UNITED STATES
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: September 30, 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 November 19, 2001, the Registrant had a total of 24,004,340 shares
of common stock outstanding.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements...............................................3
Item 2: Management's Discussion and Analysis................................8
PART II: OTHER INFORMATION
Item 2: Changes in Securities..............................................10
Item 5: Other Information .................................................11
Item 6: Exhibits and Reports filed on Form 8-K ...........................11
Signatures.................................................................13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements
of operations for the three and nine month periods ended September 30, 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 presentation of such data. The results of operations
for the nine months ended September 30, 2001, are not necessarily indicative
of results to be expected for any subsequent period.
2
Whole Living, Inc.
Financial Statements
September 30, 2001
3
Whole Living, Inc.
Balance Sheets
ASSETS
------
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
Current Assets
Cash $ - $ -
Accounts Receivable 33,567 13,627
Inventory 511,846 480,618
Prepaid Expenses 87,333 106,473
------------- -------------
Total Current Assets 632,746 600,718
------------- -------------
Property & Equipment, Net 426,896 472,528
------------- -------------
Other Assets
Goodwill, Net 22,833 25,976
Distributor Lists, Net 54,547 64,600
Deposits 47,363 18,906
------------- -------------
Total Other Assets 124,743 109,482
------------- -------------
Total Assets $ 1,184,385 $ 1,182,728
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Bank Overdraft $ 102,591 $ 121,073
Accounts Payable 458,503 432,683
Accrued Expenses 179,480 244,452
Current Portion of Long-Term Liabilities 50,992 1,277,175
------------- -------------
Total Current Liabilities 791,566 2,075,383
------------- -------------
Long Term Liabilities
Notes Payable - Related Party 5,000 1,274,049
Notes Payable 50,453 -
Capital Lease Obligations 992 3,446
Less Current Portion (50,992) (1,277,175)
------------- -------------
Total Long Term Liabilities 5,453 320
------------- -------------
Total Liabilities 797,019 2,075,703
------------- -------------
Stockholders' Equity
Common Stock, $.001 par value; 50,000,000
shares authorized; 28,716,730 and 13,379,500
shares issued and outstanding, respectively 28,717 13,380
Additional Paid-In Capital 6,575,410 2,969,578
Retained Deficit (5,746,061) (3,875,933)
Subscription Receivable (470,700) -
------------- -------------
Total Stockholders' Equity 387,366 (892,975)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,184,385 $ 1,182,728
============= =============
4
Whole Living, Inc.
Statements of Operations
(Unaudited)
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
-------------- -------------- -------------- --------------
<s> <c> <c> <c> <c>
Sales $ 1,727,102 $ 1,565,799 $ 4,561,742 $ 3,689,838
Cost Of Goods Sold 1,073,693 1,176,803 3,304,520 2,556,492
-------------- -------------- -------------- --------------
Gross Profit 653,409 388,996 1,257,222 1,133,346
-------------- -------------- -------------- --------------
Operating Expenses
General & Administrative 807,707 644,247 2,445,929 1,676,191
Selling Expenses 122,854 358,534 683,637 657,842
Research & Development - 20 - 20
-------------- -------------- -------------- --------------
Total Operating Expenses 930,561 1,002,801 3,129,566 2,334,053
-------------- -------------- -------------- --------------
OTHER INCOME(EXPENSE)
Interest Expense (2,414) (1,536) (5,116) (48,176)
Other Income 5,317 2,615 7,332 7,613
-------------- -------------- -------------- --------------
Total Other Income(Expense) 2,903 1,079 2,216 (40,563)
-------------- -------------- -------------- --------------
NET INCOME(LOSS) $ (274,249) $ (612,726) $ (1,870,128) $ (1,241,270)
============== ============== ============== ==============
WEIGHTED AVERAGE INCOME
(LOSS) PER SHARE $ (0.01) $ (0.05) $ (0.08) $ (0.09)
============== ============== ============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 28,603,952 12,726,500 23,067,747 14,238,221
============== ============== ============== ==============
5
Whole Living, Inc.
