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 June 30, 2003
[ ] 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.)
433 East Bay Boulevard, Provo, Utah 84606
(Address of principal executive offices)
Registrant's telephone number: (801) 655-1000
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 July 28, 2003, the issuer had a total of 43,009,640 shares of common
stock outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements...............................................3
Item 2: Management's Discussion and Analysis...............................8
Item 3: Controls and Procedures...........................................11
PART II: OTHER INFORMATION
Item 5: Other Information.................................................11
Item 6: Exhibits and Reports filed on Form 8-K............................11
Signatures.................................................................12
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 six month periods ended June 30, 2003 and
2002, 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 six
month period ended June 30, 2003, are not necessarily indicative of results to
be expected for any subsequent period.
2
Whole Living, Inc.
Consolidated Financial Statements
June 30, 2003
3
Whole Living, Inc.
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2003 2002
------------- --------------
(Unaudited)
Current Assets
Accounts Receivable $ 252,505 $ 33,445
Inventory 950,874 653,667
Prepaid Expenses 45,246 37,013
------------- --------------
Total Current Assets 1,248,625 724,125
------------- --------------
Property & Equipment, Net 321,761 256,120
------------- --------------
Other Assets
Infomercial, Net 321,874 -
Goodwill, Net 17,318 17,318
Deposits 21,340 36,435
------------- --------------
Total Other Assets 360,532 53,753
------------- --------------
Total Assets $ 1,930,918 $ 1,033,998
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Overdraft $ 43,946 $ 27,212
Accounts Payable 833,352 694,548
Accrued Expenses 324,532 425,436
Contingent Liabilities 208,819 208,819
Current Portion of Long-Term Liabilities 500,000 420,000
------------- --------------
Total Current Liabilities 1,910,649 1,776,015
------------- --------------
Long Term Liabilities
Notes Payable - Related Party 500,000 420,000
Less Current Portion (500,000) (420,000)
------------- --------------
Total Long Term Liabilities - -
------------- --------------
Total Liabilities 1,910,649 1,776,015
------------- --------------
Stockholders' Equity
Common Stock, $.001 Par Value; 50,000,000
Shares Authorized; 43,009,640 and 32,849,640
Shares Issued and Outstanding, Respectively 43,010 32,850
Additional Paid-In Capital 10,692,508 9,337,002
Retained Deficit (10,715,249) (10,001,369)
Prepaid Expense - (110,500)
------------- --------------
Total Stockholders' Equity 20,269 (742,017)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,930,918 $ 1,033,998
============= ==============
4
Whole Living, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------
<s> <c> <c> <c> <c>
Sales $ 3,554,144 $ 1,755,787 $ 6,323,543 $ 3,192,902
Cost Of Goods Sold 2,474,142 1,085,948 4,692,636 2,151,207
------------- ------------- ------------- -------------
Gross Profit 1,080,002 669,839 1,630,907 1,041,695
------------- ------------- ------------- -------------
Operating Expenses
General & Administrative 866,378 953,287 1,861,890 1,629,557
Selling Expenses 164,483 88,831 439,743 233,096
------------- ------------- ------------- -------------
Total Operating Expenses 1,030,861 1,042,118 2,301,633 1,862,653
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) 49,141 (372,279) (670,726) (820,958)
OTHER INCOME(EXPENSE)
Interest Expense (9,036) (29,305) (43,256) (54,263)
Interest Income 102 - 102 -
------------- ------------- ------------- -------------
Total Other Income(Expense) (8,934) (29,305) (43,154) (54,263)
------------- ------------- ------------- -------------
NET INCOME(LOSS) $ 40,207 $ (401,584) $ (713,880) $ (875,221)
============= ============= ============= =============
WEIGHTED AVERAGE INCOME(LOSS)
PER SHARE $ 0.00 $ (0.02) $ (0.02) $ (0.04)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 43,009,640 24,044,340 43,009,640 24,041,007
============= ============= ============= =============
5
Whole Living, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six For the Six
Months Ended Months Ended
June 30, 2003 June 30, 2002
------------- -------------
<s> <c> <c>
Cash Flows From Operating Activities
Net Income(Loss) $ (713,880) $ (875,221)
Adjustments to Reconcile Net Income(Loss) to
Net Cash Provided(Used) in Operating Activities:
Depreciation & Amortization 243,350 76,221
Stock Issued for Services 25,000 165,200
Stock Issued for Interest 24,514 26,861
Options Issued for Services - 40,000
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (237,105) (61,423)
