Securities and Exchange Commission
Washington, D. C. 20549
_______________
Form 10-SB/A
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GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
Commission File Number 000 26973
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:
Common Stock, par value $.001 per share
(Title of class)
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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.
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.
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 the principal 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."
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 TM, 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 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
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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 TM, which consists of a variety of
nuts, seeds, fruits and grains. The ingredients used in Pulse TM 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 TM has the proteins,
fibers, carbohydrates and other nutrients needed in a healthy diet and comes
in four different flavors. Pulse TM 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 TM 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 Earthborn
Creations TM 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
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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, 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
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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.
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. A Team Leader is a distributor that has attained the Team
Builder level of 75 PV units in personal purchases and has established two
"active" legs.
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 6,000 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.
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.
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
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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. 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
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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.
If, for any reason, the distributor does not want to keep a product
purchased by said distributor, in accordance with our 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.
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.
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 TM personal
care line. The Earthborn Creations TM 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.
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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 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
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We are in the process of securing trademarks for our Brain Garden logo,
Brain Garden TM, Pulse TM, Earthborn Creations TM 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 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.
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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.
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS
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.
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 realize
revenue when products are shipped and title passes to our customers or our
independent distributors. 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.
Costs of sales primarily consist of the cost of the products purchased
from third-party vendors and distributor commissions. 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. Also, distributor commissions include 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.
Reverse Merger Treatment
In May of 1999 Whole Living merged with Whole Living, Inc., a Utah
corporation doing business as Brain Garden TM (Whole Living Utah). 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. Whole Living, the Nevada corporation was the
surviving entity following the statutory merger. As a result of the merger we
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. 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. As a tax free exchange pursuant to Section 368
(a)(1) (A) of the Internal Revenue Code, no additional consideration other
than the 6,000,000 shares of our common stock was received or given. Our
reorganization is merely an accounting entry to the consolidated books,
clearing the retained losses of Whole Living, and adjusting the common stock
to reflect the shares outstanding. There is no effect to the capital
resources or liquidity of Whole
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Living as a result of the reverse merger. We will use Whole Living Utah's
fiscal year of December 31st, rather than March 31st. The following
discussions will be based upon the Whole Living's audited financials for the
fiscal years ended March 31, 1999 and 1998. The discussions regarding the six
month interim period ended June 30, 1999 will be based upon the unaudited
financials which reflect the operations of the merged corporations.
Liquidity and Capital Resources
We have funded our cash requirements primarily through sales of our
common stock and debt. As of the fiscal year ended March 31, 1999 we had
$150,000 in cash and total assets of $800,000 with no liabilities. During the
interim period ended June 30, 1999, we posted cash amounts of $44,905 and
total current assets of $396,234, with current liabilities of $691,400,
resulting in a negative net worth of $295,166. Our operating loss for that
period was $914,124 and was funded primarily by an advance of $650,000 to
Whole Living Utah by Whole Living, a loan of $340,000 and $500,000 raised in a
private placement. (See, "Certain Relationships and Related Transactions," and
"Recent Sales of Unregistered Securities," below.) We currently do not have
any material capital commitments.
A summary of our audited balance sheets for the years ended March 31, 1999 and
1998 and our balance sheet for the interim period ended June 30, 1999 are as
follows:
Years Ended March 31, Interim Period Ended
1998 1999 June 30, 1999
------------ -------------- -------------------
Cash/Cash Equivalents $ 0 $ 150,000 $ 44,905
Current Assets 0 800,000 396,234
Total Assets 0 800,000 716,719
Current Liabilities 0 0 691,400
Total Liabilities 0 0 691,400
Total Stockholder Equity 0 800,000 25,319
Total Liabilities &
Stockholder Equity 0 800,000 716,719
We believe we have sufficient resources to continue our operations,
product development, and sales and marketing development for the next twelve
months. We expect to fund growth from internal cash flows if growth remains
relatively moderate (below 50% per month). However, if we experience growth
rates in excess of 50% per month, we will need to seek additional external
financing. We do not plan to engage in the continuous sale of securities to
meet our requirements for capital and liquidity through the end of fiscal
2000. Although we may be required to attempt to raise additional capital to
meet our liquidity requirements through the end of fiscal 2001, at the present
time, we are not engaged in any ongoing offerings of our securities. We might
also require external financing to fund the development of Whole Learning
programs if market research shows strong demand for the proposed products.
Internal cash flows will be dependent on a number of factors: 1) our
ability to develop successful new product lines; 2) our ability to encourage
our distributors to sponsor new distributors and increase their own personal
sales; 3) regulatory changes; 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.
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 additional financing. If we raise funds
through the sale of our common stock, our then current shareholders may
experience dilution in the value per share of their common stock. Also, the
acquisition of funding through the issuance of debt could result in a
substantial portion of our cash flows from
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operations being dedicated to the payment of principal and interest on the
indebtedness, and could render us more vulnerable to competitive and economic
downturns.
