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 quarterly period ended: March 31, 2002
[ ] 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 small business issuer 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)
Registrant's telephone number, including area code: (801) 772-3300
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 May 1, 2002, the issuer had a total of 24,044,340 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements
of operations for the three month periods ended March 31, 2002 and 2001 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 three months
ended March 31, 2002, are not necessarily indicative of results to be expected
for any subsequent period.
2
Whole Living, Inc.
Consolidated Financial Statements
March 31, 2002
3
Whole Living, Inc.
Balance Sheets
ASSETS
March 31, December 31,
2002 2001
------------- -------------
(Unaudited)
Current Assets
Cash $ 49,143 $ 96,232
Accounts Receivable 88,844 50,000
Receivables - Other 19,855 19,855
Inventory 406,846 511,846
Prepaid Expenses 14,292 20,167
------------- -------------
Total Current Assets 578,980 698,100
------------- -------------
Property & Equipment, Net 368,176 347,206
------------- -------------
Other Assets
Goodwill, Net 12,152 17,318
Deposits 55,010 55,010
------------- -------------
Total Other Assets 67,162 72,328
------------- -------------
Total Assets $ 1,014,318 $ 1,117,634
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 696,184 $ 516,308
Accrued Expenses 395,312 332,287
Current Portion of Long-Term Liabilities 656,753 544,533
------------- -------------
Total Current Liabilities 1,748,249 1,393,128
------------- -------------
Long Term Liabilities
Notes Payable - Related Party 656,753 544,453
Capital Lease Obligations - 80
Less Current Portion (656,753) (544,533)
------------- -------------
Total Long Term Liabilities - -
------------- -------------
Total Liabilities 1,748,249 1,393,128
------------- -------------
Stockholders' Equity
Common Stock, $.001 par value; 50,000,000
shares authorized; 24,044,340 and 24,004,340
shares issued and outstanding, respectively 24,045 24,005
Additional Paid-In Capital 7,757,991 7,742,831
Retained Deficit (8,315,967) (7,842,330)
Subscription Receivable (200,000) (200,000)
------------- -------------
Total Stockholders' Equity (733,931) (275,494)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,014,318 $ 1,117,634
============= =============
4
Whole Living, Inc.
Statements of Operations
(Unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, 2002 March 31, 2001
-------------- --------------
Sales $ 1,437,115 $ 1,302,943
Cost Of Goods Sold 1,065,259 1,071,513
-------------- --------------
Gross Profit 371,856 231,430
-------------- --------------
Operating Expenses
General & Administrative 676,270 783,924
Selling Expenses 144,265 241,340
-------------- --------------
Total Operating Expenses 820,535 1,025,264
-------------- --------------
OPERATING INCOME (LOSS) (448,679) (793,834)
OTHER INCOME(EXPENSE)
Interest Expense (24,958) (1,853)
Other Income - 1,496
-------------- --------------
Total Other Income(Expense) (24,958) (357)
-------------- --------------
NET INCOME(LOSS) $ (473,637) $ (794,191)
============== ==============
WEIGHTED AVERAGE INCOME(LOSS) PER SHARE $ (0.02) $ (0.05)
============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 24,037,229 17,018,115
============== ==============
5
Whole Living, Inc.
Statements of Cash Flows
(Unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, 2002 March 31, 2001
-------------- --------------
Cash Flows From Operating Activities
Net Income(Loss) $ (473,637) $ (794,191)
Adjustments to Reconcile Net Income(Loss) to
Net Cash Provided(Used) in Operating Activities:
Depreciation & Amortization 35,696 43,703
Stock Issued for Services 15,200 72,000
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (38,844) (117,963)
Inventory 105,000 (32,482)
Prepaid Expenses 5,875 77,108
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 242,901 (228,055)
-------------- --------------
Net Cash Provided(Used) by Operating Activities (107,809) (979,880)
-------------- --------------
Cash Flows from Investing Activities
Payments for Property & Equipment (51,500) (31,735)
Payments for Deposits - -
-------------- --------------
Net Cash Provided(Used) by Investing Activities (51,500) (31,735)
-------------- --------------
Cash Flows from Financing Activities
Proceeds from Debt Financing 129,300 1,012,223
Principal Payments on Debt Financing (17,080) (608)
-------------- --------------
Net Cash Provided(Used) by Financing Activities 112,220 1,011,615
-------------- --------------
Increase in Cash (47,089) -
Cash and Cash Equivalents at Beginning of Period 96,232 -
-------------- --------------
Cash and Cash Equivalents at End of Period $ 49,143 $ -
============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 2,208 $ 1,853
============== ==============
Income Taxes $ - $ -
============== ==============
Non-Cash :
Common Stock Issued for Services $ 15,200 $ 72,000
============== ==============
6
Whole Living, Inc.
