SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarter Ended: March 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-26973
Whole Living, Inc.
(Exact name of registrant as specified in its charter)
Nevada 87-0621709
(State of incorporation) (I.R.S. Employer
Identification No.)
629 East 730 South, Suite 201, American Fork, UT 84003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 772-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of April 27, 2001, the Registrant had a total of 20,357,230 shares of
common stock outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements
of operations for the three months ended March 31, 2001 and 2000 is unaudited.
This financial information, in the opinion of management, includes all
adjustments consisting of normal recurring entries necessary for the fair
presentations of such data. The results of operations for the three months
ended March 31, 2001, are not necessarily indicative of results to be expected
for any subsequent period.
Whole Living, Inc.
Financial Statements
March 31, 2001
2
Whole Living, Inc.
Balance Sheets
ASSETS
March 31 December 31
2001 2000
------------- -------------
CURRENT ASSETS
Cash $ - $ -
Accounts receivable 131,590 13,627
Inventory 513,100 480,618
Prepaid expenses 29,368 106,476
------------- -------------
Total Current Assets 674,058 600,718
------------- -------------
PROPERTY & EQUIPMENT, Net 461,608 472,528
------------- -------------
OTHER ASSETS
Goodwill, Net 24,928 25,976
Distributor Lists, Net 61,345 64,600
Deposits 18,906 18,906
------------- -------------
Total Other Assets 105,179 109,482
------------- -------------
TOTAL ASSETS $ 1,240,845 $ 1,182,728
============= =============
3
Whole Living, Inc.
Balance Sheet continued
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
2001 2000
------------- -------------
CURRENT LIABILITIES
Bank overdraft $ 25,103 $ 121,073
Accounts payable 341,997 432,683
Accrued expenses 203,053 244,452
Current portion of long-term liabilities 282,689 1,277,175
------------- -------------
Total Current Liabilities 852,842 2,075,383
------------- -------------
LONG TERM LIABILITIES
Notes payable-related party 279,851 1,274,049
Notes payable - -
Capital lease obligations 2,838 3,446
Less current portion (282,689) (1,277,175)
------------- -------------
Total long term Liabilities - 320
------------- -------------
TOTAL LIABILITIES 852,842 2,075,703
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, authorized 50,000,000 shares
$.001 par value, issued and outstanding
20,356,730 and 13,379,500 shares, respectively 20,357 13,380
Additional paid in capital 5,037,770 2,969,578
Retained earnings (4,670,124) (3,875,933)
------------- -------------
Total Stockholders' Equity 388,003 (892,975)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,240,845 $ 1,182,728
============= =============
The accompanying notes are an integral part of these financial statements.
4
Whole Living, Inc.
Statements of Operations
For the three For the three
months ended months ended
March 31 March 31
2001 2000
------------- -------------
SALES $ 1,302,943 $ 960,479
COST OF GOODS SOLD 1,071,513 606,668
------------- -------------
GROSS PROFIT 231,430 353,811
------------- -------------
OPERATING EXPENSES
General And Administrative Expenses 783,924 422,301
Selling Expenses 241,340 219,398
------------- -------------
TOTAL OPERATING EXPENSES 1,025,264 641,699
------------- -------------
OPERATING INCOME (LOSS) (793,834) (287,888)
------------- -------------
OTHER INCOME AND (EXPENSES)
Interest Expense (1,853) (45,887)
Other Income 1,496 3,468
------------- -------------
Total Other Income and (Expenses) ( 357) (42,419)
------------- -------------
NET INCOME (LOSS) $ (794,191) $ (330,307)
============= =============
NET INCOME (LOSS) PER SHARE $ (.05) $ (.03)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 17,018,115 10,709,000
============= =============
The accompanying notes are an integral part of these financial statements.
5
Whole Living, Inc.
