITIES (unaudited)
Accounts payable $ 67,748 $ 36,790
Accrued expenses 126,339 55,954
Current portion of long-term
liabilities (Note 3) 783,964 127,657
Total Current Liabilities 978,051 220,401
LONG TERM LIABILITIES (Note 3)
Notes payable-related party 50,000 50,000
Notes payable 720,872 70,872
Capital lease obligations 13,092 14,502
Less current portion (783,964) (127,657)
Total long term Liabilities - 7,717
TOTAL LIABILITIES 978,051 228,118
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000 shares
no par value, issued and outstanding
11,100 shares 201,000 201,000
Retained earnings (543,630) (55,257)
Total Stockholders' Equity (342,630) 145,743
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 635,421 $ 373,861
<PAGE>
Whole Living, Inc.
Statement of Operations
From inception
on November
For the Three 25, 1998
Months Ended through
March 31 December 31,
1999 1998
(unaudited)
REVENUES $ 403,463 $ 163,074
COST OF SALES 131,174 65,407
GROSS PROFIT 272,289 97,667
SELLING EXPENSES 298,485 54,755
RESEARCH & DEVELOPMENT 1,047 10,040
GENERAL & ADMINISTRATIVE EXPENSES 460,626 87,902
TOTAL OPERATING EXPENSES 760,158 152,697
OPERATING LOSS (487,869) (55,030)
OTHER INCOME AND (EXPENSES)
Interest expense (504) (227)
Total Other Income and (Expenses) (504) (227)
LOSS BEFORE INCOME TAXES (488,373) (55,257)
PROVISION FOR INCOME TAXES (Note 1) - -
NET LOSS $ (488,373) $ (55,257)
NET LOSS PER SHARE $ (44.00) $ (4.98)
WEIGHTED AVERAGE OUTSTANDING SHARES 11,100 11,100
<PAGE>
Whole Living, Inc.
Statement of Stockholders' Equity
From Inception on November 25, 1998 through December 31, 1998,
and March 31,1999 (unaudited)
Additional Retained
Common Stock Earnings
Shares Amount (Deficit)
Beginning Balance November 25, 1998
- $ - $ -
November 1998-Shares issued to
organizers for services 9,400 1,000 -
December 1998-Shares issued for cash 1,700 200,000 -
Net (Loss) from inception on
November 25, 1998 through
December 31,1998 - - (55,257)
Balance on December 31, 1998 11,100 201,000 (55,257)
Net (Loss) for the three months
ended March 31,1999 - - (488,373)
Balance on March 31, 1999 11,100 $201,000 $ (543,630)
<PAGE>
Whole Living, Inc.
Statement of Cash Flows
From inception
For the Three on November
Months 25, 1998
Ended through
March 31 December 31
1999 1998
Cash Flows From Operating Activities (unaudited)
Net income (loss) $ (488,373) $ (55,257)
Non-cash items:
Depreciation & amortization 11,083 2,581
Stock issued for services - 1,000
(Increase)/decrease in current assets:
Accounts receivable (33,960) (1,044)
Inventory (40,607) (93,995)
Prepaid expenses (51,004) -
Increase/(decrease) in current liabilities:
Accounts payable 30,958 36,790
Accrued expenses 70,385 55,954
Net Cash Provided (Used)
by Operating Activities (501,518) (53,971)
Cash Flows from Investing Activities
Cash paid for Property and Equipment (104,698) (71,510)
Cash paid for Goodwill (16,767) (43,295)
Net Cash Provided (Used)
by Investing Activities (121,465) (114,805)
Cash Flows from Financing Activities
Cash received from stock issuance - 200,000
Cash received from debt financing 650,000 50,000
Principal payments on long-term debt (1,410) (13,019)
Net Cash Provided (Used)
by Financing Activities 648,590 236,981
Increase/(decrease) in Cash 25,607 68,205
Cash and Cash Equivalents
at Beginning of Period 68,205 -
Cash and Cash Equivalents
at End of Period $ 93,812 $ 68,205
Supplemental Cash Flow Information:
Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ -
Non-cash financing transaction:
Purchase of equipment with lease
obligations and notes $ - $ 101,393
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Whole Living, Inc. (the Company) was incorporated on November 25,
1998 in the state of Utah. On November 30, 1998, the Company acquired the
assets, leases, product line and name of Brain Garden, L.L.C., a Utah limited
liability company engaged in the marketing and distribution of various natural
food products, oils and bath salts. The Company does business under the name
of Brain Garden, and maintains its headquarters in Provo, Utah.