Results of Operations
Prior to our merger with Whole Living Utah, we did not generate any
revenues during the fiscal years 1998 and 1999. Whole Living Utah was
incorporated in November of 1998 and thus has a short history of operations
prior to the merger. Accordingly, we are unable to present a meaningful
comparative analysis of our operations from year to year or quarter to
quarter. Since Whole Living Utah is the accounting survivor, we will present
a comparison of the operations of Whole Living Utah for the fiscal year ended
December 31, 1998 and our interim six month period ended June 30, 1999.
We posted a net loss of $920,423 for the interim period, compared to a
net loss of $55,257 at the end of the fiscal year. Our revenues during the
interim period were $1,033,498 compared to $163,074 at year's end. Our gross
profit for the interim period was $745,177, compared to the year end amount of
$97,667. Our operating expenses totaled $1,659,301 for the interim period as
compared to $152,697 at year's end. The increase is operating expenses is a
result of general administrative costs which jumped from $87,902 to $982,777,
and selling expenses which increased from $54,755 to $675,477. The increase
in operating expenses 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.
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. However, we also expect our revenues to increase as a result
of our efforts to build a larger distributor network and expand our product
lines. 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 Form 10K's
and 10Q's.
Seasonal Aspects
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 the past 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.
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.
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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 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.
13
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 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.
ITEM 3. DESCRIPTION OF PROPERTIES
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.
We were given a license by Provo City to occupy and use the office
portions of this building. That
14
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 October 15, 1999.
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.
CERTAIN BENEFICIAL OWNERS
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%
525 South 300 East
Salt Lake City, Utah 84111
MANAGEMENT
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%
1185 S. Mike Jense Circle
Provo, Utah 84601
Bruno Vassel III 1,567,567* 14.7%
1185 S. Mike Jense Circle
Provo, Utah 84601
Bill Turnbull 1,567,567* 14.7%
1185 S. Mike Jense Circle
Provo, Utah 84601
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Mark Burdge 378,379 3.5%
1185 S. Mike Jense Circle
Provo, Utah 84601
All executive officers and
directors as a group 5,081,080 47.5%
*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.)
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, 1992 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.
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. provides 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".
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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.
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
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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.
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.
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ITEM 8. LEGAL PROCEEDINGS
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. We disclaim any liability and have referred
this matter to our legal counsel.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded over-the-counter and quoted on the OTC
Electronic Bulletin Board 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.
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.
OTC Bulletin Board Eligibility Rule
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 cannot assure that the SEC will come to such a
position in regards to this registration statement prior to our phase-in date
of October 1, 1999. According to the rules, if we are not in compliance at
our phase-in date our common stock will be removed from the OTC Bulletin Board
and placed on the National Quotation Bureau's Pink Sheets. This move to the
"pink sheets" may adversely affect the market, if any, in our stock.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
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
19
<PAGE>
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 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.
ITEM 11. DESCRIPTION OF SECURITIES
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 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
Under Nevada law, 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
20
<PAGE>
director. Except as otherwise provided in a corporation's Articles of
Incorporation, the approval of the majority of the outstanding stock not held
by the offerors is required so that the stock held by the offerors will have
voting rights. The control share acquisition provisions are applicable to any
acquisition of a controlling interest, unless the Articles of Incorporation or
by-laws of a corporation in effect on the tenth day following the acquisition
of a controlling interest by an acquiring person provides that the control
share acquisition provisions do not apply. We have not elected out of the
control share acquisition provisions of Nevada law.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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.
ITEM 13. FINANCIAL STATEMENTS
Our audited financial statements for the fiscal years ended March 31,
1999 and 1998, and our unaudited financial statements for the interim period
ended June 30, 1999 are attached hereto.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
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.
21
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) EXHIBITS
Exhibit Number Description
2.1* Agreement and Plan of Reorganization between Whole
Living and Whole Living, dba Brain Garden, dated March
16, 1999.
3.1* Articles of Incorporation of Whole Living.
3.2* Articles of Merger filed March 19, 1999.
3.3* Articles of Merger filed May 24, 1999.
3.4* Bylaws of Whole Living
10.1* Lease between Whole Living and RDR Properties, LC,
dated March 1, 1999.
10.2* Form of Employment Agreement
10.3 Consulting Agreement between Whole Living, Inc. and Don
Tolman, dated November 30, 1998.
10.4 Private Label Manufacturing Agreement between Whole
Living, Inc. and Future 500 Corporation dated,
September 14, 1999.
11.1* Statement re computation of earnings per share
16.1* Letter of agreement from Hammond & Company, dated
August 2, 1999.
27.1 Financial Data Schedule
________________________
* Previously filed with the Securities and Exchange Commission as part of
Whole Living's Form 10SB General Form for Registration of Securities of Small
Business Issuers, on August 9, 1999.
22
<PAGE>
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 September 15, 1999 WHOLE LIVING, INC.
/s/ Brunon Vassel
By:________________________________________
Bruno Vassel II
Vice President, Treasurer,
Chief Operating Officer and Director
23
<PAGE>
Whole Living, Inc.
