Beverly Hills Weight Loss & Wellness (BHWW) Inactive
Filed: 14 Nov 03, 12:00am
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
000-28733 |
Commission file number |
| |
WEIGHT LOSS FOREVER INTERNATIONAL, INC. | |
A Nevada corporation | I.R.S. Employer Identification No. |
| |
Transitional Small Business Disclosure Format: Yes [ ] No [X] |
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of our operations set forth under the heading "Management's Discussion and Analysis and Plan of Operation." Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
WEIGHT LOSS FOREVER INTERNATIONAL, INC. | ||||||||
Consolidated Balance Sheets | ||||||||
Assets | ||||||||
September 30, | December 31, | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,088 | $ | 21,951 | ||||
Accounts receivable: | ||||||||
Royalties and Rebates (note 1) | 11,537 | 10,770 | ||||||
Due from affiliates (note 6) | 100 | 100 | ||||||
Total current assets | 13,725 | 32,821 | ||||||
Other assets: | ||||||||
Franchise contract rights (note 6) | 1,063,760 | 1,063,760 | ||||||
Website domain | 3,840 | - | ||||||
Total other assets | 1,067,600 | 1,063,760 | ||||||
$ | 1,081,325 | $ | 1,096,581 | |||||
(Continued) | ||||||||
See accompanying notes to consolidated financial statements.
F-1 |
WEIGHT LOSS FOREVER INTERNATIONAL, INC. | ||||||||
Consolidated Balance Sheets (Continued) | ||||||||
Liabilities and Stockholders' Equity | ||||||||
September 30, | December 31, | |||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 103,952 | $ | 41,501 | ||||
Due to related parties (note 9) | 68,600 | 68,600 | ||||||
Loans payable | 22,600 | 30,600 | ||||||
Contract payable-Current portion (note 4) | 90,250 | 57,204 | ||||||
Total current liabilities | 285,402 | 197,905 | ||||||
Contract payable (note 4) | 178,917 | 221,462 | ||||||
Convertible debentures (note 5) | 86,000 | 86,000 | ||||||
Stockholders' equity (note 6) | ||||||||
Preferred stock - $0.0001 par value, authorized | ||||||||
10,000,000 shares, none issued and outstanding | - | - | ||||||
Common stock - $0.0001 par value, authorized | ||||||||
100,000,000 shares; issued and outstanding | 4,975 | 4,761 | ||||||
Additional paid-in capital | 1,547,428 | 1,333,712 | ||||||
Accumulated deficit | (1,021,397 | ) | (747,259 | ) | ||||
Total stockholders' equity | 531,006 | 591,214 | ||||||
$ | 1,081,325 | $ | 1,096,581 | |||||
See accompanying notes to consolidated financial statements.
F-2 |
WEIGHT LOSS FOREVER INTERNATIONAL, INC. | ||||||||||||||||||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
Revenue from continuing operations | $ | 42,604 | $ | 1,372 | $ | 132,461 | $ | 1,372 | ||||||||||||||||||||||||
General and administrative expenses | 168,797 | 8,621 | 385,359 | 251,224 | ||||||||||||||||||||||||||||
Operating loss from continuing operations | (126,193 | ) | (7,249 | ) | (252,898 | ) | (249,852 | ) | ||||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||||
Non-operating revenue (expense): | ||||||||||||||||||||||||||||||||
Interest expense | (7,080 | ) | (4,080 | ) | (21,240 | ) | (13,020 | ) | ||||||||||||||||||||||||
Loss on discontinued operations | - | - | - | (88,150 | ) | |||||||||||||||||||||||||||
Gain on disposition of subsidiary | - | - | - | 208,602 | ||||||||||||||||||||||||||||
Loss before income taxes | (133,273 | ) | (11,329 | ) | (274,138 | ) | (142,420 | ) | ||||||||||||||||||||||||
Income taxes | - | - | - | - | ||||||||||||||||||||||||||||
Net loss | $ | (133,273 | ) | $ | (11,329 | ) | $ | (274,138 | ) | $ | (142,420 | ) | ||||||||||||||||||||
Basic and diluted income (loss) per share: | ||||||||||||||||||||||||||||||||
Loss from continuing operations | $ | (0.003 | ) | $ | (NIL | ) | $ | (0.006 | ) | $ | (0.007 | ) | ||||||||||||||||||||