b. Recognition of Revenue
The Company recognizes income and expense on the accrual basis of
accounting.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
d. Provision for Income Taxes
No provision for income taxes has been recorded due to net operating
loss carryforwards totaling approximately $55,000 that will be offset against
future taxable income. Since the Company has yet to prove they can generate
taxable income, a valuation account has been created to eliminate the deferred
tax asset.
Deferred tax assets and the valuation account is as follows at
December 31, 1998:
December 31,
1998
Deferred tax asset:
NOL carryforward $ 18,700
Valuation allowance (18,700)
Total $ -
e. Cash and Cash Equivalents
The company considers all highly liquid investments with maturities
of three months or less to be cash equivalents.
NOTE 1 - Summary of Significant Accounting Policies (Continued)
f. Property and Equipment
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of assets or
convert the assets to a new use, are capitalized at cost. Expenditures for
maintenance, repairs and other renewals of items are charged to expense. When
items are disposed of, the cost and accumulated depreciation are eliminated
from the accounts, and any gain or loss is included in the results of
operations.
The provision for depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Depreciation expense
for the period ended December 31,1998 is $2,581.
g. Inventory
Inventory is recorded at the lower of cost or market and consists
primarily of consumable food products and ingredients.
h. Fair Value of Financial Instruments
Unless other 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.
i. Goodwill
The Company recorded goodwill in the acquisition of the assets of
Brain Garden, LLC, due to the excess cost paid over the estimated value of
assets acquired. Goodwill is being amortized over 5 years on a straight-line
method, to begin in 1999.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the amounts reported in the financial statements and accompanying
notes. In these financial statements, assets, liabilities and earnings
involve extensive reliance on managements estimates. Actual results could
differ from those estimates.
<PAGE>
NOTE 2 - Property & Equipment
Property and equipment consists of the following at December 31,
1998:
December 31,
1998
Office equipment & furnishings $ 33,682
Office furniture & fixtures 34,829
Software 86,379
Leased equipment 15,014
169,904
Less:
Accumulated depreciation (2,332)
Accumulated depreciation - leased equipment (250)
Total Property & Equipment $ 167,322
NOTE 3 - Long-Term Liabilities
Long Term Liabilities are detailed in the following schedules as of
December 31, 1998:
Notes payable related party is detailed as follows:
December 31
1998
Note payable to a shareholder of the Company,
non-interest bearing, due upon demand and
unsecured $ 50,000
Total notes payable - related 50,000
Notes Payable are detailed as follows:
Note payable to a corporation, non-interest
bearing, due within 60 days of delivery of
software, unsecured $ 70,872
<PAGE>
NOTE 3 - Long-Term Liabilities (continued)
Capital lease obligations are detailed in the following schedule as of
December 31, 1998:
December 31,
1998
Capital lease obligation to a corporation
for computer equipment, lease payments due
monthly of $435 through February 2000,
bears interest at 18%, secured by computer
equipment. $ 5,401
Capital lease obligation to a corporation
for computer equipment, lease payments
due monthly of $304 through April 2002,
bears interest at 18%, secured by equipment. 9,101
Total Lease Obligations 14,502
Total long term liabilities 135,374
Less current portion of:
Notes payable - related party 50,000
Notes payable 70,872
Capital lease obligations 6,785
Total current portion 127,657
Net Long Term Liabilities $ 7,717
Future minimum principal payments on notes payable and notes
payable-related party are as follows:
1999 $ 120,872
Total notes payable and notes payable-related party $ 120,872
Future minimum lease payments are as follows at December 31, 1998:
1999 8,871
2000 4,471
2001 3,651
2002 1,217
18,210
Less portion representing interest (3,708)
Total $ 14,502
NOTE 4 - Commitments and Contingencies
The Company is committed for their office facilities. Monthly lease
payments are due of $4,886 on a month to month basis. Subsequent to the
audit, the Company moved their facilities to Provo, Utah.
