Securities and Exchange Commission
Washington, D. C. 20549
_______________
Form 10-SB/A
Amendment No. 5
______________
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.)
629 East 730 South, Suite 201
American Fork, Utah 84003
(801) 772-3300
(Address and telephone number of principal executive offices
and principal 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
(Title of class)
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PART I
Item 1: Description of Business..............................................3
Item 2: Management's Discussion and Analysis or Plan of Operations..........12
Item 3: Description of Property............................................ 17
Item 4: Security Ownership of Certain Beneficial Owners and Management......17
Item 5: Directors, Executive Officers, Promoters and Control Persons........19
Item 6: Executive Compensation..............................................20
Item 7: Certain Relationships and Related Transactions......................21
Item 8: Description of Securities...........................................22
PART II
Item 1: Market Price of and Dividends on Whole Living's Common Equity and
Other Shareholder Matters...........................................23
Item 2: Legal Proceedings...................................................23
Item 3: Changes In and Disagreements With Accountants on Accounting and
Financial Disclosures...............................................24
Item 4: Recent Sales of Unregistered Securities.............................24
Item 5: Indemnification of Directors and Officers...........................24
PART F/S
Index to Financial Statements ..............................................25
PART III
Item 1: Index to and Description of Exhibits................................26
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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 within the
meaning of the Private Securities Litigation Reform Act of 1995. 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.
PART I
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 a major portion of the business assets
of Brain Garden, LLC, a Utah limited liability company operated by Don Tolman.
The assets acquired by Whole Living Utah included the products and formulas
presently being marketed by Whole Living as well as the trademark "Brain
Garden."
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.
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Our Business
Whole Living, doing business as Brain GardenTM, 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 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
multi-media programs 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 PulseTM, which consists of a variety of
nuts, seeds, fruits and grains. The ingredients used in PulseTM 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."
PulseTM may be used as a snack or a meal replacement. PulseTM has the
proteins, fibers, carbohydrates and other nutrients needed in a healthy diet
and comes in four different flavors. PulseTM also is an integral part of our
weight-loss program called "Daniel's 10-day Challenge." Our other major Whole
Foods snack products include Parched Pulse and Brain Grain. Currently 55% of
our product sales revenue is derived from our Whole Foods snack products and
12% is derived from our weight-loss products.
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
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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. We believe that what is put on the skin is passed through the skin
and finds its way into other tissues in the body. Therefore, an individual
should not put anything on the body that cannot also be put in the body.
Our Essential Oils and Earthborn Creations TM personal care line of
products were released in November of 1999. We believe our Essential Oils
provide health benefits for the user of these natural plant oils found in the
tissues of aromatic plants. These products are designed to be applied
topically to the body for therapeutic relief. Our Earthborn CreationsTM
products include creams, lotions, cleansers and shampoos made from essential
oils and mixing powders that are all natural and chemical-free, and made
entirely from plants. 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. The Earthborn Creations TM personal care, essential oils and
associated products were 20% of our revenues for the fiscal year 1999.
Distribution Network
We currently have only one sales office located in American Fork, Utah.
We buy product from our third-party suppliers (See, "Raw Materials and
Suppliers," below) and, as of December 1999, deliver the product to a
third-party, Excel Graphics, for warehousing and distribution to our
distributors and customers. Excel Graphics warehouses, packages, handles
will-call orders and arranges delivery of our products by mail or otherwise.
We pay Excel Graphics a set fee for the product which is warehoused, each
order fulfilled and packaging of kits. We pay shipping costs directly to the
provider of such services. The agreement with Excel Graphics is for a term of
one year, and renews automatically thereafter. Either party may terminate the
agreement with 90 days written notice.
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.
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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 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 and one "active" 50 PV leg. A Team Leader is a distributor that
has attained the Team Leader level of 75 PV units in personal purchases and
has established two "active" legs.
For management purposes such as product purchasing, sales estimating,
forecasting, and incentive planning, we use a second distributor definition
known as "currently active distributors" which includes those distributors
who, by their recent level of activity, are most likely to purchase products
and sell our products in the near future. We use the last six months as the
critical time frame within which we classify any distributor who has purchased
any products from us as "currently active". Approximately 8,403 of our
distributors fall in this category. Nineteen (19) distributorships have
achieved Team Captain and All-Star (10) executive distributor levels, which
are our two
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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.
In November of 1998 Whole Living Utah acquired a distributors list from
Brain Garden LLC which contained 23,800 names. From December 1998 through
February of 1999, Whole Living Utah attempted to contact and encourage these
distributors to participate in their business. During that period Whole
Living Utah determined 22,500 of these distributors were inactive. Inactive
status was established by the fact that the distributor had not ordered
products or participated in Brain Garden LLC and Whole Living Utah for a
period of six months. Accordingly, by the end of February 1999, Whole Living
Utah acquired 1,300 active distributors from Brain Garden LLC and during that
time had signed 1,400 new distributors of its own. Since March of 1999 we
have acquired an additional 5,848 new distributors, resulting in 8,548
currently active distributors as of September 2, 1999.
At the present time, it is not possible to quantify the amount of revenue
provided by each type or classification of distributorship. We are in the
process of developing the capability to generate that type of report, but, at
this time, do not have that ability. Because our program is based on monthly
sales volume, the amount of revenue generated by an individual distributor and
his down line will vary from month to month based on the fluctuating activity
of the levels below that distributor.
Examples of revenues generated by four "Captain" level distributors for
the month of August, 1999 are:
Name Sales Volume Commission
-------------- -------------- -------------
1.) Paragon Health $ 945.00 $ 80.45
2.) Mark Thomas $ 1,327.00 $ 109.45
3.) Delores Ludwick $ 3,448.00 $ 293.95
4.) Garden Health Ministries $ 8,863.00 $ 850.35
As is typical in the direct selling industry, there is turnover in
distributors from year to year, which requires the sponsoring and training of
new distributors by existing distributors to maintain or increase the overall
distributor force and motivate new and existing distributors. We may
experience seasonal decreases in distributor sponsoring and product sales
because of holidays and customary vacation periods. We cannot predict the
timing or degree of fluctuations because of the number of factors that impact
the sponsoring of new distributors, and the fact that we have little control
over the level of sponsorship of new distributors. We cannot assure that the
number or
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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". The sale of these materials and other business
tools account for 10% of our revenues. No distributor is required to purchase
a large inventory of products when he/she starts. However, in order to
receive compensation as a distributor and thereby become "active," personal
monthly purchases are required. The minimum level for such purchases varies
within the five compensation plan levels from 50 PV units for the lowest and
200 PV units for the highest. To purchase 50 PV units, an individual would
have to pay approximately $71.00.
