SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarter Ended: September 30,1999
Commission File No. 0-26973
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-26973
Whole Living, Inc.
(Exact name of registrant as specified in its charter)
Nevada 87-0621709
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
629 East 730 South, Suite 201, American Fork, UT 84003
(Address of principal executive office ) (Zip Code)
Registrant's telephone number, including area code: (801) 342-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), [X] Yes [ ] No and (2) has
been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
As of September 30, 1999, the Registrant had a total of 10,709,000
shares of common stock issued and outstanding.
<PAGE>
References in this quarterly report to "Whole Living" "we," "us," and
"our" refer to Whole Living, Inc.
This Form 10Q-SB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this Form 10Q-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.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Whole Living, Inc.
Financial Statements
September 30, 1999
<PAGE> 2
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>
CROUCH, BIERWOLF & CHISHOLM
Certified Public Accountants
50 West Broadway, Suite 1130
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.
The accompanying balance sheets as of September 30, 1999 and the related
statements of operations, stockholders' equity and cash flows for the periods
ended September 30, 1999 and from inception through September 30, 1999 were
not audited by us and, accordingly, we do not express an opinion on them.
The accompanying balance sheet as of December 31, 1998 was audited by us and
we expressed an unqualified opinion on it in our report dated February 23,
1999, but we have not performed any auditing procedures since that date.
/s/ Crouch, Bierwolf & Chisholm
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
October 28, 1999
<PAGE> F-3
Whole Living, Inc.
Balance Sheet
ASSETS
September 30 December 31
1999 1998
------------- -------------
CURRENT ASSETS (unaudited)
Cash $ 176,027 $ 68,205
Accounts receivable 109,443 1,044
Inventory 503,726 93,995
Prepaid expenses 74,354 -
------------- -------------
Total Current Assets 863,550 163,244
------------- -------------
PROPERTY & EQUIPMENT 300,802 167,322
------------- -------------
OTHER ASSETS
Goodwill 60,062 43,295
Prepaids 16,500 -
------------- -------------
Total Other Assets 76,562 43,295
------------- -------------
TOTAL ASSETS $ 1,240,914 $ 373,861
============= =============
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> F-4
Whole Living, Inc.
Balance Sheet continued
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30 December 31
1999 1998
------------- -------------
CURRENT LIABILITIES (unaudited)
Accounts payable $ 204,890 $ 36,790
Accrued expenses 238,865 55,954
Current portion of long-term liabilities 593,112 127,657
------------- -------------
Total Current Liabilities 1,036,867 220,401
------------- -------------
LONG TERM LIABILITIES
Notes payable-related party 540,000 50,000
Notes payable 44,139 70,872
Capital lease obligations 8,973 14,502
Less current portion (593,112) (127,657)
------------- -------------
Total long term Liabilities - 7,717
------------- -------------
TOTAL LIABILITIES 1,036,867 228,118
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, authorized 50,000,000 shares
$.001 par value, issued and outstanding
10,709,000 and 11,100 shares, respectively 10,709 11
Additional paid in capital 1,506,790 200,989
Retained earnings (1,313,452) (55,257)
------------- -------------
Total Stockholders' Equity 204,047 145,743
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,240,914 $ 373,861
============= =============
The accompanying notes are an integral part of these financial statements.
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<PAGE> F-5
Whole Living, Inc.