The Company sales and distributes its products through independent
distributors. The Company is committed to a guaranteed monthly distributors
bonus of $5,000 to one of its distributors. The agreement has no termination
date.
NOTE 5 - Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has a short
operating history and net operating losses since inception and is dependent
upon financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. It is management's plan to raise additional funds through a
merger with a public company and market it's products aggressively.
NOTE 6 - Related Party Transactions
Mark Comer, a shareholder of the Company, advanced $50,000 to the
Company for operating capital. The entire amount is payable at December 31,
1998 and is due upon demand.
NOTE 7 - Subsequent Events
Subsequent to the audit date, the Company received $650,000 in
advances from Whole Living, Inc., a Nevada public corporation in anticipation
of a merger to be completed by June 30, 1999.
NOTE 8 - Unaudited Information
Whole Living, Inc. (the Company) has elected to omit substantially
all footnotes to the financial statements for the three months ended March 31,
1999. The information furnished herein was taken from the books and records
of the Company without audit. However, such information reflects all
adjustments which are, in the opinion of management, necessary to properly
reflect the results of the three months ended March 31, 1999. The information
presented is not necessarily indicative of the results from operations
expected for the full fiscal year.
<PAGE>
Whole Living, Inc.
Financial Statements
June 30, 1999 (unaudited)
and
December 31, 1998
<PAGE>
C O N T E N T S
Accountants' Report . . . . . . . . . . . . . . . . . . . . 3
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations . . . . . . . . . . . . . . . . . . 6
Statements of Stockholders' Equity . . . . . . . . . . . . . 7
Statements of Cash Flows . . . . . . . . . . . . . . . . . . 8
Notes to the Financial Statements . . . . . . . . . . . . . 9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Whole Living, Inc.
We have audited the accompanying balance sheet of Whole Living, Inc. as of
December 31, 1998 and the related statements of operations, stockholders'
equity and cash flows from inception on November 25, 1998 through December 31,
1998. 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.
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 Whole Living, Inc. as of
December 31, 1998 and the results of its operations and cash flows from
inception on November 25, 1998 through December 31, 1998 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 discussed in Note 5, the
Company's short operating history and operating losses raise substantial doubt
about its ability to continue as a going concern. Management's plans
in those matters are also described in Note 5. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
February 23, 1999
<PAGE>
Whole Living, Inc.
Balance Sheet
ASSETS
June 30 December 31
1999 1998
CURRENT ASSETS (unaudited)
Cash (Note 1) $ 44,905 $ 68,205
Accounts receivable 56,038 1,044
Inventory (Note 1) 209,337 93,995
Prepaid expenses 85,954 -
Total Current Assets 396,234 163,244
PROPERTY & EQUIPMENT (Note 2) 260,423 167,322
OTHER ASSETS
Goodwill (Note 1) 60,062 43,295
TOTAL ASSETS $ 716,719 $ 373,861
<PAGE>
Whole Living, Inc.
Balance Sheet continued
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30 December 31
1999 1998
CURRENT LIABILITIES (unaudited)
Accounts payable $ 89,956 $ 36,790
Accrued expenses 153,140 55,954
Current portion of
long-term liabilities (Note 3) 448,304 127,657
Total Current Liabilities 691,400 220,401
LONG TERM LIABILITIES (Note 3)
Notes payable-related party 390,000 50,000
Notes payable 47,051 70,872
Capital lease obligations 11,253 14,502
Less current portion (448,304) (127,657)
Total long term Liabilities - 7,717
TOTAL LIABILITIES 691,400 228,118
STOCKHOLDERS' EQUITY
Common stock, authorized 50,000,000 shares
$.001 par value, issued and outstanding
10,299,000 and 11,100 shares, respectively 10,299 11
Additional paid in capital 990,700 200,989
Retained earnings (975,680) (55,257)
Total Stockholders' Equity 25,319 145,743
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 716,719 $ 373,861
<PAGE>
Whole Living, Inc.