Our standard distributor agreement, policies and procedures, and
compensation plan contained in every Garden Starter Kit outline the scope of
permissible distributor marketing activities. Our distributor rules and
guidelines are designed to provide distributors with maximum flexibility and
opportunity within the bounds of governmental regulations regarding network
marketing and prudent business policies and procedures. Distributors are
independent contractors and are thus prohibited from representing themselves
as our agents or employees. Distributors are obligated to present our
products and business opportunity ethically and professionally. Distributors
agree to abide by all local, state and federal laws and regulations pertaining
to the advertising, sale and distribution of our products. All advertising
must be factual and not misleading and a distributor will be terminated for
making false claims about the income potential, the compensation plan, or
product efficacy.
Distributors must represent to potential distributors that the receipt of
commissions is based on retail sales and substantial efforts. Distributors
may not use any form of media advertising to promote products without our
written consent. Products may be promoted by personal contact or by
literature produced or approved by us. Products generally may not be sold,
and the business opportunity may not be promoted, in traditional retail
environments.
We are not in a position to provide the same level of direction,
motivation, and oversight to our distributors as we would our own employees
because the distributors are independent contractors. We systematically
review alleged reports of distributor misbehavior, but the large number of
distributors and their independent status make it
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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, and within thirty days, the distributor does not want
to keep a product purchased by said distributor, in accordance with our
thirty-day return policy, we will replace the product or take back the product
and reimburse the distributor for the product, whichever the distributor
prefers. We warrant any item that is not date stamped for a period of one
year. Our product return policy is a material aspect of the success of the
distributors in developing a retail consumer base. Our experience with actual
product returns has averaged approximately 1% of sales during the first half
of 1999.
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. During fiscal year 1999 we expended $17,520 for research and
development of new product lines.
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.
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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
We are in the process of securing trademarks for our Brain Garden logo,
Brain GardenTM, PulseTM, Earthborn CreationsTM 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
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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 twenty-one (21) full time employees and one (1) part-time
employee. Five of these employees directly support the distributor network.
We do not anticipate increasing the number of employees at this time.
However, if we experience significant growth, we may be required to hire new
employees as necessary. Our employees are not presently covered by any
collective bargaining agreement. We believe our relationships with our
employees are good and we have not experienced any work stoppages.
Reports to Security Holders
We have voluntarily filed this registration statement. Following the
effective date of this registration statement, we are required to comply with
the reporting requirements of the Securities and Exchange Act of 1934. We
file annual, quarterly and other reports with the SEC. We are also 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. The public may obtain information on the operation of the Public
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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. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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 development
and marketing of all-natural chemical-free products designed to promote
optimal health, weight management and peak mental performance. 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 2% 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.
Cost of sales primarily consist of the cost of the raw materials and
finished products purchased from third-party vendors and internal production
costs. 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. Additional bonuses are
paid weekly to distributors. The overall payout average has been
approximately 41% of product sales.
Reverse Merger Treatment
In May of 1999 Whole Living merged with Whole Living, Inc., a Utah
corporation, doing business as Brain GardenTM ("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.
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Liquidity and Capital Resources
We have funded our cash requirements primarily through revenues, loans,
and private placements of equity securities. Management believes that these
sources of funding will continue to provide working capital for our operations
for at least the next twelve months. For the year ended December 31, 1999 we
recorded $183,069 cash on hand with total current assets of $587,428. 60.4%
of the total current assets were represented by our inventory of food products
and ingredients. Our total current liabilities were $1,454,755, with 60.8% of
those current liabilities allocated to the current portion of our long-term
liabilities, mostly notes to related parties. For the 1999 fiscal year we
recorded $1,435,300 net cash used by our operating activities and posted a
$0.193 net loss per share.
During fiscal year 1999 net cash provided by financing activities was
$1,738,045. In May of 1999 the merger of Whole Living Utah with Whole Living
provided an infusion of cash. Whole Living sold 300,000 common shares for
$800,000 cash and advanced $650,000 of those funds to Whole Living Utah to
fund its operations until the merger was effected. Shortly after the merger,
Whole Living obtained a loan for $340,000. In July we raised $500,000 through
the sale of our common stock and then we acquired another loan for $150,000 in
September of 1999. The funds from these financing activities were used to
fund our operations. In December of 1999 we satisfied certain promissory
notes in the amount of $207,958 by issuing 400,000 common shares.
As of December 31, 1999 our principal commitments consisted of notes
payable and office and equipment leases. Future minimum capital lease
payments totaled $7,905 through the year 2002. Future minimum principal
payments on notes payable totaled $884,721 through 2000. Future minimum
payments on operating leases totaled $438,702 through 2002. Other commitments
include a $5,000 bonus which we are obligated to pay each month to one
distributor.
During fiscal year 1998 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.
Management believes that our cash needs for at least the next six months
can be met by loans from our directors, officers and shareholders. We have an
understanding with such individuals that such loans will be repaid once we
have sufficient internal cash flows and/or are able to obtain additional
funding through private placements of our stock.
Since our inception, internal cash flows, alone, have not been sufficient
to maintain our operations. Our future internal cash flows will be dependent
on a number of factors: 1) our ability to encourage our distributors to
sponsor new distributors and increase their own personal sales; 2) our
ability to promote our product lines with our distributors; 3) our ability to
develop successful new product lines; 3) effects of regulatory changes, if
any; and 4) our ability to remain competitive in our markets. Actual costs
and revenues could vary from the amounts we expect or budget, possibly
materially, and those variations are likely to affect how much additional
financing we will need for our operations.
Management anticipates that additional capital will be provided by
private placements of our common stock once we are able to return the listing
of our stock to the OTC Bulletin Board. The removal of our common stock
listing from the OTC Bulletin Board and the subsequent listing on the National
Quotation Bureau Pink Sheets has adversely affected our trading market and our
ability to raise capital through equity. We intend to issue such stock
pursuant to 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. We do not currently intend to
make a public offering of our stock. 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.
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If we fail to raise the necessary funds through private placements, we
anticipate we will require debt financing. We have not investigated the
availability, source and terms for external financing at this time and 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. 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.
Results of Operations
The following table summarizes our operations for 1999, 1998 and 1997.
The 1998 fiscal year is divided into two columns. The "Predecessor" column
shows the operations of Brain Garden LLC for approximately eleven months and
the "From Inception" column shows Whole Living Utah's operations from its
inception in November to December 31, 1998. The fiscal year ended December
31, 1999 consolidates five months of operations of Whole Living Utah and seven
months of the combined entities as Whole Living Nevada.