Financial Statements
June 30, 1999 (unaudited)
and
December 31, 1998
<PAGE> 24
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> 25
<Letterhead of
CROUCH, BIERWOLF & CHISHOLM
Certified Public Accountants
50 West Broadway, Suite 1120
Salt Lake City, Utah 84101
office (801) 363-1175
Fax: (801) 363-0615>
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.
/s/ Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
February 23, 1999
F-3
<PAGE> 26
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
================= ================
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 27
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
================= ================
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 28
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 $ (0.11) $ (0.01)
=============== ===============
WEIGHTED AVERAGE OUTSTANDING SHARES 8,155,050 6,011,100
=============== ===============
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 29
Whole Living, Inc.
Statement of Stockholders' Equity
From Inception on November 25, 1998 through December 31, 1998,
and June 30,1999 (unaudited)
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit)
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
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)
============= ============== ============ =============
The accompanying notes are an integral part of these financial statements.
F-7
</TABLE>
<PAGE> 30
Whole Living, Inc.
Statement of Cash Flows
From inception
on November
For the Six 25, 1998
Months 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
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 31
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1998
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 of such
goods. The Company offers a 30 day right of return, however, 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.
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 $ -
==============
F-9
<PAGE> 32
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
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 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.
F-10
<PAGE> 33
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
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.
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
------------
F-11
<PAGE>34
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1998
NOTE 3 - Long-Term Liabilities (continued)
Notes Payable are detailed as follows: December 31
1998
--------------
Note payable to a corporation, non-interest
bearing, due within 60 days of delivery of
software, unsecured $ 70,872
--------------
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
=============
F-12
<PAGE> 35
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1998
NOTE 3 - Long-Term Liabilities (continued)
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.
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
F-13
<PAGE> 36
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1998
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 six months ended June 30,
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 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.
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 no assets. 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 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 upon the acquisition.
<PAGE> 37
WHOLE LIVING, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
March 31, 1999 and 1998
And From Inception (January 30, 1986)
Through March 31, 1999
<PAGE> 38
TABLE OF CONTENTS
Page
Independent Auditors' Report 3
Balance Sheets 4
Statements of Operations 5
Statements of Stockholders' Equity 6
Statements of Cash flows 7
Notes to Financial Statements 8-10
<PAGE> 39
HAMMOND AND COMPANY
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Whole Living, Inc.
We have audited the accompanying balance sheets of Whole Living, Inc. (a
development stage company) as of March 31, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended March 31, 1999, 1998 and 1997, and for the period from January 30, 1986
(inception), to March 31, 1999. 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
March 31, 1999 and 1998, and the results of its operations and cash flows for
the years ended March 31, 1999, 1998 and 1997, and from January 30, 1986
(inception), to March 31, 1999, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As discussed in Note 2 to the financial statements, the Company has
suffered losses from inception, and anticipates the need for additional cash
to fund its operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 2. The financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
/s/ Hammond and Company
Salt Lake City, Utah
April 23, 1999
1015 East 3900 South * Salt Lake City, Utah 84124
Office: 801-2811-4050 * Fax 801- 281-4533
<PAGE> 40
Whole Living, Inc.
(A Development Stage Company)
Comparative Balance Sheets
For the Years Ended
March 31
1999 1998
------------------ -----------------
ASSETS
Current Assets
Cash $ 150,000 $ 0
Advance Receivable 650,000 0
------------------ -----------------
Total Current Assets 800,000 0
Long Term Assets 0 0
------------------ -----------------
Total Assets $ 800,000 $ 0
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $ 0 $ 0
Long Term Liabilities 0 0
------------------ -----------------
Total Liabilities 0 0
------------------ -----------------
Shareholders' Equity:
Common stock, $.001 par value
50,000,000 shares authorized;
17,300,200 shares issued
and outstanding 17,300 17,000
Additional Paid In Capital 799,700
Deficit accumulated during the
development stage ( 17,000) (17,000)
------------------ -----------------
Net shareholders' equity 800,000 0
------------------ -----------------
Total Liabilities and Shareholders'
Equity $ 800,000 $ 0
================== =================
The accompanying notes are an integral part
of these financial statements.
4
<PAGE> 41
Whole Living, Inc.
(A Development Stage Company)
Comparative Statements of Operations
<TABLE>
<CAPTION> From
Inception
(April 2, 1986)
For the Years Ended March 31, to March 31,
1999 1998 1997 1999
------------- -------------- ------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 0 $ 0 $ 0 $ 0
Cost of sales 0 0 0 0
------------- -------------- ------------- ---------------
Gross profit (loss) 0 0 0 0
Operating expenses 0 0 0 17,000
------------- -------------- ------------- ---------------
(Loss) from operations 0 0 0 (17,000)
Income taxes 0 0 0 0
------------- -------------- ------------- ---------------
Net (Loss) $ 0 $ 0 $ 0 $ (17,000)
============= ============== ============= ===============
(Loss) per share $ 0 $ 0 $ 0 $ (0.001)
============= ============== ============= ===============
Shares outstanding 17,300,200 17,000,000 17,000,000 17,300,200
============= ============== ============= ===============
The accompanying notes are an integral part
of these financial statements.