Loss from discontinued operations | - | - | - | (0.002 | ) | |||||||||||||||||||||||||||
Gain on disposition of subsidiary | - | - | - | 0.005 | ||||||||||||||||||||||||||||
Net loss per share | $ | (0.003 | ) | $ | (NIL | ) | $ | (0.006 | ) | $ | (0.004 | ) | ||||||||||||||||||||
Weighted average number of shares | 49,752,837 | 39,749,904 | 49,071,217 | 37,510,321 | ||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-3 |
WEIGHT LOSS FOREVER INTERNATIONAL, INC. | ||||||||
Consolidated Statements of Cash Flows | ||||||||
Nine months ended | ||||||||
September 30, 2003 | September 30, 2002 | |||||||
(unaudited) | (unaudited) | |||||||
Cash flows from operating activities: | ||||||||
Net Loss | $ | (274,138 | ) | $ | (142,420 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used in operations: | ||||||||
Depreciation and amortization | - | 6,052 | ||||||
Common stock issued for services | 208,930 | 166,524 | ||||||
Loss from discontinued operations | - | 88,150 | ||||||
Gain on disposition of sale of subsidiary | - | (208,602 | ) | |||||
Changes in operating assets and liabilities | ||||||||
Due from affiliates | - | 60,302 | ||||||
Accounts receivable | (767 | ) | 101,228 | |||||
Inventories | - | 45,027 | ||||||
Prepaid insurance | - | 5,225 | ||||||
Accounts payable | 62,452 | (248,930 | ) | |||||
Due to related parties | - | (83,696 | ) | |||||
Net cash used for operating activities | (3,523 | ) | (211,140 | ) | ||||
Cash flows from investing activities: | ||||||||
Proceeds from disposition of assets | - | 208,602 | ||||||
Purchase of franchising rights and intellectual property | (3,840 | ) | 30,600 | |||||
Change in other assets | - | (18,229 | ) | |||||
Net cash provided by (used for) investing activities | (3,840 | ) | 220,973 | |||||
(Continued) | ||||||||
See accompanying notes to consolidated financial statements.
F-4 |
WEIGHT LOSS FOREVER INTERNATIONAL, INC. | ||||||||
Consolidated Statements of Cash Flows (Continued) | ||||||||
Nine months ended | ||||||||
September 30, 2003 | September 30, 2002 | |||||||
(unaudited) | (unaudited) | |||||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | $ | 5,000 | $ | - | ||||
Proceeds from loans payable | - | 30,600 | ||||||
Proceeds from issuance of debentures - related parties | - | 50,000 | ||||||
Payment on loans payable | (8,000 | ) | - | |||||
Payment on contract payable | (9,500 | ) | - | |||||
Payment of line of credit | - | (77,989 | ) | |||||
Net cash provided by (used for) financing activities | (12,500 | ) | 2,611 | |||||
Increase (decrease) in cash and cash equivalents | (19,863 | ) | 12,444 | |||||
Cash and cash equivalents - beginning of period | 21,951 | 1,170 | ||||||
Cash and cash equivalents - end of period | $ | 2,088 | $ | 13,614 | ||||
See accompanying notes to consolidated financial statements.
F-5 |
WEIGHT LOSS FOREVER INTERNATIONAL, INC.
Notes to Interim Consolidated Financial Statements
September 30, 2003
(unaudited)
(1) Summary of Significant Policies
The interim consolidated financial statements include all adjustments, which, in the opinion of management, are necessary in order to make the financial statements not misleading. The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and footnotes required by Generally Accepted Accounting Principles for complete financial statements.
(a) Nature of Operations
Weight Loss Forever International, Inc., (the "Company") a Nevada corporation, franchises weight loss centers under the trade names Weight Loss Forever® and Beverly Hills Weight Loss & Wellness®, through subsidiary corporations, Weight Loss Management, Inc. and Beverly Hills Franchising Corp.