<TABLE>
<CAPTION>
January 1 From inception Year ended
through through December 31
1997 November 25,1998 December 31, 1998 1999
------------------ ---------------- ----------------- -----------------
(Brain Garden LLC) (Predecessor)
<S> <C> <C> <C> <C>
Revenues $ 69,514 $ 1,808,765 $ 163,074 $ 3,625,935
Cost of Sales 47,647 359,914 65,407 1,452,242
Gross Profit 21,876 1,448,851 97,667 2,473,693
Selling Expenses 11,554 540,080 54,755 1,862,555
Research & Development - 330 10,040 17,520
General & Administrative 69,774 740,137 87,902 2,240,313
Total Operating Expense 81,328 1,280,547 152,697 4,120,388
Operating Income (Loss) (59,461) 168,304 (55,030) (1,646,695)
Net Profit (Loss) (59,461) 168,304 (55,257) (1,698,833)
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
Management's focus during 1999 was to:
* develop a core leadership base of experienced direct sales
professionals
* expand our product lines
* improve our sales tools
* create an infrastructure and business system to support our anticipated
growth
Revenues increased $1,654,096 for the 1999 year from the 1998 year
aggregate revenues of $1,971,839 for Brain Garden and Whole Living Utah.
During 1999 we experienced increases each month in net monthly sales, starting
with $112,320 for January and growing to $626,712 for December. The increased
revenues were a result of the development of our distributor network. Cost of
sales were 31.7% of revenues for 1999 compared to 19.9% of revenues for Brain
Garden's operations and 40.1% of revenues for Whole Living Utah's operations.
The 1999 cost of sales reflects discounts we applied to certain products in
order to attract new distributors. The higher cost of sales for Whole Living
Utah in 1998 were primarily a result of that company establishing a product
line and inventory. In addition, our cost of sales is affected by our
inability as a small company to purchase product at more advantageous prices,
i.e., discounts for larger quantities.
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Selling expenses increased $1,267,720 in 1999 from the 1998 aggregate of
$594,835 for Brain Garden and Whole Living, Utah. Selling expenses were 51.3%
of revenues in 1999 compared to 29.8% of revenues for Brain Garden's
operations and 33.6% of revenues for Whole Living Utah's operations in 1998.
The 1999 increase was primarily due to management's decision to make
concessions in pricing and sales commissions which were designed to attract
new distributors. Management does not deem it necessary to continue these
incentives into the next quarter.
We spent $17,520 during 1999 on research and development of our product
lines, compared to $10,340 spent by Whole Living Utah and $330 by Brain Garden
in 1998.
General and administrative expenses which include general office expense,
management and employees' salaries, and the support systems for the
distributor network, increased $1,412,274 in 1999 from the 1998 aggregate of
$828,039. The 1999 increase was due to hiring two additional full time
employees and one part-time employee, improvements to our support business
systems, and development of our sales and marketing tools.
Management anticipates our operating losses to continue in the short
term. We expect to realize expenses not related to ordinary operations when
we relocate our main offices to a new facility. However, management intends
to implement reductions in salaries and consulting fees to reduce operating
expenses.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Brain Garden LLC was formed in July of 1997. The year ended December 31,
1997 unaudited financials reflect two months of operations of that company and
the year ended December 31, 1998 reflects eleven months of that company's
operations. Brain Garden's revenues increased $1,739,251 for the 1998 eleven
month period from the 1997 year. The increase in revenues was a result of the
development of a distributor network and product lines. As a result of the
increase in revenues, cost of sales were 19.9% of Brain Garden's revenues for
the 1998 eleven month period compared to 68.5% of revenues for the 1997 year.
Gross profit increased $1,426,975 for the 1998 eleven month period from the
1997 year.
Brain Garden's selling expenses increased $528,526 in the 1998 eleven
month period from the 1997 year primarily as a result of sales commissions
paid to more distributors. Research and development costs for Brain Garden
were $330 for the 1998 eleven month period where Whole Living Utah spent
$10,040 for development of personal care and other products in the first month
of its operations.
Brain Garden's general and administrative expenses increased $670,363 in
the 1998 eleven month period from the 1997 year due to increased sales volume
and the costs of facilities and staffing necessary to accommodate that growth.
However, Brain Garden's total operating expenses decreased to 70.8% of
revenues for the 1998 eleven month period compared to 116.9% of revenues for
the 1997 year. Whole Living Utah's total operating expenses were 93.6% of its
total revenues for its first month due to establishment of its operations.
Brain Garden recorded a net profit of $168,304 for the 1998 eleven month
period compared to a net loss of $59,461 for the 1997 year as a result of
increased revenues. Whole Living Utah recorded a net loss of $55,257 during
one month of operation which reflects the costs and expenses associated with
the purchase of Brain Garden and establishment of its operations.
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 our short operating history we have not experienced a decrease in
sales during these time periods and are unsure how the industry-wide
fluctuations will affect our business in the future.
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Year 2000 Compliance
We, and to the best of our knowledge, our third party vendors, utility
providers and our distributors did not experience any interruption of
operations as a result of the Year 2000.
In early 1999, we created a Year 2000 committee and asked it to evaluate
the Year 2000 problems that we might encounter and take appropriate action to
address the possible material implications of those problems. This Year 2000
committee developed and implemented a plan to respond to the perceived
potential problems and attempt to render us Year 2000 ready.
The committee identified three potential problem areas that could have a
material adverse impact on or financial condition, liquidity and results of
operations. These areas were: (1) our in-house informational technologies
which include our main computer system and partial information collection and
retrieval devices; (2) our contract suppliers who provided the raw materials
and services necessary to produce and distribute our products; and (3) our
distributors and customers who represented the ultimate sellers and purchasers
of our products.
As part of the Year 2000 initiative, we established a testing program to
determine whether our assets were Year 2000 ready. Our testing program was
conducted in stages:
The initial stage consisted of testing our in-house main computer server
and personal computers that were networked to the main server. For
example, testing a particular application to ensure that it correctly
manipulated dates and date-related data and properly operated in a Year
2000 ready environment.
The second stage included testing interfaces between software providers
and our interactive touch-tone ordering system, called Interactive Voice
Response (IVR), to ensure that these interfaces correctly sent and
received date-related data.
The final stage involved beginning-to-end validating of the
ordering/shipping process to ensure the total system had the capability
to send and receive date-related data.
We did not defer any major information technology project as a result of
the implementation of the Year 2000 initiative.
As of June 30, 1999, we completed a review of our internal computer
systems and associated devices and had concluded, based on this review of our
operations and computer systems, that our significant information technology
("IT") systems would not be affected by Year 2000 problems. Internally, the
only critical Y2K questions related to our IT systems. We determined that our
enterprise level database program, which hosts all order entry, inventory,
shipping and commissions functions was Year 2000 compliant. Also, our
database server and other computers were checked and deemed Year 2000
compliant by a third party computer systems consultant. All of our network
stations were very late model personal computers running on the latest version
of Windows NT. If affected at all, our internal IT systems would not be
materially affected and the minor problems would be solved by replacing or
modifying the programs at a cost that would not be significant.