Statement of Operations
From inception
on November
For the Six 25, 1998
Months Ended through
June 30 December 31,
1999 1998
(unaudited)
REVENUES $ 1,033,498 $ 163,074
COST OF SALES 288,321 65,407
GROSS PROFIT 745,177 97,667
SELLING EXPENSES 675,477 54,755
RESEARCH & DEVELOPMENT 1,047 10,040
GENERAL & ADMINISTRATIVE EXPENSES 982,777 87,902
TOTAL OPERATING EXPENSES 1,659,301 152,697
OPERATING LOSS (914,124) (55,030)
OTHER INCOME AND (EXPENSES)
Interest expense (1,109) (227)
Interest income 900 -
Loss on sale of asset (6,090) -
Total Other Income and (Expenses) (6,299) (227)
LOSS BEFORE INCOME TAXES (920,423) (55,257)
PROVISION FOR INCOME TAXES (Note 1) - -
NET LOSS $ (920,423) $ (55,257)
NET LOSS PER SHARE $ (0.134) $ (0.009)
WEIGHTED AVERAGE OUTSTANDING SHARES 6,887,632 6,011,100
<PAGE>
Whole Living, Inc.
Statement of Stockholders' Equity
From Inception on November 25, 1998 through December 31, 1998,
and June 30,1999 (unaudited)
Additional Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit)
Beginning Balance
November 25, 1998 - $ - $ - $ -
November 1998-Shares
issued to organizers
for services 9,400 9 991 -
December 1998-Shares
issued for cash 1,700 2 199,998 -
Net (Loss) from inception on
November 25, 1998 through
December 31, 1998 - - - (55,257)
Balance on December 31, 1998 11,100 11 200,989 (55,257)
Reorganization adjustment 10,287,900 10,288 789,711 -
Net (Loss) for the six months
ended June 30,1999(unaudited) - - - (920,423)
Balance on
June 30, 1999 (unaudited) 10,299,000 $ 10,299 990,700 $ (975,680)
<PAGE>
Whole Living, Inc.
Statement of Cash Flows
From inception
For the Six on November
Months 25, 1998
Ended Through
June 30 December 31
1999 1998
Cash Flows From Operating Activities
(unaudited)
Net income (loss) $ (920,423) $ (55,257)
Non-cash items:
Depreciation & amortization 24,325 2,581
Stock issued for services - 1,000
(Increase)/decrease in current assets:
Accounts receivable (54,994) (1,044)
Inventory (115,342) (93,995)
Prepaid expenses (85,954) -
Increase/(decrease) in current liabilities:
Accounts payable 53,166 36,790
Accrued expenses 97,186 55,954
Net Cash Provided (Used) by
Operating Activities (1,002,036) (53,971)
Cash Flows from Investing Activities
Cash paid for Property and Equipment (117,427) (71,510)
Cash paid for Goodwill (16,767) (43,295)
Net Cash Provided (Used) by
Investing Activities (134,194) (114,805)
Cash Flows from Financing Activities
Cash received from stock issuance 800,000 200,000
Cash received from debt financing 340,000 50,000
Principal payments on long-term debt (27,070) (13,019)
Net Cash Provided (Used)
by Financing Activities 1,112,930 236,981
Increase/(decrease) in Cash (23,300) 68,205
Cash and Cash Equivalents
at Beginning of Period 68,205 -
Cash and Cash Equivalents
at End of Period $ 44,905 $ 68,205
Supplemental Cash Flow Information:
Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ -
Non-cash financing transaction:
Purchase of equipment with
lease obligations and notes $ - $ 101,393
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
Whole Living, Inc. (the Company) was incorporated on November 25,
1998 in the state of Utah. On November 30, 1998, the Company acquired the
assets, leases, product line and name of Brain Garden, L.L.C., a Utah limited
liability company engaged in the marketing and distribution of various natural
food products, oils and bath salts. The Company does business under the name
of Brain Garden, and maintains its headquarters in Provo, Utah.
b. Recognition of Revenue
The Company recognizes income and expense on the accrual basis of
accounting.
