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, 2004
[ ] 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 13, 2004 Whole Living, Inc. had a total of 43,109,640 shares of
common stock outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements...............................................2
Item 2. Management's Discussion and Analysis...............................8
Item 3. Controls and Procedures...........................................11
PART II: OTHER INFORMATION
Item 2. Changes in Securities.............................................12
Item 4. Submission of Matter to Vote of Shareholders .....................12
Item 6. Exhibits and Reports filed on Form 8-K............................12
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 six month periods ended June 30, 2004 and 2003,
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, 2004 are not necessarily indicative of results to
be expected for any subsequent period.
Whole Living, Inc.
Consolidated Financial Statements
June 30, 2004
3
Whole Living, Inc.
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2004 2003
------------- --------------
(unaudited)
Current Assets
Cash $ - $ -
Restricted Cash - 50,000
Accounts Receivable (Net of Allowance of $27,000) 54,891 134,468
Inventory 663,173 647,953
Prepaid Expenses 106,189 43,152
------------- --------------
Total Current Assets 824,253 875,573
Property & Equipment, Net 894,710 891,631
Other Assets
Goodwill, Net 17,318 17,318
Deposits 30,540 21,640
------------- --------------
Total Other Assets 47,858 38,958
------------- --------------
Total Assets $ 1,766,821 $ 1,806,162
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Overdraft $ 254,073 $ 135,890
Accounts Payable 654,389 619,071
Accrued Expenses 255,607 278,199
Contingent Liabilities 86,390 190,390
Current Portion of Long-Term Liabilities 1,954,109 1,113,490
------------- --------------
Total Current Liabilities 3,204,568 2,337,040
Long Term Liabilities
Notes Payable - Related Party 1,954,109 1,113,490
Less Current Portion (1,954,109) (1,113,490)
------------- --------------
Total Long Term Liabilities - -
------------- --------------
Total Liabilities 3,204,568 2,337,040
Stockholders' Equity
Common Stock, $.001 Par Value; 50,000,000
Shares Authorized: 43,079,640 Shares
Issued and Outstanding 43,080 43,080
Additional Paid-In Capital 10,731,056 10,731,056
Retained Deficit (12,084,867) (11,059,651)
Prepaid Expenses (127,016) (245,363)
------------- --------------
Total Stockholders' Equity (1,437,747) (530,878)
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,766,821 $ 1,806,162
============= ==============
4
Whole Living, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2004 2003 2004 2003
-------------- -------------- -------------- -------------
<s> <c> <c> <c> <c>
Sales $ 1,794,230 $ 3,554,144 $ 3,872,856 $ 6,323,543
Cost Of Goods Sold 1,367,724 2,474,142 3,000,169 4,692,636
-------------- -------------- -------------- -------------
Gross Profit 426,506 1,080,002 872,687 1,630,907
-------------- -------------- -------------- -------------
Operating Expenses
General & Administrative 744,761 866,378 1,539,455 1,861,890
Selling Expenses 110,828 164,483 260,979 439,743
-------------- -------------- -------------- -------------
Total Operating Expenses 855,589 1,030,861 1,800,434 2,301,633
-------------- -------------- -------------- -------------
OPERATING INCOME (LOSS) (429,083) 49,141 (927,747) (670,726)
OTHER INCOME(EXPENSE)
Interest Expense (55,126) (9,036) (97,525) (43,256)
Interest Income 56 102 56 102
-------------- -------------- -------------- -------------
Total Other Income(Expense) (55,070) (8,934) (97,469) (43,154)
-------------- -------------- -------------- -------------
NET INCOME(LOSS) $ (484,153) $ 40,207 $ (1,025,216) $ (713,880)
============== ============== ============== =============
WEIGHTED AVERAGE INCOME
(LOSS) PER SHARE $ (0.01) $ 0.00 $ (0.02) $ (0.02)
============== ============== ============== =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 43,079,640 43,009,640 43,079,640 43,009,640
============== ============== ============== =============
5
Whole Living, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2004 2003
-------------- --------------
<s> <c> <c>
Cash Flows From Operating Activities
Net Income(Loss) $ (1,025,216) $ (713,880)
Adjustments to Reconcile Net Income(Loss) to
Net Cash Provided(Used) in Operating Activities:
Depreciation & Amortization 312,570 243,350
Stock Issued for Services - 25,000