At September 30, 2003, the Company franchised approximately 20 Weight Loss Forever® centers and 20 Beverly Hills Weight Loss & Wellness® clinics. The Company, in addition to being a franchisor, had previously operated company-owned locations. As of May 31, 2002, the Company disposed of all its company-owned locations to concentrate on franchising. The franchised locations are primarily in Virginia, North Carolina, New England and Florida. The Company receives a non-refundable franchise fee, generally $20,000, from entities which enter into an agreement with the Company to own and operate a retail location. The franchisees are required to purchase the necessary furniture, fixtures, equipment and inventory either from the Company, from an affiliate of the Company, or from a source approved by the Company. During the term of the agreement, the Company receives a service fee equal to six percent of gross sales, payable weekly. At the end of March 2003, the Company unilateral ly reduced the services fee which is paid by Beverly Hills Weight Loss & Wellness franchisees, on a temporary basis while changes were instituted by the Company, to three percent of gross sales. New agreements provide for a franchise term of ten years subject to renewal. The agreements provide for other fees and charges based on various conditions and circumstances. The Company provides operational assistance, training, periodic inspections, and continuing new product development. The Company also has the right to establish an advertising fund to which the franchisees would contribute. This fund has not yet been established.
(b) Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Weight Loss Forever International, Inc. and its subsidiaries, Weight Loss Management, Inc., from the date of its incorporation, June 4, 2002, and Beverly Hills Franchising Corp., from the date of its incorporation, October 31, 2002. All significant inter-company account balances and transactions between the Company and its subsidiaries have been eliminated in consolidation.
(c) Inventories
As of September 30, 2003, the Company did not own any inventory.
(d) Property and Equipment
As of September 30, 2003, the Company did not own any property or equipment. Property and equipment are recorded at cost. The Company provides depreciation for machinery and equipment using the straight-line method over the estimated useful lives of the respective assets, which range from three to 39 years. Amortization of leasehold improvements is computed using the straight-line method over the lesser of the lease term or estimated useful lives of the improvements.
(e) Research and Development Costs
Research and development costs are charged against income in the year incurred.
(f) Revenue Recognition
The principal sources of revenue are derived from the collection of franchise royalties based on a percentage of the franchisee gross receipts and franchisee licensing fees and purchase rebates. Income from royalties is recognized as earned. Revenue from franchisee licensing and revenue from area franchise agreements are recognized as the initial agreements are signed. Product rebates are recognized as products are purchased.
(g) Advertising Costs
Advertising expenditures relating to product distribution and marketing efforts consisting primarily of franchise materials, product presentation material, catalog preparation, printing and postage expenses are expensed as incurred.
(h) Use of Estimates
The Company's management has made certain estimates and assumptions relating to the reporting of assets and liabilities and disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(i) Financial Instruments Fair Value, Concentration of Business and Credit Risks
The carrying amount reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported in the accompanying balance sheet for convertible debentures approximates fair value because the actual interest rate does not significantly differ from current rates offered for instruments with similar characteristics. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of royalty and rebate accounts receivable which amount to approximately $11,500. The Company performs periodic credit evaluations of its franchisees and generally does not require collateral. The Company maintains its cash balances at certain financial institutions in which balances are insured by the Federal Deposit Insurance Corporation up to $100,000.
(j) Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation"; (SFAS 123) which sets forth accounting and disclosure requirements for stock-based compensation arrangements. The new statement encourages but does not require, companies to measure stock-based compensation using a fair value method, rather than the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25".) The Company has adopted disclosure requirements of SFAS 123 and has elected to continue to record stock-based compensation expense using the intrinsic value approach prescribed by APB No. 25. Accordingly, the Company computes compensation cost for each employee stock option granted as the amount by which the quoted market price of the Company's common stock on the date of grant exceeds the amount the employee must pay to acquire the stock. The amount of compensation cost, if an y, will be charged to operations over the vesting period. SFAS 123 requires companies electing to continue using the intrinsic value method to make certain pro forma disclosures.
(k) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(l) Cash Flows
For purposes of cash flows, the Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents.
(m) Earnings per Common Share
Basic earnings per common share have been computed based upon the weighted average number of common shares outstanding during the periods presented. Common stock equivalents resulting from the issuance of the stock options and warrants have not been included in the calculations because such inclusion would be anti-dilutive.
(2) History and Corporate Developments
Reverse Merger with youticket.com, inc.
