U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WILD HEART RANCH INC.
(Name of small business issuer in its charter)
Delaware 3944 1-133976938-001
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
145 Tyee Drive, No. 1573, Point Roberts, Washington 98281-9602, (888) 889-9215
(Address and telephone number of principal executive offices)
145 Tyee Drive, No. 1573, Point Roberts, Washington 98281-9602, (888) 889-9215
(Address of principal place of business or intended principal place of business)
Dawn Van Zant, Chief Executive Officer, Wild Heart Ranch Inc.,
145 Tyee Drive, No. 1573, Point Roberts, Washington 98281-9602, (888) 889-9215
(Name, address and telephone number of agent for service)
Copy to: Richard G. Klein, Esq., Hofheimer Gartlir & Gross, LLP, 530 Fifth
Avenue, New York, NY 10036 (212) 818-9000
Approximate date of proposed sale to the public: On, and from time to time
after, the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/ _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. /_/ ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. /_/ ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
------------------------------
Calculation of Registration Fee
- ---------------------------------------------------------------------------------------------------
Title of each Proposed Proposed
class of maximum maximum
securities to be Amount offering price per aggregate Amount of
registered to be registered unit offering price registration fee
- ---------------------------------------------------------------------------------------------------
Common stock 5,518,024 $1.00 $5,518,024 $1,379.51
- ---------------------------------------------------------------------------------------------------
Total
Registration Fee $1,379.51
- ---------------------------------------------------------------------------------------------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until the registration statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
2
PROSPECTUS
for the sale of
5,518,024 shares of common stock
of
WILD HEART RANCH INC.
Of the 5,518,024 shares of our common stock being offered for sale in this
offering, 2,518,024 will be sold by the selling security holders named in the
"Selling security holders" section on page 29 of this prospectus and 3,000,000
will be sold by us.
- --------------------------------------------------------------------------------
Per share Total
Price to the public for shares
offered by us $ $
Proceeds to us $ $
- --------------------------------------------------------------------------------
We estimate that the initial offering price to the public of the shares
being sold by us will be $____ per share.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" on page seven.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The offering of 3,000,000 shares of common stock to be sold by us in this
offering will be managed by us, without an underwriter, through our officers and
directors, who will receive no sales commission or other compensation except for
reimbursement of expenses actually incurred for such activities. While we do not
plan to do so at this time, we may engage the services of broker-dealers to
assist us in selling the shares. If we do, the maximum commission payable to any
such broker-dealer will be 10% of the offering price. Our offering is being made
on a "best efforts" basis. We are not required to sell a minimum amount of
shares in this offering and all net proceeds will be available to us immediately
following our acceptance of investor subscriptions. The offering will expire on
, 2001.
The date of this prospectus is _____________________, 2001.
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TABLE OF CONTENTS
Page
----
Summary....................................................................... 5
Forward looking statements.................................................... 6
Risk factors.................................................................. 7
Use of proceeds...............................................................14
Determination of offering price...............................................14
Dilution......................................................................14
Dividend policy...............................................................14
Management's discussion and analysis of financial condition
and results of operations................................................15
Business......................................................................18
Properties....................................................................25
Legal proceedings.............................................................25
Management....................................................................25
Executive compensation........................................................26
Certain relationships and related transactions................................27
Market for common equity and related stockholder matters......................27
Principal shareholders........................................................28
Selling security holders......................................................29
Description of securities.....................................................31
Shares eligible for future sale...............................................32
Plan of distribution by Wild Heart............................................32
Plan of distribution by selling security holders..............................33
Experts.......................................................................34
Limited liability of directors................................................34
Financial statements..........................................................35
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Summary
Unless the context otherwise requires, all references in this registration
statement to "us," "we," "our" or "Wild Heart" mean Wild Heart Ranch Inc. and
its wholly-owned subsidiary Treasure Zone Limited.
The company
We are a content-driven toy company which creates and licenses non-violent
toys and products for the boy's and girl's markets based on original ideas and
characters. Our current product line consists of "plush" (i.e. stuffed animal)
and "pvc" (i.e., plastic) collectible horses based on the children's story
entitled The Legend - No More Night Mares(TM) written by Dawn Van Zant, our
founder and chairman. With assistance from our new strategic partner, Mandalay
Sports Entertainment, we plan to position Wild Heart as an innovator in new
content. Our mission is to establish an environment to conceive, create,
co-create, identify and produce new marketable content, toy designs, story
franchises and product brands for entertainment, merchandising and promotional
sales on a global basis.
Our corporate address is 145 Tyee Drive, Number 1573, Point Roberts,
Washington 98281-9602 and our telephone number is 888-889-9215.
The offering
(A) Common stock offered by the selling
security holders...................... 2,518,024 shares
(B) Common stock offered by us............ 3,000,000 shares
(C) Common stock outstanding
Before offering....................... 5,666,012 shares
After offering........................ 8,966,012 shares
(D) Use of proceeds....................... Assuming an aggregate offering
price to the public of
$_____________, we would have
approximately $________ in net
offering proceeds. We plan to
use such net proceeds for:
o product development;
o manufacturing;
o advertising;
o content development; and
o working capital.
We are not required to sell a minimum amount of shares in this offering and
all net proceeds from shares sold by us will be available to us immediately
following our acceptance of investor subscriptions.
We will not receive any of the proceeds of the shares sold by the selling
security holders.
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Summary financial information
This summary financial information should be read in conjunction with the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with our financial statements
and related notes appearing elsewhere in this prospectus. The historical results
presented below are not necessarily indicative of future results.
Fiscal Year Ended Three Months Ended
December 31, March 31,
1999 2000 2000 2001
---------------------- ----------------------
(Unaudited)
Statement of Operations Data:
- ----------------------------
Net sales $149,355 $143,177 $20,767 $12,456
Total cost of sales 78,789 143,580 9,061 2,708
Gross profit (loss) 70,566 (403) 11,706 9,748
Total operating expenses 413,547 601,131 58,226 427,146
Loss from operations (342,981) (601,534) (46,520) (417,398)
Net loss (344,514) (601,863) (46,245) (415,633)
December 31, 2000 March 31, 2001
----------------- --------------
(Unaudited)
Balance Sheet Data:
- ------------------
Working capital $116,908 $225,385
Total assets 436,682 505,986
Total liabilities 132,188 98,792
Total stockholders equity 304,494 407,194
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements. We intend to identify
forward- looking statements in this prospectus using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," or similar statements. These statements are based
on our beliefs as well as assumptions we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties, and assumptions.
Actual future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk factors section beginning
on page seven of this prospectus. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
6
* * * * * * *
Risk factors
Please carefully consider the following risk factors as well as the other
information set forth in this prospectus, including our financial statements and
the related notes, before deciding to invest in our common stock. Should any of
the following risks occur, in addition to risks and uncertainties not presently
known to us, the price of our stock, our financial condition, and the results of
our operations could be materially impacted, and you could lose all or part of
your investment in our common stock. Additional risks not listed below, known or
unknown, may also affect the value of our shares.
We have a limited operating history and our future financial results are
uncertain.
We were organized in Delaware in November 1997 and we have a limited
operating history as sales commenced in July 1998. Since inception we have
incurred significant losses, principally from consulting fees and selling,
general and administrative costs. For the year ended December 31, 1999, we had a
net loss of $344,514 and a net loss of $601,863 for the year ended December 31,
2000. For the quarter ended March 31, 2001 we had a net loss of $415,633
compared to a net loss of $46,245 for the quarter ended March 31, 2000. Our
ability to attain and maintain profitability will depend principally on our
ability to create and license new content and on the successful production,
marketing and sales of our products. We cannot assure you that we will be able
to accomplish our goals or achieve profitability or that profitability, if
achieved, can be sustained.
We need to obtain substantial additional funds to develop our products and our
future access to capital is uncertain.
Even though we believe our cash on hand, together with anticipated revenues
from the sale of our products, should be sufficient to meet our projected
operating and capital requirements for at least the next 12 months, within this
time period we will require substantial additional funds to finance our business
activities on an ongoing basis. We do not have any commitments or arrangements
to obtain additional funds and we cannot assure you that any additional funds,
whether through additional sales of securities or collaborative or other
arrangements with corporate partners or from other sources, will be available to
us when needed or upon terms acceptable to us. If we are unable to obtain
additional financing when we need it, we likely will be required to delay,
reduce or eliminate the production, sale and marketing of our products and
otherwise limit our operations to those that can be financed from cash on hand,
which could have a material adverse effect on us. If we raise additional funds
by issuing equity securities, dilution to stockholders may result and new
investors could have rights superior to holders of shares purchased in this
offering. Additionally, to the extent that we incur indebtedness, we will be
subject to certain related risks, including the risks that we may be required to
pledge or relinquish material rights to our assets that we otherwise would not
give up and that cash flow may be insufficient to pay principal and interest on
such indebtedness.
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All monies from subscriptions accepted by us will become immediately available
to us.
We have structured this offering to avoid requiring us to sell a minimum
amount of common stock before we can gain access to the subscription proceeds.
Accordingly, all monies from subscriptions accepted by us will become
immediately available to us. However, the funds available to us from the
proceeds of the offering will be reduced to the extent that less than the
maximum amount of common stock is sold, and we cannot assure you that a
sufficient amount of money will be raised in this offering to enable us to
produce, market and sell new or existing products or otherwise to effect a
meaningful commencement of our operations. Although we need to obtain the
maximum net proceeds from this offering, in the event that only a small portion
of the offering is raised we may not have the capital necessary to fund our
operations, and the risk to subscribers of a total loss of their investment in
us will be greatly increased and substantial.
We cannot assure you that our products will be accepted.
Although the horse industry in the US is a $25.3 billion business, and toy
industry sales reached $23 billion in 2000, our Armadillo Cowboy Club product
line will be a new concept and the No More Night Mare's product line is a
relatively new concept. As is typically the case with new concepts, demand and
market acceptance are subject to a high level of uncertainty. Our success
depends on the interest of young girls in horses carrying over to equine-related
toys.
Achieving market acceptance for our products will require substantial
marketing efforts and the expenditure of significant funds, the availability of
which we cannot assure you, to create awareness and demand among retailers and
young girls and boys, the primary market for our current and proposed products.
Although we recently began working with a strategic partner, we have limited
marketing experience, and after the completion of this offering we still will
have extremely limited financial, personnel and other resources to undertake
extensive marketing activities. Accordingly, no assurance can be given as to the
acceptance of any of our products or our ability to generate the revenues
necessary to remain in business.
We depend on third parties for the manufacture of all of our products.
We do not own or operate any manufacturing facilities and we are currently
dependent on third-party manufacturers in Hong Kong, China. Therefore, we are
and in the future will continue to be dependent upon our manufacturers to supply
on a timely basis the quality and quantity of product we require, and to comply
with applicable federal toy industry safety standards and state and local
regulatory requirements, if any, at a price that is both commercially reasonable
to and affordable by us. Should our current manufacturers be unable or
unwilling in the future to meet our needs for any reason, we would have to find
replacement manufacturers, and we cannot assure you that we would be able to do
so, in default of which we likely would lose sales and marketing credibility,
which would have a material adverse effect on our financial condition and
prospects.
8
We may not be able to successfully market our products to the mass retailers.
Beginning in 2001, we shifted our marketing focus from specialty to mass
retailers. Although we currently have several agreements with sales
representatives for specialty retailers, we have only one agreement with a sales
representative for the mass retailers. As we substantially depend on sales
representatives for the sale of our products, our inability to enter into
additional agreements with representatives for mass retailers could have a
material adverse effect on our financial condition. Moreover, these agreements
are terminable by either party upon short notice, and it is possible that upon
any such termination we would be unable to obtain new sales representatives
which would have a material adverse effect on our financial condition and
prospects.
There are risks associated with our intellectual property rights.
Our original legend, "No More Night Mares - A Dream of Freedom" (the
"Legend") has been copyrighted in the U.S., Canada the United Kingdom. In
addition, we received a copyright in the U.S. on our "Armadillo Cowboy Club"
story. While a copyright may prevent others from using an exact copy of the
Legend or the Armadillo Cowboy Club, it may not deter others from creating
similar works.
On December 26, 2000, we received a U.S. Patent for our electroluminescent
lamp technology entitled "Illuminated Toy for Night Use by Children" which is
used to illuminate the lighted blaze in certain mares in our plush toy line.