5
</TABLE>
<PAGE> 42
Whole Living, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
From Inception (January 30, 1986) Through
March 31, 1999
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in - Earnings
Shares Amount Capital (Deficit) Total
------------ ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 30, 1986 (inception) -0- $ -0- $ -0- $ -0- $ -0-
Common Stock Issued for Marketing Rights 17,000,000 17,000 -0- -0- 17,000
Net loss -0- (17,000) (17,000)
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1986 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1987 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1988 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1989 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1990 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1991 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1992 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1993 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1994 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1995 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1996 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1997 (audited) 17,000,000 17,000 -0- (17,000) -0-
------------ ----------- ------------ ------------- -----------
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1998 (audited) 17,000,000 $ 17,000 $ -0- $ (17,000) $ -0-
============ =========== ============ ============= ===========
Common Stock Issued for Cash 300,000 300 799,700 800,000
Issuance of Whole Living, Inc. Stock 200
Net Income -0- -0- -0-
------------ ----------- ------------ ------------- -----------
Balance at March 31, 1999 (audited) 17,300,200 $ 17,300 $ 799,700 $ (17,000) $ 800,000
============ =========== ============ ============= ===========
The accompanying notes are an integral part
of these financial statements.
6
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
WHOLE LIVING, INC.
(A Development Stage Company)
Statements of Cash Flows
From Inception (January 30, 1986)
Through March 31, 1999
Cumula-
tive
Amounts
From
Incep-
tion to
----------------------------------------------------------------------------------------- Mar 31,
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1999
-------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net Profit (loss) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $(17,000) $ (17,000)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Changes in assets and
liabilities
Amortization 0 0 0 0 0 0 0 0 0 0 0 0 0 17,000 17,000
-------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------- --------
Net cash provided
(used) for operating
activities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Cash flows from investing
activities: 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Advances (650,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 (650,000)
-------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------- ---------
Net cash used for
investing
activities (650,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 (650,000)
Cash flows from financ-
ing activities:
Issuance of Common
Stock for Cash 800,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0
-------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------- ---------
Net cash provided by
financing activities 800,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0
-------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------- --------
Net cash provided
(used) for investing
and financing
activities 150,000 0 0 0 0 0 0 0 0 0 0 0 0 0 (650,000)
-------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------- ---------
Increase (decrease) in cash 150,000 0 0 0 0 0 0 0 0 0 0 0 0 0 (650,000)
Cash, beginning of the year 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Cash, end of the year $150,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 (650,000)
======== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ======== =========
Supplemental Schedule of
Noncash Investing Activities
Issuance of common stock
for acquisition of marketing rights $ 17,000
=========
The accompanying notes are an integral part of these financial statements
7
</TABLE>
<PAGE> 44
Whole Living, Inc.
Notes to Financial Statements
For the Twelve Months Ended March 31, 1999 and 1998
And From Inception (January 30, 1986) Through March 31, 1999
Note 1- Organization and History
-----------------------
Nature of Operations
Whole Living, Inc. (the Company), a Nevada corporation was incorporated March
18, 1999. On March 19, 1999 the Company merged with Brick Tower Corporation
(Brick Tower) an Idaho Corporation. The Company is the surviving corporation.
Brick Tower was incorporated on January 30, 1986, to lease, sell, and market
the Hystar airship in Idaho under Hystar Worldnet Inc., initially the only
shareholder. Brick Tower also acquired the marketing rights to the Burkett
Mill, a waste milling device, from Hystar Worldnet Inc. The technology to
further develop the Hystar airship and the mill by the parent company proved
to be prohibitive, and shortly after the acquisition of the marketing rights
further activity ceased.
The merger was recorded under the pooling of interests method of accounting.
Each share of the Company remained outstanding as one fully paid and
nonassessable share of capital stock of the surviving corporation, and each
share of Brick Tower was converted into one fully paid and non-assessable
share of capital stock of the surviving corporation.
Note 2- Basis of Presentation
---------------------
The accompanying financial statements have been prepared on the going
concern basis which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has suffered
cumulative losses of $17,000 since inception, and the ability of the Company
to continue as a going concern is dependent on its ability to successfully
develop assets and ultimately achieve profitable operations.
Management's plans in this regard are as follows:
The Company will continue to seek cash proceeds from the sale of common
stock or attempt to merge into an operating entity. If inadequate funds are
received from security offerings, the Company will seek required operating
capital through other means. There is no assurance that any such efforts would
be successful.
Officers and directors do not take a salary and will continue to do so
until such time as the Company is able to make payments from profits.
The Company believes that potential business opportunities warrant the
effort to seek funding for additional projects. However, there is no assurance
that any required capital will be available or that, if available, it can be
obtained on terms favorable to the Company. The Company may negotiate with
various investors to fund projects once identified, but there is no assurance
that funding arrangements can be reached on terms acceptable or favorable to
the Company.
8
<PAGE> 45
Whole Living, Inc.