Statements of Cash Flows
For the three For the three
months ended months ended
March 31 March 31
2001 2000
------------- -------------
Cash Flows From Operating Activities
Net income (loss) $ (794,191) $ (330,307)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used in Operating Activities:
Depreciation & Amortization 43,703 17,581
Stock Issued for Services 72,000 -
Bad Debt - -
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (117,963) (4,601)
Inventory (32,482) (100,578)
Prepaid expenses 77,108 23,008
Increase/(decrease) in:
Accounts Payable (186,656) (144,592)
Accrued Expenses (41,399) 4,184
------------- -------------
Net Cash Used in Operating Activities (979,880) (535,305)
------------- -------------
Cash Flows from Investing Activities
Purchase of Property and Equipment (31,735) (35,432)
------------- -------------
Net Cash Used in Investing Activities (31,735) (35,432)
------------- -------------
Cash Flows from Financing Activities
Proceeds from debt financing 1,012,223 656,890
Principal payments on long term debt (608) (36,857)
------------- -------------
Net Cash Provided by Financing Activities 1,011,615 620,033
------------- -------------
Net Increase (Decrease) in Cash and
Cash Equivalents - 49,296
------------- -------------
Cash and Cash Equivalents
Beginning - 183,069
------------- -------------
Ending $ - $ 232,365
============= =============
Supplemental Disclosures of Cash Flow Information:
Cash payments for interest $ 1,853 $ 1,887
============= =============
Cash payments for income taxes $ - $ -
============= =============
Supplemental Schedule of Noncash Investing and Financing Activities
Common shares issued for services $ 72,000 $ -
============= =============
The accompanying notes are an integral part of these financial statements
6
Whole Living, Inc.
March 31, 2001
NOTES TO FINANCIAL STATEMENTS
Whole Living, Inc. (the "Company") has elected to omit substantially all
footnotes to the financial statements for the three months ended March
31, 2001, since there have been no material changes (other than indicated
in other footnotes) to the information previously reported by the Company
in their Annual Report filed on Form 10-KSB for the Fiscal year ended
December 31, 2000.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of
the Company without audit. However, such information reflects all
adjustments which are, in the opinion of management, necessary to
properly reflect the results of the period presented. The information
presented is not necessarily indicative of the results from operations
expected for the full fiscal year.
COMMON STOCK ISSUED FOR DEBT CONVERSION
During February 2001, the Company issued 6,677,230 shares to related
parties for debt conversion of $1,981,713 of principle and $21,456 of
accrued interest.
7
References in this quarterly report to "Whole Living" "we," "us," and
"our" refer to Whole Living, Inc.
This Form 10Q-SB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this Form 10Q-SB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Whole Living's control. These factors include but are not limited to economic
conditions generally and in the industries in which Whole Living may
participate; competition within Whole Living's chosen industry, including
competition from much larger competitors; technological advances and failure
by Whole Living to successfully develop business relationships.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Whole Living, doing business as Brain Garden , is a total lifestyle
company focused on improving mental and physical performance. We employ a
network marketing system to sell our products to customers and independent
distributors, and we rely on our distributors to sponsor new distributors. We
have recorded operating losses for the most recent two fiscal years and our
independent auditors have expressed an opinion that we may be unable to
continue as a going concern without financing. However, we plan to raise
capital though public markets and to aggressively market our products.
We recognize revenue upon the receipt of the sales order, which is
simultaneous with the payment and delivery of such goods. Revenue is net of
returns, which have historically been less than 1% of sales. Distributor
commissions are paid to several levels of distributors on each product sale.
The amount and recipient of the commission varies depending on the purchaser's
position within the Unigen Plan. Distributor commissions are paid to
distributors on a monthly basis based upon their personal and group sales
volume. Additional bonuses are paid weekly to distributors. The overall
payout average has been approximately 41% of product sales.
Results of Operations
The following table summarizes our operations for the three periods
ended March 31, 2001 and 2000.
Three Month Period Ended
March 31, 2001 | March 31, 2000
------------------------------------------------------------------
Sales $ 1,302,943 | $ 960,479
Cost of goods sold 1,071,513 | 606,668
------------ | ------------
Gross profit 231,430 | 353,811
------------------------------------------------------------------
8
------------------------------------------------------------------
General & administrative expenses $ 783,924 | $ 422,301
Selling expenses 241,340 | 219,398
Total operating expense 1,025,264 | 641,699
------------------------------------------------------------------
Operating loss (793,834) | (287,888)
------------------------------------------------------------------
Total other income (expense) (357) | (42,419)
------------------------------------------------------------------
Net loss $ (794,191) | $ (330,307)
------------------------------------------------------------------
Sales increased $342,464 for the first quarter of 2001 compared to the
same quarter for the prior year. The increased revenues were a result of the
development of our distributor network, particularly the expansion of our
distributor network into Australia and New Zealand in the last half of the
2000 fiscal year.
Cost of sales consists primarily of the cost of procuring and packaging
products and sales commissions to our independent distributors, the cost of
shipping product to distributors in Australia, plus credit card sales
processing fees. Cost of sales were 82.2% of sales for the first quarter of
2001 compared to 63.2% for the same period in 2000. This increase was
primarily the result of the implementation of the company-wide "Retail Bonus
Pool" commission plan, which significantly increased our commission payout on
sales to new customers in order to increase the size of our overall customer
and distributor base. Accordingly, our gross profit decreased $122,381 in the
first quarter of 2001 compared to the first quarter of 2000.