The second potential problem area was represented by non-information
technology ('non-IT") assets. This encompassed (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 included 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 used in blending our
products were supplied to us by a simple supplier. We had various discussions
with that supplier, Future 500, concerning its Year 2000 compliance
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and had received initial written confirmation of that compliance. We
contacted other suppliers in an effort to ascertain their Year 2000 compliance
and their state of readiness. We had received assurances from a majority of
these suppliers that their IT and non-IT assets were compliant or would be
Year 2000 compliant by the end of the fourth quarter of 1999. We reviewed 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.
This review process was 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 initiated an inventory reserve program
under which we produced and inventoried ten weeks worth of completed product
and maintained that level of inventory through the end of February 2000. We
believed that this expansion of our inventory reserve coupled with the fact
that 75% of our raw materials were supplied by Future 500 would 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 were produced for us by a
related third party company, MCB Printing, Inc. We concluded that our supply
of promotional materials would not be materially affected.
Our local utility company (Utah Power), our local phone service provider
(US West) and our bank (Zion's Bank) had made public statements of their
preparedness for the Year 2000. We did not undertake any independent
confirmation of those statements, but relied upon them. Similarly, we relied
upon but made no independent verification of statements made by Federal
Express and other ground-based carriers that they would not be materially
affected by Year 2000 problems.
The last category was composed of our distributors and their customers
which collectively made 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
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
concluded from these discussions that any eventual impact would not be
material. The majority of our distributors placed orders telephonically
through our interactive voice response (IVR) system and our tests of the
interface between our software providers and this system were Year 2000
compliant.
We estimate that we spent approximately $4,500 through December 31, 1999
on implementation of the Year 2000 initiative and developing our Year 2000
contingency plans. The majority of the initiative phase work was performed by
outside consultants. The implementation costs were minimal since most of our
IT and non-IT assets have been purchased already Year 2000 compatible.
We did not identify any material IT or non-IT assets critical to our
operations that presented a material risk of not being Year 2000 ready, that
couldn't be replaced with a suitable alternative, or for which we did not have
an acceptable contingency plan. We believed that our most reasonably likely
worse case scenario would 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.
ITEM 3. DESCRIPTION OF PROPERTY
We lease 8,122 square feet of office space from KL Partners American Fork
II LLC. The office space is located on the top floor of a new two-story
building constructed of contemporary stucco and glass and is located in an
office park in American Fork, Utah. The term of the lease is for 30 months
and expires on July 31, 2002. We pay a minimum monthly fee of $12,317 for
such lease.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth 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 11,109,000 shares
of common stock outstanding as of February 28, 2000.
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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 8.2%
629 East 730 South, Suite 201
American Fork, Utah 84003
PHI Mutual Ventures, LLC 4,702,701* 42.3%
525 South 300 East
Salt Lake City, Utah 84111
RBC Dominion Securities, Inc. 745,000 6.7%
A/C 250 00471-2
Royal Bank Plaza
Toronto, Ontario, Canada
SGS Holdings LLC 600,000 5.4%
P.O. Box 6201
Rock Springs, Wyoming 82901
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* 14.1%
629 East 730 South, Suite 201
American Fork, Utah 84003
Bruno Vassel III 1,567,567* 14.1%
629 East 730 South, Suite 201
American Fork, Utah 84003
Bill Turnbull 1,567,567* 14.1%
629 East 730 South, Suite 201
American Fork, Utah 84003
Mark Burdge 373,379 3.4%
629 East 730 South, Suite 201
American Fork, Utah 84003
All executive officers and
directors as a group 5,076,080 45.7%
*See, "Changes in Control," below.
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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
42.3% 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 56 Vice President, Treasurer and Director
Bill Turnbull 43 Secretary and Director
Mark Burdge 43 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 and Treasurer of Whole Living Utah
since November 1998. From March 1, 1973 to July 4, 1986 Mr. Vassel was
employed by Avon Products, Inc. in New York City. From July 5, 1993 to May 1,
1996 Mr. Vassel served as Vice President of Human Resources and as a member of
the Executive Committee of Nature's Sunshine Products, Provo, Utah. Natures
Sunshine Products is a publicly traded network marketing company which sells
herbal nutritional products. Prior to joining Nature's Sunshine Products,
from March 1, 1987 to July 5, 1993, Mr. Vassel managed his own international
consulting company known as Human Resources Services, Inc. Human Resources
Services, Inc. provided consulting services to more than fifty clients,
including several Fortune 500 companies. Following his employment with
Nature's Sunshine Products, Inc. from May 6, 1996 through November 30, 1998
Mr. Vassel concentrated his efforts on his consulting business. Mr. Vassel
received a Bachelor of Arts degree in 1969 from Brigham Young University,
Provo, Utah. He is the author of the book Lengthen Your Leadership Stride.
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
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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 December 31, 1998 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 fiscal year ended
December 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
-------------------------------------------------------------------------
Name and Principal Position Fiscal Salary Bonus Other Annual
Year Compensation
--------------------------- --------- --------- -------- ------------
Ron Williams,
President, CEO 1999 $ 60,000 0 $ 6,000*
Bruno Vassel, III,
Vice President, Treasurer 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: lease payments for automobile
Employment Contracts
We have adopted a policy of entering into employment agreements with our
senior management, and have entered into such agreements with Messrs.
Williams, Vassel and Turnbull. The term of the agreements start on March 15,
1999 and have initial terms of three years, with automatic renewal for one
year periods thereafter. Under the agreements each officer is entitled to
receive a base salary of $60,000 during the first year of the agreement. Each
is entitled to incentive bonuses, vacation time, insurance on an automobile,
stock options at the Board's discretion and reimbursement for expenses. We
may terminate the employment agreements for cause as that term is defined in
the agreements. If we terminate the employment at our discretion, each will
receive compensation due him for a period of twelve months. Each has promised
not to compete with Whole Living for a period of one year after termination.
21
<PAGE>
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. On December 10, 1999
we issued 50,000 common shares to satisfy this promissory note.
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 $198,000 from December 1, 1998 through December 31, 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. 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 90% 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.
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, our shareholder, loaned Whole
Living $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.
In September of 1999, PHI Mutual Ventures LLC, our shareholder, loaned us
$150,000 and assumed a $50,000 note originally made in 1998 by another
shareholder. Shortly thereafter, these loans were converted into 400,000
common shares.
On December 1, 1999 we entered into a service agreement with Excel
Graphics, a Utah corporation, to provide product warehousing and fulfillment.
Mark Burdge, our shareholder and Director, is the President and major
shareholder of Excel Graphics. As of December 31, 1999 we have paid $20,000
to Excel Graphics for its services. The terms of the service agreement are no
more favorable than we could receive from an independent third party.
During the fiscal year 1999 Vassel Enterprises, LLC has provided internet
web design and hosting services. Bruno Vassel III, our officer and director,
is the owner of Vassel Enterprises LLC and we have paid $29,012 for such
services.