However, we cannot assure you that this patent will be enforceable or provide
protection against competitive products or otherwise be commercially valuable.
Moreover, enforcement of intellectual property rights typically requires
time-consuming and costly litigation, and there can be no assurance that others
will not independently develop substantially similar proprietary technology.
We have also received a trademark in the U.S. on the names "Wild Heart
Ranch" and "The No More Night Mares Legend". However, we cannot assure you that
this will provide significant protection against competing marks or otherwise be
commercially valuable.
9
The toy and entertainment businesses have no substantial barriers to entry and
we expect intense competition in the marketing and sale of our products.
We will compete with other toy companies as well as other forms of
entertainment including video games and movies. All of our potential competitors
have longer operating histories, greater name recognition, and overwhelmingly
greater financial, technical and marketing resources than we do. This intense
competition could materially adversely affect our business, operating results
and financial condition. In addition, competition for the consuming public's
disposable income dollars is extremely intense as the public has a limited
number of dollars to spend on toys and other forms of entertainment. Our success
depends in large part on our ability to convince the public to expend a portion
of those funds on our products.
We are exposed to product liability risks which are inherent in the sale of
toys.
We maintain product liability insurance coverage which we believe is
adequate for our needs. However, we cannot assure you that such insurance will
provide adequate coverage against potential liabilities.
Our success is principally dependent upon the active participation of our
chairman and chief executive officer Dawn Van Zant.
We do not have an employment agreement with Ms. Van Zant, and therefore she
will devote to our affairs only as much time as she, in the exercise of her sole
discretion, deems appropriate and she is therefore free to terminate her
employment with us at any time. In addition, we do not maintain any "key man"
insurance on her life, and in the event we should lose her services for any
reason whatsoever our business would suffer materially. We cannot assure you
that we would be able to employ qualified person(s) on acceptable terms to
replace her. Our success also will depend in large part upon our ability to
attract and retain qualified management, marketing and sales personnel, and we
cannot assure you that we will be successful in hiring or retaining such
qualified personnel. Our inability to do so would have a material adverse effect
on our business, financial condition and results of operations.
After completion of this offering Dawn Van Zant will exercise effective control
of us.
As a result of her effective control after this offering, assuming all of
the shares offered are sold, Ms. Van Zant will be able generally to direct our
affairs and the use of all funds available to us, elect a majority of our
directors and cause us to declare or refrain from declaring dividends, increase
our authorized capital, issue additional shares of capital stock or other
corporate securities and determine the outcome of all matters submitted to the
stockholders for approval. This type of concentration of control may also have
the effect of delaying, deferring or preventing a change of control of us.
10
Our growth is partly dependent upon our ability to develop our website and
employ the most recent e-commerce technology.
We have expended considerable resources in creating and enhancing our web
site. Significant effort has been expended towards the development of web
content and graphics, as well as web maintenance, to include timely product
pricing and product availability information. Our inability to update our
website, facilitate on-line shopping, and cater to changing tastes, trends and
preferences could result in lost customers and sales. In order to remain
competitive and improve our internet sell-through rates, we must continue to
upgrade the functionality and features of our website. In addition, can't assure
you that we'll be able to report or sustain sales growth to recover our capital
investment.
We cannot predict what regulations may be imposed on us as a provider of online
products and services.
We're subject to regulations applicable to businesses generally and laws or
regulations directly applicable to access to online commerce. Although there are
currently few laws and regulations directly applicable to the internet and
commercial online services, it is possible that a number of laws and regulations
may be adopted with respect to the internet or commercial online services
covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust and characteristics and quality of products and
services. Furthermore, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. The
adoption of any additional laws or regulations may decrease the growth of the
internet or commercial online services, which could, in turn, decrease the
demand for our products and services and increase our cost of doing business, or
otherwise have a material adverse effect on our business, financial condition
and results of operations.
Moreover, the applicability to the internet and commercial online services
of existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or regulations, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
internet and commercial online services, could have a material adverse effect on
our business, financial condition and results of operations.
We may face potential liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the nature and content of the
materials that appear on our websites.
Claims involving defamation, negligence, copyright, patent or trademark
infringement, as well as claims based on the nature and content of the materials
that appear on websites, have been brought, and sometimes successfully pressed,
against online services. We presently do not carry general liability or
directors and officers insurance therefore, any imposition of liability
11
could have a material adverse effect on our reputation and our business,
financial condition and results of operations.
We're dependent on the increased usage and stability of the internet and the
web.
The usage of the web for products and services such as those offered by us
will depend in significant part on continued rapid growth in the number of
households and commercial, educational and government institutions with access
to the web, in the level of usage by individuals and in the number and quality
of products and services designed for use on the web. Because usage of the web
as a source for information, products and services is a relatively recent
phenomenon, it is difficult to predict whether the number of users drawn to the
web will continue to increase and whether any significant market for usage of
the web for such purposes will continue to develop and expand. We cannot assure
you that internet usage patterns will not decline as the novelty of the medium
recedes or that the quality of products and services offered online will improve
sufficiently to continue to support user interest. Failure of the web to
stimulate user interest and be accessible to a broad audience at moderate costs
would jeopardize the markets for our websites.
Moreover, issues regarding the stability of the internet's infrastructure
remain unresolved. The rapid rise in the number of internet users and increased
transmission of audio, video, graphical and other multimedia content over the
web has placed increasing strains on the internet's communications and
transmission infrastructures. Continuation of such trends could lead to
significant deterioration in transmission speeds and reliability of the web and
could reduce the usage of the web by businesses and individuals. In addition, to
the extent that the web continues to experience significant growth in the number
of users and level of use without corresponding increases and improvements in
the internet infrastructure, we cannot assure you that the internet will be able
to support the demands placed upon it by such continued growth. Any failure of
the internet to support an increasing number of users due to inadequate
infrastructure or otherwise would seriously limit the development of the web as
a viable source of e-commerce and e-commerce services, which could materially
and adversely affect the acceptance of our products and services, which would,
consequently, materially and adversely affect our business, financial condition
and results of operations.
Our websites are subject to capacity constraints and system disruptions.
The satisfactory performance, reliability and availability of our websites
and our network infrastructure are critical to attracting web users and
maintaining relationships with consumers. System interruptions that result in
the unavailability of our websites or slower response times for consumers would
reduce the attractiveness of our websites to customers. Additionally, any
substantial increase in traffic on our websites would require us to expand and
adapt our network infrastructure. Our inability to add additional software and
hardware to accommodate increased traffic on our websites may cause
unanticipated system disruptions and result in slower response times. There can
be no assurance that we would be able to expand our network infrastructure on a
timely basis to meet increased demand. Any increase in system interruptions or
slower
12
response times resulting from the above factors could have a material adverse
effect on our business, financial condition and results of operations.
Our websites are subject to security risks.
Programmers or hackers may attempt to penetrate our network security. If
successful, such actions could have a material adverse effect on our business,
financial condition and results of operations. A party who is able to penetrate
our network security could misappropriate proprietary information or cause
interruptions in our websites. We may be required to expend significant capital
and resources to protect against the threat of such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
internet transactions and the privacy of users may also inhibit the growth of
the internet generally, particularly as a means of conducting commercial
transactions. Security breaches or the inadvertent transmission of computer
viruses could expose us to a risk of loss or litigation and possible liability.
We cannot assure you that contractual provisions attempting to limit our
liability in these areas will be successful or enforceable, or that other
parties will accept such contractual provisions as part of our agreements, any
of which could have a material adverse effect on our business, results of
operations and financial condition.
There are risks associated with the use of our domain names.
We currently hold three web domain names, "wildheartranch.com",
"horsetoys.com", and "nomorenightmares.com". The regulation of domain names in
the U.S. and in foreign countries is subject to change. Governing bodies may
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
cannot assure you that we will be able to acquire or maintain relevant domain
names in all countries in which we conduct business. Although we received a
trademark on "Wild Hart Ranch" and "The No More Nightmares Legend", the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our proprietary rights. Any
such inability could have a material adverse effect on our business, financial
condition and results of operations.
We haven't paid any dividends.
We've never paid any dividends on our common stock and we don't intend to
pay any in the foreseeable future.
We could issue substantial amounts of additional shares without shareholder
approval.
We have a substantial number of shares of common stock unissued and not
reserved for specific issuances which could be issued without any action or
approval by our shareholders, thus substantially diluting the percentage
ownership of Wild Heart held by purchasers of the securities and potentially
adversely affecting the market price of our common stock.
13
Use of Proceeds
We will not receive any of the proceeds from the sale of shares of common
stock by the selling security holders. However we could receive up to
$_________, net of offering expenses, from the sale of 3,000,000 shares by us,
which we plan to use for:
o product development;
o manufacturing;
o advertising;
o content development; and
o working capital.
Determination of Offering Price
The offering price of the 3,000,000 shares to be sold by us was determined
arbitrarily by management and has no bearing to any criterion of value.
Dilution
The net tangible book value of our common stock at March 31, 2001 was
$234,000 or $.04 per share. "Net tangible book value" per share represents our
total tangible assets less our total liabilities, divided by the number of
shares of our common stock outstanding. Without taking into account any changes
in our net tangible book value after March 31, 2001, other than to give effect
to the sale of shares of our common stock offered hereby at the assumed offering
price and estimated offering expenses of $132,000, the net tangible book value
of us at March 31, 2001 would have been $3,102,000 or $.36 per share. This
represents an immediate increase in net tangible book value to the existing
shareholders of $.32 per share and an immediate dilution of $.64 per share (or
64%) to the investors purchasing the shares offered hereby at the price to the
public. The following table illustrates this per share dilution in net tangible
book value to new investors.
Assumed initial public offering price.................. $1.00
Net tangible book value as of March 31, 2001........... $.04
Increase attributable to new investors................. $.32
Net tangible book value adjusted for this offering..... $.36
Dilution to new investors in this offering............. $.64
====
Dividend policy
We currently intend to retain earnings for use in the operation and
expansion of our business and therefore don't anticipate paying any cash
dividends in the foreseeable future. Cash dividends, if any, that may be paid in
the future to holders of our common stock will be payable when, as, and if
declared by our board of directors, based upon our assessment of our financial
condition, our earnings, need for funds, capital requirements and other factors.
14
Management's discussion and analysis of
financial condition and results of operations
Plan of Operations
For the last three years the Company has positioned itself as a toy and
publishing company based solely on content licensed to the Company by Dawn Van
Zant, the Company's founder. The No More Night Mares line of products, based on
the No More Night Mares Legend (the "Legend"), includes 14" plush horses with
night lights with a patented electroluminescent lighting technology in three
different characters, a story on audio cassette, art work illustrated by Kim
McElroy, a set of twelve 5" mini plush horses with LED lights and a television
pilot based on the Legend, which the Company to date has been unsuccessful in
exploiting.
The Company views 2001 as a year of positioning. Looking ahead, we expect
Wild Heart to change dramatically in sales, operations and diversification of
product lines. Proposed new product lines and the new entertainment industry
opportunities possible through our strategic relationship with Mandalay Sports
Entertainment, a division of Mandalay Entertainment ("Mandalay"), based in Los
Angeles, make us optimistic about our potential for increased revenue, market
penetration and brand awareness.
The Company launched the No More Night Mares line of plush horses three
years ago with initial sales and success in the specialty and equine market.
Mass retail exposure was limited to QVC, where the line was featured and did
relatively well in its first airing, selling out in six minutes. The Company was
encouraged by first sales feedback, but could not break into the mass retail
markets because of the price points of the products and the lack of advertising
support necessary to convince mass retail buyers we could develop a name brand.
Our sales stagnated, and the Company has lost money yearly since inception as
the specialty market was a limited source of sales and growth. The Company's
founder and some of the original investors funded the Company's operations, and
all loans incurred have been repaid or converted to common shares at the same
price as the shares sold to private placement investors ($1.00 per share).
The Company realizes its survival is dependent on diversity and strength of
lines in both the girls and boys markets. In July 2000, the Company engaged new
consultants to implement a plan for breaking into mass retail markets, expanding
the product lines and raising new working capital. In particular, the Company
retained a toy development company to expand the No More Night Mares line to
include products salable at the price points demanded by the mass retail
marketers. The new product line and its prototypes have been featured at Toy
Fair 2001, and at the Hong Kong and Dallas toy fairs. This consultant has also
accelerated our development of a new boys line of toys based on the "The
Armadillo Cowboys Club" story which was licensed to the Company by Ms. Van Zant.