Notes to Financial Statements
For the Twelve Months Ended March 31, 1999 and 1998
And From Inception (January 30, 1986) Through March 31, 1999
The Company believes that its continuous sale of securities through fiscal
2000 will enable it to meet its requirement for capital and liquidity
through the end of fiscal 2000. The Company's liquidity requirements
thereafter are not presently known inasmuch as they are substantially
dependent on the results of assets acquired and liabilities incurred.
The Company's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no assurance
management will be successful in this endeavor.
Note 3- Significant Accounting Policies
-------------------------------
The Company's accounting policies reflect industry practices and conform to
generally accepted accounting principles. The significant accounting policies
are summarized below:
(a) Continuing Operations: The accompanying financial statements have been
prepared on a going concern basis which contemplates the realization of assets
and liquidation of liabilities in the ordinary course of business. The Company
has no significant recurring sources of income at this time. However, the
Company is pursuing new objectives and business opportunities.
(b) Accounting Methods: The Company recognizes income and expenses
according to the accrual method of accounting.
(c) Fiscal Year End: The Company has selected March 31 as its fiscal year
end for financial reporting purposes.
(d) Loss per Share: The computation of loss per share of common stock is
based on the weighted average number of shares outstanding at the end of each
period.
(e) Issuance of Shares: Valuation of shares for services is based on the
fair market value of services.
(f) Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles
9
<PAGE> 46
Whole Living, Inc.
Notes to Financial Statements
For the Twelve Months Ended March 31, 1999 and 1998
And From Inception (January 30, 1986) Through March 31, 1999
requires management to make estimates and assumptions that affect the amounts
reported in financial statements and accompanying notes. Actual results could
differ from those estimates.
Note 4- Stockholder's Equity
---------------------
On January 15, 1999 the Company issued 300,000 restricted shares of common
stock for $800,000.
Note 5- Advance Receivable
------------------
Prior to March 31, 1999 the Company advanced to Whole Living, Inc., a Utah
Corporation, $650,000 in anticipation of a merger to be completed within
ninety days of the Company's fiscal year-end.
Note 6- Income taxes
-------------
The Company records its income tax provision in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the liability method of accounting for deferred income
taxes.
The Company has a net operating loss carryforward of $17,000 which expires
in the year 2001.
At March 31, 1999 the Company did not have any significant deferred tax
liabilities or deferred tax assets.
Consulting Agreement
This agreement is between Whole Living, Inc. dba The Brain Garden
(hereinafter "Whole Living") and Don Tolman, and outlines the terms of
obligations of a consulting arrangement between the two parties.
Whereas the principals of Whole Living, Inc. have acquired all assets,
product production and distribution rights, marks, trade dress, product
formulations, distributor list etc. of the Brain Garden LLC from Glen Tanner
and Don Tolman, and
Whereas Whole Living desires to retain the exclusive services of Don Tolman as
a product and sales aid developer and marketing consultant; and
Whereas Don Tolman desires to devote his full time and efforts to developing
products and sales aids for Whole Living and to traveling around the country
developing his sales organization with Whole Living; and
Whereas Whole Living has agreed to designate Don Tolman as its "Master
Distributor";
Therefore, the parties agree as follows.
Don Tolman agrees to devote his full time and effort beginning December 1,
1998 to acting exclusively as product development consultant and sales and
marketing consultant for Whole Living, specifically:
1) Traveling around the country to fulfill meeting schedules set by Whole
Living up to a maximum of 12 events per month. In this capacity, Mr. Tolman
will be acting in the capacity of Independent Representative, and not as an
official spokesman of Whole Living. Mr. Tolman agrees to consult with Whole
Living to define a company "message," and agrees to consistently deliver that
message at each event.
2) Working closely with Bill Turnbull to develop new education programs,
whole-food products and other new products. Mr. Tolman agrees to make himself
available to Mr. Turnbull to meet each Monday morning (or consult by phone if
necessary) to review progress and set priorities and objectives for the week.
The production and distribution rights to all products will reside with Whole
Living, Inc.
3) In holding events and meetings around the country, Mr. Tolman will be
attentive and sensitive to who may have invited attendees, and will respect
their customary sponsorship rights.
4) Don Tolman agrees to give the Brain Garden first right of refusal to
produce and distribute any new product idea.
Whole Living will, as specified above, work with Don Tolman in developing
certain sales, training and educational aids and will negotiate, on a case-by-
case basis, a royalty to compensate Mr. Tolman. Whole Living agrees to pay
Mr. Tolman $15,000 before December 1, 1998 (receipt of which is hereby
acknowledged) plus a draw against the royalties in the amount of $5,000 per
month, until such time as royalties exceed the draw amount.