Stock Issued for Interest - 24,514
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable 79,577 (237,105)
Inventory (15,220) (297,207)
Prepaid Expenses (63,037) (8,233)
Deposits (8,900) 15,095
Increase (Decrease) in:
Bank Overdraft 118,183 16,734
Accounts Payable and Accrued Expenses (91,274) 37,900
-------------- --------------
Net Cash Provided(Used) by Operating Activities (693,317) (893,832)
-------------- --------------
Cash Flows from Investing Activities
Proceeds from Escrow 50,000 -
Payments for Property & Equipment (197,302) (106,168)
-------------- --------------
Net Cash Provided(Used) by Investing Activities (147,302) (106,168)
-------------- --------------
Cash Flows from Financing Activities
Proceeds from Debt Financing 840,619 1,000,000
-------------- --------------
Net Cash Provided(Used) by Financing Activities 840,619 1,000,000
-------------- --------------
Increase in Cash - -
Cash and Cash Equivalents at Beginning of Period - -
-------------- --------------
Cash and Cash Equivalents at End of Period $ - $ -
============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 4,422 $ 7,500
Income Taxes $ - $ -
Non-Cash:
Common Stock Issued for Notes Payable &
Accrued Interest $ - $ 944,514
Common Stock Issued for Services $ - $ 25,000
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, 2004
GENERAL
Whole Living, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the six months ended June 30, 2004
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, 2003.
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.
7
References in this quarterly report to "Whole Living" "we," "us," and "our"
refer to Whole Living, Inc. and its subsidiary.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to
disclose forward-looking information so that investors can better understand
future prospects and make informed investment decisions. This report contains
these types of statements. Words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or
financial performance identify forward-looking statements. You are cautioned
not to place undue reliance on the forward-looking statements, which speak
only as of the date of this report. All forward-looking statements reflect
our present expectation of future events and are subject to a number of
important factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
Executive Overview
Whole Living is a holding company which operates through its wholly-owned
subsidiary, Brain Garden, Inc. ("Brain Garden"). Brain Garden is a total
lifestyle company focused on bringing to our customers convenient whole foods,
synthetic-free alternatives for virtually everything in your medicine cabinet,
toxin free household cleaners and personal care products designed to improve
mental and physical performance. We employ a network marketing system to
introduce our products to customers and independent distributors, and our
distributors sponsor new distributors.
We are currently unable to support our recurring day-to-day cash operating
expenses with recurring cash inflows and existing cash balances. We have
recorded net losses for the six month period ended June 30, 2004 and the year
ended December 31, 2003 and have a retained deficit of $12,084,867 at June 30,
2004. Management plans to continue focusing our marketing efforts on the Food
First Program and expanding our product lines to support the Food First
Program.
During the 2004 second quarter we expanded our product lines with a new line
of salsas (See Part II, Item 5, for more information), more flavors of Pulse
and Pulse bars, more soup flavors and more varieties of snacks. We recently
received equipment that will measure, pour, and package our cups of soup. We
also enhanced our e-commerce systems by providing interactive commercials for
each product listed on our distributors' pulseparty.com websites. These
commercials introduce our product items and explain the features and benefits.
This addition to our e-commerce system has simplified the purchasing process
for customers, which resulted in an increase in e-commerce sales in April
2004.
We will continue to provide new products to our customer base to increase
retention in the customer's second to six month of maintenance in the Food
First Program. Distributors will also continue to conduct "tasting meetings"
in all key markets around the world. In order to improve efficiency and keep
up with the demands of the Food First Program, we have purchased several key
production machines and will continue to purchase more equipment as needed.