The toy industry is seasonal and the majority of sales are during the Christmas
season, with orders commencing in June, and the Company is also trying to offset
seasonality with spring and summer sales of a proposed new water/play product
line.
The Company also has leveraged its potential in the publishing and
entertainment arena
15
by engaging Mandalay. Under our agreement, Mandalay provides consultation and
introduction of relationships in the entertainment industry for existing
content, new content and joint content to be developed, and Mandalay received a
5% equity interest in the Company. This agreement gives Wild Heart a presence in
Los Angeles, with daily access to contacts, executives and expertise. With
Mandalay's assistance our television pilot based on the No More Night Mares
Legend is currently being repackaged to better suit the requirements of the
entertainment industry.
The Company will require additional funding as it moves forward with its
new business model, principally to support new product development as well as an
advertising budget to establish brand identity. The Company has registered the
sale of the three million shares included in this prospectus as a means to
obtain short term financing. The Company also has entered into a financial
consulting agreement with Ascension Investment Management, LLC ("Ascension")
under which, among other things, it agreed to provide us with an interim credit
facility, and we have issued to it one million shares.
Results of Operations
We were organized in Delaware in November 1997 and we have a limited
operating history as sales commenced in July 1998. Since inception, we have
incurred significant losses, principally from consulting fees and selling,
general and administrative costs. In light of our limited operating history and
insignificant total net revenues to date, we believe that period-to- period
comparisons of our revenues and operating results, including our gross profit
and operating expenses as a percentage of total net revenues, are not
necessarily meaningful and should not be relied upon as indications of future
performance. For the year ended December 31, 1999, we had net sales of $149,355
and a net loss of $344,514, and net sales of $143,177 and a net loss of $601,863
for the year ended December 31, 2000. For the quarter ended March 31, 2001, we
had net sales of $12,456 and a net loss of $415,633, compared to net sales of
$20,767 and a net loss of $46,245 for the quarter ended March 31, 2000. Our
ability to attain and maintain profitability will depend principally on our
ability to create and license new content and on the successful production,
marketing and sales of our products. We cannot assure you that we will be able
to accomplish our goals or achieve profitability, or that profitability, if
achieved, can be sustained.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of our common stock and shareholder loans.
At December 2000, our stockholders equity was $304,494 and our working
capital was $116,908. At March 31, 2001, our stockholders equity was $407,194
and our working capital was $225,385.
Net cash used in operating activities increased to $261,516 for the year
ended December 31, 2000 from $168,164 for the year ended December 31, 1999. Net
cash used in operating
16
activities increased to $192,574 for the three months ended March 31, 2001 from
$8,533 for the three months ended March 31, 2000. Net cash used in operating
activities during the above periods was principally attributable to operating
losses in each of the periods reduced by non-cash expenses.
Net cash provided by financing activities increased to $448,019 for fiscal
2000, from $151,302 for fiscal 1999. Net cash provided by financing activities
increased to $282,360 for the three months ended March 31, 2001 from $5,064 for
the three months ended March 31, 2000. Net cash provided by financing activities
during the above periods was principally attributable to loans from shareholders
and proceeds from sales of common stock.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the amount of resources we devote to investments in
our products, the resources we devote to marketing and selling our products and
other factors. Even though we believe our cash on hand, together with
anticipated revenues from the sale of our products, should be sufficient to meet
our projected operating and capital requirements for at least the next 12
months, within this time period we will require substantial additional funds to
finance our business activities on an ongoing basis. We do not have any
commitments or arrangements to obtain additional funds and we cannot assure you
that any additional funds, whether through additional sales of securities or
collaborative or other arrangements with corporate partners or from other
sources, will be available to us when needed or upon terms acceptable to us. If
we are unable to obtain additional financing when we need it, we likely will be
required to delay, reduce or eliminate the production, sale and marketing of our
products and otherwise limit our operations to those that can be financed from
cash on hand, which could have a material adverse effect on us. If we raise
additional funds by issuing equity securities, dilution to stockholders may
result and new investors could have rights superior to holders of shares
purchased in this offering. Additionally, to the extent that we incur
indebtedness, we will be subject to certain related risks, including the risks
that we may be required to pledge or relinquish material rights to our assets
that we otherwise would not give up and that cash flow may be insufficient to
pay principal and interest on such indebtedness.
17
Business
Overview
We were formed in the State of Delaware in November 1997 and are a
content-driven toy company which creates and licenses non-violent toys and
products for the boy's and girl's markets based on original ideas and
characters. With the assistance of our new strategic partner, Mandalay Sports
Entertainment, we plan to position Wild Heart as an innovator in new content.
See "Sales and Marketing," below. Our mission is to establish an environment to
conceive, create, co-create, identify and produce new marketable content, toy
designs, story franchises and product brands for entertainment, merchandising
and promotional sales on a global basis.
Products
(a) Toys
1. The Legend
Our current product line consists of "plush" (i.e. stuffed animal) and
"pvc" (i.e., plastic) collectible horses based on the children's story entitled
The Legend - No More Night Mares(TM) (the "Legend") written by Dawn Van Zant,
our founder and chairman.
The Legend tells the original story of a mythical herd of wild horses and
their three mares. The first story in the Legend series, No More Night Mares...A
Dream of Freedom, has been copyrighted in Canada, the U.S. and the United
Kingdom. The Legend and related products, including artwork based on the Legend
by equine artist Kim McElroy, can be viewed on our website at
www.wildheartranch.com .
In 1998 we launched our first product line, which consists of 14" plush
horses that replicate the three mares in the Legend: Moonbeam, a palomino;
Comet, a pinto; and Lucky Stars, an appaloosa. Each mare has its own distinct
lighted blaze, i.e., the broad white mark down the horse's face which extends
over the bones of the nose, and which is lit using electroluminescent ("EL")
lighting technology. In December 2000, we received a U.S. patent for our use of
the EL light in toys. See "Intellectual Property - below." We designed and, in
August 2000, had a third party manufacture 12,000 first edition and 20,000
second edition 14-inch mares.
In the fall of 1999 we introduced our second product line, the Lucky Stars
Collection, which consists of 12 different 5-inch plush mares which utilize LED
lights and light bulbs, a less expensive alternative to our EL lighting
technology. These toys are sold in sets of 4 and 12 mares, in each case with a
nametag and poem depicting each horse's character and strength.
18
Both product lines, most of which have been sold, are distributed in specialty
markets comprised of approximately 600 retail stores.
In July 2000, we retained Scrambled Eggz Productions, a product development
company, to expand our plush line of horses and reposition us with new products
and designs suitable for the mass retail markets. We created new product line
extensions of both our plush and plastic toys, all focusing on light, magic and
horses. These products, which are also based on the Legend, have realistic horse
colors and long, brushable hair and manes. All of the new products aim to
empower children by teaching them not to be afraid of the dark. Many products
include light sources such as LED lights and glow-in-the-dark paint. We believe
that the light and sound elements of these products add interactive play value
and enhance the characters of Comet, Moonbeam and Lucky Stars. In addition, we
believe that the combinations of mare and foal (mom and baby) make the play
value and appeal for little girls even stronger.
The following is a list of our products planned for the fourth quarter of
2001:
o 13" plush horse with light and sound;
o 13" unicorn with light and sound;
o 14" mare/foal interactive plush horse with light and sound;
o glow-in-the-dark playset consisting of a plastic horse under a
light-up dome designed to replicate the night sky;
o 14" mare/foal interactive plastic horse with light (5 styles);
o 33" plush floppy horse; and
o 25" plush floppy horse.
All products will include the new animated CD-Rom of the Legend.
2. The Armadillo Cowboy Club
In August 2000, we acquired the exclusive license to the original story
entitled "The Armadillo Cowboy Club", written by Dawn Van Zant. Currently, we
are focusing on selling the content for cartoons, comic books and television
shows. In the next one to two years, we plan to develop a related line of
plastic toys aimed at boys aged 6 to 14. We have already completed the drawings
for these toys, which consist of cowboys, coyotes, a rattlesnake and a
tarantula, but we expect that the prototypes will not be ready until next year.
We also plan to develop additional key characters which will be modeled after
horses. Depending on the success of these products, we may introduce other
products based on this story which will be interactive. Contingent upon the
receipt of the necessary funding, as to which we cannot assure you, we plan to
create a marketing and development group that will be responsible for expanding
the Armadillo brand into other collectible boy areas. See "New Ventures Group" -
below.
(b) Artwork
We sell a series of color prints designed exclusively for us by equine
artist Kim McElroy, which depict the horses in the Legend. Each print is 18" x
24" and is sold unframed. In
19
November 1997 we entered into an agreement with Ms. McElroy to produce these
prints, pursuant to which she is entitled to a royalty of 1% of net sales. She
was paid an advance of $10,000 against royalties and to date, we do not owe her
any additional money.
(c) Audio Cassettes
We sell a 20 minute audio cassette in which a narrator reads the Legend.
(d) Proposed Television Series
In April 1998, we entered into a two-phase creative development agreement
with Wayne Chesler. In the first phase Mr. Chesler developed for us a pilot and
treatment for a children's television series based on the Legend, for which he
received $21,000 and 50,000 shares of our common stock. In the second phase,
which began in November 1998, Mr. Chesler began presenting the project to
television networks and production companies with the intent of selling,
co-developing or funding the proposed television series.
Effective April 6, 2001, our agreement with Wayne Chesler expired, however,
in April 2001, we entered into a one-year agreement, with the possibility of a
one-year extension, with Mandalay Sports Entertainment ("Mandalay") to assist us
in pursuing new relationships in the entertainment industry to sell and develop
the concept into a television series or movie. See "Sales and Marketing," below.
(e) Line extensions and new product lines
In the near future, we plan to develop greeting cards, t-shirts and other
items based on the Legend. Although we cannot assure you, other sources of
proprietary product that we plan to explore include the archives of major toy
companies which have dropped successful brands that did not meet their minimum
sales level criteria. Some of these brands represent immediate content
opportunities. These companies also represent opportunities in licensing, joint
ventures and category-swapping.
Over the next 12 months, we plan to attend international trade shows in
Japan, the United Kingdom, Nuremberg and other European markets to identify and
obtain the rights to ideas that have the potential to be expanded to content. We
also plan to use our relationship with Mandalay to contact and build
relationships with Hollywood studios and licensing agents for potential new
content and product. Finally, we may expand our relationship within the
publishing community to develop licensing opportunities, joint ventures and
strategic alliances.
No assurance can be given that any future products or line extensions will
be developed or, if developed, that they will be commercially successful.
Industry
According to statistics from the Toy Manufacturers of America, Inc., annual
sales of traditional toys in the U.S. (excluding video games), increased
steadily from 1996 to $23 billion
20
in 2000. Including video games, annual U.S. toy sales in 2000 were $29.4
billion. Sales of video games in the U.S. nearly doubled since 1996 from $3.6
billion to $6.4 billion. The market for "ride-on" toys, which includes
tricycles, skates and skateboards, increased by 48.6% from 1999 to 2000 to $1.14
billion, the largest increase of any product category. During the same period,
although "plush" toys and action figure (plastic) toys collectively account for
a greater share of the toy market than ride-ons, the market for plush toys
decreased 35% from 1999 to 2000, to $1.5 billion and the market for action
figure (plastic) toys decreased 26.7% from 1999 to 2000 to $823 million.
Competition
Generally, the toy market is highly competitive and difficult to penetrate
without substantial advertising prior to a new product launch, and we cannot
assure you that we will be able to compete successfully. We will compete with
other toy manufacturers, including Disney, Mattel, Tyco, Steiff, Gund, TY, 24K,
Breyer Animal Creations and Peter Stone, all of which have longer operating
histories, greater name recognition and vastly greater personnel, financial,
marketing and other resources than we do. With the exception of Steiff, Gund,
24K, Breyer and Peter Stone, these manufacturers concentrate their distribution
on the top 10 mass retail discount and toy chains, a market which we plan to
begin exploiting. However, we will indirectly compete with Steiff, Gund, 24K,
Breyer and Peter Stone since they target the same customers that we do.