Statements of Operations
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30 September 30
1998 1999 1998 1999
------------ ------------ ------------ ------------
(Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
REVENUES $ 349,297 $ 1,049,591 $ 1,348,129 $ 2,083,089
COST OF SALES 125,540 193,807 400,451 491,974
------------ ------------ ------------ ------------
GROSS PROFIT 223,757 855,784 947,678 1,591,115
------------ ------------ ------------ ------------
SELLING EXPENSES 146,420 527,937 469,656 1,128,655
RESEARCH & DEVELOPMENT 330 16,037 330 17,084
GENERAL & ADMINISTRATIVE EXPENSES 195,199 642,921 591,098 1,699,685
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 341,949 1,186,895 1,061,084 2,845,424
------------ ------------ ------------ ------------
OPERATING LOSS (118,192) (331,111) (113,406) (1,254,309)
------------ ------------ ------------ ------------
OTHER INCOME AND (EXPENSES)
Interest expense (5,359) (440) (16,079) (1,549)
Interest income - 2,854 - 3,753
Loss on sale of asset - - - (6,090)
------------ ------------ ------------ ------------
Total Other Income and (Expenses) (5,359) 2,414 (16,079) (3,886)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (123,551) (328,697) (129,485) (1,258,195)
PROVISION FOR INCOME TAXES - - - -
------------ ------------ ------------ ------------
NET LOSS $ (123,551) $ (328,697) $ (129,485) $(1,258,195)
============ ============ ============ ============
NET LOSS PER SHARE $ (.03) $ (0.03) $ (0.03) $ (0.22)
============ ============ ============ ============
WEIGHTED AVERAGE OUTSTANDING SHARES 4,299,000 10,702,333 4,299,000 5,860,778
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
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</TABLE>
<PAGE> F-6
<TABLE>
<CAPTION>
Whole Living, Inc.
Statement of Stockholders' Equity
From Inception on November 25, 1998 through December 31, 1998,
and September 30,1999 (unaudited)
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 -
July 1999-shares issued for cash 400,000 400 499,600 -
September 1999-shares issued for
insurance policy 10,000 10 16,490 -
Net (Loss) for the nine months
ended September 30,1999(unaudited) - - - (1,258,195)
----------- ----------- ----------- -----------
Balance on September 30,1999
(unaudited) 10,709,000 $ 10,709 $1,506,790 $(1,313,452)
=========== =========== ========== ============
The accompanying notes are an integral part of these financial statements.
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</TABLE>
<PAGE> F-7
Whole Living, Inc.
Statements of Cash Flows
For the Nine For the Nine
Months Months
Ended Ended
September 30 September 30
1998 1999
------------- -------------
Cash Flows From Operating Activities (Predecessor)
Net income (loss) $ (129,485) $ (1,258,195)
Non-cash items:
Depreciation & amortization 5,089 40,155
Stock issued for services - -
(Increase)/decrease in current assets:
Accounts receivable (84,886) (108,399)
Inventory (2,589) (409,731)
Prepaid expenses - (74,354)
Increase/(decrease) in current liabilities:
Accounts payable (6,177) 168,100
Accrued expenses 77,984 182,911
------------- -------------
Net Cash Provided (Used) by Operating Activities (140,064) (1,459,513)
------------- -------------
Cash Flows from Investing Activities
Cash paid for Property and Equipment (82,644) (173,635)
Cash paid for Goodwill - (16,767)
------------- -------------
Net Cash Provided (Used) by Investing Activities (82,644) (190,402)
------------- -------------
Cash Flows from Financing Activities
Cash received from stock issuance - 1,300,000
Cash received from debt financing 257,822 490,000
Principal payments on long-term debt (10,955) (32,263)
------------- -------------
Net Cash Provided (Used) by Financing Activities 246,867 1,757,737
------------- -------------
Increase/(decrease) in Cash 24,159 107,822
Cash and Cash Equivalents at Beginning of Period - 68,205
------------- -------------
Cash and Cash Equivalents at End of Period $ 24,159 $ 176,027
============= =============
Supplemental Cash Flow Information:
Cash paid for interest $ 16,079 $ -
Cash paid for income taxes $ - $ -
Non-cash financing transaction:
Purchase of equipment with lease
obligations and notes $ 29,388 $ -
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE> F-8
Whole Living, Inc.
Notes to the Financial Statements
September 30, 1999
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
Whole Living, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the nine months ended September 30,
1999 since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their
Annual Report filed of Form 10-SB/A filed October 20, 1999.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit and reported by Crouch, Bierwolf & Chisholm. However,
such information reflects all adjustment which are, in the opinion of
management, necessary to properly reflect the results of the interim period
presented. The information presented is not necessarily indicative of the
results from operations expected for the full fiscal year.