This agreement can be terminated by 90-day written notification of either
party. Termination by Whole Living shall be only "for cause," such as
criminal or irresponsible acts or statements, breach of any provision of this
agreement, etc. In the event of termination, Mr. Tolman agrees not to compete
against Whole Living for a period of two years from the date of termination by
being a principal, employee, consultant or distributor of any other direct
selling company dealing in whole foods or education products. In return for
Whole Living granting Mr. Tolman privileged distributor status, Mr. Tolman
agrees that his down line distributor list will be the exclusive property of
Whole Living in perpetuity. Termination of this consulting agreement will not
automatically terminate Mr. Tolman's distributorship, as long as he is in
compliance with company policies and procedures, a copy of which is available
to all distributors.
Acknowledged and Agreed, this 30th day of November, 1998.
Whole Living, Inc.
/s/ Bill Turnbull 11/30/98
- ----------------- --------
Bill Turnbull Date
/s/ Don Tolman 11/30/98
- -------------- --------
Don Tolman Date
PRIVATE LABEL MANUFACTURING AGREEMENT
THIS AGREEMENT made this 14th da of September, 1999, by and between Whole
Living, Inc. d/b/a Brain Garden, a corporation organized under the laws of the
State of Nevada, having officers at 1185 S. Mike Jense Circle, Provo, Utah
84601 (hereinafter called "Whole Living") and Future 500 Corporation, a Utah
corporation, by and trough its subsidiary FoodSolutions, Inc. a Utah
corporation, having offices at 1454 W. Business Park Drive, Orem, Utah 84058
(hereinafter called "FoodSolutions"),
WITNESSETH:
WHEREAS, FoodSolutions is a food processor and has been processing and
supplying certain food products for Whole Living; and
WHEREAS, FoodSolutions and Whole Living desire to enter into an agreement
whereby FoodSolutions will continue to process and package certain food
products for Whole Living under Whole Living's private label;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and other valuable consideration, the parties hereto agree as
follows:
1. General. FoodSolutions agrees to manufacture and package on behalf
of Whole Living and Whole Living agrees to purchase the Products described in
Schedule A hereto, which will be updated from time to time, as mutually agreed
upon.
2. Consideration. In consideration for the Product produced by
FoodSolutions for Whole Living, Whole Living shall pay FoodSolutions in accord
with the terms and conditions set forth in Whole Living's Purchase Order at
the prices agreed to between the parties by a separate agreement, except that
if such terms and conditions are different from those in this Agreement, the
terms and conditions of this Agreement shall apply.
a. Time of delivery is of the essence and shall be governed by the
purchase orders of Whole Living. FoodSolutions agrees to pay a penalty to
Whole Living in the amount of 2% of each delivery of Product that is more than
7 days ahead or behind the agreed-upon delivery time for such delivery,
subject to the lead times set forth in Schedule A.
3. Purchasing, Shipment & Delivery. Whole Living will issue its
purchase order to FoodSolutions for the Products ordered and FoodSolutions
shall then produce the Products ordered and deliver the Products ordered on
Whole Living's purchase order within the lead times for production of each of
the Products listed on Schedule A.
4. Payment. Payment for the Products shall be made by Whole Living to
FoodSolutions as follows: 25% shall be paid on placement of the purchase
order, 50% shall be paid on delivery of the Products and the final 25% shall
be net 30 days after receipt of shipment of the Product.
5. Specifications.
a. Unless otherwise agreed to in writing, the Specifications for
Products listed on Schedule A hereto, shall be in accord with Whole Living's
own formulas for the manufacture of the Products, which formulas have been
supplied to FoodSolutions and may be changed by agreement from time to time as
necessary.
b. Whole Living shall have the right to inspect and reject for
cause, consistent with good faith standards, Product and packaging supplies.
c. Specifications, quantities product type, and product mix for the
manufacture of certain of Whole Living's Products are proprietary and
confidential information, belonging solely to Whole Living, including the
Product formulas and concepts and trademarks and nontrademarked product names,
and FoodSolutions agrees not to use such formulas, concepts and trademarks and
nontrademarked Product names and trade secrets relating thereto for any
purpose other than the fulfillment of this Agreement and any extensions, and
will not sell product with the same ingredients and a similar appearance to
any other person during or after the term of this Agreement. FoodSolutions
agrees to keep such information confidential, disclosing it only to those who
have a need to know, under a confidential disclosure agreement suitable to
Whole Living. FoodSolutions agrees not to use the same ingredients and a
similar appearance in any commercial activity, excepting the manufacture of
Products for Whole Living. FoodSolutions agrees that at the termination or
expiration of this Agreement, all copies of all Specifications shall be made
by FoodSolutions or any affiliate, except for one file copy. FoodSolutions
shall have the right to not manufacture a product requested by Whole Living if
a proposed product conflicts with a product being manufactured for another
customer.
d. Either party may disclose or reveal to the other party
proprietary and confidential information, including, but not limited to the
Specifications, cost and expense data, manufacturing techniques, standard
samples, specifications and other information relevant to the production of
Whole Living Products. Any such disclosures shall be subject to the following
terms and conditions:
1) Neither party shall disclose the disclosed information, nor
shall access thereto be allowed, to any persons except such employees as are
directly involved with production of the Products. All employees so involved
shall preserve the confidential nature of the information disclosed.