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
-----------------------------
2001 2000
-------------- --------------
<s> <c> <c>
Cash Flows From Operating Activities
Net Income(Loss) $ (1,870,128) $ (1,241,270)
Adjustments to Reconcile Net Income(Loss) to Net Cash
Provided(Used) in Operating Activities:
Depreciation & Amortization 133,036 81,314
Stock Issued for Services 190,000 -
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (19,940) (24,977)
Inventory (31,228) (60,315)
Prepaid Expenses 47,140 (57,378)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (57,634) 201,055
-------------- --------------
Net Cash Provided(Used) by Operating Activities (1,608,754) (1,101,571)
-------------- --------------
Cash Flows from Investing Activities
Payments for Property & Equipment (81,039) (293,719)
Payments for Distributor List - (30,000)
Payments for Deposits (28,457) (7,400)
-------------- --------------
Net Cash Provided(Used) by Investing Activities (109,496) (331,119)
-------------- --------------
Cash Flows from Financing Activities
Proceeds from Debt Financing 1,549,790 1,320,732
Proceeds from Issuance of Common Stock 415,000 -
Principal Payments on Debt Financing (246,540) (71,111)
-------------- --------------
Net Cash Provided(Used) by Financing Activities 1,718,250 1,249,621
-------------- --------------
Increase (Decrease) in Cash - (183,069)
Cash and Cash Equivalents at Beginning of Period - 183,069
-------------- --------------
Cash and Cash Equivalents at End of Period $ - $ -
============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 5,116 $ 2,644
Income Taxes $ - $ -
Non-Cash :
Common Stock Issued for Notes Payable & Accrued Interest $ 2,517,469 $ 1,000,000
Common Stock Issued for Services $ 190,000 $ 23,500
Common Stock Issued for Prepaid Expenses $ 28,000 $ -
6
Whole Living, Inc.
Notes to the Financial Statements
September 30, 2001
GENERAL
Whole Living, Inc.(the Company) has elected to omit substantially all
footnotes to the financial statements for the nine months ended September 30,
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 interim 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.
COMMON STOCK ISSUED FOR SUBSCRIPTION RECEIVABLE
During May 2001, the Company placed 7,500,000 shares of its common stock in
escrow in anticipation of cash and debt settlement of $1,400,000. As of
September 30, 2001, cash of $415,000 has been received and $514,300 has been
used in payment of notes payable. The subscription receivable balance at
September 30, 2001 is $470,700.
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
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 have experienced
growth of our distributor network in Australia, Korea and Japan and have cut
losses and increased sales by restructuring management, adjusting margins on
our products and bringing our shipping/warehousing and order entry in-house.
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 discussions are based on our financial statements included
with this report and comparisons are presented for the three (the third
quarter) and nine month periods ended September 30, 2001 and 2000.
Sales increased $871,904 for the 2001 nine month period compared to the
2000 nine month period. Sales increased $161,303 for the 2001 third quarter
compared to the 2000 third quarter. The increased revenues for the 2001 nine
month period were a result of the development of our distributor network,
particularly the expansion of our distributor network into Australia and New
Zealand in the first half of the 2001 fiscal year and our launch in Japan
during August 2001.
Cost of goods sold consists primarily of the cost of procuring and
packaging products, sales commissions paid to our independent distributors,
the cost of shipping product to distributors, plus credit card sales
processing fees. Cost of goods sold were 72.4% of sales for the 2001 nine
month period compared to 69.3% of sales for the 2000 comparable period. Cost
of goods sold was 62.2 % of sales for the 2001 third quarter and 75.2% of
sales for the 2000 third quarter. The percentage of sales increase in cost of
goods sold for the 2001 periods was primarily the result of a company-wide
"Retail Bonus Pool" commission plan, which increased our commission payout on
sales to new customers in order to increase the size of our overall customer
and distributor base. As a result of increased sales, our gross profit
increased $123,876 in the 2001 nine month period compared to the 2000 nine
month period and increased $264,413 for the 2001 third quarter compared to the
2000 third quarter.
General and administrative expenses, which include general office
expense, management and employees'
8
salaries, and the support systems for the distributor network, increased
$769,738 for the 2001 nine month period and $163,460 for the 2001 third
quarter compared to the 2000 comparable periods. These expenses increased
because of costs involved in establishing distribution centers in Australia,
New Zealand and Japan, and 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
$25,795 for the 2001 nine month period and decreased $235,680 for the 2001
third quarter compared to the same periods in 2000. This nine month period
increase was primarily attributable to consulting fees and other expenses for
domestic and foreign market growth during that period. The 2001 third quarter
decrease was primarily a result of higher selling expenses in the 2000 third
quarter related to expanding distribution in Australia and New Zealand, plus
additional costs involved in laying the groundwork for expansion into certain
Asian markets.