Notes to the Consolidated Financial Statements
March 31, 2002
GENERAL
Whole Living, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the three months ended March 31,
2002 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 the Form 10-KSB for the year ended December 31, 2001.
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.
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References in this quarterly report to "Whole Living" "we," "us," and
"our" refer to Whole Living, Inc.
FORWARD LOOKING STATEMENTS
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, Canada and Japan and have cut
losses and increased sales by restructuring management, adjusting margins on
our products and bringing our manufacturing, packaging, 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 month periods
ended March 31, 2002 and 2001.
Sales increased $134,172 for the 2002 first quarter compared to the 2001
first quarter. The increased revenues for the 2002 first quarter were the
result of sales related to the development of our distributor network in
Australia, Canada, New Zealand and Japan.
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 decreased slightly for the 2002 first
quarter compared to the 2001 first quarter; however, cost of goods sold were
74.1% of sales for the 2002 first quarter compared to 82.2% of sales for the
2001 comparable period. The percentage of sales decrease in cost of goods
sold for the 2002 period was primarily the result of bringing food
manufacturing in-house. Accordingly, our gross profit increased $140,426 for
the 2002 first quarter compared to the 2001 first quarter.
General and administrative expenses, which include general office
expense, management and employees' salaries, and the support systems for the
distributor network, decreased $107,655 for the 2002 first quarter
8
compared to the 2001 comparable period. These expenses decreased as a result
of the combination of our management taking steps to reorganize our operations
to be more efficient and recording higher expenses in the 2001 first quarter
related to our expansion into foreign markets.
Selling expenses, which includes marketing expenses, the support of
sales meetings and events, and certain customer service expenses, decreased
$97,075 for the 2002 first quarter compared to the same period in 2001. The
2002 first quarter decrease was primarily a result of higher selling expenses
in the 2001 first 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 decreased $204,729 for the 2002 first quarter
compared to the 2001 first quarter.
As a result of becoming more efficient, our total operating expenses were
57.1% of sales for the 2002 first quarter, compared to 78.7% for the 2001
first quarter. Accordingly, our operating loss was $448,679 for the 2002
first quarter compared to $793,834 for the 2001 first quarter.
Total other expenses increased $24,601 in the 2002 first quarter
compared to the 2001 first quarter as a result of increased interest expense
related to our notes payable.
Our net loss decreased $320,554 for the 2002 first quarter compared to
the 2001 first quarter. Our loss per share was $0.02 for the 2002 first
quarter compared to $0.05 for the 2001 first quarter. Management expects
losses to decrease in the next quarter as we increase sales in our foreign
markets and maintain lower operating expenses.
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, Canada, 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.
Liquidity and Capital Resources
We have funded our cash requirements primarily through sales, loans and
private placements of our common stock. At the three month period ended March
31, 2002, we had $49,143 cash on hand with $578,980 in total current assets
compared to $96,232 cash on hand with $698,100 in total current assets at the
year ended December 31, 2001. Our total current liabilities were $1,748,249
at the end of the first quarter 2002 compared to
9
$1,393,128 at the 2001 year end. Notes payable and accounts payable
represented 77.4% of the total current liabilities at the end of the 2002
first quarter.
As of December 31, 2001, our principal commitments consisted of notes
payable and operating leases. Future minimum payments on notes payable were
$544,453 through 2002. Future minimum payments on operating leases for
vehicles, office space and warehouse space were $186,285 through 2003.