2) Each party shall not do or omit to do anything with regard to the
disclosed information whereby it may become known to any unauthorized party;
at all times proper and appropriate steps shall be taken and maintained by
each party to protect the confidentiality of such disclosed information.
3) Nothing shall be considered to be confidential in the disclosed
information which (a) is in the public domain prior to disclosure; (b) is
lawfully in one party's possession prior to its receipt from the other; (c)
becomes part of the public domain through no fault of the receiving party; or
(d) is required to be disclosed by a court or governmental authority, provided
that the party requested to disclose the disclosed and confidential
information gives the other party advance written notice of the intended
disclosure and uses its best efforts to obtain confidential treatment by the
authority to whom the disclosure is made.
4) All documents containing the disclosed and confidential
information required to be maintained in confidence under this Agreement,
shall remain the property of the disclosing party, and all such documents and
copies thereof shall be returned to the disclosing party upon the request of
the disclosing party, except, that the receiving party may keep one copy of
any such document in the files of its legal department for record purposes
only. Documents prepared by the receiving party using such disclosed and
confidential information need not be returned, but shall, upon the disclosing
party's request, be destroyed, except for one record copy for the legal
department's file.
5) With respect to manufacturing techniques, it is expressly
acknowledged and understood that FoodSolutions has designed, developed, and
implemented the proprietary processes or the production of Whole Living
Products. No disclosure of such information shall be made by Whole Living to
another party regardless of purpose without prior written authorization of
FoodSolutions.
6. Quality Control. Quality control procedures shall be taken by
FoodSolutions as follows:
a. FoodSolutions shall have personnel who shall monitor the
manufacture, processing, and packaging of the Products under this Agreement
for quality, compliance with the Specifications, sanitation and product
safety, to the satisfaction of Whole Living.
b. FoodSolutions shall set aside 2 samples from each product run of
4,000 pieces or more, one of which shall be retained by FoodSolutions for
future testing for a period of 2 years from the date of production and the
other sample shall be submitted to an independent laboratory of testing and
analysis for toxic or harmful organisms, bacteria, toxicity, mold, botulism
and any other content harmful to humans and a report will be provided to Whole
Living on a monthly basis commencing within 30 days after the date of this
Agreement, but if any harmful content is found, Whole Living shall be notified
immediately.
c. Whole Living shall have the right at any time, without notice,
to inspect the production facilities of FoodSolutions and all of its outside
suppliers on reasonable notice, a reasonable number of visits, during normal
business hours.
7. Insurance, Risk of Loss.
a. FoodSolutions hereby warrants to Whole Living that it shall
neither encumber, cause to be encumbered, or allow any third party in any way
encumber Products or packaging supplies belonging to Whole Living.
b. Title to the Product shall pass to Whole Living when the Product
is delivered to Whole Living. However, should Whole Living's representative
reject any of the Product for cause, title will revert to FoodSolutions.
"Cause" for purposes of this Agreement shall mean a material deviation from
the specifications or sample used at the time of the initial order, including
torn bags, visible damage.
c. Risk of loss to Product in all cases shall remain with
FoodSolutions until FoodSolutions delivers the Product to Whole Living and the
product is accepted by Whole Living in the event of a dockside pickup or
delivery to Whole Living for pickup by its own trucks. Following either of
these occurrences, excluding FoodSolutions' negligent or wrongful acts or
omissions and manufacturing defects, FoodSolutions shall be relieved of risk
of loss.
d. During the time in which risk of loss remains with
FoodSolutions, FoodSolutions shall procure an insurance policy equal to the
value of the shipment. Such insurance coverage shall include any loss to
Whole Living's Product which is shipped on FoodSolutions' own carriers.
Further, FoodSolutions shall evidence to Whole Living that FoodSolutions has
$1 million in product liability insurance to protect Whole Living's interests
as they may appear under this Agreement.
8. Government Intervention. In the event of a Product Recall of any
Whole Living Product manufactured hereunder, FoodSolutions agrees to provide
Whole Living all requested production information which can reasonable be made
available relating to such Products.
9. Indemnification-FoodSolutions.
a. FoodSolutions agrees to hold Whole Living harmless and indemnify
it against liability and damages, including all costs any attorney's fees,
resulting from damage caused by the Product package by FoodSolutions under
this Agreement. FoodSolutions' hold harmless and indemnification obligations
shall be limited to those claims which pertain to manufacturing defects and to
Product which is contaminated at the time of delivery to Whole Living.
FoodSolutions agrees to notify Whole Living in the event a product should be
or may be required to be recalled, and shall assist and cooperate with Whole
Living in carrying out any recall of Product for which FoodSolutions may have
some responsibility.
b. FoodSolutions' hold harmless and indemnification obligations
under
Section 7(a) above shall be conditioned upon Whole Living's timely
notification to FoodSolutions of any third party claim or action against Whole
Living which might result liability for which FoodSolutions has hereto agreed
to hold harmless and indemnify.