Total operating expenses increased $795,513 for the 2001 nine month
period and decreased $72,240 for the 2001 third quarter compared to the 2000
comparable periods. Total operating expenses were 68.6% of sales in the 2001
nine month period and 53.9% for the 2001 third quarter, compared to 63.3% in
the 2000 nine month period and 64.0% for the 2000 third quarter. Primarily,
the 2001 nine month period increase was a result of expenses increased sales
commissions and the establishment of overseas distribution. The 2001 third
quarter decrease was primarily the result of decreases in selling expenses, as
described above.
Our net loss increased $628,858 during the 2001 nine month period and
decreased $338,477 for the third quarter compared to the same periods in 2000.
We recorded a loss per share of $0.08 for 2001 nine month period compared to a
loss per share of $0.09 for the 2000 nine month period. Our loss per share
was $0.01 for the 2001 third quarter compared to $0.05 for the 2000 third
quarter. Management expects losses to decrease in the next quarter as we
increase sales in our foreign markets.
Liquidity and Capital Resources
We have funded our cash requirements primarily through revenues, loans
and sales of our common stocks. For the quarter ended September 30, 2001, we
had no net cash on hand with $632,746 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 $791,566 for the 2001 third quarter
compared to total current liabilities of $2,075,383 for the 2000 fiscal year.
The drop in total current liabilities is primarily the result of conversion of
long term debt into common stock.
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.
Net cash used for operating activities was $1,608,754 for the 2001 nine
month period compared to $1,101,571 in the 2000 nine month period. Net cash
used by investing activities, related to payments for property and equipment,
was $109,496 for the 2001 nine month period compared to $331,119 for the 2000
nine month period. Cash flows provided by financing activities, which came
primarily from loans, were $1,718,250 for the 2001 period compared to
$1,249,621 for the 2000 period,.
We historically have converted our loans into equity. In May 2001 we
sold 7,500,000 common shares for $2,550,000 in cash and conversion of debt.
We received $415,000 and used an additional $514,300 to satisfy notes payable
and anticipate receiving additional cash proceeds of $470,700 from this
private placement. In February 2001 we issued 6,677,230 shares to related
parties for debt conversion of $1,981,713 of principle and $21,456 of accrued
interest. 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, converting the debt into 2,400,000 common shares.
9
Management anticipates that private placements of our common stock
and/or loans from related parties may provide additional capital. Any future
private placements of stock will be issued pursuant to exemptions provided by
federal and state securities laws. The purchasers and manner of issuance will
be determined according to our financial needs and the available exemptions at
the time. 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.
We have historically relied on loans from related parties, such as,
officers, directors and shareholders. However, these persons are not
obligated to provide funds. If we fail to raise the necessary funds through
private placements, we anticipate we will require third-party loans. We may
repay these loans and advancements with cash, if available, or we may convert
them into common stock. At this time we have not investigated the
availability, source and terms for third-party financing 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.
Factors Affecting Future Performance Since our inception, internal
cash flows, alone, have not been sufficient to maintain our operations.
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. 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.
In addition, we have entered into agreements with independent
distributors and suppliers located in Australia, New Zealand and Japan 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, such as, 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
On October 15, 2001, our Board authorized the buy back of 4,052,890
common shares from five shareholders. The Board then retired the shares to
the corporate treasury, reducing our issued and outstanding by that number.
Sale of Unregistered Securities
The following describes the securities we sold without registration
during the third quarter of 2001 through a recent date.
10
On July 5, 2001, we issued 200,000 common shares to Daniel W. Jackson in
consideration for legal services valued at $28,000. We relied on an exemption
from registration for a private transaction not involving a public
distribution provided by Section 4(2) under the Securities Act.
On July 12, 2001, we issued 400,000 common shares to Mountain View
Investsments & Consulting LC in consideration for consulting services valued
at $60,000. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) under
the Securities Act.
On August 14, 2001, we issued 70,000 common shares to Donald R. Mayer to
satisfy an outstanding debt of $60,000 related to liability insurance we had
purchased. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) under
the Securities Act.
On October 31, 2001, we issued 40,000 common shares to the Ron C.