Net cash used for operating activities was $107,809 for the 2002 first
quarter compared to $979,880 for the 2001 first quarter. Net cash used by
investing activities was $51,500 for the 2002 first quarter compared to
$31,735 for the 2001 first quarter. These investments were primarily related
to payments for equipment.
Net cash provided by financing activities was $112,220 for the 2002
first quarter compared to $1,011,615 for the 2001 first quarter. This
decrease was primarily the result of higher debt financing in the 2001
quarter.
We relied on equity transactions to reduce our debt in 2001. During
2001 we received cash from debt financing of $1,990,373 primarily from
shareholders and management. In addition, during the 2000 year we borrowed
$1,934,049 from related parties. In February 2001 we issued 6,677,230 shares
to eight accredited investors to convert a portion of these notes payable
totaling $2,004,678. These loans were primarily from shareholders with
interest rates varying from 9% to 10.5%. In May 2001 we sold 7,500,000 common
shares to six accredited investors for $2,550,000 in cash. Then on October
15, 2001, our Board authorized the buy back of 4,052,890 common shares for
$1,500,000 from five of the shareholders. The Board then retired the shares
to the corporate treasury, reducing our issued and outstanding by that number.
Management anticipates that additional capital for cash shortfalls will
be provided by future loans or 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 our financial needs and the available exemptions.
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 related or 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.
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
The following discussion describes all securities sold by us without
registration during the first quarter 2002 through a recent date:
On January 14, 2002 we issued an aggregate of 40,000 common shares to
three individuals. We issued 10,000 shares to Daniel Penoel for consulting
services valued at approximately $3,800. We issued 5,000 common shares valued
at approximately $1,900 to Chris Neville as compensation for services rendered
to Brain Garden Australia. Richard F. Wogksch received 25,000 shares valued
at $9,500 as severance compensation. 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.
10
ITEM 5: OTHER INFORMATION
On May 1, 2002, our Board of Directors appointed Douglas J. Burdick and
Jeffrey R. Brudos as interim directors to serve until our next annual meeting
of shareholders. Mr. Burdick continues to serve as our Executive
Vice-President and Chief Operating Officer. On the same day, Sharmon L. Smith
resigned as our Secretary/Treasurer, Chief Financial Officer, and Director.
Our Board appointed Mr. Brudos to serve as Secretary/Treasurer and Chief
Financial Officer.
Mr. Brudos is 34 years old and is a Certified Public Accountant. He has
been employed by Whole Living since April 2002. From February 2001 through
March 2002 he was employed by Bank of America as a Senior Financial Analyst.
From January 2000 to January 2001 he was employed through Pre Paid Legal as an
Independent Sales Associate. From September 1999 to January 2000 he was a
business development consultant for One World Online.Com. From May 1999 to
September 1999 he served as general manager for Infinity Fulfillment. From
October 1998 to May 1999 he served as CFO for World Quest International. From
May 1998 to September 1998 he worked for InteleTravel Corporation as a senior
business analyst. From May 1997 to February 1998 he was unemployed while
rehabilitating from an accident. Mr. Brudos earned a bachelors degree in
Accountancy from the University of Wisconsin and is registered as a CPA in
Wisconsin.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Part II Exhibits.
Exhibit
Number Description
- ------ -----------
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 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 Stock Purchase Agreement between Whole Living and Investors, dated
April 23, 2001 (Incorporated by reference to exhibit 110.6 to SB-2
registration statement filed June 29, 2001)
10.4 Registration Rights agreement Between Whole Living and Investors,
dated May 7, 2001 (Incorporated by reference to exhibit 10.7 to SB-2
registration statement filed June 29, 2001)
(b) Reports on Form 8-K
None
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WHOLE LIVING, INC.
Date May 13, 2002 By: /s/ Ronald K. Williams
----------------- ---------------------------
Ronald K. Williams
President, CEO and Director
Date: May 13, 2002 By: /s/ Jeffrey R. Brudos
------------------ ---------------------------
Jeffrey R. Brudos
Secretary/Treasurer, Chief
Financial Officer and Director
12