The Company's source of revenue is from the sale of various food
products and other natural products. The Company recognizes the sale upon
receipt of the sales order, which is simultaneous with the payment and
delivery of such goods. The Company offers a 100% satisfaction guarantee
against defects for 30 days after the sale of their product.
The Company extends this return policy to its distributors for a 30 day
period and the consumer has the same return policy in effect against the
distributor. Returns are approximately 1% of sales for both periods
presented. All conditions of FASB 48 are met and the revenue is recorded upon
sale, with an estimated accrual for returns. The Company has no sources of
comprehensive income.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
The weighted average shares outstanding is calculated as follows at
June 30, 1999 and December 31, 1998:
June 30, December 31,
1999 1998
Shares outstanding at beginning of period 11,100 11,100
Plus shares issued in merger agreement
retroactively applied 6,000,000 6,000,000
Total Beginning Balance 6,011,100 6,011,100
Reorganization adjustment effective
May 24, 1999 4,287,900 -
Balance of shares at End of Period 10,299,000 6,011,100
Weighted average computation: 6,011,100 6,011,100
(144 days) (36 days)
10,299,000 -
(37 days)
Weighted average shares 6,887,632 6,011,100
<PAGE>
NOTE 1 - Summary of Significant Accounting Policies (Continued)
d. Provision for Income Taxes
No provision for income taxes has been recorded due to net operating loss
carryforwards totaling approximately $975,000 that will be offset against
future taxable income. Since the Company has yet to prove they can generate
taxable income, a valuation account has been created to eliminate the deferred
tax asset.
Deferred tax assets and the valuation account is as follows at June 30,
1999 and December 31, 1998:
June 30, December 31,
1999 1998
(unaudited)
Deferred tax asset:
NOL carryforward $ 330,000 $ 18,700
Valuation allowance (330,000) (18,700)
Total $ - $ -
e. Cash and Cash Equivalents
The company considers all highly liquid investments with maturities
of three months or less to be cash equivalents.
f. Property and Equipment
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of assets or
convert the assets to a new use, are capitalized at cost. Expenditures for
maintenance, repairs and other renewals of items are charged to expense. When
items are disposed of, the cost and accumulated depreciation are eliminated
from the accounts, and any gain or loss is included in the results of
operations.
The provision for depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Depreciation expense
for the period ended June 30, 1999 and December 31,1998 is $24,325 and $2,581,
respectively.
g. Inventory
Inventory is recorded at the lower of cost or market and valued on a
first-in, first-out basis. Inventory consists primarily of consumable food
products and ingredients.
NOTE 1 - Summary of Significant Accounting Policies (Continued)
h. Fair Value of Financial Instruments
Unless other 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.
i. Goodwill
The Company recorded goodwill in the acquisition of the assets of
Brain Garden, LLC. Various intangible assets such as distributor down lines,
customer lists and product name identification are included in Goodwill.
Valuation of these intangibles separately was not identified, yet the excess
of payment over the net assets received provides for the recording of these
intangibles as Goodwill. Goodwill is being amortized over 5 years on a
straight-line method, to begin in 1999.
j. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the amounts reported in the financial statements and accompanying
notes. In these financial statements, assets, liabilities and earnings
involve extensive reliance on managements estimates. Actual results could
differ from those estimates.
k. Acquisition
On November 30, 1998, the Company acquired the assets, lease
obligations and product line of Brain Garden LLC, a Utah Limited Liability
Company ("Brain Garden"). Brain Garden's product line consists of various
natural food products, oils and bath salts. The acquisition was recorded
using the purchase method of a business combination. Goodwill was recorded in
the acquisition in the amount of $43,294 and will be amortized over 60 months.