22
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 50,000,000 shares of common stock, par value
$.001 per share, of which 11,109,000 shares were issued and outstanding as of
February 28, 2000. 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, when a person has acquired or offers to acquire a
controlling interest in a corporation a stockholders meeting must be held so
that the stockholders of the corporation can vote on whether the shares
proposed to be acquired (the "control shares") can exercise voting rights. A
controlling interest is statutorily defined to mean the ownership of
sufficient outstanding voting shares of an issuing corporation to enable the
acquiring person, directly or indirectly, to vote either (i) one-fifth or more
but less than a third of all voting shares; (ii) one- third or more than but
less than a majority of all voting shares; or (iii) a majority or more of all
outstanding voting shares, in the election of any director. The acquiring
person must deliver an "offeror's" statement to the stockholders at the
offeror's expense. Unless the corporation's Articles of Incorporation provide
otherwise, a majority of the outstanding stock not held by the offeror must
approve the voting rights for the stock held by the offeror. If an offeror
has a majority or more of all the outstanding voting shares, and such shares
are accorded full voting rights, a stockholder of record who votes against the
authorization shall have demand rights.
The control share acquisition provisions are applicable to any
acquisition of a controlling interest, except acquisition pursuant to the laws
of descent or distribution, enforcement of a judgment, satisfaction of pledge
or other security interest, or a merger or reorganization in compliance with
Nevada law. A corporation may opt out of the control share acquisition
provisions if its Articles of Incorporation or by-laws so state and they are
in effect on the tenth day following the acquisition of a controlling interest
by an acquiring person. We have not elected out of the control share
acquisition provisions of Nevada law.
23
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON WHOLE LIVING'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Our common stock is traded over-the-counter and quoted on the National
Quotation Bureau's Pink Sheets under the symbol "WLIV." There was no trading
activity in our common stock until August 5, 1999.
The following table represents the range of the high and low bid prices of our
stock as reported by the Nasdaq Trading and Market Services for the year ended
December 31, 1999. Such quotations represent prices between dealers and may
not include retail markups, markdowns, or commissions and may not necessarily
represent actual transactions. We cannot assure that an active public market
will develop in our common stock or that a shareholder may be able to
liquidate his investment without considerable delay, if at all.
Year Quarter Ended High Low
---- -------------- -------- -------
1999 September 30 $ 3.75 $ 0.375
December 31 5.00 2.00
Standard Transfer and Registrar Company of Draper, Utah, currently acts
as transfer agent for our common stock. As of February 28, 2000 we have
approximately 81 shareholders of record with 11,109,000 shares outstanding.
3,998,000 of such shares are freely tradeable (except for such shares as may
be subsequently acquired by our affiliates). The remaining 7,111,000 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 were not in compliance at our phase-in date and our
common stock listing was removed from the OTC Bulletin Board. We placed our
listing on the National Quotation Bureau's Pink Sheets. We intend to apply
for listing on the OTC Bulletin Board upon completion of the SEC comment
period. However, we cannot assure that the NASD will approve our application.
ITEM 2. 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
24
<PAGE>
their money. Ms. Baez claims she did not receive such an offer. Ms. Baez
seeks $113,966.81, pre-judgment interest of 10% per annum and post-judgment
interest at the maximum legal rate until all amounts due and owing are paid in
full. Whole Living's management believes we have no liability and is defending
the claim. We have filed an answer to the complaint and there has been no
further action in this litigation.
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 3. 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.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion describes all securities sold by us within the
past three years without registration: On December 10, 1999 we issued 400,000
common shares to SGS Holdings, LLC to satisfy promissory notes, with interest,
of $207,958. In September of 1999 we issued 10,000 common shares, valued at
$15,000, to Universal Business Insurance in consideration for an insurance
policy. On July 13, 1999 our Board authorized the issuance of 400,000 common
shares to SGS Holdings, LLC for $500,000 cash. On March 24, 1999 as part of
the reverse merger between Whole Living and Whole Living Utah, Whole Living
issued 6,000,000 shares of its restricted common stock to the five
shareholders of Whole Living Utah. In consideration for this issuance, Whole
Living received all of the issued and outstanding common stock and thereby
100% ownership of Whole Living Utah. In March of 1999 at Whole Living's
organizational meeting, the Board authorized the issuance of 100 common shares
each to our then President, Anita Patterson, and our then 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 5. 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
25
<PAGE>
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. We have purchased Director and Officer Liability
insurance with limits of $1 million per loss and $1 million per policy year
per insured.
Our bylaws provide that individuals may receive advances for expenses if
the individu al 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.
PART F/S
Index to Financial Statements
Whole Living, Inc. Financial Statements December 31, 1999 and 1998
Whole Living, Inc., Financial Statements, March 31, 1999 and December 31, 1998
from inception (January 30, 1986) through March 31, 1999.
Brain Garden LLC Financial statements, December 31, 1997 (unaudited)
26
<PAGE>
Whole Living, Inc.
Financial Statements
December 31, 1999 and 1998
<PAGE> 27
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>28
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.
We have audited the accompanying balance sheets of Whole Living, Inc. as of
December 31, 1999 and 1998 and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1999 and
from inception on November 25, 1998 through December 31, 1998, and from
January 1, 1998 through November 25, 1998 (Predecessor). 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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, 1999 and 1998 and the results of its operations and cash flows
for the year ended December 31, 1999 and from inception on November 25, 1998
through December 31, 1998, and from January 1, 1998 through November 25, 1998
(Predecessor) 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
Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
March 3, 2000
<PAGE> 29
Whole Living, Inc.
Balance Sheet
ASSETS
December 31
1999 1998
------------- -------------
CURRENT ASSETS
Cash (Note 1) $ 183,069 $ 68,205
Accounts receivable 2,548 1,044
Inventory (Note 1) 355,082 93,995
Prepaid expenses 46,729 -
------------- -------------
Total Current Assets 587,428 163,244
------------- -------------
PROPERTY & EQUIPMENT (Note 2) 295,485 167,322
------------- -------------
OTHER ASSETS
Goodwill (Note 1) 34,636 43,295
Deposits 11,506 -
------------- -------------
Total Other Assets 46,142 43,295
------------- -------------
TOTAL ASSETS $ 929,055 $ 373,861
============= =============
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 30
Whole Living, Inc.
Balance Sheet continued
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31
1999 1998
------------- -------------
CURRENT LIABILITIES
Accounts payable $ 328,478 $ 36,790
Accrued expenses 241,556 55,954
Current portion of long-term liabilities(Note 3) 884,721 127,657
------------- -------------
Total Current Liabilities 1,454,755 220,401
------------- -------------
LONG TERM LIABILITIES (Note 3)
Notes payable-related party 840,000 50,000
Notes payable 41,298 70,872
Capital lease obligations 7,905 14,502
Less current portion (884,721) (127,657)
------------- -------------
Total long term Liabilities 4,482 7,717
------------- -------------
TOTAL LIABILITIES 1,459,237 228,118
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, authorized 50,000,000 shares
$.001 par value, issued 11,109,000 and 11,100
shares, respectively, and outstanding
10,709,000 and 11,100 shares, respectively 10,709 4,299
Additional paid in capital 1,213,249 196,701
Retained earnings (1,754,140) (55,257)
------------- -------------
Total Stockholders' Equity (530,182) 145,743
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 929,055 $ 373,861
============= =============
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 31
Whole Living, Inc.