Weight Loss Forever International, Inc. (WLFI-VA) was incorporated in 1995, in the state of Virginia. WLFI-VA franchised the right to own and operate retail centers selling weight loss products under the Weight Loss Forever® trade name. WLFI-VA began selling franchises in June 1996, and granting area development requests, whereby area developers may operate multiple stores within a geographic territory. It is also the sole source supplier of products associated with the Weight Loss Forever® program.
On September 30, 2001, WLFI-VA agreed to exchange shares with youticket.com, inc. ("YTIX"), a Nevada public company. Accordingly, WLFI increased its authorized share capital to facilitate, and to effectuate, the exchange of 10,304,200 shares of WLFI-VA stock for 26,004,716 shares of youticket.com, inc. stock in a business combination accounted for as a reverse acquisition. During the period youticket.com was in existence, prior to the reverse acquisition, it had minimal operations. For accounting purposes, the reverse acquisition is reflected as if WLFI-VA issued its stock for the net assets of YTIX. The net assets of YTIX were not adjusted in connection with the reverse acquisition since they were monetary in nature. Subsequent to the reverse acquisition, youticket.com, inc. changed its name to Weight Loss Forever International, Inc.
Sale of WLFI-VA
On May 31, 2002, the Company sold all of the issued and outstanding stock of the Company's subsidiary WLFI-VA to a corporation owned by the Company's president. The transaction resulted in a gain to the Company of approximately $209,000. The Company also acquired from WLFI-VA all rights to franchise the Weight Loss Forever® concept and all related intellectual property. The Company also changed its operations so as to only franchise weight loss centers and no longer own and operate them. Accordingly, the financial statements have been restated to reflect WLFI-VA as a discontinued operation.
Acquisition of Assets of Advanced Wellness Corp.
In June 2002, the Company acquired various franchising rights and intellectual property from Advanced Wellness Corp., located in South Florida.
Formation of Weight Loss Management, Inc.
On June 4, 2002, the Company formed Weight Loss Management, Inc., a wholly owned Florida corporation to hold the franchising assets of the Weight Loss Forever® concept and to conduct the business of selling and servicing Weight Loss Forever® franchises which are presently located in Virginia, North Carolina and Florida.
Acquisition of Assets of Beverly Hills Weight Loss & Wellness and formation of Beverly Hills Franchising Corp.
Beverly Hills Franchising Corp. was formed on October 31, 2002 as a Florida corporation. From inception, it has been a wholly owned subsidiary of Weight Loss Forever International, Inc., a Nevada corporation. Beverly Hills Franchising Corp. was organized to hold the franchising assets of the Beverly Hills Weight Loss & Wellness® concept and to conduct the business of selling and servicing Beverly Hills Weight Loss & Wellness franchises. Beverly Hills Franchising Corp. acquired franchise agreements with clinics located primarily in North Carolina, Virginia and Rhode Island. The Company is presently offering franchises in those and other states pursuant to the Beverly Hills Weight Loss & Wellness® Uniform Offering Circular.
(3) Goodwill
As a consequence of the sale by the Company, on May 31, 2002, of its subsidiary WLFI-VA, the Company disposed of all recorded goodwill resulting from prior acquisitions made by the subsidiary. Although, as of September 30, 2003, the Company did not include goodwill as a corporate asset, it has adopted Financial Accounting Standards Board (FASB) approved SFAS No. 142, "Goodwill and Other Intangible Assets", and will not, in the future, amortize goodwill and other intangible assets with indefinite lives. The Company plans to test goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value.
(4) Contract Payable
As part of the consideration for the assets acquired by it, the Company entered into a five-year consulting agreement with Bolianites Enterprises, LLC, which is owned by the president of the seller of the franchising assets referred to in Note 2 above. The total to be paid pursuant to the agreement is $375,000, payable in 60 monthly payments of $6,250. The consulting agreement does not provide for any specific obligations on the part of Bolianites Enterprises, LLC other than the requirement that its managing member, Mr. Charles Bolianites, serve on the Board of Directors of Weight Loss Forever International, Inc. The Company has treated the discounted value of the contract as an additional cost of the assets acquired. The contract payable in the total amount of $375,000 was discounted to present value of $285,000, based on an interest rate of 12%. As monthly payments are made, approximately 76% is applied to the contract payable and the balance to interest expense. In connection with the tempor ary lowering of the franchise royalty rate from 6% to 3%, the Company has partially deferred payments to Bolianites Enterprises, LLC, with the informal consent of Mr. Bolianites, a director of the Company. There is no assurance that Mr. Bolianites will continue to agree to a payment program that is not in accordance with the terms of the consulting agreement. As of September 30, 2003, payments in the amount of $43,750 had been deferred.