The Company paid $283,800 for the purchase of Brain Garden assets. The
Company assumed leases in the amount of $14,500. The Company also assumed an
operating lease for office space which expires in less than a year. No
operating activity of Brain Garden is included in the statement of operations
of the Company prior to the acquisition.
<PAGE>
NOTE 2 - Property & Equipment
Property and equipment consists of the following at June 30, 1999 and
December 31, 1998:
June 30, December 31,
1999 1998
Office equipment & furnishings $ 117,551 $ 33,682
Office furniture & fixtures 67,079 34,829
Software 86,379 86,379
Leased equipment 15,014 15,014
286,023 169,904
Less:
Accumulated depreciation (25,350) (2,332)
Accumulated depreciation - leased equipment (250) (250)
Total Property & Equipment $ 260,423 $ 167,322
NOTE 3 - Long-Term Liabilities
Long Term Liabilities are detailed in the following schedules as of June
30, 1999 and December 31, 1998:
Notes payable related party
is detailed as follows: June 30, December 31
1999 1998
Note payable to a shareholder of the Company,
non-interest bearing, due upon demand and
unsecured $ 50,000 $ 50,000
Note payable to a shareholder of the Company,
bears interest 9%, due May 1, 2000 and
unsecured 340,000 -
Total notes payable - related party 390,000 50,000
Notes Payable are detailed as follows:
Note payable to an individual, non-interest
bearing, due within one year 15,784 -
Note payable to a corporation, non-interest
bearing, due within 60 days of delivery of
software, unsecured 31,267 70,872
Total Note Payable $ 47,051 $ 70,872
<PAGE>
NOTE 3 - Long-Term Liabilities (continued)
Capital lease obligations are detailed in the following schedule as of
June 30, 1999 and December 31, 1998: June 30, December 31,
1999 1998
Capital lease obligation to a corporation
for computer equipment, lease payments due
monthly of $435 through February 2000,
bears interest at 18%, secured by computer
equipment. $ 3,207 $ 5,401
Capital lease obligation to a corporation
for computer equipment, lease payments
due monthly of $304 through April 2002,
bears interest at 18%, secured by equipment. 8,046 9,101
Total Lease Obligations 11,253 14,502
Total long term liabilities 448,304 135,374
Less current portion of:
Notes payable - related party 390,000 50,000
Notes payable 47,051 70,872
Capital lease obligations 11,253 6,785
Total current portion 448,304 127,657
Net Long Term Liabilities $ - $ 7,717
Future minimum principal payments on notes payable and notes
payable-related party are as follows:
1999 $ 437,051
Total notes payable and notes payable-related party $ 437,051
Future minimum lease payments are as follows at June 30, 1999:
1999 5,228
2000 4,471
2001 3,651
2002 1,217
14,567
<PAGE>
Less portion representing interest (3,314)
Total $ 11,253
NOTE 4 - Commitments and Contingencies
The Company is committed for their office facilities. Monthly lease
payments are due of $4,886 on a month to month basis. Subsequent to the
audit, the Company moved their facilities to Provo, Utah.
The Company sales and distributes its products through independent
distributors. The Company is committed to a guaranteed monthly distributors
bonus of $5,000 to one of its distributors who purchased a distribution
position for $50,000. The distributor agreement can be terminated within 90
days of the execution of the agreement at the option of the distributor. If
canceled during this period a refund of the $50,000 less monthly bonuses could
occur. The termination period ends February 28, 1999, and at such time a
contingency no longer exists, however the monthly commitment continues. The
agreement has no termination date.