We were able to enter the toy industry by first establishing our products
in the specialty markets. In the past, we had over 600 gift and specialty stores
retailing our product lines, as well as over 70 internet retailers. We currently
sell our product in over 200 equine outlets. We believe that utilizing the
specialty markets enabled us to establish consumer loyalty to our product name
and image and positioned our products to be expanded into the mass retail
markets, although no assurances can be given.
Hundreds of plush toys currently are marketed, ranging from $4.99 plush
animals to $500 teddy bears from Boyd's, Gund and Steiff. In addition, many
model horse (plastic) toys are marketed by companies like Breyer and Peter
Stone. Although no assurances can be given, we believe that because the
selection of plush horse toys is sparse, we will be able to capture an untapped
audience of horse enthusiasts. According to statistics released in 1999 by the
American Horse Council, the U.S. horse industry is a $25.3 billion business
consisting of nearly seven million horses and more than seven million
enthusiasts.
We also will compete with other forms of entertainment, including video
games and movies. Competition for the consuming public's disposable income
dollars is extremely intense as the public has a limited number of dollars to
spend on entertainment. Our success will depend in part on our ability to
convince the public to expend a portion of those funds on our products.
21
Sales and Marketing
In the past, we sold our products to over 600 gift and specialty retailers
in addition to over 70 on-line retailers. Beginning in 2001 we shifted our
marketing efforts towards the mass retail markets, focusing on the top ten toy
retailers, including Wal-Mart, Toys 'R Us, K-Mart, Target Stores, and J.C.
Penney. In addition, we recently attended the three primary trade shows in the
industry: the toy fairs in New York, Dallas, and Hong Kong, where our new
product lines or their prototypes were presented.
We intend to reach mass retailers through a national network of independent
sales representatives on whose efforts we will substantially depend for the sale
of our products, as well as through toy and horse industry trade shows and
publications. Although we have several agreements with representatives for
specialty retailers, we currently have only one agreement with a representative
for the mass retailers, and we cannot assure you that we will be able to enter
into any additional agreements.
In addition to selling our product in over 200 equine outlets, we directly
market our toys, artwork and related products through our website. See "Website"
below.
In June 2000, we entered into a consulting agreement with an individual to
provide regulatory advice, agreement and contract consultation, financial and
investment consultation and marketing services. In consideration for these
services, he will receive an hourly fee with a minimum of $50,000 per year.
In November 2000, we entered into a one-year agreement with Mancini
Marketing for marketing and promotional consultant services. As consideration
for Mancini's services, we will pay a fee of $2,500 per month plus 100,000
shares of our common stock to be issued at a rate of 25,000 shares per quarter,
commencing the first quarter of 2001. None of these shares are being registered
in this offering.
Effective April 1, 2001, we entered into a one-year agreement with Mandalay
Sports Entertainment, a division of the Los Angeles-based Mandalay
Entertainment, to provide packaging and consulting services. Such services may
include:
o consultation related to the development of our literary projects;
o participation in the development of our business model;
o facilitation of relationships and alliances designed to improve our
visibility, image and business;
22
o facilitation of new business opportunities designed to enhance and
expand our core business and capabilities; and
o providing introductions and access to Mandalay's sports and
entertainment relationships and resources.
In consideration for these services, we will pay Mandalay a fee of $150,000,
payable in 12 equal monthly installments. In addition, Mandalay received from
Dawn Van Zant, our founder and principal shareholder, shares of our common stock
representing a 5% equity interest in Wild Heart. Although the agreement expires
March 31, 2002, the parties have agreed, for the period from January 1, 2002
through March 1, 2002, to negotiate in good faith for a one-year extension of
the agreement.
Order fulfillment
We fulfill some of our orders from warehouses in Tennessee and Point
Roberts, Washington. The rest of our products are shipped directly from the
manufacturer in Hong Kong. See "Properties," below. We build inventory on a per
order basis and are paid via letter of credit and/or open account. Although no
assurances can be given, we plan to relocate our shipping and fulfillment to a
Los Angeles base later this year.
Website
Our website (www.wildheartranch.com) is aimed at parents of boys and girls
ages three through twelve and is designed as a safe, non-violent entertainment
and education destination site. The website provides a store locator which
allows customers to find retailers in their area as well as an extensive list of
internet retailers. The website also allows visitors to purchase products from
us directly by providing a link to our wholly-owned domain, www.horsetoys.com.
We recently produced and launched our first web episode (called a
"webisode") which is accessible on the home page of our website. Created for us
by Scrambled Eggz Productions, it is an animated feature which summarizes the
story of the Legend and introduces the key horse characters. The feature is also
available on CD-Rom and will be included as a bonus with the purchase of all
2001 toy lines.
New Ventures Group and Strategy for Growth
In furtherance of our growth strategy and contingent upon the receipt of
the necessary funding, as to which we can give no assurances, we plan to hire a
group of personnel, called the "New Ventures Group", who would be responsible
for establishing a broad strategic vision for us for no less than the next three
years. Both the existing No More Night Mares brand, inclusive of line
extensions, as well the recently-acquired Armadillo Cowboy Club brand, would be
managed by a brand and product director. Product and marketing directors outside
of the New Ventures
23
Group would handle the day-to-day management of these brands. The Group would
investigate the following areas:
o the expansion of the No More Night Mares (TM) brand into other
collectible areas;
o the expansion of the girls' category to include interactive content
and broadening of the target audience to include pre-teens, either
through licensing or buying content that's fully developed; or
developing products that utilize traditional play patterns, doll,
fashion and role play;
o the development of parent/child play patterns to include interactive
content with or without a product purchase;
o exploration of educational and "edutainment" products and the
development of a brand/spokes-brand to leverage the capability of
technology; e.g., an animal that wants to learn;
o exploration of opportunities in the area of music;
o expansion, investigation and application of new technology and
interactive content in traditional boys' play patterns, e.g.,
vehicles, action figures, and sporting goods; and
o expansion of the Armadillo Cowboy Club(TM) brand into other
collectable boy areas, with a focus on selling content to drive
product development.
Manufacturing
We do not have any manufacturing facilities. We have relied on third
parties based in Hong Kong, China, to manufacture our products to our
specifications, and we plan to continue to do so in the future.
Intellectual Property
On December 26, 2000, we received U.S. Patent No. 6,165,037 for our
electroluminescent lamp technology entitled "Illuminated Toy for Night Use by
Children." Our original legend "No More Night Mares . . . A Dream of Freedom"
was copyrighted in the U.S. on January 21, 1998 under Registration No.
TXu844-509 and in Canada on February 20, 1998 under Registration No. 467356. We
also have received a copyright for this story in the United Kingdom. Our
"Armadillo Cowboy Club" story was copyrighted in the U.S. on October 13, 1998
under Registration No. TXu879-460. We also have received a trademark in the U.S.
on the names "Wild Heart Ranch" and "The No More Night Mares Legend", under
Registration Nos. 2337508 and 2269076, respectively.
24
Properties
We lease approximately 2,500 square feet of warehouse space located at 639
Pickwick, Savannah, Tennessee 38372, on a month-to-month basis, for $1,800 per
month. We also lease a small warehouse space at 145 Tyee Drive, Point Roberts,
Washington 98281-9602 for $100 per month pursuant to a one-year agreement which
expires on July 14, 2001, at which point it will convert to a month-to-month
lease. We also utilize office space at the house of Dawn Van Zant, our founder
and chairman, free of charge.
Employees
As of August 1, 2001, we had five employees, of whom three are full-time
and two are part-time. We also make extensive use of consultants.
Legal proceedings
We are not a party to any pending legal proceedings.
Management
(a) Officers and directors: The following table provides information
concerning each of our officers and directors and their positions and ages as of
August 1, 2001. All directors hold office until the next annual meeting of
shareholders or until their successors have been elected and qualified, or until
a director's death, resignation or removal.
Name Age Position
- ---- --- --------
Dawn Van Zant 42 chairman of the board and
chief executive officer
Robert L. Trow 55 director
Guy McCarter 44 director
Linda Mancuso 42 director
- ----------
Dawn Van Zant: Ms. Van Zant is our founder, chairman and chief executive
officer. She is also the president of ECON Investor Relations, Inc., an
investor/public relations consulting
25
firm which she co-founded in 1996. From 1993 to 1996, Ms. Van Zant was a
self-employed investor/public relations consultant whose clients included public
companies listed on NASDAQ, among other exchanges. Ms. Van Zant has over 20
years of experience in the investment industry, including positions as a broker,
trader and investor relations/corporate communications adviser.
Robert L. Trow: Mr. Trow became a director in May 2001. Since September
1999, he has been the chairman and CEO of Seafood USA in Hunarock,
Massachusetts. From March 1993 until September 1999, he was a corporate
vice-president and president of the mid-atlantic division of UNICCO Service
Company in Boston, Massachusetts. In addition, he has served as vice-president
of several universities and colleges in Massachusetts, New Jersey and New York.
He received a B.A. in history from Hartwick College, an M.S. in counseling
psychology from Long Island University and an Ed.D. in administration, planning
and social policy from Harvard University.
Guy McCarter: Mr. McCarter became a director in July 2001. Since July 2000
he has been director of entertainment marketing at OMD USA, a media services
company which handles media strategy and execution for the advertising agencies
BBDO, DDB and TBWA/Chiat Day. From January 1984 until June 2000, Mr. McCarter
worked at BBDO as a programming director where he was responsible for
negotiating television sponsorships.
Linda Mancuso: Ms. Mancuso became a director in July 2001. She is currently
chief operating officer of Peter Engel Productions, a producer of teen-oriented
television.
Executive compensation
The following table summarizes the compensation for the fiscal year ended
December 31, 2000 and the prior two fiscal years earned by or paid to our chief
executive officer. No other executive officer earned over $100,000 per year
during those years.
26
Long term compensation
Annual compensation Awards
------------------- securities
Name and underlying
principal position Year Salary Bonus Options(#)/SARS
- ------------------ ---- ------ ----- ---------------
Dawn Van Zant, 2000 0 0 0
chief executive officer 1999 0 0 0
1998 0 0 0
Certain relationships and related transactions
On August 1, 2000, we entered into an exclusive license agreement with Dawn
Van Zant, our chairman and founder, for the rights to her original story, "The
Armadillo Cowboy Club." Pursuant to the agreement Ms. Van Zant received 200,000
shares of our common stock and she is eligible to receive 200,000 additional
shares after the first sales in the product line and a further 500,000 shares
after the first $5,000,000 in sales.
In November 2000, we issued 230,219 shares of our common stock to ECON
Corporate Relations, Inc. ("ECON"), a company owned by Dawn Van Zant, as
repayment of an aggregate of $230,219 of working capital advances it made to us.
All of these shares are being registered in this offering.
In January 2001, we entered into a two-year financial consulting agreement
with Ascension Investment Management, LLC ("Ascension") in which Ascension will
assist us in raising capital as well as providing a line of credit as interim
financing if necessary. Pursuant to the terms of the agreement, we issued to
Ascension 1,000,000 shares of our common stock, which resulted in Ascension
becoming a holder of greater than 5% of our outstanding shares of common stock.
On June 21, June 29 and July 12, 2001, we granted to each of our outside
directors Robert L. Trow, Linda Mancuso and Guy McCarter, respectively, options
to purchase 100,000 shares of our common stock at $1.00 per share, which options
are exercisable commencing one year from the date of grant.
Market for common equity and related stockholder matters
Currently, there is no trading market for our securities and we cannot
assure you that any market will develop in the future. In addition, even if a
trading market does develop, we cannot assure you that our common stock can be
resold either at or near its original offering prices. We intend to arrange to
list our common stock on the NASDAQ's Over the Counter Bulletin Board. However,
we cannot assure you that we will qualify for such listing.
Holders of Record
As of August 1, 2001, there were 93 holders of record of our common stock.
27
Dividends
Since our inception, we have not declared any dividends on our common stock
and, since we currently intend to retain earnings for use in operations and the
expansion of our business, we do not anticipate paying any cash dividends in the
foreseeable future.
Principal shareholders
The following table contains information regarding ownership of our common
stock, which are our only voting securities, as of August 1, 2001 for:
o each person who beneficially owns more than 5% of our common stock,
o each of our directors and executive officers, and
o all of our directors and executive officers as a group.
