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, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 000-26973
WHOLE LIVING, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0621709
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(State of incorporation) (I.R.S. Employer Identification No.)
433 East Bay Boulevard, Provo, Utah 84606
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(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 27, 2005, Whole Living, Inc. had a total of 66,377,245 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 or Plan of Operation.........8
Item 3. Controls and Procedures..........................................11
PART II: OTHER INFORMATION
Item 6. Exhibits.........................................................12
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, 2005 and 2004,
is unaudited. This financial information, in the opinion of management,
includes all adjustments consisting of normal recurring entries necessary for
the fair presentation of this financial information. The results of
operations for the six month period ended June 30, 2005, are not necessarily
indicative of results to be expected for any subsequent period.
2
Whole Living, Inc.
Consolidated Financial Statements
June 30, 2005
3
Whole Living, Inc.
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2005 2004
------------- -------------
(unaudited)
Current Assets
Accounts Receivable (Net of Allowance of $27,000) $ 9,736 $ 24,866
Inventory 429,827 516,551
Prepaid Expenses 17,914 7,664
------------- -------------
Total Current Assets 457,477 549,081
Property & Equipment, Net 683,426 798,824
Other Assets
Goodwill, Net 17,318 17,318
Deposits 30,540 30,540
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Total Other Assets 47,858 47,858
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Total Assets $ 1,188,761 $ 1,395,763
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Overdraft $ 70,277 $ 94,711
Accounts Payable 333,356 603,939
Accrued Expenses 205,405 350,163
Contingent Liabilities - 286,390
Current Portion of Long-Term Liabilities 1,560,734 212,042
------------- -------------
Total Current Liabilities 2,169,772 1,547,245
Long Term Liabilities
Notes Payable - Related Party 1,560,734 212,042
Less Current Portion (1,560,734) (212,042)
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Total Long Term Liabilities - -
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Total Liabilities 2,169,772 1,547,245
Stockholders' Equity
Common Stock, $.001 Par Value;
100,000,000 Shares Authorized:
6,377,245 Shares Issued and Outstanding 66,377 66,377
Additional Paid-In Capital 13,710,194 13,710,194
Retained Deficit (14,727,670) (13,837,486)
Prepaid Expenses (29,912) (90,567)
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Total Stockholders' Equity (981,011) (151,482)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,188,761 $ 1,395,763
============= =============
4
<CAPTION
Whole Living, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30 June 30,
---------------------------- ---------------------------
2005 2004 2005 2004
-------------- ------------- ------------- -------------
<s> <c> <c> <c> <c>
Sales $ 999,957 $ 1,794,230 $ 2,276,685 $ 3,872,856
Cost Of Goods Sold 784,038 1,367,724 1,625,254 3,000,169
-------------- ------------- ------------- -------------
Gross Profit 215,919 426,506 651,431 872,687
Operating Expenses
Selling Expenses 187,159 110,828 291,130 260,979
General and Administrative 421,122 744,761 1,194,923 1,539,455
-------------- ------------- ------------- -------------
Total Operating Expenses 608,281 855,589 1,486,053 1,800,434
-------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (392,362) (429,083) (834,622) (927,747)
OTHER INCOME(EXPENSE)
Interest Expense (45,294) (55,126) (68,664) (97,525)
Other Income 56 56 13,102 56
-------------- ------------- ------------- -------------
Total Other Income(Expense) (45,238) (55,070) (55,562) (97,469)
-------------- ------------- ------------- -------------
NET INCOME(LOSS) BEFORE INCOME TAXES (437,600) (484,153) (890,184) (1,025,216)
PROVISION FOR INCOME TAXES - - - -
-------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (437,600) $ (484,153) $ (890,184) $ (1,025,216)
============== ============= ============= =============
WEIGHTED AVERAGE INCOME (LOSS) PER SHARE $ (0.01) $ (0.01) $ (0.01) $ (0.02)
============== ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 66,377,245 43,079,640 66,377,245 43,079,640
============== ============= ============= =============
5
Whole Living, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
----------------------------
2005 2004
-------------- -------------
<s> <c> <c>
Cash Flows From Operating Activities
Net Income (Loss) $ (890,184) $ (1,025,216)
Adjustments to Reconcile Net Income(Loss) to
Net Cash Provided(Used) in Operating Activities:
Depreciation & Amortization 140,837 312,570
Stock Issued for Services - -
Amortization of Prepaid Expenses (Equity) 60,655 -
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable 15,130 79,577
Inventory 86,724 (15,220)
Prepaid Expenses (10,250) (63,037)
Deposits - (8,900)
Increase (Decrease) in:
Bank Overdraft (24,434) 118,183
Accounts Payable and Accrued Expenses (701,731) (91,274)
-------------- -------------
Net Cash Provided(Used) by Operating Activities (1,323,253) (693,317)
Cash Flows from Investing Activities
Proceeds from Escrow - 50,000
Cash Paid for Property & Equipment (25,439) (197,302)
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Net Cash Provided(Used) by Investing Activities (25,439) (147,302)
Cash Flows from Financing Activities
Cash Proceeds from Debt Financing 1,348,692 840,619
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Net Cash Provided(Used) by Financing Activities 1,348,692 840,619
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Increase (Decrease) in Cash - -
Cash and Cash Equivalents at Beginning of Period - -
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Cash and Cash Equivalents at End of Period $ - $ -
============== =============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 3,089 $ 4,422
Income Taxes $ - $ -
Non-Cash Activities:
Common Stock Issued for Services $ - $ -
Common Stock Issued for Infomercial $ - $ -
Common Stock Issued for Notes Payable and Accrued Interest $ - $ -
6
Whole Living, Inc.