<PAGE> F-9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Whole Living is a network marketing company involved in the
distribution and sale of proprietary, whole food, personal care and
educational products. Our revenue is primarily dependent upon the efforts of
a network of independent distributors who purchase products and sales
materials from us for personal use or for resale to customers or sponsored
distributors. We recognize revenue upon the receipt of the sales order, which
is simultaneous with the payment and delivery of such goods. Revenue is net
of returns, which have historically been less than 1% of gross sales.
Distributor commissions are paid to several levels of distributors on each
product sale. The amount and recipient of the commission varies depending on
the purchaser's position within the Unigen Plan. These incentives are
classified as operating expenses.
Costs of sales primarily consist of the cost of the products purchased
from third-party vendors. Selling expenses include distributor commissions,
the cost of computing and paying commissions as well as the cost of various
incentive programs for distributors which may include the cost of trips to our
conventions and other incentives paid to distributors for achieving certain
sales goals. Distributor commissions are paid to distributors on a monthly
basis based upon their personal and group sales volume. The overall payout
average has been approximately 35% of product sales, but as the distributor
organizations develop, we expect the payout average to increase to
approximately 45%.
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"). Whole
Living, the Nevada corporation, was the surviving entity following the
statutory merger. Prior to the date of the merger, Whole Living Utah had
obtained the principal assets, products and trademarks of Brain Garden LLC, a
Utah limited liability company, owned by Don Tolman. As a result of the
merger Whole Living acquired the business operations, products and assets of
Whole Living Utah which are a significant part of our ongoing business and the
products that we sell. In conformance with generally accepted accounting
principles, the merger has been accounted for as a "reverse merger" and the
accounting survivor is Whole Living Utah.
The reverse merger was completed pursuant to the statutory requirements
of Utah and Nevada through the exchange of 6,000,000 shares of the Whole
Living's common stock for all the outstanding stock of Whole Living Utah. For
tax purposes, the merger was a tax free exchange pursuant to Section 368
(a)(1) (A) of the Internal Revenue Code. For accounting purposes, Whole
Living was acquired for approximately 4.3 million shares in exchange for
$800,000 of its net monetary assets, $650,000 of which were advances due from
Whole Living Utah. The merger provided cash necessary to support the
operations of Whole Living Utah prior to the merger and the operations of
Whole Living after the merger.
In summary, Whole Living had no commercial operations until it merged
with Whole Living Utah in May of 1999. Whole Living Utah had been in business
only since late November of 1998 and it had acquired most of its product and
services from Brain Garden LLC in November of 1998.
Results of Operations
The following table summarizes the results of our operations for the
three months and nine months ended September 30, 1999 and 1998.
3
<PAGE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1998 1999 1998 1999
----------- ----------- ------------ ------------
Predecessor Predecessor
Revenue $ 349,297 $1,049,591 $ 1,348,129 $ 2,083,089
Cost of Sales 125,540 193,807 400,451 491,974
Gross Profit 223,757 855,784 947,678 1,591,115
Selling Expenses 146,420 527,937 469,656 1,128,655
Research & Development 330 16,037 330 17,084
General & Administrative 195,199 642,921 591,098 1,699,685
Expenses
Operating Income or (Loss) (118,192) (331,111) (113,406) (1,254,309)
Net Income (Loss) (123,551) (328,697) (129,485) 1,258,195)
Nine Months Ended September 30, 1999 Compared to Months Ended September
30, 1998.
Revenues increased $734,960 from the 1998 nine month period to the
1999 nine month period. The increase was due to the further development of
our distributor network. Cost of sales remained relatively constant from the
1998 nine month period compared to the 1999 nine month period. Selling
expenses increased to 54.1% of revenues for the 1999 nine month period
compared to 34.8 % for the 1998 nine month period as a result of increased
sales commissions and discounts applied to certain products to attract new
distributors. We spent $17,084 for research and development of our product
lines for the period ended September 30, 1999.
General and administrative expenses increased to 81.5% of revenues
for the 1999 nine month period compared to 43.8% for the 1998 nine month
period. This increase was primarily due to expenditures to create and support
the infrastructure and system to support expected revenue levels and product
and sales and marketing program development.