Unless otherwise indicated, we believe that the individuals listed below
have the sole power to vote and dispose of the number of shares listed opposite
their respective names.
Shares beneficially owned
Percentage of class
-------------------------
Before After
Name and Address Office Shares owned Offering Offering
- ---------------- ------ ------------ -------- --------
Dawn Van Zant chairman 1,681,713(1) 30% 15%
5134 Cliff Drive and chief
Delta, BC V4M 2C6 executive
Canada officer
Robert L. Trow director 0 0 0
The Esplanade
Suite West 1105
75-83 Cambridge Parkway
Cambridge, MA 02142
Guy McCarter director 0 0 0
214 W. 17th Street
New York, NY 10011
Linda Mancuso director 0 0 0
330 Bob Hope Dr.
Burbank, CA 91523
All officers 1,681,713 30 15
and directors as
a group (4 people)
28
J. Peter Lynch 360,522(3) 6 4
407 Pound Ridge Rd., Rte. 124
South Salem, NY 10590
Mandalay Sports Entertainment 283,301 5 3
4751 Wilshire Blvd., Third floor
Los Angeles, CA 90010
Ascension Investment 1,085,000 19 0
Management, LLC
491 Kilvert Street
Suite 200
Warwick, RI 02886
- ----------
(1) Includes 2 shares held by her minor children, 300,000 shares held in trust
for her minor children, 9,471 shares owned by DCT Creations ("DCT"), a
company which she controls, and 310,553 shares owned by ECON Investor
Relations, Inc. ("ECON"), a company owned by Ms. Van Zant. This amount does
not include an aggregate of 700,000 additional shares to which Ms. Van Zant
may be entitled pursuant to our license agreement with her for rights to
her original "Armadillo Cowboy Club" story. All of the shares owned by DCT
and ECON are being registered in this offering.
(2) Less than one percent.
(3) Includes 50,000 shares held in trust for his minor daughter.
Selling security holders
The following table sets forth certain information, as of the date of this
prospectus, with respect to the selling security holders and their shares of
common stock covered by this prospectus.
The table assumes that all shares which will be registered based on the
filing of this prospectus will be sold.
None of the selling security holders has had any position, office or other
material relationship with us within the past three years other than as a result
of the ownership of our shares of common stock, except that:
o Ascension Investment Management, LLC acted as a finder in connection
with one of our private placements and is performing consulting
services for us;
o DCT Creations and ECON Investor Relations, Inc. are controlled and
owned, respectively, by our founder and CEO Dawn Van Zant;
29
o Dean M. DeNuccio and Chad Verdi are performing consulting services for
us;
o Jennifer Randle is our corporate secretary;
o Belinda Burke and Valerie Sundahl are our employees; and
o Tanglewood Marketing Group, Inc. is one of our sales representatives.
- ------------------------------------------------------------------------------------------------------------------
Percentage
Shares of shares
beneficially Shares owned owned
owned Registered following following
Selling Stockholder prior to offering Shares offering offering
- ------------------------------------------------------------------------------------------------------------------
Ascension Investment 1,085,000
Management, LLC
- ------------------------------------------------------------------------------------------------------------------
Bacon, H. Robert 180,000
- ------------------------------------------------------------------------------------------------------------------
Burke, Belinda 10,000
- ------------------------------------------------------------------------------------------------------------------
Campbell, Harriet 20,000
- ------------------------------------------------------------------------------------------------------------------
Cavedon, Christopher 180,000
- ------------------------------------------------------------------------------------------------------------------
DCT Creations 9,471
- ------------------------------------------------------------------------------------------------------------------
Dellagrotta, Michael C. 25,000
- ------------------------------------------------------------------------------------------------------------------
DeNuccio, Dean M. 50,000
- ------------------------------------------------------------------------------------------------------------------
ECON Investor Relations, 310,553
Inc.
- ------------------------------------------------------------------------------------------------------------------
Gulko, Peter 100,000
- ------------------------------------------------------------------------------------------------------------------
Gunas, Susan R. 50,000
- ------------------------------------------------------------------------------------------------------------------
Lary, Al 10,000
- ------------------------------------------------------------------------------------------------------------------
Posner, Robert I. 25,000
- ------------------------------------------------------------------------------------------------------------------
Randle, Jennifer 10,000
- ------------------------------------------------------------------------------------------------------------------
Readey, Jr., John H. 60,000
- ------------------------------------------------------------------------------------------------------------------
Sundahl, Valerie 10,000
- ------------------------------------------------------------------------------------------------------------------
Tanglewood Marketing 300,000
Group, Inc.
- ------------------------------------------------------------------------------------------------------------------
Verdi, Chad 83,000
- ------------------------------------------------------------------------------------------------------------------
30
Description of securities
Authorized stock
Our authorized capital stock consists of 10 million shares of common stock,
par value $.001.
Common stock
As of August 1, 2001, we have 5,666,012 shares of common stock outstanding.
All outstanding shares of common stock are duly authorized, validly issued,
fully paid and nonassessable.
Holders of common stock are entitled to receive dividends, when and if
declared by the board of directors, out of funds legally available for that
purpose and to share ratably in our net assets upon liquidation, after provision
has been made for each class of stock, if any, having preference over the common
stock.
Holders of common stock are entitled to one vote per share on all matters
requiring a vote of shareholders. Since the common stock does not have
cumulative voting rights in electing directors, the holders of more than a
majority of the outstanding shares of common stock voting for the election of
directors can elect all of the directors whose terms expire that year, if they
choose to do so.
Holders of common stock do not have preemptive or other rights to subscribe
for additional shares.
Transfer agent
The transfer agent and registrar for our stock is Florida Atlantic Stock
Transfer Co., Inc., Tamarac, Florida.
31
Shares eligible for future sale
The future sale of a substantial number of shares of our common stock, or
the perception that these sales could occur, could adversely affect prevailing
market prices for the common stock, if any. In addition, any future sale or
perception of a future sale could make it more difficult for us to sell equity,
or equity-related, securities in the future at a time and price that we deem
appropriate.
Upon completion of this offering, we will have 8,966,012 shares of common
stock outstanding. In addition, we have 500,000 shares of common stock reserved
for issuance to induce individuals to become outside directors. Of these 500,000
shares, options to purchase an aggregate of 300,000 shares of common stock have
been granted. Of the 8,966,012 shares to be outstanding after the offering, the
5,518,024 shares sold to the public in this offering will be freely tradeable
without restriction or registration under the Securities Act of 1933, as amended
(the "Act"), except that any shares purchased by an "affiliate" of us (as
defined in the rules and regulations promulgated under the Act) will be subject
to the resale limitations of Rule 144 under the Act. The remaining 3,447,988
shares will be "restricted" securities within the meaning of Rule 144 under the
Securities Act. Of that amount, 2,948,021 shares will eligible for public sale
under Rule 144 90 days after the effectiveness of the registration statement of
which this prospectus is a part; 83,333 shares will be eligible for public sale
in October 2001; 108,333 shares will be eligible in March 2002; 283,301 shares
will be eligible in April 2002; and 25,000 shares will be eligible in June 2002.
In general, under Rule 144, as currently in effect, a person, or persons
whose sales are aggregated, who has beneficially owned restricted shares for at
least a year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
our common stock or the average weekly trading volume in our common stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions, notice requirements and the
availability of current public information about us.
Although we can't predict the effect, if any, that future sales of
restricted securities under Rule 144 will have on the market price of our common
stock, we expect that these sales could depress the market price and,
consequently, limit our ability to raise additional capital through an offering
of our equity securities.
Plan of distribution by Wild Heart
The 3,000,000 shares of common stock that we are offering will be managed
by us, without an underwriter, through our officers and directors, who will
receive no sales commissions or other compensation except for reimbursement of
expenses actually incurred for such activities. In connection with their
efforts, they will rely on the "safe harbor" provisions of Rule 3a4-1 under the
Securities and Exchange Act of 1934 (the "1934 Act"). Generally speaking, Rule
3a4-1 provides an exemption from the broker/dealer registration requirements of
the 1934 Act for associated persons of an issuer. Our officers and directors
will use their best efforts to find purchasers for the shares.
32
Because we are offering the shares without the participation of an
underwriter, the offering price of the shares being sold by us has not been
determined by negotiation with an underwriter, as is customary in most
offerings. Investors are therefore subject to an increased risk that the price
of the shares has been arrived at arbitrarily.
Investors should be aware that while this offering is being conducted
through our officers and directors, we retain the right to utilize the services
of broker/dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD"). We reserve the right to pay commissions for sales made
by participating broker/dealers in an amount not to exceed 10% of the sales
price. Before the involvement of any broker/dealer in the offering, we must
obtain a "no objection" position from the NASD for any compensation
arrangements. Any broker/dealer that sells securities in this offering may be
deemed an underwriter as defined in Section 2(11) of the Securities Act of 1933.
We will amend the prospectus and the registration statement of which it is a
part to identify any selected broker/dealer at such time as such broker/dealer
sells 5% or more of the offering.
Plan of distribution by selling security holders
We have been advised by the selling security holders that they may sell
their shares of common stock from time to time directly to purchasers in
privately negotiated transactions or, from time to time, they may offer the
shares for sale in the over-the-counter market through or to securities brokers
or dealers that may receive compensation in the form of discounts, concessions
or commissions from the selling security holders. We will not receive any of the
proceeds from the sale of our common stock by the selling security holders. The
selling security holders, and any dealers or brokers that participate in the
distribution of the shares of common stock, may be deemed to be "underwriters"
as that term is defined by the Securities Act, and any profit on the sale of
shares of common stock by them, and any discounts, commissions, or concessions
received by any such dealers or brokers, may be deemed to be underwriting
discounts and commissions under the Securities Act.
We are paying the costs, expenses and fees of registering the shares
offered by the selling security holders, not including any brokerage commissions
or similar selling expenses related to the sale of the shares of the common
stock. The selling security holders shall have the sole and absolute discretion
not to accept any purchase offer or make any sale of shares if they deem the
purchase price to be unsatisfactory at any particular time. We can't assure you
that all or any of the shares offered in this prospectus will be sold by the
selling security holders.
Legal Matters
The legality of our common stock has been passed upon on our behalf by
Hofheimer, Gartlir & Gross, LLP, 530 Fifth Avenue, New York, New York 10036. The
firm and its individual partners own an aggregate of 50,000 shares of our common
stock.
33
Experts
The audited financial statements included in this prospectus and elsewhere
in the registration statement have been audited by Grassi & Co., CPAs, P.C., 200
Madison Avenue, New York, New York 10016, our independent certified public
accountants, and have been included in reliance on the reports of such
independent accountants given on the authority of such firm as an expert in
accounting and auditing.
Limited liability of directors
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities -
other than the payment by us of expenses incurred or paid by one of our
directors, officers or controlling persons in the successful defense of any
action, suit or proceeding - is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
34
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors Report.................................................F-1
Balance Sheet at December 31, 2000..........................................F-2
Statements of Operations for the Years Ended December 31, 1999 and 2000.....F-3
Statement of Stockholders' Equity for the Years Ended
December 31, 1999 and 2000.............................................F-4
Statements of Cash Flows for the Years Ended December 31, 1999 and 2000.....F-5
Notes to Financial Statements...............................................F-6
Balance Sheet at March 31, 2001 (unaudited).................................F-14
Statements of Operations for the Three Months Ended March 31, 2001
and 2000 (unaudited)...................................................F-15
Statements of Stockholders' Equity for the Three Months Ended
March 31, 2001 and 2000 (unaudited)....................................F-16
Statements of Cash Flows for the Three Months Ended March 31, 2001
and 2000 (unaudited)...................................................F-17
Notes to Financial Statements (unaudited)...................................F-18
35
To the Stockholders
Wild Heart Ranch Inc.
We have audited the accompanying balance sheet of Wild Heart Ranch Inc. as of
December 31, 2000, and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1999 and 2000. 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 audit in accordance with auditing standards generally accepted
in the United States of America. 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 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 Wild Heart Ranch, Inc. as of
December 31, 2000, and the statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1999 and 2000, in conformity with
accounting principles generally accepted in the United States of America.
GRASSI & CO., CPAs, P.C.