Inventory (297,207) (20,000)
Prepaid Expenses (8,233) 5,875
Deposits 15,095 (1,000)
Increase (Decrease) in:
Bank Overdraft 16,734 -
Accounts Payable and Accrued Expenses 37,900 117,883
------------- -------------
Net Cash Provided(Used) by Operating Activities (893,832) (524,604)
------------- -------------
Cash Flows from Investing Activities
Payments for Property & Equipment (106,168) (89,213)
Payments for Notes Receivable - (1,100,000)
------------- -------------
Net Cash Provided(Used) by Investing Activities (106,168) (1,190,213)
------------- -------------
Cash Flows from Financing Activities
Proceeds from Debt Financing 1,000,000 1,883,467
Principal Payments on Debt Financing - (17,080)
------------- -------------
Net Cash Provided(Used) by Financing Activities 1,000,000 1,866,387
------------- -------------
Increase in Cash - 151,570
Cash and Cash Equivalents at Beginning of Period - 96,232
------------- -------------
Cash and Cash Equivalents at End of Period $ - $ 247,802
============= =============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 7,500 $ 2,208
============= =============
Income Taxes $ - $ -
============= =============
Non-Cash:
Common Stock Issued for Notes Payable &
Accrued Interest $ 944,514 $ 1,106,861
============= =============
Common Stock Issued for Services $ 25,000 $ 165,200
============= =============
Common Stock Issued for Investment $ - $ 75,000
============= =============
Common Stock Issued for Infomercial $ 396,152 $ -
============= =============
Accounts Receivable Exchanged for Equipment $ 18,045 $ -
============= =============
6
Whole Living, Inc.
Notes to the Consolidated Financial Statements
June 30, 2003
GENERAL
- -------
Whole Living, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the six months ended June 30, 2003
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, 2002.
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
- ------------
During February 2003, the Company issued 2,700,000 shares of common stock for
an infomercial valued at $396,152.
During February 2003, the Company issued 7,460,000 shares of common stock for
the settlement of notes payable, accrued interest and fees of $969,514.
INFOMERCIAL
- -----------
As disclosed above, the Company acquired an infomercial valued at $396,152.
Management has estimated the life of the infomercial to be for a period of 24
months. As of June 30, 2003, amortization expense of $74,279 has been
recognized.
7
References in this quarterly report to "Whole Living" "we," "us," and
"our" refer to Whole Living, Inc.
FORWARD LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements and any
statements contained in this report 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 markets in which Whole Living may participate;
competition within Whole Living's chosen markets, 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 operates through its wholly-owned subsidiary Brain Garden,
Inc. We have recorded operating income for the three month period ended June
30, 2003; however, we have recorded operating losses for the six month period
ended June 30, 2003 and from inception. Our plan is to focus our marketing
efforts on the Food First Program and expand this program into the
international market. During the first quarter of 2003 we experienced
non-recurring expenses related to the launch of this program and now expect to
move forward with increased sales. We launched the Food First Program in the
United Kingdom in June 2003 and anticipate further growth in the international
market.
Results of Operations
The following discussions should be read in conjunction with the
financial statements included with this report and comparisons are presented
for the three and six month periods ended June 30, 2003 and 2002.
We recognize revenue upon the receipt of the sales order, which is
simultaneous with the payment and delivery of our goods. Revenue is net of
returns, which has historically been less than 1% of sales. For the six month
period ended June 30, 2003 we recorded sales of $6,323,543 compared to sales
of $3,192,902 for the comparable 2002 six month period. Sales for the three
month period ended June 30, 2003 were $3,554,144 compared to $1,755,787 in
sales for the 2002 second quarter. The increase in sales is primarily due to
the Food First Program which has resulted in growth in new customers.
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. Distributor commissions are paid to several levels of
distributors on each product sold. 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 for sales commissions has
historically been approximately 36% to 38% of product sales.
Cost of goods sold increased $2,541,429 for the 2003 six month period
compared to the 2002 six month period. Cost of goods sold increased
$1,388,194 for the 2003 second quarter compared to the 2002 second quarter.