(5) Convertible Debentures
Series A Debentures
On September 30, 2001, the Company issued $101,000 of one-year 12% convertible debentures. During 2002, $15,000 of principal amount of the debentures were converted into 375,000 shares of the Company's common stock. The maturity date of the remaining $86,000 of debentures has been extended to December 31, 2003. The debentures are convertible at the option of the holders at the conversion price of $0.04 per share or a total of 2,150,000 shares.
Series B Debentures
In June 2002, the Company issued $50,000 of one-year 12% convertible debentures. As of December 31, 2002, the debentures were converted into 1,250,000 shares of the Company's common stock. Also, as of December 31, 2002, accrued interest on the debentures in the amount of $3,000 was converted into 75,000 shares of common stock.
(6) Stockholders' Equity
Reverse Split
On June 4, 2001, the Company's shareholders approved a 1-for-30 reverse split of the common stock. All references to shares have been adjusted retroactively.
Stock Options, Warrants and Deferred Compensation
During 1999, YTIX granted options to purchase 15,000 shares of common stock. These options were granted with an exercise price of $0.25 with a term of five years.
During 2000, YTIX granted options to employees to purchase 400,000 shares of common stock. These options were granted with an average exercise price of $0.21 with a term of five and one half years. No options were granted in 2001, 2002 and the period ended September 30, 2003.
In June 2001, the board of directors of the Company approved the 2001 Stock Option Plan that authorized up to 3,000,000 shares to be issued. The Company has reserved 3,000,000 shares of Common Stock for issuance under this plan.
The Company has also granted options under non-qualified option agreements.
In September 2001, the Company granted warrants to purchase 3,398,440 shares of common stock to an investor relations firm which had entered into a consulting agreement with the Company. The warrants were granted with various exercise prices and were originally scheduled to expire at various dates between June 30, 2003 and March 31, 2004. The warrants which were to expire on June 30, 2003 and September 30, 2003 have been extended to December 31, 2003. The expiration dates and exercise prices of the warrants are as follows: on December 31, 2003 - (849, 610 @$0.035; 849,610 @ $0.05; 849,610 @$0.065); on March 31, 2004 - (849,610 @ $0.08). In addition, the Agreement provided for the issuance of a total of 3,228,518 shares of common stock in exchange for consulting services. In September 2002, the consulting agreement was extended for an additional year. The extended agreement provided for payment of additional shares of common stock of which 1,019,652, valued at $101,965, were issued as of December 31, 2002.
In April 2003, an additional 2,039,304 shares, valued at $203,930, or $0.10 per share, were issued as payment for the remaining six-month term of the consulting contract, which expired on September 30, 2003. The value of these shares was ratably charged to consulting expense over the six-month term. For the three months ended June 30, 2003, $101,965 was charged to consulting expense. The balance of $101,965, which had been reflected in the June 30, 2003 balance sheet as, "Deferred compensation," an offset to stockholders' equity, was charged to consulting expense in the quarter ended September 30, 2003.
Acquisition of Franchise Rights of Advanced Wellness
In June 2002, the Company issued 3,204,000 shares of common stock, valued at $0.04 per share for total of $128,160 for the acquisition of the franchise rights and intellectual property of Advanced Wellness Corp.
Acquisition of Franchise Contract Rights of Beverly Hills Weight Loss & Wellness
On October 30, 2002, the Company acquired intellectual property, franchise agreements, trademarks and the rights to the names Beverly Hills Weight Loss & Wellness® and Roseglen Weight Loss and Wellness® for 6,200,000 shares of the Company's stock, valued at $620,000 or $0.10 per share. As additional consideration, the Company entered into a five-year consulting agreement with Bolianites Enterprises, LLC at $75,000 per year. (See Contract Payable - Note 4)
(7) Income Taxes
At September 30, 2003, the Company had net operating loss carryforwards of approximately $4,000,000 for financial statement and income tax purposes which will expire in varying amounts through 2023. Due to change in ownership, the losses will be limited in their use and management has not determined the amount of losses that may ultimately be utilized. Realization of deferred tax assets is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance equal to the tax benefit of the net operating losses has been established since it is uncertain that future taxable income will be realized during the carryforward period. Accordingly, a provision for income taxes had not been recorded in the accompanying financial statements.