New York, New York
April 12, 2001
F-1
WILD HEART RANCH INC.
BALANCE SHEET
AT DECEMBER 31, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 195,244
Accounts receivable - net of allowances for doubtful
accounts of $1,439 12,954
Inventories 25,859
Prepaid expenses 15,039
-----------
TOTAL CURRENT ASSETS 249,096
PROPERTY AND EQUIPMENT, net 4,253
LICENSE FEES, net 183,333
-----------
TOTAL ASSETS $ 436,682
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 89,309
Accrued expenses 41,450
Due to related party 1,429
-----------
TOTAL LIABILITIES 132,188
COMMITMENTS AND CONTINGENCIES (Notes 6, 9 and 10)
STOCKHOLDERS' EQUITY
Common stock - $0.001 par value; 10,000,000 shares
authorized; 4,142,689 shares issued and
outstanding 4,142
Additional paid-in capital 1,638,547
Accumulated deficit (1,338,195)
-----------
TOTAL STOCKHOLDERS' EQUITY 304,494
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 436,682
===========
The accompanying notes are an integral part of these financial statements.
F-2
WILD HEART RANCH INC.
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
-------------------------
1999 2000
----------- -----------
NET SALES $149,355 $143,177
----------- -----------
COST OF SALES
Inventories - beginning 199,463 169,439
Purchases 48,765 --
----------- -----------
COST OF GOODS AVAILABLE FOR SALE 248,228 169,439
Less: Inventories - ending 169,439 25,859
----------- -----------
TOTAL COST OF SALES 78,789 143,580
----------- -----------
GROSS PROFIT 70,566 (403)
----------- -----------
OPERATING EXPENSES
Shipping expense 20,810 20,722
Selling, general and administrative 254,737 391,725
Research and development expenses -- 105,351
Compensatory element of stock issuances for
selling, general and administrative
expenses 138,000 83,333
----------- -----------
TOTAL OPERATING EXPENSES 413,547 601,131
----------- -----------
LOSS FROM OPERATIONS (342,981) (601,534)
----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (3,169) --
Interest income 54 --
Gain (loss) on disposal of property -- (1,719)
Miscellaneous income 1,582 1,390
----------- -----------
TOTAL OTHER EXPENSES (1,533) (329)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (344,514) (601,863)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $(344,514) $(601,863)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $(0.11) $(0.15)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES USED IN BASIC
AND DILUTED LOSS PER SHARE 3,219,137 4,061,022
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
WILD HEART RANCH INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Stock Paid-in
------------------------- Capital
Shares Amount Par Value
--------- ------ ----------
Period Ended December 31, 1999:
Balance - December 31, 1998 3,131,137 $3,131 $628,006
Shares issued for services at $1.00 per share 138,000 138 137,862
Net loss -- -- --
--------- ------ ----------
Balance - December 31, 1999 3,269,137 3,269 765,868
Period Ended December 31, 2000:
Shares issued for cash at $1.00 per share 360,000 360 359,640
Shares issued for employment services at $1.00 per share 83,333 83 83,250
Shares issued for debt conversion at $1.00 per share 230,219 230 229,989
Shares issued for license agreement at $1.00 per share 200,000 200 199,800
Net loss -- -- --
--------- ------ ----------
Balance - December 31, 2000 4,142,689 $4,142 $1,638,547
========= ====== ==========
Accumulated
Deficit Total
----------- ---------
Period Ended December 31, 1999:
Balance - December 31, 1998, as restated $(391,818) $239,319
Shares issued for services at $1.00 per share -- 138,000
Net loss (344,514) (344,514)
----------- ---------
Balance - December 31, 1999 (736,332) 32,805
Period Ended December 31, 2000:
Shares issued for cash at $1.00 per share -- 360,000
Shares issued for employment services at $1.00 per share -- 83,333
Shares issued for debt conversion at $1.00 per share -- 230,219
Shares issued for license agreement at $1.00 per share -- 200,000
Net loss (601,863) (601,863)
----------- ---------
Balance - December 31, 2000 $(1,338,195) $304,494
=========== =========
The accompanying notes are an integral part of these financial statements.
F-4
WILD HEART RANCH INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
-------------------------
1999 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(344,514) $(601,863)
Adjustments to reconcile net income to net cash
used in operating activities:
Compensatory element of stock issuances pursuant
to consulting and employment agreement 138,000 83,333
Depreciation and amortization of property, plant
and equipment 2,115 376
Amortization of intangible assets -- 16,667
Loss on disposal of property -- 1,719
Research and development expense -- --
Cash (used in) provided by the change in:
Accounts receivable, net (10,701) 31,943
Inventories 26,721 143,580
Other current assets (4,868) (10,171)
Accounts payable 10,205 46,330
Accrued expenses 14,878 26,570
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (168,164) (261,516)
--------- ---------
CASH USED IN INVESTING ACTIVITIES
Purchases of property and equipment -- (4,119)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 151,302 132,615
Repayments to related party -- (44,596)
Proceeds from issuance of common stock -- 360,000
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 151,302 448,019
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16,862) 182,384
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 29,722 12,860
--------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $12,860 $195,244
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $3,169 $ --
========= =========
Cash paid for income taxes $ -- $ --
========= =========
Conversion of debt to common stock $ -- $230,219
========= =========
The accompanying notes are an integral part of these financial statements.
F-5
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS
Wild Heart Ranch Inc. (the "Company") was incorporated under the laws of
Delaware in November 1997. The Company is a publishing and toy company that
designs, manufactures and markets products that are content driven. The Company
creates original content that creates a venue for merchandising products
including toys, books, posters, television and movies. The Company's focus is on
introducing high quality content and products with meaning and purpose.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturity dates
of three months or less to be cash equivalents.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost (determined on the first-in,
first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful life of five years.
License Fees
Licensing fees are being amortized on a straight line basis over 5 years.
F-6
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long Lived
Assets and Long Lived Assets to be Disposed of", at each balance sheet date, the
Company evaluates the propriety of the carrying amount of its long-lived assets.
In the event that facts and circumstances indicate that the cost of long-lived
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation of impairment were required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow
value is required. The Company recorded no such write-downs during any of the
periods presented.
Fair Value of Financial Instruments
The financial statements include various estimated fair value information at
December 31, 1999 and 2000 as required by Statement of Financial Accounting
Standards 107, "Disclosures about Fair Value of Financial Instruments". Such
information, which pertains to the Company's financial instruments, is based on
the requirements set forth in that Statement and does not purport to represent
the aggregate net fair value to the Company.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents: The carrying amount approximates fair value because
of the short-term maturity of those instruments.
Receivables: The carrying amounts approximate fair value because of the
short-term maturity of those instruments.
All of the Company's financial instruments are held for purposes other than
trading.
F-7
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company was not required to provide for a provision for income taxes for the
years ended December 31, 1999 and 2000, as a result of net operating losses
incurred during those years.
As of December 31, 2000, the Company had available approximately $1,276,000 of
net operating losses ("NOL") for income tax purposes that may be carried forward
to offset future taxable income, if any. The NOL carryforwards from December 31,
1999 and 2000 expire in various years from 2012 through 2019.
At December 31, 2000, the Company has a deferred tax asset of approximately
$510,000, representing the benefits of its net operating loss for tax purposes.
The Company's deferred tax asset has been fully reserved by a valuation
allowance since realization of its benefit is uncertain. The difference between
the statutory tax rate of 34% and the Company's effective tax rate (0%) is due
to the increase in the valuation allowance of $240,000 (2000) and $152,000
(1999). The Company's ability to utilize its carryforwards may be subject to an
annual limitation in future periods pursuant to Section 382 of the Internal
Revenue Code of 1986, as amended.
Revenue Recognition
Revenue from product sale is recognized at the time of shipment to the customer.
Advertising Costs
Advertising and promotion costs are expensed as incurred. For the years ended
December 31, 2000 and 1999, advertising expenses amounted to $24,560 and
$24,997, respectively.
Research and Development
Research and development expenditures are charged to expense as incurred.
F-8
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
During 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share", which changed certain requirements for
computing and disclosing earnings per share, retroactive for all periods
presented. Adoption of this statement had no effect on the accompanying
financial statements.
Basic net loss per common stock has been computed based on the weighted average
number of shares of common stock outstanding during the periods presented. The
Company has potential dilutive securities related to its license agreement (Note
9), its employment agreement with its Chief Executive Officer (Note 9) and a
financial consulting agreement (Note 10).
Stock-Based Compensation
The Company follows Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation". SFAS 123 establishes accounting
and reporting standards for stock-based employee compensation plans. This
statement allows companies to choose between the fair value based method of
accounting, as defined in this statement, and the intrinsic value based method
of accounting, as prescribed by Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees". The Company has elected to
continue to follow the accounting guidance provided by APB 25, as permitted.
Under the provisions of APB No. 25, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
common stock at the date of grant over the amount an employee must pay to
acquire the stock.
F-9
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging Activities" (FAS 133), which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. In June 1999, the FASB issued
SFAS No. 137, Accounting for Derivative Instruments -- Deferral of the Effective
Date of SFAS Statement No.133 and in June 2000, the FASB issued SFAS 138,
Accounting for Certain Derivative Instruments -- an amendment of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. As a result of
SFAS No. 137, SFAS No. 133 and SFAS No. 138 will be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does not
expect that the adoption of this standard will have a material impact on its
financial position and results of operations. In June 2000, the Financial
Accounting Standards Board issued Financial Accounting Standard No. 138 (FAS
138), Accounting for Certain Derivative Instruments -- an amendment of FAS 133,
Accounting for Derivative Instruments and Hedging Activities. FAS 138 shall be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company does not expect this to have a material impact on its
financial position and results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin 101, Revenue
Recognition ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance on disclosure related to revenue recognition policies. The
Company believes that it currently complies with SAB 101.
NOTE 3 - INVENTORIES
The Company does not own or operate any manufacturing facilities. The Company
purchases its finished products from independent manufacturers.
Inventories at December 31, 1999 and 2000 consisted of the following:
1999 2000
-------- --------
Finished goods $169,439 $ 25,859
======== ========
F-10
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT - NET
Property and equipment consisted of the following:
1999 2000
------ ------
Cost:
Furniture and fixtures $2,131 $2,135
Computers 2,109 2,834
------ ------
4,240 4,969
Less:
Accumulated Depreciation 2,010 716
------ ------
$2,230 $4,253
====== ======
Depreciation of property and equipment for the years ended December 31, 2000 and
1999 amounted to $376 and $2,115, respectively.
NOTE 5 - LICENSE FEES - NET
License fees, at December 31, 2000, related to the acquisition of an original
story, consists of the following: (Note 6)
License fee $200,000
Less: Accumulated amortization (16,667)
--------
$183,333
========
Amortization of licensing fee amounted to $16,667 for the year ended December
31, 2000. There was no amortization expense for the year ended December 31,
1999.
F-11
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock Transactions
- - December 31, 1999:
During 1999, the Company issued 138,000 shares of common stock as consideration
for consulting services through December 31, 1999. Shares issued under the
agreement were valued at $138,000.
- - December 31, 2000:
In November 2000, the Company entered into a second private placement agreement,
seeking to raise $1,000,000 from the sale of 1,000,000 shares of its
"restricted" common stock priced at $1.00 per share. The Company made the
offering only to "accredited investors". The Company offered the common stock in
reliance on the exemption from registration provided by Section 4(2) and 4(6) of
the Securities Act of 1933, and rule 506 of Regulation D promulgated thereunder.
The offering expired on December 31, 2000 with $360,000 raised.
During 2000, the Company recorded 83,333 shares of common stock which vested on
December 31, 2000 under an employment agreement with its Chief Executive Officer
(Note 9). The common stock valued at $83,333 was charged to operations in 2000.
During 2000, a related party converted $230,219 of debt due from the Company
into 230,219 shares of common stock (Note 8).
During August 2000, the Company issued 200,000 shares of common stock, valued at
$200,000, in accordance with the license agreement (Note 9), and such amount was
capitalized as license fee on the accompanying balance sheet (Note 5).
NOTE 7 - ACCUMULATED DEFICIT RESTATEMENT
Accumulated deficit at the beginning of 1999 has been adjusted to correct an
error made in 1998. The Company capitalized research and development costs
totalling $35,140. The error had no effect on the net loss for 1999.