General and administrative expenses, which include general office
expense, management and employees' salaries, and the support systems for the
distributor network, increased $361,623 for the first quarter of 2001 compared
to the first quarter of 2000. These expenses increased because of: 1) start
up costs involved in establishing distribution in Australia and New Zealand;
and, 2) the increase in the number of employees and other resources required
to service the growth in company revenues.
Selling expenses, which includes marketing expenses, the support of
sales meetings and events, and certain customer service expenses, increased
$21,942 during the first quarter of 2001 compared to the same period of 2000.
This increase was primarily attributable to consulting fees and other expenses
for domestic and foreign market growth during the 2001 first quarter. Selling
expenses for the 2001 first quarter were 18.5% of sales compared to 22.8% for
the first quarter of 2000.
Total operating expenses were 78.7% of sales in the first quarter of
2001, compared to 66.8% in the first quarter of 2000. The increase in total
operating expenses during this period is summarized in the discussion of its
component parts above. Primarily, the increase was a result of expenses
involved in: 1) increased sales commissions resulting from implementation of
the company's Retail Bonus Plan; and 2) expenses of establishing, and
preparing to establish, overseas distribution.
Net loss increased $463,844 during the first quarter of 2001 compared to
the same period in 2000. We recorded a loss per share of $0.05 for 2001 first
quarter compared to a loss per share of $0.03 for the 2000 quarter. Cash to
fund operating losses came primarily from loans. Management expects operating
losses to continue in the next quarter as the company continues to invest in
expansion of its overseas distribution.
9
Liquidity and Capital Resources
We have funded our cash requirements primarily through sales, loans and
private placement of equity securities. For the quarter ended March 31, 2001,
we had no net cash on hand with $674,058 in total current assets compared to
no cash on hand and $600,718 total current assets for the year ended December
31, 2000. Our total current liabilities were $852,842 for 2001 first quarter
compared to total current liabilities of $2,075,383 for the 2000 year.
As of December 31, 2000 our principal commitments consisted of notes
payable and office equipment leases. Future minimum capital lease payments
totaled $3,446 through the year 2002, future minimum payments on notes payable
were $1,274,049 through 2001 and future minimum payment on operating leases
was $258,357 through 2002. We are obligated to pay a distributor a bonus of
$5,000 a month in consideration for purchase of a distributor position. We
also pay $5,000 a month in royalty payments to an individual for developing
sales, training and education aids on a case-by-case basis.
Net cash used for operating activities was $979,880 for the 2001 quarter
compared to $ 535,305 in the 2000 quarter. Net cash used by investing
activities was $31,735 for the 2001 quarter compared to $35,432 for the 2000
quarter. Cash flows provided by financing activities were $1,011,615 for the
2001 quarter compared to $620,033 for the 2000 quarter.
During the 2001 quarter we sold an aggregate of 6,677,230 common shares
for conversion of debt totaling $2,003,169 and we issued 300,000 common shares
in consideration for services valued at $72,000. During 2000 we received an
aggregate of $2,274,049 in loans from related parties and later negotiated
settlements of notes payable totaling $2,500,000. The settlement of notes
payable included 400,000 common shares we issued to PHI Mutual Ventures to
convert a note payable of $500,000 in March 2000. In June 2000 we issued an
aggregate of 2,000,000 common shares to Capital Communications, Inc. to
satisfy $1,000,000 of notes payable.
Factors affecting future performance
Since our inception, internal cash flows, alone, have not been
sufficient to maintain our operations. Our future internal cash flows will be
dependent on a number of factors, including:
. Our ability to encourage our distributors to sponsor new
distributors and increase their own personal sales;
. Our ability to promote our product lines with our distributors;
. Our ability to develop successful new product lines;
. Effects of regulatory changes, if any; and
. Our ability to remain competitive in our markets.
Actual costs and revenues could vary from the amounts we expect or budget,
possibly materially, and those variations are likely to affect how much
additional financing we will need for our operations.
Management believes that our cash needs for at least the next six months
can be met by loans from our directors, officers and shareholders. We have
understandings with such individuals that such loans will be repaid once we
have sufficient internal cash flows and/or are able to obtain additional
funding through private placements of our stock. We also may convert the debt
into equity.
Management anticipates that additional capital will be provided by
private placements of our common stock. We expect to issue private placements
of stock pursuant to exemptions provided by federal and state securities laws.