(8) Lease Commitments
Office facilities have been provided, without charge, to the Company by shareholder, Ultimate Franchise Systems, Inc. This arrangement is not covered by a lease. The Company may be required to pay rent in the future. As of September 30, 2003, the Company was not obligated under any lease commitments.
Total lease and rental expense for continuing operations was $0 in 2003 and 2002.
(9) Related Party Transactions
At September 30, 2003, the Company has balances due from affiliates amounting to $100 and has received advances from certain related parties in the total amount of $68,600. The advances are due on demand and are non-interest bearing.
In June 2002, a firm, which was owned at that time by two Company directors, acquired $50,000 of the Company's convertible debentures. As of December 31, 2002, the debentures, together with accrued interest, were converted into shares of the Company's common stock.
On May 31, 2002, the Company sold its wholly owned subsidiary, WLFI-VA to a corporation owned by the Company's president. Pursuant to that agreement, the Company's president is now the area developer for Weight Loss Forever for the states of Virginia and North Carolina and the owner of several franchises in those states.
In June 2002, the Company acquired certain franchise contract and royalty rights from Advance Wellness Corporation ("AWC"). After that acquisition, an employee of AWC became a director of the Company.
In October 2002, the Company acquired the assets of Beverly Hills Weight Loss & Wellness from Charles Bolianites. Upon completion of the acquisition, Mr. Bolianites, became a director of the Company. As part of the acquisition, the Company entered into a consulting agreement whereby Mr. Bolianites is scheduled to receive $6,250 per month for 60 months. (See Consulting Agreement- Note 4)
(10) Going Concern
The Company's consolidated financial statements have been presented on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As more fully described below, the liquidity of the Company has been adversely affected by significant losses from operations. The Company reported net losses of $76,310 and $440,654 for the years ended December 31, 2002 and 2001, respectively and reported a net loss of $274,139 for the nine months ended September 30, 2003. These conditions raise substantial doubt about the Company's ability to continue as a going concern without additional capital contributions and/or achieving profitable operations. Management's plans are to generate revenue from the sale of new franchises and to raise additional capital through either debt or equity instruments.
Item 2 - Management's Discussion and Analysis and Plan of Operation
General
Introduction
Weight Loss Forever International, Inc. (sometimes referred to as "we," "us," the "Company" or "WLFI") is a franchisor of weight loss and nutrition retail clinics offering all-natural herbal dietary supplements. Prior to June 1, 2002, our company, through a subsidiary, Weight Loss Forever, International, Inc., a Virginia corporation ("WLFI VA") owned and operated retail weight loss stores. Effective May 31, 2002, we sold that subsidiary to a company owned by our president, John Martin. In connection with the sale of that subsidiary, we acquired all rights to franchise the Weight Loss Forever® concept and all related intellectual property. We also changed our operations so as to only franchise weight loss clinics and no longer own and operate them. Accordingly, the statements prior to May 31, 2002 have been restated to reflect WLFI VA as a discontinued operation. In June 2002, we formed a wholly owned subsidiary, Weight Loss Management, Inc. to hold the franchi sing assets of the Weight Loss Forever® concept and to conduct the business of selling and servicing Weight Loss Forever® franchises. In October 2002, we acquired certain assets including the right to use the name Beverly Hills Weight Loss & Wellness®. We formed Beverly Hills Franchising Corp., a wholly owned subsidiary to franchise weight loss clinics under the Beverly Hills name.
We franchise the right to own and operate retail centers and clinics which sell approved weight loss and nutrition products and provide related consulting services. At present our franchises are being offered for a 10-year term.
We have updated our Uniform Franchise Offering Circulars for both Weight Loss Forever® and Beverly Hills Weight Loss & Wellness® and are presently offering franchises for both concepts.
We are concentrating our efforts on offering franchises to individuals in areas where we already have a presence. In areas of the country where we do not have existing locations, we are seeking multi-unit franchisees.