As a result of our increased expenses our operating loss was 60.2% of
revenues for the 1999 nine month period compared to 8.4% of revenues for the
1998 nine month period. Our net loss increased $1,128,710 from the 1998 nine
month period to the 1999 nine month period and we posted a loss per share of
$0.22 for the 1999 period compared to $0.03 per share for the 1998 period.
We anticipate our operating losses to continue until we develop a
larger distributor network, produce new marketing and sales materials and
develop new product lines. We expect our revenues to increase as a result of
our efforts to build a larger distributor network and to expand our product
lines. However, this rise in revenues will likely be offset by increased
operating expenses due to additional burdens on our managerial, accounting,
and support personnel. Also, by becoming a fully reporting company we will
add additional legal and accounting expenses to our operations as a result of
our reporting requirements.
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998.
Revenues increased $700,294 from the 1998 three month period to the
1999 three month period. Cost of sales were 18.4% of revenues for the 1999
three month period compared to 35.9% of revenues for the 1998 three month
period. The decrease in costs was primarily due to deep discounts in products
and sales aids given during 1999 to attract distributor groups and to help
them build their distribution networks. Selling expenses increased to 50.2%
of revenues for the 1999 three month period compared to 41.9 % of revenues for
the 1998 three month period as a result of increased sales commissions and
discounts applied to certain products to attract new
4
<PAGE>
distributors. $16,037 of our research and development costs were recorded
during the 1999 three month period from development of our personal care
product lines. General and administrative expenses increased slightly from
55.8% of revenues for the 1998 three month period to 61.2% of revenues for the
1999 three month period.
Our operating loss decreased slightly from 33.8% of revenues for the
1998 three month period to 31.5% of revenues for the 1999 three month period.
Our net loss increased $205,146 from the 1998 three month period to the 1999
three month period. Our loss per share was $0.03 for each period.
Liquidity and Capital Resources
We have funded our cash requirements primarily through revenues, loans,
and private placements of equity securities. Whole Living Utah initially
entered into a purchase agreement in November of 1998 in which it agreed to
acquire many of the assets of Brain Garden LLC in exchange for paying off
then-current payables in the amount of just over $260,000. Funds for the
purchase came primarily from the sales of a key distributorship for $50,000, a
$150,000 investment by Mark Comer, and a $50,000 loan to Whole Living Utah
from Mark Comer.
The subsequent merger of Whole Living Utah with Whole Living in May
of 1999 provided an infusion of cash. Whole Living sold 300,000 common shares
for $800,000 cash and advanced $650,000 of those funds to Whole Living Utah to
fund its operations until the merger was effected. After the merger Whole
Living obtained a loan for $340,000 in May of 1999 and then another loan for
$150,000 in September of 1999. Whole Living sold 400,000 common shares for
$500,000 cash in July of 1999.
As of September 30, 1999, Whole Living recorded cash reserves of
$176,027, total current assets of $863,550 and total current liabilities of
$1,036,867. 58.3% of the total current assets was allocated to our inventory
of food products and ingredients. 57.2% of the total current liabilities was
allotted to the current portion of our long-term liabilities, which were
primarily notes to related parties.
If our growth remains relatively moderate (below 50% per month) we
anticipate internal cash flows will be sufficient to continue our operations
and sales and marketing development for the next twelve months. However, if
we experience growth rates in excess of 50% per month, we will need to seek
additional financing. We might also require additional financing to fund
product development, such as our Whole Learning programs, if market research
shows strong demand for the proposed products.
If we experience growth rates in excess of 50% per month, we will need to
seek additional external financing to establish and maintain adequate
inventories. Although our distributors pay prior to shipment of products,
several of our products carry a fairly long lead time from our manufacturers
and suppliers. Because of this lead time and the possibility of temporary
shortages of one or more ingredients, we have planned to carry enough
completed inventory or inventory in progress to last eight (8) weeks. As
growth occurs, eight-week projections will necessarily increase and the cost
of producing this additional inventory will in turn increase. A sudden upward
swing in projected sales above our current growth rate projections per month
would require that we produce and warehouse more inventory than our internal
cash flow will pay for.