Statement of Operations
<TABLE>
<CAPTION>
From inception From
on November January 1,
For the Year 25, 1998 1998
Ended through through
December 31, December 31, November
1999 1998 25, 1998
------------- --------------- --------------
(Predecessor)
<S> <C> <C> <C>
REVENUES $ 3,625,935 $ 163,074 $ 1,808,765
COST OF SALES 1,152,242 65,407 359,914
------------- --------------- --------------
GROSS PROFIT 2,473,693 97,667 1,448,851
------------- --------------- --------------
SELLING EXPENSES 1,862,555 54,755 540,080
RESEARCH & DEVELOPMENT 17,520 10,040 330
GENERAL & ADMINISTRATIVE EXPENSES 2,240,313 87,902 740,137
------------- --------------- --------------
TOTAL OPERATING EXPENSES 4,120,388 152,697 1,280,547
------------- --------------- --------------
OPERATING INCOME/(LOSS) (1,646,695) (55,030) 168,304
------------- --------------- --------------
OTHER INCOME AND (EXPENSES)
Interest expense (52,649) (227) -
Interest income 6,551 - -
Loss on sale of asset (6,090) - -
------------- --------------- --------------
Total Other Income and (Expenses) (52,188) (227) -
------------- --------------- --------------
INCOME/(LOSS) BEFORE INCOME TAXES (1,698,883) (55,257) 168,304
PROVISION FOR INCOME TAXES (Note 1) - - -
------------- --------------- --------------
NET INCOME/(LOSS) $ (1,698,883) $ (55,257) $ 168,304
============= =============== ==============
NET LOSS PER SHARE $ (0.193) $ (0.009) -
============= =============== ==============
WEIGHTED AVERAGE OUTSTANDING SHARES 8,793,613 5,846,846 -
============= =============== ==============
The accompanying notes are an integral part of these financial statements.
-6-
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
Whole Living, Inc.
Statement of Stockholders' Equity
From Inception on November 25, 1998 through December 31, 1999
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 5,081,080 5,081 (4,081) -
December 1998-Shares issued for cash 918,920 919 199,081 -
Net (Loss) from inception on November
25, 1998 through December 31, 1998 - - - (55,257)
------------ ---------- ------------ ------------
Balance on December 31, 1998 6,000,000 6,000 195,000 (55,257)
Adjustment for reverse acquisition
and reorganization 4,299,000 4,299 795,701 -
July 1999 - shares issued for
conversion of notes payable 400,000 400 207,558 -
September 1999 - shares issued for
Insurance policy 10,000 10 14,990 -
Net (Loss) for the year ended
December 31, 1999 - - - (1,698,883)
------------ ---------- ------------ ------------
Balance on December 31, 1999 10,709,000 $ 10,709 1,213,249 $(1,754,140)
============ ========== ============ ============
The accompanying notes are an integral part of these financial statements.
-7-
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
Whole Living, Inc.
Statement of Cash Flows
For the
From inception period from
on November January 1,
For the Year 25, 1998 1998
Ended through through
December 31, December 31, November
1999 1998 25, 1998
------------- --------------- --------------
(Predecessor)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ (1,698,883) $ (55,257) $ 168,304
Non-cash items:
Depreciation & amortization 66,565 2,581 6,220
Stock issued for services 15,000 1,000 -
Stock issued for interest 7,958 - -
Loss on sale of assets 6,090 - -
(Increase)/decrease in current assets:
Accounts receivable (1,504) (1,044) (84,886)
Inventory (261,087) (93,995) (86,457)
Prepaid expenses (46,729) - -
Increase/(decrease) in current liabilities:
Bank Overdraft - - (6,177)
Accounts payable 291,688 36,790 9,301
Accrued expenses 185,602 55,954 90,795
------------- --------------- --------------
Net Cash Provided (Used) by
Operating Activities (1,435,300) (53,971) 97,101
------------- --------------- --------------
Cash Flows from Investing Activities
Cash paid for Property and Equipment (176,375) (71,510) (111,782)
Cash paid for Goodwill - (43,295) -
Cash paid for Deposits (11,506) - -
------------- --------------- --------------
Net Cash Provided (Used) by
Investing Activities (187,881) (114,805) (111,782)
------------- --------------- --------------
Cash Flows from Financing Activities
Cash received from WLN pursuant to
the acquisition 800,000 200,000 -
Cash received from debt financing 990,000 50,000 87,664
Principal payments on long-term debt (51,955) (13,019) (7,895)
------------- --------------- --------------
Net Cash Provided (Used) by
Financing Activities 1,738,045 236,981 79,769
------------- --------------- --------------
Increase/(decrease) in Cash 114,864 68,205 65,088
Cash and Cash Equivalents at Beginning
of Period 68,205 - -
------------- --------------- --------------
Cash and Cash Equivalents at
End of Period $ 183,069 $ 68,205 $ 65,088
============= =============== ==============
Supplemental Cash Flow Information:
Cash paid for interest $ 9,799 $ - $ -
Cash paid for income taxes $ - $ - $ -
Non-cash financing transaction:
Purchase of equipment with lease
obligations and notes $ - $ 101,393 $ -
Stock issued for insurance policy $ 15,000 $ - $ -
Stock issued for conversion of notes
payable $ 207,958 $ - $ -
The accompanying notes are an integral part of these financial statements.
-8-
</TABLE>
<PAGE> 34
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 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 American Fork, Utah.
b. Recognition of Revenue
The Company recognizes income and expense on the accrual basis of
accounting.
The Company's source of revenue is from the sale of various food
products and other natural products. The Company recognizes the sale upon
receipt of the sales order, which is simultaneous with the payment and
delivery of such goods. The Company offers a 100% satisfaction guarantee
against defects for 30 days after the sale of their product. The Company
extends this return policy to its distributors for a 30 day period and the
consumer has the same return policy in effect against the distributor.