We are presently reviewing the overlap of our two concepts in certain areas and we are considering various options to distinguish and differentiate Weight Loss Forever® and Beverly Hills Weight Loss & Wellness®. In certain areas, we may convert certain centers to the Beverly Hills® program or to the Weight Loss Forever® system.
Results of Operations
The following discussion and analysis provides information our management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report.
Comparison of Three Months Ended September 30, 2003 and Three Months Ended September 30, 2002
The results of operations are:
Revenues - On May 31, 2002, we disposed of our operating subsidiary, WLFI VA, and discontinued the operation of weight loss retail locations. We repositioned our firm to operate as a franchise management company with revenues to be generated primarily from franchise fees from royalties, the sale of franchises and product rebates.
Our consolidated statement of operations for the three months ended September 30, 2003 reports revenues, only from continuing operations, which totaled $42,604. The revenues consisted of franchise royalties of $25,836; other franchise fees of $11,000; and product rebates of $5,768. In the comparable 2002 period, revenues from continuing operations totaled $1,372. At the end of March, 2003, we unilaterally agreed to temporarily reduce our royalties from existing Beverly Hills franchisees to 3% from 6% percent while we instituted certain changes in our franchise system. We expect to return to the contractual royalty rate by December 2003.
Cost of Goods Sold - Since our operation no longer is involved in the sale of products or direct services, we no longer categorize "cost of goods sold" in our financial statements.
Expenses - General and administrative expenses for the three months ended September 30, 2003 totaled $168,797 and included $101,965 for investor relations services paid with stock in lieu of cash. Other expenses included in general and administrative for the third quarter of 2003 were professional services expense, transfer agency fees and other related expenses to maintain the holding company of approximately $13,000 and expenses related to the operations of the Beverly Hills Weight Loss & Wellness system of approximately $55,000 including personnel and traveling expenses. The expenses, as previously reported, in the comparable three months of 2002 were $8,621.
Interest Expense - Our total interest expense for the three months ended September 30, 2003 was $7,080 which was made up of interest on our convertible debentures of $2,580; and interest in connection with the acquisition of the assets of Beverly Hills Weight Loss & Wellness of $4,500. Interest expense, for the three months ended September 30, 2002 was $4,080.
Losses - Our net loss, before taxes, for the three months ended September 30, 2003 was $133,273 compared to a net loss of $11,329 in the three months ended September 30, 2002. Although, we have significant net operating loss tax carryforwards, we have decided not to reduce our net loss, for the September 30, 2003 quarter, by any tax benefit and, therefore, our net loss is the same, both before and after taxes.
Loss per Share - Our loss per share for the three months ended September 30, 2003 was $0.003 based on 49,752,837 weighted average common shares outstanding for the period. For the comparable three months ended September 30, 2002, the net loss per share was $(NIL), based on 37,749,904 weighted average common shares outstanding for the quarter.
Comparison of Nine Months Ended September 30, 2003 and Nine Months Ended September 30, 2002
Revenues - Our consolidated statement of operations for the nine months ended September 30, 2003 reports revenues, only from continuing operations, which totaled $132,461. The revenues consisted of franchise royalties of $88,584; other franchise fees of $16,000 and product rebates of $27,877. In the nine months ended September 2002, revenues from continuing operations were $1,372 At the end of March, 2003, we unilaterally agreed to temporarily reduce our royalties from existing Beverly Hills franchisees to 3% from 6% while we instituted certain changes in our franchise system. We expect to return to the contractual royalty rate by December, 2003.
Cost of Goods Sold - Since our operation no longer is involved in the sale of products or direct services, we no longer categorize "cost of goods sold" in our financial statements.
Expenses - General and administrative expenses for the nine months ended September 30, 2003 were $385,359 which was an increase of $134,135 or 53.4%, compared to the expenses of $251,224 in the prior year’s nine-month period. Included in general and administrative expenses for the first nine months of 2003 were professional services expense, transfer agency fees and other related expenses to maintain the holding company of approximately $52,000 and expenses related to the operations of the Beverly Hills Weight Loss & Wellness system of approximately $129,000 including personnel and traveling expenses. General and Administrative expenses in the 2003 nine-month period also included $203,930 for investor relations services paid with stock in lieu of cash and $5,000 for other services also paid for with our stock. The expenses included in the nine months ended September 30, 2002 were professional fees for legal, accounting and compl iance which totaled $62,843; consulting fees of $174,524, of which $166,524 was paid for with our common stock, and the balance, miscellaneous expenses including stock transfer fees.