The purchasers and manner of issuance will be determined according to
10
our financial needs and the available exemptions. In order to facilitate
equity transactions, management contemplates a public offering of our common
stock registered under the Securities Act of 1933. Management anticipates
that the shares will be registered for the benefit of selling stockholders
rather than an underwritten offer of common shares to the public. We also
note that if we issue more shares of our common stock our shareholders may
experience dilution in the value per share of their common stock.
If we fail to raise the necessary funds through private placements, we
anticipate we will require debt financing from third parties. We have not
investigated the availability, source and terms for external financing at this
time and we can not assure that funds will be available from any source, or,
if available, that we will be able to obtain the funds on terms agreeable to
us. Also, the acquisition of funding through the issuance of debt could
result in a substantial portion of our cash flows from operations being
dedicated to the payment of principal and interest on the indebtedness, and
could render us more vulnerable to competitive and economic downturns.
We have entered into agreements with independent distributors and
suppliers located in Australia and may establish similar arrangements in other
countries in the future. As a result, our future revenues may be affected by
the economies of these countries. Our international operations are subject to
a number of risks, longer payment cycles, unexpected changes in regulatory
environments, import and export restrictions and tariffs, difficulties in
staffing and managing international operations, greater difficulty or delay in
accounts receivable collection, potentially adverse recessionary environments
and economies outside the United States, and possible political and economic
instability.
Seasonal Aspects
In the direct selling industry, the summer months of June, July and
August, and the holiday months of November and December are relatively soft.
However, in our short operating history we have experienced an increase in
sales during these time periods and are unsure how the industry-wide
fluctuations will affect our business in the future.
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Sale of Unregistered Securities
The following describes the securities we sold without registration
during our first quarter.
On January 8, 2001 we issued 250,000 common shares valued at
approximately $60,000 to Mutual Ventures Corporation in consideration for
investment banking consulting services. On that same date we issued 50,000
common shares to Daniel W. Jackson in consideration for legal services valued
at approximately $12,000. We relied on an exemption from registration under
the Securities Act provided by Section 4(2) as a private transaction not
involving a public distribution.
Starting February 15, 2001 our Board authorized the sale of our common
shares in a limited offering. During February and March our Board authorized
the issuance of an aggregate of 6,677,230
11
common shares to eight accredited investors for conversion of debt and cash
valued at approximately $2,003,169. We relied on an exemption from the
registration requirements of the Securities Act of 1933 provided by Section
3(b) and Regulation D as a Rule 505 limited offering. The aggregate offering
was for $5 million in a twelve month period.
ITEM 5. OTHER INFORMATION
In April 2001, William B. Turnbull, our Secretary and Director, resigned
from the office of Secretary. Our Board appointed Richard F. Wogksch to the
Secretary position and he now serves as Secretary/Treasurer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Part II Exhibits.
Exhibit
Number Description
- ------- -----------
2.1 Agreement and Plan of Reorganization between Whole Living and Whole
Living, dba Brain Garden, dated March 16, 1999 (incorporated by
reference to Exhibit 8.1 to Form 10-SB, as amended, filed August 9,
1999)
3.1 Articles of Incorporation of Whole Living (incorporated by reference
to Exhibit 2.1 to Form 10-SB, as amended, filed August 9, 1999)
3.2 Articles of Merger filed March 19, 1999 (incorporated by reference
to Exhibit 2.2 to Form 10-SB, as amended, filed August 9, 1999)
3.3 Articles of Merger filed May 24, 1999 (incorporated by reference to
Form Exhibit 2.3 to 10-SB, as amended, filed August 9, 1999)
3.4 Bylaws of Whole Living (incorporated by reference to Exhibit 2.4 to
Form 10-SB, as amended, filed August 9, 1999)
10.1 Lease between Whole Living and KL Partners American Fork II, LLC,
dated November 26, 1999 (incorporated by reference to Exhibit 6.1 to
Form 10-SB, as amended, filed August 9, 1999)
10.2 Form of Employment Agreement (incorporated by reference to Exhibit
6.2 to Form 10-SB, as amended, filed August 9, 1999)
10.3 Private Label Manufacturing Agreement between Whole Living, Inc. and
Future 500 Corporation dated, September 14, 1999 (incorporated by
reference to Exhibit 6.4 to Form 10-SB, as amended, filed August 9,
1999)
(b) Reports on Form 8/K
None.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned who are duly authorized.
WHOLE LIVING, INC.
Date 5/11/01 By: /s/ Ronald K. Williams
----------------------- ---------------------------
Ronald K. Williams
President and Director
Date 5/10/01 By: /s/ Richard F. Wogksch
----------------------- ----------------------------
Richard F. Wogksch,
Chief Financial Officer and
Director
13