For example, suppose that in August we had forecast sales for September
of $400,000 and projected 20% growth for the next two months. Based on this
assumption, we would be projecting October sales of $480,000 and November
sales of $576,000. Assuming that cost of goods is 20% of net sales, we would
need a beginning inventory on October 1, costing $211,000 to cover the next
two months under projected sales model (an increase of $35,000 over the
previous month). Assuming a net cash flow of 10% of sales, cash flow from
September would be adequate to fund this increase in our inventory.
However, if we assume that sales in October and November will increase by
50% each month rather than 20% (i.e., we project revenues of $600,000 in
October and $900,000 in November), we would need to accumulate a beginning
inventory on October 1 costing $300,000 ($1,500,000 x 20%). In other words,
our inventory expenses would be increased by $124,000. The $40,000 obtained
from September's cash flow would fall far short of what would be required
under these circumstances.
Internal cash flows will be dependent on a number of factors: 1) our
ability to encourage our distributors to
5
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sponsor new distributors and increase their own personal sales; 2) our
ability to promote our product lines with our distributors; 3) our ability to
develop successful new product lines; 3) effects of regulatory changes, if
any; and 4) our ability to remain competitive in our markets. Actual costs
and revenues could vary from the amounts we expect or budget, possibly
materially, and those variations are likely to affect how much additional
financing we will need for our operations.
If additional funds are needed, we can not assure that funds will be
available from any source, or, if available, that we will be able to obtain
the funds on terms agreeable to us. We have not investigated the
availability, source or terms for external financing. Also, the acquisition
of funding through the issuance of debt could result in a substantial portion
of our cash flows from operations being dedicated to the payment of principal
and interest on the indebtedness, and could render us more vulnerable to
competitive and economic downturns.
In the event we elect to raise additional capital through the sale of
our common stock, we will issue such stock pursuant to the exemptions provided
by federal and state securities laws. The purchasers and manner of issuance
will be determined according to our financial needs and the available
exemptions. At this time we have not decided to offer securities and,
accordingly, have not determined the type of offering or the type or number of
securities which we will offer, if any. We also note that if we issue more
shares of our common stock our shareholders may experience dilution in the
value per share of their common stock.
Year 2000 Compliance
In early 1999, we created a Year 2000 committee and asked it to evaluate
the Year 2000 problems that we may encounter and take appropriate action to
address the possible material implications of those problems. This Year 2000
committee has developed and is implementing a plan to respond to the perceived
potential problems and attempt to render us Year 2000 ready.
The committee has identified three potential problem areas that could
have a material adverse impact on or financial condition, liquidity and
results of operations. These areas are: (1) our in-house informational
technologies which include our main computer system and partial information
collection and retrieval devices; (2) our contract suppliers who provide the
raw materials and services necessary to produce and distribute our products;
and (3) our distributors and customers who represent the ultimate sellers and
purchasers of our products.
As part of the Year 2000 initiative, we have established a testing
program to determine whether our assets are Year 2000 ready. Our testing
program is conducted in stages:
The initial stage consists of testing our in-house main computer server
and personal computers that are networked to the main server. For
example, testing a particular application to ensure that it correctly
manipulates dates and date-related data and properly operates in a Year
2000 ready environment.
The second stage includes testing interfaces between software providers
and our interactive touch-tone ordering system, called Interactive Voice
Response (IVR), to ensure that these interfaces will correctly send and
receive date-related data.
The final stage involves beginning-to-end validating of the
ordering/shipping process to ensure the total system has the capability
to send and receive date-related data.
We have not deferred any major information technology project as a result
of the implementation of the Year 2000 initiative.
As of September 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
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<PAGE>
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 single 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.