Management will also continue to scrutinize expenses related to operating
activities, especially production and order fulfillment, to attain
profitability.
Liquidity and Capital Resources
For the short term management believes that revenues and additional financing
will provide funds for our operations. For the long term, management expects
that expansion of our product lines and further development of our Food First
Program will increase our revenues; however, we will likely continue to raise
additional funds
8
through loans, as needed. Management intends to use any available cash to
fund our operations.
Net cash used by operating activities was $693,317 for the six month period
ended June 30, 2004 (the "2004 six month period") compared to $893,832 for the
six month period ended June 30, 2003 (the "2003 six month period").
Net cash used by investing activities was $147,302 for the 2004 six month
period compared to $106,168 for the 2003 six month period. The investing
activities for both quarterly periods were primarily related to payments for
property and equipment.
Financing - Management anticipates that additional capital for cash
shortfalls will be provided by debt financing. We may pay these loans with
cash, if available, or convert these loans into common stock. The acquisition
of funding through the issuance of debt results 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.
Net cash provided by financing activities for the 2004 six month period was
$840,619 compared to $1,000,000 for the 2003 six month period. Financing
activities were proceeds from debt financing in those periods.
We may also issue private placements of stock to raise additional funding.
Any private placement likely will rely upon 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.
Commitments and Contingent Liabilities
Our total current liabilities were $3,204,568 at the end as of June 30, 2004
compared to $2,337,040 at the year ended December 31, 2003. Our current
liabilities include a bank overdraft, accounts payable, accrued expenses,
contingent liabilities related primarily to litigation, and the current
portion of our long term liabilities. The current portion of long-term
liabilities represented $1,954,109, or 60.9%, of total current liabilities as
of June 30, 2004 and were related to notes payable to a shareholder.
Our primary obligation is our operating lease for our office and manufacturing
facility at $17,400 per month. At December 31, 2003, future minimum payments
on operating leases for office space and warehouse space were $417,600 through
2005.
Off-balance Sheet Arrangements - None.
Results of Operations
The following discussions are based on the consolidated financial statements
of Whole Living and Brain Garden, Inc. These discussions summarize our
financial statements for the three and six month periods ended June 30, 2003
and 2004 and should be read in conjunction with the financial statements, and
notes thereto, included with this report at Part 1, Item I, above.
9
Comparison of 2003 and 2004 Second Quarter Operations
----------------------------------------------------
Six months Six months Three months Three months
ended ended ended ended
June 30, 2003 June 30, 2004 June 30, 2003 June 30, 2004
------------- ------------- ------------- -------------
Sales $ 6,323,543 $ 3,872,856 $ 3,554,144 $ 1,794,230
Cost of goods sold 4,692,636 3,000,169 2,474,142 1,367,724
Gross profit 1,630,907 872,687 1,080,002 426,506
Total operating expenses 2,301,633 1,800,434 1,030,861 855,589
Operating income (loss) (670,726) (927,747) 49,141 (429,083)
Total other income
(expense) (43,154) (97,469) (8,934) (55,070)
Net income (loss) (713,880) (1,025,216) 40,207 (484,153)
Net income (loss)
per share $ (0.02) $ (0.02) $ 0.00 $ (0.01)
We recognize revenue upon the receipt of a sales order, which is simultaneous
with the payment and delivery of our goods. Sales are net of returns, which
have historically been less than 2% of sales. Sales for the 2004 six month
period decreased 38.7% compared to the 2003 six month period. Sales for the
three month period ended June 30, 2004 (the "2004 second quarter") decreased
49.5% compared to the three month period ended June 30, 2003 (the "2003 second
quarter"). The higher sales in the 2003 periods were primarily due to sales
related to the launch of our Food First Program.