Cost of goods sold were 74.2% of sales for the 2003 six month period compared
to 67.4% of sales for the 2002 six month period. Cost of goods sold were
69.6% of sales for the 2003 second quarter compared to 61.8% of sales for the
2002 second quarter. Due to increased sales, our gross profit increased
$589,212, or 56.6%, for the 2003 six month period compared to the 2002 six
month period, and increased $410,163, or 61.2%, for the 2003 second quarter
compared to the 2002 second quarter.
8
Total operating expenses increased $438,980, or 23.6%, for the 2003 six
month period compared to the 2002 six month period. Total operating expenses
decreased $11,257, or 1.1%, for the 2003 second quarter compared to the 2002
second quarter. These changes are discussed in more detail below in relation
to general and administrative expenses and selling expenses. Our total
operating expenses were 36.4% of sales for the 2003 six month period compared
to 58.3% of sales for the 2002 six month period. Total operating expenses
were 29.0% of sales for the 2003 second quarter compared to 59.4% of sales for
the 2002 second quarter.
General and administrative expenses, which include general office
expense, management and employees' salaries, and the support systems for the
distributor network, increased $232,333, or 14.2%, for the 2003 six month
period and decreased $86,909, or 9.1%, for the 2003 second quarter compared to
the 2002 second quarter. These expenses increased in the 2003 six month
period primarily due to non-recurring costs associated with the support
systems required for the increase in sales. The 2003 second quarter decrease
was primarily due to lack of the non-recurring expenses.
Selling expenses, which include marketing expenses, the support of
sales meetings and events, and certain customer service expenses, increased
$206,647, or 88.7%, for the 2003 six month period compared to the 2002
comparable period. Selling expenses increased $75,652, or 85.1%, for the 2003
second quarter compared to the 2002 second quarter. These increases for the
2003 six month period were primarily due to our launch of the Food First
Program.
As a result of the sales and expenses discussed above, we recorded
operating income of $49,141 for the 2003 second quarter compared to operating
losses for the 2003 and 2002 six month period and an operating loss for the
2002 second quarter.
We recorded total other expense, primarily related to interest expense,
of $43,154 for the 2003 six month period and $54,263 for the 2002 six month
period. For the 2003 second quarter we recorded total other expense of $8,934
compared to total other expense of $29,305 for the 2002 second quarter.
We recorded a net loss of $713,880 for the 2003 six month period compared
to $875,221 for the 2002 six month period. However, we recorded net income of
$40,207 for the 2003 second quarter compared to a net loss of $401,584 for the
2002 second quarter. Our net loss per share was $0.02 for the 2003 six month
period compared to a net loss per share of $0.04 for the 2002 six month
period. No net income or loss per share was recorded for the 2003 second
quarter compared to a net loss per share of $0.02 for the 2002 second quarter.
Factors Affecting Future Performance
Until the 2003 second quarter, internal cash flows alone have not been
sufficient to maintain our operations. We may be unable to maintain this
profitability. 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 future regulatory changes in the area of direct
marketing, if any;
. Our ability to remain competitive in our markets; and
. Our ability to meet the demand of our new Food First Program.
In addition, we have entered into agreements with independent
distributors and suppliers located in Australia, Canada, New Zealand, Japan
and the United Kingdom. We 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
9
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 the summer months 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 six month period ended June
30, 2003 we had no cash on hand and total current assets of $1,248,625
compared to no cash on hand and total current assets of $724,125 at the year
ended December 31, 2002. Our total current liabilities were $1,910,649 at the
end of the 2003 six month period compared to $1,776,015 at December 31, 2002.
Accounts payable represented 43.6% of total current liabilities at the end of
the 2003 six month period. Our accumulated deficit was $10,715,249 at June
30, 2003.
Net cash used by operating activities was $893,832 for the 2003 six month
period compared to $524,604 for the 2002 second quarter. Net cash used by
investing activities was $106,168 for the 2003 six month period compared to
$1,190,213 for the 2002 second quarter. The investing activities for the 2003
six month period were primarily related to purchases of property and equipment
and the 2002 six month period were related to payments from notes receivable.