10. Indemnification-Whole Living.
a. Whole Living agrees to hold FoodSolutions harmless and indemnify
it against liability and damages, including all costs and attorney's fees,
resulting from damage caused by Whole Living's Specifications for products or
for selling the Products for use beyond their shelf life.
b. Whole Living's hold harmless and indemnification obligations
under this Section 10 shall be conditioned upon FoodSolutions' timely
notification to Whole Living of any third party claim or action against
FoodSolutions which might result in such liability for which Whole Living has
hereto agreed to hold harmless and indemnify.
11. Warranty-FoodSolutions. FoodSolutions warrants and represents that
it has received or is in the process of obtaining all required approvals for
manufacture and processing of the Product, including the National Institute
for Banking and that it is in substantial compliance with and is actively in
process of obtaining approvals under and will have passed and will continue to
be able to pass the AIB inspections and any other similar government and
industry required inspections. FoodSolutions warrants and represents that all
of the Product will be human food grade quality, and shall be free from any
and all toxic chemicals, pesticides and herbicides, as required to meet
applicable FDA standards. FoodSolutions shall purchase organic produce as
ingredients whenever reasonable possible when pricing of such products meets
commercial pricing. All foreign products shall also comply with all applicable
standards under this Agreement. FoodSolutions warrants that no Products sold
to Whole Living under this Agreement will be adulterated or misbranded within
the meaning of the Federal Food, Drug or Cosmetic Act or any amendments
thereto or otherwise in violation of any statute, law, ordinance or regulation
of the United States Department of Agriculture or any state or local governing
body. However, FoodSolutions does not warrant against Product becoming
adulterated or misbranded within the meaning of said Act after shipment by
reason of causes beyond FoodSolutions' control. Further, FoodSolutions'
liability for misbranding under Whole Living's labels shall be limited to that
resulting from the failure of Product to conform to labels designed for use by
Whole Living. Each shipment 4000 pounds or more of all finished Products shall
be preceded by, accompanied by, or followed within two weeks by a Certificate
of Manufacture, Certificate of Origin and Certificates of Analysis on all
finished Product and where reasonably possible, on a ingredients.
12. Shelf Life. The parties will cooperate with each other regarding
development of an analysis of shelf life for the product with a goal of having
the product have a shelf life of 9 months after delivery to Whole Living. The
Products should have a shelf life of not less that 6 months.
13. Labeling and Printing Plates. FoodSolutions agrees to assist Whole
Living to comply with all applicable labeling requirements under federal and
state law. FoodSolutions agrees that upon termination of this Agreement, that
it will deliver to Whole Living all Products printing plates and labels in its
possession, upon payment by Whole Living for all Products plates, which is
attached hereto as Schedule C.
14. Governing Law. This Agreement shall be governed and construed in
accord with the laws of the State of Utah.
15. Term. The term of this Agreement shall be one (1) year from the
date written above. This Agreement shall be automatically renewed for
additional one year terms unless written notice of nonrenewal is given by one
party to the other thirty (30) days before the expiration of the Agreement,
however, it may be terminated immediately for cause in the event of a material
breach of this Agreement, and it may be terminated on 30 days notice upon
default which has not been cured within such 30 day notice period. Cause ( a
material breach) shall include the shipment of Product, the majority of which
does not meet the Specifications which have been established and agreed to.
Upon termination of this Agreement other that for cause brought about by
FoodSolutions, which has not been cured within 30 days, Whole Living shall, at
the option of FoodSolutions, purchase any unused inventory of Products meeting
the standardsof quality established by this Agreement for such Products, and
shall also purchase any labels, packaging and the printing plates then
currently being used, failing which, within a reasonable time, notwithstanding
any other provisions of this Agreement, FoodSolutions shall have the right to
dispose of such inventory, packaging and plates in any commercially reasonable
manner.
16. Force Majeure. Should FoodSolutions be prevented or delayed in the
performance of obligations pursuant to this Agreement by reason of acts of
God, strikes, lockouts, picketing, wars, explosions, or any other cause,
whether or not of the kind enumerated herein, and not with the reasonable
control of the party affected, such party's duty of performance shall be
delayed until such events subside, or the parties otherwise modify such duty.
In the event such Force Majeure continues, the parties shall endeavor to
perform their obligations to the best of their ability.
17. Guarantee. Furture 500 Corporation has assigned all of its rights
to enter into this Agreement to its wholly-owned subidiary FoodSolutions and
guarantees to Whole Living that all of the obligations of FoodSolutions under
this Agreement will be fulfilled.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have executed this Agreement on the date firse above written.
Whole Living, Inc. FoodSolutions, Inc.
By /s/ Bruno Vassel III By /s/ David J. Card
- ----------------------- --------------------
Name: Bruno Vassel III Name: David J. Card
Title: C.O.O.
Future 500 Corporation
By /s/ Erick Mosteller
- ----------------------
Name: Erick Mosteller
Title: President and CEO
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<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-END> MAR-31-1999 JUN-30-1999
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0 0
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<COMMON> 17,000 1,000,999
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<TOTAL-LIABILITY-AND-EQUITY> 0 716,719
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