Interest Expense - Our total interest expense for the nine months ended September 30, 2003 was $21,240 which was made up of $7,740 interest on our convertible debentures and $13,500 interest in connection with the acquisition of the assets of Beverly Hills Weight Loss & Wellness. Interest expense, for the nine months ended September 30, 2002 was $13,020.
Loss on Discontinued Operations - Prior to our disposition of our former operations, we incurred losses from these operations. During the nine months ended September 30, 2002, losses from discontinued operations totaled $88,150.
Losses - Our net loss, before taxes, for the nine months ended September 30, 2003 was $274,138 compared to a net loss of $142,420 in the nine months ended September 30, 2002. The 2002 nine month net loss consisted of loss from continuing operations - $242,603; non-operating interest expense - $13,020; loss from discontinued operations - $88,150; and gain on disposition of subsidiary - $208,602. Although, we have significant net operating loss tax carryforwards, we have decided not to reduce our net losses for the September 30, 2003 and 2002 periods, by any tax benefit and, therefore, our net losses are the same, both before and after taxes.
Loss per Share - Our loss per share for the nine months ended September 30, 2003 was $0.006 based on 49,071,217 weighted average common shares outstanding for the period. For the comparable nine months ended September 30, 2002, the loss per share was $0.004, based on 37,510,321 weighted average common shares outstanding for the period.
Liquidity and Capital Resources
As of September 30, 2003, we had cash in the amount of $2,088 which is a decrease from the cash of $21,951 we had at December 31, 2002.
Although the sale of our WLFI VA subsidiary significantly reduced our current liabilities, as of September 30, 2003, our current liabilities were $285,402 which was still in excess of our current assets of $13,725.
We have not generated cash flow from our operations. In fact, our operating activities consumed $3,523 for the nine months ended September 30, 2003.
We intend to meet our cash needs over the next 12 months through the sale of securities in either public or private offerings, or from the proceeds of the exercise of our outstanding warrants. There is no assurance that we will be able to sell additional securities or that our warrants will be exercised.
Capital Expenditures - The change in our business from an operator of weight loss retail locations to a franchise management company has reduced the need for capital for fixed assets and inventory but it has, however, increased the need for operating capital as we increase the number of franchise locations that we must service.
Ability to Continue as a Going Concern
Our financial statements, which are a part of this Form 10-QSB, have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have been adversely affected by significant losses from operations. We reported net losses of $76,310 and $440,654 for the years ended December 31, 2002 and 2001, respectively, and reported a net loss of $274,138 for the nine months ended September 30, 2003. Our management estimates it will need approximately $300,000 to fund our operations for the next 12 months. We plan to seek further equity funding to allow us to meet our cash needs. We believe that our plan to concentrate on pursuing multi-unit franchise agreements in Florida, North Carolina and New England and developing international business relationships will assist us in attaining profitable operations.
Item 3 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with participation of our management, including the Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting members of the management to material information relating to the Company required to be included in our periodic SEC filings.
(b) Changes in internal controls.
No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
We are not subject to or aware of any material pending litigation, legal proceedings or claims.
Item 2 - Changes in Securities
In September 2001, the Company granted warrants to purchase 3,398,440 shares of common stock with various exercise prices and originally scheduled to expire at various dates between June 30, 2003 and March 31, 2004. The warrants which were to expire on June 30, 2003 and September 30, 2003 have been extended to December 31, 2003. The new expiration dates and exercise prices of the warrants are as follows: on December 31, 2003 - (849, 610 @$0.035; 849,610 @ $0.05; 849,610 @$0.065); on March 31, 2004 - (849,610 @ $0.08).
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) | Exhibit 31.1 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer Exhibit 31.2 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer Exhibit 32.1 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer Exhibit 32.2 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer | ||
(b) | On September 8, 2003, Form 8-K was filed reporting a change of our independent accountants. |
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Weight Loss Forever International, Inc. | |||
(Registrant) | |||
By: | /s/ John Martin | ||
John Martin | |||
| /s/ Christopher Swartz | |||
Christopher Swartz | |||
Date: | November 14, 2003 | ||