Net cash provided by financing activities was $1,000,000 for the 2003 six
month period compared to $1,866,387 for the 2002 six month period. Financing
activities were primarily proceeds from debt financing in those periods.
Commitments and Contingent Liabilities
At the six month period ended June 30, 2003, our long term liabilities
consisted of $500,000 notes payable to related parties compared to $420,000 at
December 31, 2002. We also have an operating lease for our office and
manufacturing facility at $17,400 per month. Future minimum payments on
operating leases for office space and warehouse space were $626,400 through
2005 at December 31, 2002. We have contingent liabilities of $208,819 for the
2003 second quarter primarily related to litigation.
Financing
While we have generated net income for the 2003 second quarter,
historically, we have relied on loans from shareholders and management to fund
cash flow shortfalls. We have typically converted the loans into common
stock. We also rely on equity transactions to pay for services provided to
us. In February 2003 we issued 2.7 million shares, valued at $396,152, to
purchase a developmental infomercial. We also conducted a limited offering in
February 2003 in which we issued 7.46 million shares and as a result, we
converted notes payable with interest and fees totaling $969,514.
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.
10
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.
ITEM 3: CONTROLS AND PROCEDURES
Our CEO and CFO have designed and established disclosure controls and
procedures to ensure that material information is made known to our disclosure
committee in a timely manner by others within the company and its
subsidiaries. Our CEO and CFO reevaluated the effectiveness of these
disclosure controls and procedures as of the end of the period covered by this
report and determined that there continued to be no significant deficiencies
in these procedures.
Also, the CEO and CFO evaluated the design or operation of our internal
control over financial reporting which relates to our ability to record,
process, summarize and report financial information. They did not find any
significant deficiency or material weakness which would require changes to be
made or corrective actions to be taken related to our internal control over
financial reporting. Nor did they identify fraud that involved management or
other employees who had a significant role in our internal control over
financial reporting.
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 15, 2003 Jeffrey R. Brudos resigned as our Secretary/Treasurer,
Chief Financial Officer and Director. Mr. Brudos resigned to pursue other
interests. On that date the remaining board of directors appointed Sharmon L.
Smith as our Secretary/Treasurer and Chief Financial Officer. In addition,
the board of directors appointed Messrs. Smith and William M. Fifield to fill
the vacancies on the board until the next annual meeting of shareholders.
Mr. Smith is 42 years old and previously served as our
Secretary/Treasurer and Chief Financial Officer. 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.
Mr. Fifield is 55 years old and is the Vice President of Marketing and
Communications for our subsidiary, Brain Garden. He has been with Brain Garden
since 1998. From 1997 to 1998 he was Director of Marketing for Young Living
Essential Oils and from 1996 to 1997 he was Director of Marketing for The
Story Teller. He has over 25 years experience in sales and marketing. He
holds a Masters of Management from Kellogg School of Management, Northwestern
University.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Part II Exhibits
2.1 Agreement and Plan of Reorganization between Whole Living and Vestrio,
dated July 8, 2002
(Incorporated by reference to exhibit 2.1 to Form 8-K, filed July 11,
2002)
3.1 Articles of Incorporation of Whole Living
(Incorporated by reference to Form exhibit 2.1 10-SB, as amended,
filed August 9, 1999)
11
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 Agreement between Whole Living and Dare Associates, LLC, dated
September 6, 2002
10.2 Consultant Agreement between Whole Living and Summit Resource Group,
Inc., dated April 30, 2002 (Incorporated by reference to exhibit 10.2
to Form 10-QSB, filed November 19, 2002)
21.1 Subsidiaries of Whole Living, Inc. (Incorporated by reference to
exhibit 21.1 for Form 10-KSB filed April 8, 2003)
31.1 Section 302 Chief Executive Officer Certification
31.2 Section 302 Chief Financial Officer Certification
32.1 Section 1350 Chief Executive Officer Certification
32.2 Section 1350 Chief Financial Officer Certification
Reports on Form 8-K
None
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: July 31, 2003 By: /s/ Douglas J. Burdick
__________________________________________
Douglas J. Burdick
President, Principal Executive Officer
and Director
/s/ Sharmon L. Smith
Date: July 31, 2003 By:_______________________________________
Sharmon L. Smith
Secretary/Treasurer, Chief Financial
Officer and Director
12