Cost of goods sold decreased 36.1% for the 2004 six month period compared to
the 2003 six month period. Cost of goods sold decreased 44.7% for the 2004
second quarter compared to the 2003 second quarter. Also, these costs remain
relatively consistent at approximately 70% to 77% of total sales for the
comparable periods. 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.
As a result of decreased sales our gross profit decreased 46.5% for the 2004
six month compared to the 2003 six month period and decreased 60.5% for the
2004 second quarter compared to the 2003 second quarter.
Total operating expenses decreased 21.8% for the 2004 six month period
compared to the 2003 six month period and decreased 17.0 % for the 2004 second
quarter compared to the 2003 second quarter. The decreases in total operating
expenses were primarily due to decreases in selling expenses, which include
marketing expenses, the support of sales meetings and events, and certain
customer service expenses. This decrease in the 2004 periods was primarily
due to higher marketing expenses related to the launch of our Food First
Program in the 2003 periods, which were non-recurring.
Other expense, primarily related to interest expense, for the 2004 six month
period increased 125.8% compared to the 2003 six month period and increased
516.4% for the 2004 second quarter compared to the 2003 second quarter.
10
Our net loss increased significantly for the 2004 periods compared to the 2003
six month period. Our net loss per share was $0.02 for the 2004 and 2003 six
month period.
Summary Balance Sheet
-------------------------
For year ended Six month period
December 31, 2003 ended June 30, 2004
----------------- -------------------
Cash $ - $ -
Total current assets 875,573 824,253
Total assets 1,806,162 1,766,821
Total current liabilities 2,337,040 3,204,568
Retained deficit (11,059,651) (12,084,867)
Total stockholders equity $ (530,878) $ (1,437,747)
Our total assets decreased slightly at June 30 ,2004 compared to the year
ended December 31, 2003. Total current liabilities increased $867,528, or
37.1%, at June 30, 2004 compared to the 2003 year end. Our retained deficit
increased to $12,084,867 at June 30, 2004 compared to $11,059,651 at the 2003
year end.
Factors Affecting Future Performance
Internal cash flows alone have not been sufficient to maintain our operations.
We have had a history of losses and have been unable to maintain the
profitability we experienced in the 2003 second and third quarter. 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, 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 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.
ITEM 3: CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have reevaluated the
effectiveness of our disclosure controls and procedures, as defined by the
Securities and Exchange Act of 1934. As of the end of the period covered by
this report they determined that there continued to be no significant
deficiencies in our procedures.
11
Also, there were no changes made or corrective actions to be taken related to
our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Increase of Authorized Common Stock
On July 20, 2004 our board of directors adopted a resolution to increase our
authorized common stock from 50,000,000 to 100,000,000, par value $0.001. The
amendment to the articles of incorporation was filed with the state of Nevada
on July 21, 2004.
Recent Sales of Unregistered Securities
On July 16, 2004 our board authorized the issuance of an aggregate of
10,780,000 shares of common stock for the conversion of debt totaling
$1,616,815. 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.
ITEM 5. OTHER INFORMATION
In June 2004 we introduced a new line of salsas made with whole food
ingredients. The Salsa Grande line is offered in mild, hot, and inferno
flavors. The fruit salsas include Berry and Polynesian Fruit Salsas.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Part I Exhibits
31.1 Principal Executive Officer Certification
31.2 Chief Financial Officer Certification
32.1 Section 1350 Certification
Part II Exhibits
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 Incorporation as Amended of Whole Living, Inc.
3.3 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 (Incorporated by reference to exhibit 10.1 for Form
10-KSB, filed April 8, 2003)
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-QSB, filed November 14, 2003)
Reports on Form 8-K
None.
12
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: August 13, 2004 By: /s/ Douglas J. Burdick
---------------------------------------
Douglas J. Burdick
President, Chief Executive Officer and
Director
/s/ Sharmon L. Smith
Date: August 13, 2004 By: _______________________________________
Sharmon L. Smith
Chief Financial Officer,
Secretary/Treasurer, and Director
13