NOTE 8 - RELATED PARTY TRANSACTIONS
Due to related party, at December 31, 2000, amounted to $1,429 and consists of
noninterest bearing short-term advances made to the Company from Econ Investor
Relations ("Econ"), a company which is majority-owned by the same majority
stockholder of the Company. During 2000, Econ converted $230,219 of advances
into 230,219 shares of common stock.
F-12
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Concentrations of Credit Risk
At December 31, 2000, two customers accounted for approximately 38% of the
accounts receivable balance. For the year ended December 31, 2000, one customer
accounted for approximately 14% of the sales in excess of 10%.
At December 31, 1999, two customers accounted for approximately 35% of the
accounts receivable balance. For the year ended December 31, 1999, one customer
accounted for approximately 12% of the sales in excess of 10%.
License Agreement
During August 2000, the Company entered into an exclusive license agreement with
the Company's former CEO and founder for the rights to her original story, "The
Armadillo Cowboy Club." The agreement provides for her to receive shares of the
Company's Common stock according to the following milestones: 200,000 shares
upon the signing of the agreement, 200,000 shares after the first sales in the
product line and 500,000 shares after the first $5,000,000 in sales.
Accordingly, only 200,000 have been issued upon signing of the license
agreement.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Employment Agreement
During October 2000, the Company entered into a three-year employment agreement
with its new Chief Executive Officer. The agreement provides for an annual base
salary of $120,000, and an aggregate of 1,000,000 shares of the Company's common
stock to vest and be issued in equal quarterly installment at the end of each
calendar quarter during the term, except for the quarter ending December 31,
2000, in respect of which the Company shall issue to Employee, and Employee
shall be vested in, 83,333 shares immediately upon the execution of this
Employment Agreement; (b)150,000 shares of Common stock upon the Company's first
sale of products based upon the "Armadillo Cowboy Club" product line, and
250,000 shares of common stock after the Company shall generate $5,000,000 of
sales from such product line. As of December 31, 2000, 83,333 shares of common
stock were earned and have been vested under this agreement.
NOTE 10 - SUBSEQUENT EVENTS
During January 2001, the Company entered into a two-year financial consulting
agreement with a consulting company to provide financial and investment
services. The agreement requires the Company to issue 1,000,000 shares of the
Company's common stock to the consulting company upon the completion of the
Company's second private placement.
F-13
WILD HEART RANCH INC.
BALANCE SHEET
(UNAUDITED)
AT MARCH 31, 2001
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 280,440
Accounts receivable - net of allowances for doubtful accounts
of $1,439 11,695
Inventories 23,151
Prepaid expenses 7,680
Due from related party 1,211
-----------
TOTAL CURRENT ASSETS 324,177
PROPERTY AND EQUIPMENT, net 8,476
LICENSE FEES, net 173,333
-----------
TOTAL ASSETS $ 505,986
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 53,592
Accrued expenses 45,200
-----------
TOTAL LIABILITIES 98,792
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 9)
STOCKHOLDERS' EQUITY:
Common stock - $0.001 par value; 10,000,000 shares
authorized; 5,536,022 shares issued and outstanding 5,535
Additional paid-in capital 3,030,487
Unearned consulting fee (875,000)
Accumulated deficit (1,753,828)
-----------
TOTAL STOCKHOLDERS' EQUITY 407,194
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 505,986
===========
See notes to financial statements.
F-14
WILD HEART RANCH INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
---- ----
NET SALES $ 12,456 $ 20,767
----------- -----------
COST OF SALES
Inventories - beginning 25,859 169,439
Purchases -- --
----------- -----------
COST OF GOODS AVAILABLE FOR SALE 25,859 169,439
Less: Inventories - ending 23,151 160,378
----------- -----------
TOTAL COST OF SALES 2,708 9,061
----------- -----------
GROSS PROFIT 9,748 11,706
----------- -----------
OPERATING EXPENSES
Shipping expense 3,205 8,129
Selling, general and administrative 174,025 50,097
Research and development expenses 16,583 --
Compensatory element of stock issuances for selling, general and
administrative expenses 233,333 --
----------- -----------
TOTAL OPERATING EXPENSES 427,146 58,226
LOSS FROM OPERATIONS (417,398) (46,520)
----------- -----------
OTHER INCOME
Interest income 1,022 --
Miscellaneous income 743 275
----------- -----------
TOTAL OTHER INCOME 1,765 275
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (415,633) (46,245)
----------- -----------
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $ (415,633) $ (46,245)
----------- -----------
BASIC AND DILUTED LOSS PER SHARE $ (0.08) $ (0.01)
----------- -----------
WEIGHTED AVERAGE COMMON SHARES USED IN BASIC AND
DILUTED LOSS PER SHARE 5,223,800 3,219,137
=========== ===========
See notes to financial statements.
F-15
WILD HEART RANCH INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Common Stock Paid-in
-------------------- Capital
Shares Amount Par Value
----------- ----------- -----------
Period Ended March 31, 2000:
- ---------------------------
Balance - December 31, 1999 3,269,137 $ 3,269 $ 765,868
Net loss -- -- --
----------- ----------- -----------
Balance - March 31, 2000 3,269,137 $ 3,269 $ 765,868
=========== =========== ===========
Period Ended March 31, 2001:
Balance - December 31, 2000 4,142,689 $ 4,142 $ 1,638,547
Shares issued for cash at $1.00 per share 285,000 285 284,715
Shares issued for employment services at $1.00 per share 83,333 83 83,250
Shares issued for consulting services at $1.00 per share 25,000 25 24,975
Shares issued for consulting services at $1.00 per share 1,000,000 1,000 999,000
Unearned consulting fee -- -- --
Amortization of unearned consulting fee -- -- --
Net loss -- -- --
----------- ----------- -----------
Balance - March 31, 2001 5,536,022 $ 5,535 $ 3,030,487
=========== =========== ===========
Unearned Accumulated
Consulting Fee Deficit Total
-------------- ----------- -----------
Period Ended March 31, 2000:
- ---------------------------
Balance - December 31, 1999 $ -- $ (736,332) $ 32,805
Net loss -- (46,245) (46,245)
----------- ----------- -----------
Balance - March 31, 2000 $ -- $ (782,577) $ (13,440)
=========== =========== ===========
Period Ended March 31, 2001:
- ---------------------------
Balance - December 31, 2000 $ -- $(1,338,195) $ 304,494
Shares issued for cash at $1.00 per share -- -- 285,000
Shares issued for employment services at $1.00 per share -- -- 83,333
Shares issued for consulting services at $1.00 per share -- -- 25,000
Shares issued for consulting services at $1.00 per share -- -- 1,000,000
Unearned consulting fee (1,000,000) -- (1,000,000)
Amortization of unearned consulting fee 125,000 -- 125,000
Net loss -- (415,633) (415,633)
----------- ----------- -----------
Balance - March 31, 2001 $ (875,000) $(1,753,828) $ 407,194
=========== =========== ===========
See notes to financial statements.
F-16
WILD HEART RANCH INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(415,633) $(46,245)
Adjustments to reconcile net income to net cash
used in operating activities:
Compensatory element of stock issuances pursuant to consulting and
employment agreements 233,333 --
Depreciation 367 212
Amortization of intangible assets 10,000 --
Cash (used in) provided by the change in:
Accounts receivable, net 1,259 26,575
Inventories 2,708 9,061
Other current assets 7,359 873
Accounts payable (35,717) (2,759)
Accrued expenses 3,750 3,750
--------- --------
NET CASH USED IN OPERATING ACTIVITIES (192,574) (8,533)
--------- --------
CASH USED IN INVESTING ACTIVITIES
Purchases of property and equipment (4,590) --
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party -- 5,064
Repayments to related party (2,640) --
Proceeds from issuance of common stock 285,000 --
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 282,360 5,064
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 85,196 (3,469)
--------- --------
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 195,244 12,860
--------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 280,440 $ 9,391
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ -- $ --
========= ========
Cash paid for income taxes $ -- $ --
========= ========
See notes to financial statements.
F-17
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are unaudited. These statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ( the "SEC"). Certain information
and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the consolidated financial statements
reflect all adjustments necessary to state fairly the financial
position and results of operations as of and for the periods
indicated. These financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto for
the year ended December 31, 2000.
NOTE 2 - BUSINESS
Wild Heart Ranch Inc. (the "Company") was incorporated under the laws
of Delaware in November 1997. The Company is a publishing and toy
company that designs, manufactures and markets products that are
content driven. The Company creates original content that creates a
venue for merchandising products including toys, books, posters,
television and movies. The Company's focus is on introducing high
quality content and products with meaning and purpose.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturity dates of three months or less to be cash equivalents.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost (determined on the
first-in, first-out basis) or market.
F-18
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
calculated using the straight line method over the estimated useful
life of five years.
License Fees
Licensing fees are being amortized on a straight-line basis over 5
years.
Impairment of Long-lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long Lived Assets and Long Lived Assets to be Disposed of", at each
balance sheet date, the Company evaluates the propriety of the
carrying amount of its long-lived assets. In the event that facts and
circumstances indicate that the cost of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation of impairment were required, the estimated future
undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required. The Company recorded
no such write-downs during any of the periods presented.
Fair Value of Financial Instruments
The financial statements include various estimated fair value
information at March 31, 2001 and March 31, 2000 as required by
Statement of Financial Accounting Standards 107, "Disclosures about
Fair Value of Financial Instruments". Such information, which pertains
to the Company's financial instruments, is based on the requirements
set forth in that Statement and does not purport to represent the
aggregate net fair value to the Company.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Cash Equivalents: The carrying amount approximates fair value
because of the short-term maturity of those instruments.
Receivables: The carrying amounts approximate fair value because of
the short-term maturity of those instruments.
All of the Company's financial instruments are held for purposes other
than trading.
F-19
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company was not required to provide for a provision for income
taxes for the three months ended March 31, 2001 and 2000, as a result
of net operating losses incurred during those years.
As of March 31, 2001, the Company had available approximately
$1,459,000 of net operating losses ("NOL") available for income tax
purposes that may be carried forward to offset future taxable income,
if any. The NOL carryforwards from March 31, 2001 and 2000 expire in
various years from 2012 through 2021.
At March 31, 2001, the Company has a deferred tax asset of
approximately $677,000, representing the benefits of its net operating
loss carryforwards and certain stock-based compensation. The Company's
deferred tax asset has been fully reserved by a valuation allowance
since realization of its benefit is uncertain. The difference between
the statutory tax rate of 40% and the Company's effective tax rate
(0%) is due to the increase in the valuation allowance of $167,000
(2001) and $18,000 (2000). The Company's ability to utilize its
carryforwards may be subject to an annual limitation in future periods
pursuant to Section 382 of the Internal Revenue Code of 1986, as
amended.
Revenue Recognition
Revenue from product sale is recognized at the time of shipment to the
customer.
Advertising Costs
Advertising and promotion costs are expensed as incurred. For the
three months ended March 31, 2001 and 2000, advertising expenses
amounted to $1,708 and $2,716, respectively.
Research and Development
Research and development expenditures are charged to expense as
incurred.
F-20
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
During 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which changed
certain requirements for computing and disclosing earnings per share,
retroactive for all periods presented. Adoption of this statement had
no effect on the accompanying financial statements.
Basic net loss per common stock has been computed based on the
weighted average number of shares of common stock outstanding during
the periods presented. The Company has potential dilutive securities
related to its license agreement, employment agreement with its Chief
Executive Officer and financial consulting agreements (Notes 8 and 9).
Stock-Based Compensation
The Company follows Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation". SFAS 123
establishes accounting and reporting standards for stock-based
employee compensation plans. This statement allows companies to choose
between the fair value based method of accounting, as defined in this
statement, and the intrinsic value based method of accounting, as
prescribed by Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees". The Company has elected to
continue to follow the accounting guidance provided by APB 25, as
permitted. Under the provisions of APB No. 25, compensation cost for
stock options is measured as the excess, if any, of the quoted market
price of the Company's common stock at the date of grant over the
amount an employee must pay to acquire the stock.
F-21
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133), which
establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments -- Deferral of the Effective Date of SFAS Statement No.133
and in June 2000, the FASB issued SFAS 138, Accounting for Certain
Derivative Instruments -- an amendment of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. As a result of SFAS No.