Returns are approximately 1% of sales for both periods presented. All
conditions of FASB 48 are met and the revenue is recorded upon sale, with an
estimated accrual for returns. The Company has no sources of comprehensive
income.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
The weighted average shares outstanding is calculated as follows at December
31, 1999 and 1998:
December 31,
1999 1998
------------ ------------
Shares outstanding at beginning of period 6,000,000 -
Shares issued for services, November 1998 - 5,081,080
Shares issued for cash, December 1998 - 918,920
Reorganization adjustment effective
May 24, 1999 4,299,000 -
Shares issued for cash, July 1999 400,000 -
Shares issued for insurance policy,
September 1999 10,000 -
------------ ------------
Balance of shares at End of Period 10,709,000 6,000,000
============ ============
-9-
<PAGE> 35
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
c. Earnings (Loss) Per Share (continued)
Weighted average computation: 6,000,000-144 days 5,081,080-36 days
10,299,000- 50 days 6,000,000-30 days
10,699,000- 52 days -
10,709,000-119 days -
----------- ---------
Weighted average shares 8,793,613 5,846,846
=========== =========
There are no reconciling items to net income for the computation of
earnings per share. 400,000 shares held in escrow as collateral on a note
payable were not included in computing diluted earnings per share because
their effects were anti-dilutive.
d. Provision for Income Taxes
No provision for income taxes has been recorded due to net operating
loss carryforwards totaling approximately $1,754,000 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, 1999 and 1998:
December 31,
1999 1998
------------- --------------
Deferred tax asset:
NOL carryforward $ 596,000 $ 18,700
Valuation allowance (596,000) (18,700)
------------- --------------
Total $ - $ -
============= ==============
e. Cash and Cash Equivalents
The company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
f. Property and Equipment
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of assets or
convert the assets to a new use, are capitalized at cost. Expenditures for
maintenance, repairs and other renewals of items are charged to expense. When
items are disposed of, the cost and accumulated depreciation are eliminated
from the accounts, and any gain or loss is included in the results of
operations.
-10-
<PAGE> 36
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
f. Property and Equipment (continued)
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 31,1999 and 1998 is $57,906 and $2,581,
respectively.
g. Inventory
Inventory is recorded at the lower of cost or market and valued on a
first-in, first-out basis. Inventory consists primarily of consumable food
products and ingredients.
h. Fair Value of Financial Instruments
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amounts.
i. Goodwill
The Company recorded goodwill in the acquisition of the assets of Brain
Garden, LLC. Various intangible assets such as distributor down lines,
customer lists and product name identification are included in Goodwill.
Valuation of these intangibles separately was not identified, yet the excess
of payment over the net assets received provides for the recording of these
intangibles as Goodwill. Goodwill is being amortized over 5 years on a
straight-line method. Amortization expense for the year ended December 31,
1999 was $8,659.
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.
-11-
<PAGE> 37
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (Continued)
k. Acquisition
On November 30, 1998, the Company acquired many of the assets, lease
obligations and much of the 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 expired during 1999.
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, 1999
and 1998:
December 31,
1999 1998
------------ ------------
Office equipment & furnishings $ 49,782 $ 33,682
Office furniture & fixtures 57,536 34,829
Software 232,333 86,379
Leased equipment 15,014 15,014
------------ ------------
354,665 169,904
Less:
Accumulated depreciation (55,930) (2,332)
Accumulated depreciation
- leased equipment (3,250) (250)
------------- ------------
Total Property & Equipment $ 295,485 $ 167,322
============= ============
-12-
<PAGE> 38
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 3 - Long-Term Liabilities
Long Term Liabilities are detailed in the following schedules as of
December 31, 1999 and 1998:
Notes payable - related party is detailed as follows: December 31
1999 1998
------------ -----------
Note payable to a shareholder of the Company,
non-interest bearing, due upon demand and
unsecured $ - $ 50,000
Note payable to a shareholder of the Company,
bearing interest at 10%, due June 2000 and
secured by 400,000 shares of common stock 500,000 -
Note payable to a shareholder of the Company,
bears interest at 9%, due May 1, 2000 and
unsecured 340,000 -
------------ -----------
Total notes payable - related party 840,000 50,000
============ ===========
Notes Payable are detailed as follows:
Note payable to an individual, non-interest
bearing, due within one year 10,031 -
Note payable to a corporation, non-interest
bearing, due within 60 days of delivery of
software, unsecured 31,267 70,872
------------ -----------
Total Notes Payable $ 41,298 $ 70,872
============ ===========
Capital lease obligations are detailed in the following schedule as of
December 31, 1999 and 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. $ 808 $ 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. 7,097 9,101
------------ -----------
-13-
<PAGE> 39
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 3 - Long-Term Liabilities (continued)
December 31
1999 1998
------------- -----------
Total Lease Obligations 7,905 14,502
------------- -----------
Total long term liabilities 889,203 135,374
Less current portion of:
Notes payable - related party 840,000 50,000
Notes payable 41,298 70,872
Capital lease obligations 3,423 6,785
------------- -----------
Total current portion 884,721 127,657
------------- -----------
Net Long Term Liabilities $ 4,482 $ 7,717
============= ===========
Future minimum principal payments on notes payable and notes
payable-related party are as follows:
2000 $ 884,721
-----------
Total notes payable and notes payable-related party $ 884,721
===========
Future minimum lease payments are as follows at December 31, 1999:
2000 4,520
2001 3,651
2002 1,217
-----------
9,388
Less portion representing interest (1,483)
-----------
Total $ 7,905
===========
NOTE 4 - Commitments and Contingencies
In December 1999 the Company committed to an operating lease for office
space. The lease requires the Company to pay monthly rent of $12,317 and
expires in July 2002.
In March 1999 the Company committed to an operating lease for a
vehicle. The lease requires the Company to make monthly payments of $499 and
expires in March 2002.
-14-
<PAGE> 40
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 4 - Commitments and Contingencies (continued)
In April 1999 the Company committed to an operating lease for a vehicle.
The lease requires the Company to make monthly payments of $499 and expires in
April 2002.
In March 1999 the Company committed to an operating lease for a vehicle.
The lease requires the Company to make monthly payments of $399 and expires in
March 2002.
In March 1999 the Company committed to an operating lease for a vehicle.
The lease requires the Company to make monthly payments of $691 and expires in
March 2002.
Future minimum payments on operating leases are as follows:
2000 $ 172,860
2001 172,860
2002 92,982
-------------
Total $ 438,702
=============
The Company sells and distributes its products through independent
distributors. The Company is committed to an agreement that guarantees a
monthly distributors bonus of $5,000 to one of its distributors who purchased
a distributor position for $50,000. The distributor agreement can be
terminated within 90 days of the execution of the agreement at the option of
the distributor. If canceled during this period a refund of the $50,000 less
monthly bonuses could occur. The termination period ended February 28, 1999,
and at such time a contingency no longer exists, however the monthly
commitment continues as long as both parties perform their respective
obligations under the terms of the agreement. The agreement has no
termination date.