The Company is also committed to a consulting arrangement with an
individual, wherein the Company pays a $5,000 monthly draw against future
royalties from developing sales, training and educational aids on a
case-by-case basis. The agreement can be terminated by a 90-day written
notice from either party. Termination by the Company must be for cause. The
Company paid $15,000 upon signing the agreement as a signing bonus and was
expensed as well as the monthly royalty payments. There is no indication in
the agreement that repayment of the advances is required in the future. The
Company received the individuals "downline" as part of the agreement, but no
asset has been recorded, because future economic benefit is unclear.
NOTE 5 - Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has a short
operating history and net operating losses since inception and is dependent
upon financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. It is management's plan to raise additional funds through a
merger with a public company and market it's products aggressively.
<PAGE>
NOTE 6 - Related Party Transactions
Mark Comer, a shareholder of the Company, advanced $50,000 to the
Company for operating capital. The entire amount is payable at December 31,
1998 and is due upon demand.
All officers of the Company own an interest in MRB, LLC, a company
which prepares the sales aids and product kits for the Company. $0 was paid to
MRB through December 31, 1998 and $57,000 for the six months ended June 30,
1999.
In May 1999, PHI Mutual Ventures, a shareholder of the Company loaned
$340,000 to the Company. The loan bears interest at 9% and is due May 1,
2000. The note is secured by stock held by officers of the Company.
NOTE 7 - Subsequent Events
Subsequent to the audit date, the Company received $650,000 in
advances from Whole Living, Inc., a Nevada public corporation in anticipation
of a merger to be completed by June 30, 1999.
NOTE 8 - Unaudited Information
The information furnished herein was taken from the books and
records of the Company without audit. However, such information reflects all
adjustments which are, in the opinion of management, necessary to properly
reflect the results of the six months ended June 30, 1999. The information
presented is not necessarily indicative of the results from operations
expected for the full fiscal year.
NOTE 9 - Principles of Consolidation
The June 30, 1999 unaudited financial statements include the books of
Whole Living, Inc. (Nevada) and its wholly owned subsidiary Whole Living, Inc.
(Utah). All intercompany transactions and balances have been eliminated in
the consolidation.
<PAGE>
NOTE 10 - Reverse Acquisition
Effective May 24, 1999 the Company entered into an agreement to merge
with Whole Living, Inc. a Nevada Corporation (WLN) which is a non-operating
public company with cash of $150,000 and a note receivable of $650,000 from
Whole Living, Inc. (Utah) for funds advanced in contemplation of the merger.
Pursuant to the merger, WLN issued 6,000,000 shares of common stock to the
shareholders of the Company for all outstanding stock of the Company. The
merger was recorded as a reverse merger, with Whole Living, Inc. (Utah) being
the accounting survivor. All historical financial information in these
statements through May 23, 1999 are therefore that of Whole Living, Inc.
(Utah). A reverse merger adjustment was made to the books of the Company to
reflect the change in capital to that of WLN. No goodwill or intangible
assets were recorded in the reverse acquisition.
<PAGE>
Brain Garden, LLC
Financial Statements
December 31, 1997 (unaudited)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Brain Garden, LLC
Provo, Utah
The accompanying balance sheet as of December 31, 1997 and the related
statements of operations and member's equity for the year ended December 31,
1997 were not audited by us and, accordingly, we do not express an opinion on
them.
October 6, 1999
<PAGE>
Brain Garden, LLC
Balance Sheet
ASSETS
December 31
1997
CURRENT ASSETS (unaudited)
Cash $ -
Total Current Assets -
FIXED ASSETS
Furniture & Equipment 19,507
Leasehold Improvements 200
Total Fixed Assets 19,707
TOTAL ASSETS $ 19,707
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft 6,177
Total Current Liabilities 6,177
MEMBERS' EQUITY
Members' Capital 72,991
Retained deficit (59,461)
Total Stockholders' Equity 23,530
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,707
<PAGE>
Brain Garden, LLC
Statements of Operations
For the Year
ended
December 31,
1997
(unaudited)
SALES $ 69,514
COST OF GOODS SOLD 47,647
GROSS PROFIT 21,867
OPERATING EXPENSES
Selling Expense 11,554
General And
Administrative Expenses 69,774
TOTAL OPERATING EXPENSES 81,328
OPERATING INCOME (LOSS) (59,461)
OTHER INCOME AND (EXPENSES)
Interest Expense -
Total Other Income/(Expense) -
NET INCOME (LOSS) $ (59,461)
<PAGE>
Brain Garden, LLC
Statement of Members' Equity
Retained
Amount Deficit
Balance December 31, 1996 $ - $ -
Capital Contribution 72,991 -
Net Loss for the year ended - (49,461)
Balance, December 31, 1997 $ 72,991 $ (49,461)
<PAGE>
Brain Garden, LLC
Notes to the Financial Statements
December 31, 1997
GENERAL
Brain Garden, LLC (the Company) has elected to omit substantially all
footnotes to the financial statements for the year ended December 31, 1997.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustment
which are, in the opinion of management, necessary to properly reflect the
results of the period presented.