As an additional safeguard to interruption in the supply of raw materials
for the formulation of our products, we have initiated an inventory reserve
program under which we plan to produce and inventory ten weeks worth of
completed product and maintain that level of inventory through the end of
February 2000. We believe that this expansion of our inventory reserve
coupled with the fact that 75% of our raw materials are supplied by Future 500
will provide a safeguard against any delay in our receipt of needed raw
materials due to third party supplier failure to become Year 2000 compliant.
In addition, all of our promotional materials are produced for us by a
related third party company, MCB Printing, Inc. We have completed our
assessment of that company's preparedness for material Year 2000 problems and
have concluded that our supply of promotional materials will not be materially
affected.
Our local utility company (Utah Power), our local phone service provider
(US West) and our bank (Zion's Bank) have made public statements of their
preparedness for the Year 2000. We have not undertaken any independent
conformation of those statements, but have relied upon them. Similarly, we
have relied upon but made no independent verification of statements made by
Federal Express and other ground-based carriers that they will not be
materially affected by Year 2000 problems.
The last category is composed of our distributors and their customers
which collectively make up our customer base. Interruption in the
distributor's ability to access their down lines could have a material adverse
impact on our financial condition, liquidity and results of operations. We
have engaged in discussions with our Team Captain, Captain and All Star
distributors regarding potential Year 2000 problems and the necessity of a
contingency plan to prevent significant interruption of our businesses. Due
to the size of our company and the nature of our distribution system, we have
concluded from these discussions that any eventual impact will not be
material. The majority of our distributors place orders telephonically
through our interactive voice response (IVR) system. We have initiated tests
of the interface between our software providers and this system to ensure that
the distributors will be able to access the system and place their orders.
We estimate that we have spent approximately $3,800 through September 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
$200 in direct costs for completion of our contingency plans.
These are our management's best estimates and may be revised as
additional information becomes available.
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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.
PART 2. OTHER INFORMATION
ITEM 1. 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-judgement
interest of 10% per annum and post-judgement interest at the maximum legal
rate until all amounts due and owing are paid in full. Our management
believes that Whole Living has no liability and is defending the claim.
Mr. Tolman was never employed by us. He was President of Brain
Garden LLC, a separate entity that was engaged in network marketing of
nutritional products. At the time we formed Whole Living Utah it purchased
many of the products, formulas, trademarks and other business assets of Brain
Garden LLC, including the Brain Garden mark. Following this purchase, Mr.
Tolman worked as an independent consultant and distributor for Whole Living
Utah but was never an employee. Mr. Tolman continues to maintain a
distributorship and provide consulting services to Whole Living.
ITEM 2: CHANGES IN SECURITIES
8
<PAGE>
On September 2, 1999 we issued 10,000 common shares to Universal
Business Insurance for officers and directors liability insurance. The
services were valued at $16,500. This issuance of shares was exempt from
registration under the Security Act of 1933 by reason of Section 4(2) as a
private transaction not involving a public distribution.
In connection with this private transaction, we believe that the
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Part I: Exhibits.
Exhibit # Description
27 Financial Data Schedule
(b) Reports on Form 8-K. During the three months ended September 30,
1999, no reports on Form 8-K were filed by the Registrant.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHOLE LIVING, INC.
Date: 3/17/00 By /s/ Bill Turnbull
-------------------------------------
Bill Turnbull, Secretary and Director
By /s/ Mark Burdge
-------------------------------------
Mark Burdge, Chief Financial Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 176,027
<SECURITIES> 0
<RECEIVABLES> 109,443
<ALLOWANCES> 0
<INVENTORY> 503,726
<CURRENT-ASSETS> 863,550
<PP&E> 352,123
<DEPRECIATION> 51,321
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<CURRENT-LIABILITIES> 1,036,867
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0
0
<COMMON> 10,709
<OTHER-SE> 193,338
<TOTAL-LIABILITY-AND-EQUITY> 1,240,914
<SALES> 1,049,591
<TOTAL-REVENUES> 1,049,591
<CGS> 193,807
<TOTAL-COSTS> 1,186,895
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 2,414
<INCOME-PRETAX> (328,697)
<INCOME-TAX> 0
<INCOME-CONTINUING> (328,697)
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<EXTRAORDINARY> 0
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