Touchard Separate Property Trust. These shares were issued in consideration
for services rendered related to down line development, valued at
approximately $35,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) under the Securities Act.
In connection with the issuance of our securities, we believe that the
purchaser (i) was aware that the securities had not been registered under
federal securities laws, (ii) acquired the securities for his/her/its own
account for investment purposes and not with a view to or for resale in
connection with any distribution for purpose of the federal securities laws,
(iii) understood that the securities would need to be indefinitely held unless
registered or an exemption from registration applied to a proposed disposition
and (iv) was aware that the certificate representing the securities would bear
a legend restricting their transfer. We believe that, in light of the
foregoing, the sale of our securities to the acquirer did not constitute the
sale of an unregistered security in violation of the federal securities laws
and regulations by reason of the exemptions provided under 3(b) and 4(2) of
the Securities Act, and the rules and regulations promulgated thereunder.
ITEM 5. OTHER INFORMATION
As of November 1, 2001, we had 30,000 active distributors worldwide.
During the third quarter ended September 30, 2001, we launched the following
new products:
. Mastic, an essential oil and/or powder;
. Garden Basket of Essential Oils, which includes eight essential
oils;
. Breakin Ground Volume 2, our education package designed to help
children and adults enhance their learning capabilities; and
. new distributor kits which include point of purchase display,
audio cassettes, product videos, brochures and a new "Getting
Started" manual.
We also opened our customer service/distributor training center in
Tokyo, Japan in August of 2001.
On June 8, 2001, our Board appointed Sharmon L. Smith to our board of
directors to serve until our next annual meeting of shareholders. Mr. Smith is
the President and founder of Tapdog.com LLC, which is a company that provides
Internet and business consulting. From August 1998 to March 1999 he was
employed as a Internet consultant for Fortune Financial. From January 1996 to
August 1998 he was employed as an Executive Vice President of iMall, Inc.
providing operational management. He earned a Masters degree in Business
Administration from Brigham Young University located in Provo, Utah.
In October 2001 Richard F. Wogksch resigned as our Chief Financial
Officer and Director to pursue other interests.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
11
(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 of the Form 10-SB, as amended, filed
August 9, 1999)
3.1 Articles of Incorporation of Whole Living (incorporated by
reference to Form exhibit 2.1 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 the Form 10-SB, as amended, filed August 9, 1999)
3.3 Articles of Merger filed May 24, 1999 (incorporated by reference to
exhibit 2.32 to the Form 10-SB, as amended, filed August 9, 1999)
3.4 Bylaws of Whole Living (incorporated by reference to exhibit 2.4 to
the 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 the Form 10-SB, as amended, filed August 9, 1999)
10.2 Employment Agreement between Ron Williams and Whole Living
(incorporated by reference to exhibit 6.2 to the Form 10-SB, as
amended, filed August 9, 1999)
10.3 Consulting Agreement between Whole Living, Inc. and Don Tolman,
dated November 30, 1998 (incorporated by reference to exhibit 6.3
to the Form 10-SB, as amended, filed August 9, 1999)
10.4 Private Label Manufacturing Agreement between Whole Living, Inc.
and Future 500 Corporation dated, September 14, 1999 (incorporated
by reference to exhibit 6.4 to the Form 10-SB, as amended, filed
August 9, 1999)
10.5 Consultant Agreement between Columbia Financial Group, Inc. and
Whole Living, dated September 13, 2000, as amended (incorporated by
reference to exhibit 10.5 to Form SB-2, as amended, filed June 29,
2001)
10.6 Stock Purchase Agreement between Whole Living and Investors, dated
April 23, 2001 (incorporated by reference to exhibit 10.6 to Form
SB-2, as amended, filed June 29, 2001)
10.7 Registration Rights agreement Between Whole Living and Investors,
dated May 7, 2001 (incorporated by reference to exhibit 10.7 to
Form SB-2, as amended, filed June 29, 2001)
(b) Reports on Form 8/K
On July 16, 2001 we filed a report on Form 8-K under Item 5 regarding
the effective date of our Registration Statement on Form SB-2.
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 11/19/01 By: /s/ Ronald K Williams
-------------------- -------------------------------
Ronald K. Williams
President and Director
Date 11/19/01 By: /s/ Sharmon L. Smith
---------------------- ------------------------------
Sharmon L. Smith
Director