The Company is also committed to a consulting arrangement with an
individual, wherein the Company pays a $5,000 monthly draw against future
royalties from developing sales, training and educational aids on a
case-by-case basis. The agreement can be terminated by a 90-day written
notice from either party. Termination by the Company must be for cause. The
Company paid $15,000 upon signing the agreement as a signing bonus which was
expensed as well as the monthly royalty payments. There is no indication in
the agreement that repayment of the advances is required in the future. The
Company received the individuals "downline" as part of the agreement, but no
asset has been recorded, because future economic benefit is unclear.
-15-
<PAGE> 41
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
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 public
markets and market it's products aggressively.
NOTE 6 - Related Party Transactions
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 $198,000 for the year ended December 31, 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.
During June 1999, PHI Mutual Ventures, a shareholder of the Company
loaned $500,000 to the Company. The loan bears interest at 10% and is due
June 2000. The note is secured by 400,000 shares of stock held in escrow.
In September 1999, PHI Mutual Ventures, a shareholder of the Company
loaned $150,000 to the Company. Also in September 1999, PHI Mutual Ventures
assumed a $50,000 note originally made in 1998 by another shareholder of the
Company. These loans were shortly thereafter converted into 400,000 shares of
the Company's common stock.
NOTE 7 - Principles of Consolidation
The December 31, 1999 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.
-16-
<PAGE> 42
Whole Living, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 8 - Reverse Acquisition
Effective May 24, 1999 the Company entered into an agreement to merge
with Whole Living, Inc. a Nevada Corporation (WLN) which is a non-operating
public company with cash of $150,000 and a note receivable of $650,000 from
Whole Living, Inc. (Utah) for funds advanced in contemplation of the merger.
Pursuant to the merger, WLN issued 6,000,000 shares of common stock to the
shareholders of the Company for all outstanding stock of the Company. The
merger was recorded as a reverse merger, with Whole Living, Inc. (Utah) being
the accounting survivor. All historical financial information in these
statements through May 23, 1999 are therefore that of Whole Living, Inc.
(Utah). A reverse merger adjustment was made to the books of the Company to
reflect the change in capital to that of WLN. No goodwill or intangible
assets were recorded in the reverse acquisition.
NOTE 9 - Stock Split
The per share information in these financial statements have been
retroactively restated for the effects of the reverse merger, as a 540.54 for
1 forward stock split.
NOTE 10 - Stockholders' Equity Transactions
In November 1998, the Company issued 5,081,080 shares of its common
stock to organizers for services valued at $1,000.
In December 1998, the Company issued 918,920 shares of its common stock
at $.217 per share for cash.
In May 1999, the Company issued 6,000,000 shares of its common stock in
the reverse acquisition. (See Note 8).
In July 1999, the Company issued 400,000 shares of its common stock at
$.52 per share in conversion of notes payable.
In July 1999, 400,000 shares of common stock were issued to PHI Mutual
Ventures as collateral on the $500,000 note payable. The shares are being
held in escrow and are therefore issued but not outstanding.
In September 1999, the Company issued 10,000 shares of its common stock
at $1.50 per share for an insurance policy.
-17-
<PAGE> 43
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> 44
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> 45
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> 46
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> 47
<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> 48
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> 49
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> 50
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 - Subsequent Event
----------------
In connection with the anticipated merger as mentioned in Note #5 a
stockholder has agreed to retire 13,000,000 shares of common stock which will
be canceled leaving 4,300,200 shares outstanding.
Note 7- 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.
<PAGE> 51
Brain Garden, LLC
Financial Statements
December 31, 1997 (unaudited)
<PAGE> 52
Brain Garden, LLC
Balance Sheet
ASSETS
December 31
1997
-------------
CURRENT ASSETS (unaudited)
Cash $ -
-------------
Total Current Assets -
-------------
FIXED ASSETS
Furniture & Equipment 19,507
Leasehold Improvements 200
-------------
Total Fixed Assets 19,707
-------------
TOTAL ASSETS $ 19,707
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft 6,177
-------------
Total Current Liabilities 6,177
-------------
MEMBERS' EQUITY
Members' Capital 72,991
Retained deficit (59,461)
-------------
Total Stockholders' Equity 23,530
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,707
=============
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 53
Brain Garden, LLC
Statements of Operations
For the Year
ended
December 31,
1997
-------------
(unaudited)
SALES $ 69,514
COST OF GOODS SOLD 47,647
-------------
GROSS PROFIT 21,867
-------------
OPERATING EXPENSES
Selling Expense 11,554
General And Administrative 69,774
-------------
TOTAL OPERATING EXPENSES 81,328
-------------
OPERATING INCOME (LOSS) (59,461)
-------------
OTHER INCOME AND (EXPENSES)
Interest Expense -
-------------
Total Other Income/ (Expense) -
-------------
NET INCOME (LOSS) $ (59,461)
=============
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 54
Brain Garden, LLC
Statement of Members' Equity
Retained
Amount Deficit
------------ -----------
Balance December 31, 1996 $ - $ -
Capital Contribution 72,991 -
Net Loss for the year ended - (49,461)
------------ -----------
Balance, December 31, 1997 $ 72,991 (49,461)
============ ===========
The accompanying notes are an integral part of these financial statements
5
<PAGE> 55
Brain Garden, LLC
Notes to the Financial Statements
December 31, 1997
GENERAL
------
Brain Garden, LLC (the Company) has elected to omit substantially all the
footnotes to the financial statements for the year ended December 31, 1997.
UNAUDITED INFORMATION
---------------------
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustment which
are, in the opinion of management, necessary to properly reflect the results
of the period presented.
<PAGE> 56
PART III
ITEM 1. INDEX TO AND DESCRIPTION OF EXHIBITS
(a) EXHIBITS
Exhibit
Number Description Location
------ ----------------- -------------
2.1 Articles of Incorporation of Whole Living Filed 8/9/99
2.2 Articles of Merger filed March 19, 1999 Filed 8/9/99
2.3 Articles of Merger filed May 24, 1999 Filed 8/9/99
2.4 Bylaws of Whole Living Filed 8/9/99
6.1 Lease between Whole Living and KL Partners Filed 3/20/00
American Fork II, LLC, dated November 26, 1999
6.2 Form of Employment Agreement Filed 8/9/99
6.3 Consulting Agreement between Whole Living, Inc. Filed 9/17/99
and Don Tolman, dated November 30, 1998
6.4 Private Label Manufacturing Agreement between Filed 9/17/99
Whole Living, Inc. and Future 500 Corporation
dated, September 14, 1999
8.1 Agreement and Plan of Reorganization between Filed 8/9/99
Whole Living and Whole Living, dba Brain Garden,
dated March 16, 1999
10.1 Letter of agreement from Hammond & Company, Filed 8/9/99
dated August 2, 1999
27 Financial Data Schedule See attached
________________________
<PAGE> 57
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 is duly authorized.
June 23, 2000
Date _______________. WHOLE LIVING, INC.
/s/ Bill Turnbull
By:________________________________________
Bill Turnbull, Secretary and Director