137, SFAS No. 133 and SFAS No. 138 will be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The
Company does not expect that the adoption of this standard will have a
material impact on its financial position and results of operations.
In June 2000, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 138 (FAS 138), Accounting for
Certain Derivative Instruments -- an amendment of FAS 133, Accounting
for Derivative Instruments and Hedging Activities. FAS 138 shall be
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company does not expect this to have a material
impact on its financial position and results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin 101,
Revenue Recognition ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance on
disclosure related to revenue recognition policies. The Company
believes that it currently complies with SAB 101.
NOTE 4 - INVENTORIES
Inventories at March 31, 2001 and 2000 consisted of the following:
2001 2000
---- ----
Finished goods $23,151 $160,378
======= ========
F-22
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - PROPERTY AND EQUIPMENT - NET
Property and equipment consisted of the following:
2001 2000
------- -------
Cost:
Furniture and fixtures $ 6,725 $ 2,130
Computers 2,834 2,109
------- -------
9,559 4,239
Less: Accumulated Depreciation (1,083) (2,222)
------- -------
$ 8,476 $ 2,017
======= =======
Depreciation of property and equipment for the three months ended
March 31, 2001 and 2000 amounted to $367 and $212, respectively.
NOTE 6 - LICENSE FEES - NET
License fees, at March 31, 2001, related to the acquisition of an
original story, consisted of the following: (Note 8)
License fee $ 200,000
Less: Accumulated amortization (26,667)
---------
$ 173,333
Amortization of licensing fee amounted to $10,000 for the three months
ended March 31, 2001. There was no amortization expense for the three
months ended March 31, 2000.
F-23
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - STOCKHOLDERS' EQUITY
Common Stock Transactions
During the three months ended March 31, 2001, the Company sold 285,000
shares of its restricted common stock priced at $1.00 per share for
$285,000.
During the three months ended March 31, 2001, the Company recorded
83,333 shares of common stock, which vested on March 31, 2001 under an
employment agreement with its Chief Executive Officer (Note 8). The
common stock valued at $83,333 was charged to operations for the
three-month period ended March 31, 2001.
During the three months ended March 31, 2001, the Company recorded
25,000 shares of common stock under a consulting agreement (Note 8).
The common stock valued at $25,000 was charged to operations for the
three-month period ended March 31, 2001.
During the three months ended March 31, 2001, the Company recorded
1,000,000 shares of common stock under a two-year financial consulting
agreement (Note 8). The common stock was valued at $1,000,000 and
$125,000 was charged to operations for the three-month period ended
March 31, 2001.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Concentrations of Credit Risk
At March 31, 2001, two customers accounted for approximately 67% of
the accounts receivable balance. For the three months ended March 31,
2001 and 2000, one customer accounted for approximately 46% and 12%,
respectively, of the sales.
Cash and Cash Equivalents
At March 31, 2001, the Company had bank balances in excess of
federally insured limits of approximately $173,000.
License Agreement
During August 2000, the Company entered into an exclusive license
agreement with the Company's former CEO and founder for the rights to
her original story, "The Armadillo Cowboy Club." The agreement
provides for her to receive shares of the Company's Common stock
according to the following milestones: 200,000 shares upon the signing
of the agreement, 200,000 shares after the first sales in the product
line and 500,000 shares after the first $5,000,000 in sales.
Accordingly, only 200,000 have been issued upon signing of the license
agreement.
F-24
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Employment Agreement
During October 2000, the Company entered into a three-year employment
agreement with its then Chief Executive Officer. The agreement
provides for an annual base salary of $120,000, and an aggregate of
1,000,000 shares of the Company's common stock to vest and be issued
in equal quarterly installment at the end of each calendar quarter
during the term, except for the quarter ending December 31, 2000, in
respect of which the Company shall issue to Employee, and Employee
shall be vested in, 83,333 shares immediately upon the execution of
this Employment Agreement; (b)150,000 shares of Common stock upon the
Company's first sale of products based upon the "Armadillo Cowboy
Club" product line, and 250,000 shares of common stock after the
Company shall generate $5,000,000 of sales from such product line. As
of March 31, 2001, 166,666 shares of common stock were earned and have
been vested under this agreement (Note 9).
Consulting Agreement
During 2001, the Company entered into a one-year agreement with an
unrelated consulting company. The consultant will receive $2,500 per
month, plus 100,000 shares of the Company's restricted common stock in
equal quarterly installments of 25,000 shares. As of March 31, 2001,
25,000 shares of common stock were earned and have been charged to
operations under this agreement, valued at $1.00 per share.
During January 2001, the Company entered into a two-year financial
consulting agreement with a consulting company to provide financial
and investment services. The agreement requires the Company to issue
1,000,000 shares of the Company's common stock to the consulting
company upon completion of the $1 million private placement closing.
As of March 31, 2001, 125,000 shares of common stock were earned and
have been charged to operations under this agreement valued at $1.00
per share.
F-25
WILD HEART RANCH INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - SUBSEQUENT EVENTS
On April 1, 2001, the Company entered into a non-exclusive one-year
packaging and consulting services agreement with an unrelated company,
which may include assistance, consultation and creative services. The
agreement requires the Company to pay $150,000 over a twelve-month
period. In addition, the company acquired a 5% interest in Wild Heart
Ranch Inc.
In June 2001, the Company issued 25,000 shares of its common stock in
connection with the consulting agreement (Note 8).
In June and July 2001, the Company granted to three directors of the
Company options to purchase 100,000 common shares each at the fair
market value of $1.00 per share.
In June 2001, the Company issued 105,000 shares of its restricted
common stock priced at $1.00 per share.
In June 2001, the Company entered into a one-year financial consulting
agreement with a professional to provide legal, financial and
accounting consulting services. In consideration for these services,
the consultant will receive 25,000 shares of the Company's common
stock.
In July 2001, the Company terminated its employment agreement with its
then Chief Executive Officer (Note 8).
F-26
WILD HEART RANCH INC.
5,518,024 shares
------------------------
PROSPECTUS
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus is
current only to the date of this prospectus. This prospectus does not offer to
sell any securities in any jurisdiction where to do so would be unlawful.
------------------------
Until , 2001, ___ days after the date of this prospectus, all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligations of dealers to deliver a prospectus when
acting as underwriters.
_____________________, 2001
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of directors and officers.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware (the "DGCL"), article seventh of our certificate of
incorporation provides that our directors can't be held liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director
other than (i) for any breach of the director's duty of loyalty to us or our
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) liability under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
Section 145 of the DGCL provides that a corporation may, under certain
circumstances, indemnify its directors and officers against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, provided that
these expenses have been actually and reasonably incurred by the directors and
officers by reason of their capacity as such. Article seventh of our certificate
of incorporation requires us to indemnify, to the fullest extent permitted by
the DGCL, as amended from time to time, any person who is, was, or has agreed to
become a director or officer of the company against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person.
Item 25. Other expenses of issuance and distribution
The expenses payable by us in connection with the issuance and distribution
of the securities being registered are estimated as follows:
SEC Registration Fee $ 1,379.51
Printing and duplication expenses 5,000.00
Legal fees and expenses 75,000.00
Accounting fees and expenses 30,000.00
State "blue sky" fees 15,000.00
Other 5,620.49
Total $132,000.00
===========
All expenses, except for the SEC registration fee, are estimates.
The selling security holders will not bear any portion of the foregoing
expenses, but will pay fees in connection with the resale of the shares of
common stock effected to or through securities brokers and/or dealers in the
form of markups, markdowns, or commissions, as well as the fees and
disbursements of counsel and accountants, if any, retained by them and any other
fees and expenses not expressly agreed to be borne by us.
34
Item 26. Recent sales of unregistered securities
From March to September 1998, the Company sold 405,800 shares to 26
non-accredited and 19 accredited investors for an aggregate price of $405,800
($1.00 per share) in a private placement made pursuant to the exemption from
registration provided by Section 3(b) of the Securities Act ("Section 3(b)") and
Rule 504 of Regulation D promulgated under the Securities Act ("Rule 504"). The
investors paid cash for their shares. In addition, as part of that private
placement, in November 1998, the Company issued 175,327 shares to four creditors
as repayment of an aggregate of $175,326 of debt (approximately $1.00 per
share).
In November 1998, the Company issued to its founders 2,500,000 shares of
common stock for an aggregate price of $2,500 ($0.001 per share) in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as amended ("Section 4(2)") for transactions not involving a public
offering.
In December 1998, the Company issued 50,000 shares to a consultant for
services rendered valued at $50,000 in reliance on the exemption from
registration provided by Rule 504.
In November 1999, the Company issued an aggregate of 138,000 shares to five
individuals as payment for services rendered and as interest on late payments
valued at $138,000. Such issuance was made in reliance on the exemption from
registration provided by Section 4(2).
In August 2000, the Company issued to Dawn Van Zant, our founder and CEO,
200,000 shares as payment of license fees valued at $200,000 pursuant to a
license agreement between the Company and Ms. Van Zant for the rights to her
original story, "The Armadillo Cowboy Club". Such issuance was made in reliance
on the exemption from registration provided by Section 4(2).
In October 2000, the Company issued 230,219 shares to ECON Investor
Relations, Inc. ("ECON") as repayment of $230,219 of debt in reliance on the
exemption from registration provided by Section 4(2).
In October 2000, the Company issued 83,333 shares to Frederick Shapiro, our
then CEO, pursuant to his employment agreement. Such shares were valued at
$83,333 and such issuance was made in reliance on the exemption from the
registration provided by Section 4(2) .
From November to December 2000, the Company sold 360,000 shares to three
accredited investors for an aggregate price of $360,000 ($1.00 per share) in
reliance on the exemption from registration provided by Section 4(2) and 4(6)
of, and Rule 506 of Regulation D ("Rule 506") promulgated under, the Securities
Act.
In January 2001, the Company issued 1,000,000 shares to a consultant as
payment for services rendered valued at $1.00, in reliance on the exemption from
registration provided by Section 4(2) and/or 4(6).
35
From January to June 2001, the Company sold 390,000 shares to seven
accredited investors for an aggregate price of $390,000 ($1.00 per share) in
reliance on the exemption from registration provided by Section 4(2) and Rule
506.
In March 2001, we issued an additional 83,333 shares to Frederick Shapiro,
valued at $83,333, pursuant to his employment agreement and in reliance on the
exemption from the registration provided by Section 4(2).
In March 2001, we issued 25,000 shares to Mancini marketing ("Mancini") for
consulting services rendered valued at $25,000. Such issuance was made in
reliance on the exemption from registration provided by Section 4(2).
In June 2001 we issued to Mancini an additional 25,000 shares as payment
for consulting services rendered valued at $25,000. Such issuance was made in
reliance on the exemption from registration provided by Section 4(2).
In June 2001, we granted to our director Robert L. Trow options entitling
him to purchase 100,000 shares of our common stock at $1.00 per share,
vesting on June 21, 2002.
In June 2001, we granted to our director Linda Mancuso options entitling
her to purchase 100,000 shares of our common stock at $1.00 per share,
vesting on June 29, 2002.
In July 2001, we granted to our director Guy McCarter options entitling him
to purchase 100,000 shares of our common stock at $1.00 per share, vesting on
July 12, 2002.
Item 27. Exhibits
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation
3.2 By-Laws
4 Specimen Common Stock Certificate
5.1 Opinion of Hofheimer Gartlir & Gross, LLP (1)
21 Subsidiaries
23.1 Consent of Hofheimer Gartlir & Gross, LLP (included
in 5.1)(1)
36
23.2 Consent of Grassi & Co., CPAs, P.C.
- ----------
(1) To be filed by amendment.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
37
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Point
Roberts, State of Washington on August 8, 2001.
WILD HEART RANCH INC.
By: /s/ Dawn Van Zant
----------------------------
Dawn Van Zant
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
By: /s/ Dawn Van Zant
----------------------------
Dawn Van Zant
Director
Date: August 8, 2001
By: /s/ Robert L. Trow
----------------------------
Robert L. Trow
Director
Date: August 8, 2001
By: /s/ Guy McCarter
----------------------------
Guy McCarter
Date: August 8, 2001
By: /s/ Linda Mancuso
----------------------------
Linda Mancuso
Date: August 8, 2001
38