<PAGE>
<R PART III R/>
<R ITEM 1. INDEX TO AND DESCRIPTION OF EXHIBITS R/>
<R (a) EXHIBITS R/>
<R Exhibit
Number Description Location R/>
- ------ ----------- --------
<R 2.1* Articles of Incorporation of Whole Living, See Attached
(incorporated by See attached reference as
an exhibit to Whole Living's registration
statement on Form 10-SB, File No. 0-26973) R/>
<R 2.2* Articles of Merger filed March 19, 1999 See attached
(incorporated by reference as an exhibit
to Whole Living's registration statement on
Form 10-SB, File No. 0-26973) R/>
<R 2.3* Articles of Merger filed May 24, 1999 See attached
(incorporated by See attached reference as
an exhibit to Whole Living's registration
statement on Form 10-SB, File No. 0-26973) R/>
<R 2.4* Bylaws of Whole Living (incorporated by See attached
reference as an exhibit to Whole Living's
registration statement on Form 10-SB,
File No. 0-26973) R/>
<R 6.1* Lease between Whole Living and RDR See attached
Properties, LC, dated See attached
March 1, 1999 (incorporated by reference as
an exhibit to Whole Living's registration
statement on Form 10-SB, File No. 0-26973) R/>
<R 6.2* Form of Employment Agreement (incorporated See attached
by reference as an exhibit to Whole Living's
registration statement on Form 10-SB, File
No. 0-26973) R/>
<R 6.3* Consulting Agreement between Whole Living, See attached
Inc.and Don Tolman, dated November 30, 1998
(incorporated by reference as an exhibit to
Amendment No. 1 to Whole Living's
registration statement on Form 10-SB, File No.
0-26973) R/>
<R 6.4* Private Label Manufacturing Agreement See attached
between Whole Living, Inc. and Future 500
Corporation dated, September 14, 1999
(incorporated by reference as an exhibit to
Amendment No. 1 to Whole Living's registration
statement on Form 10-SB, File No. 0-26973) R/>
<R 8.1* Agreement and Plan of Reorganization See attached
between Whole Living and Whole Living,
dba Brain Garden, dated March 16, 1999
(incorporated by reference as an exhibit
to Whole Living's registration statement on
Form 10-SB, File No. 0-26973) R/>
<R 10.1* Letter of agreement from Hammond & Company, See attached
dated August 2, 1999 (incorporated by
reference as an exhibit to Whole Living's
registration statement on Form 10-SB, File
No. 0-26973) R/>
<R 11.1* Statement re computation of earnings per See attached
share (incorporated by reference as an exhibit
to Whole Living's registration statement on
Form 10-SB, File No. 0-26973) R/>
<R 27* Financial Data Schedule (incorporated by
reference as an exhibit to Whole Living's
registration statement on Form 10-SB, File
No. 0-26973) R/>
________________________
<R *Incorporated by reference. R/>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, who are duly authorized.
Date October 29, 1999
WHOLE LIVING, INC.
By:/S/ Bruno Vassel
----------------
<R Bruno Vassel III, Vice President, Treasurer,
Chief Operating Officer and Director R/>