Notes to the Consolidated Financial Statements
June 30, 2005
GENERAL
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Whole Living, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the six months ended June 30, 2005
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, 2004.
UNAUDITED INFORMATION
- ---------------------
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments
that 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 OR PLAN OF OPERATION
EXECUTIVE OVERVIEW
Whole Living is a holding company that operates through its wholly-owned
subsidiary, Brain Garden, Inc. We are a total lifestyle company focused on
bringing our customers convenient whole foods, personal care products,
household cleaners and synthetic free alternatives to medicines. We employ a
network marketing system to introduce our products to customers and
independent distributors, and our distributors sponsor new distributors.
During 2004 we increased our product offerings to include hot cereals and
healthy meal makers, plus introduced a complete new line of Pulse. We
launched our new essential oils World of Wellness program as part of our
return to our focus on a total lifestyle company. Also, in December 2004 we
opened a new fulfillment center in Brisbane, Australia to reduce costs and
shipping time from ten days to three days for products to Australia and New
Zealand.
During early 2005 we focused our marketing efforts on the "90 Days to Freedom"
program that gave customers a first hand experience of primary whole-food
nutrition. We relied on our two-hour nutritional seminar format and we
planned eleven seminars around the United States and Australia. We followed
up each seminar with a conference approximately 45 days after the initial
seminar with the intent to provide distributors with the opportunity to bring
potential customers to sample our products.
In late April 2005, we launched a new marketing initiative to increase sales
and awareness of our expanded product lines. We called this series the
"Changing Lives Seminars." The Changing Lives Seminars includes a 90-minute
presentation that introduces our company message, offers product samples, and
focuses on healthier lifestyles and presents the benefits of whole foods in
modern diets. We conducted an eleven city tour and followed it up with a
second round city tour in the continental United States, Hawaii and Brisbane.
Management believes this model will help brand our products and programs, as
well as assist new distributors in attracting new clients.
Our major challenge for the next twelve months will be to increase our sales
through our business model. Management will also continue to evaluate
expenses related to operating activities, especially production and order
fulfillment, and we intend to make adjustments to improve profitability.
LIQUIDITY AND CAPITAL RESOURCES
Our revenues are not at a level that can support our operations and we
recorded a net loss of $890,184 for the six month period ended June 30, 2005.
Net cash used by operating activities was $1,323,253 for the six month period
ended June 30, 2005 (the "2005 six month period") compared to $693,317 for the
six month period ended June 30, 2004 (the "2004 six month period"). Net cash
used by investing activities was $25,439 for the 2005 six month period
compared to $147,302 for the 2004 six month period. The investing activities
for both periods were
8
primarily related to the purchase of property and equipment.
We will need additional financing to fund operations and to further develop
our business plan. If we are unable to obtain additional funding we may be
required to reduce personnel or scale back our business plans. For the short
term management believes that revenues and additional financing will provide
funds for operations. For the long term, management expects that the
development of our Changing Lives Seminars and our World of Wellness programs
will increase our revenues. We will likely continue to raise additional funds
through loans, as needed. Management intends to use any available cash to
fund our operations.
FINANCING
Historically, we have financed our operations through revenues and debt
financing. Net cash provided by financing activities was $1,348,692 for the
2005 six month period compared to $840,619 for the 2004 six month period and
was primarily related to debt financing in both periods. 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.
We may also issue private placements of stock to raise additional funding.
Any private placement likely will rely upon exemptions from registration
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
We 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 $208,800 through 2005 at December 31, 2004.
Our total current liabilities at June 30, 2005, were $2,169,772. The total
current liabilities include a bank overdraft of $70,277, accounts payable of
$333,356, accrued expenses of $205,405, and the current portion of long-term
liabilities of $1,560,734. Our long term liabilities are notes payable to
shareholders.
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, 2004
and 2005 and should be read in conjunction with the financial statements, and
notes thereto, included with this report at Part I, Item I, above.
Comparison of 2004 and 2005 Three and Six Month Period Operations
- -----------------------------------------------------------------
Six month Six month Three month Three month
period ended period ended period ended period ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
-------------- -------------- -------------- --------------
<s> <c> <c> <c> <c>
Sales $ 2,276,685 $ 3,872,856 $ 999,957 $ 1,794,230
Cost of goods sold 1,625,254 3,000,169 784,038 1,367,724
9
Gross profit 651,431 872,687 215,919 426,506
Total operating expenses 1,486,053 1,800,434 608,281 855,589
Total other expense (55,562) (97,469) (45,238) (55,070)
Net loss (890,184) (1,025,216) (437,600) (484,153)
Net loss per share $ (0.01) $ (0.02) $ (0.01) $ (0.01)
We recognize revenue upon the receipt of the sales order, which is
simultaneous with the payment and delivery of goods. Sales are net of
returns, which have historically been less than 2% of sales. Sales for the
2005 six month period decreased 41.2% from the 2004 six month period and sales
for the 2005 second quarter decreased 44.3% from the 2004 second quarter.
This reduction in sales was primarily due to reduced marketing while we
focused our energy on the development of our a business model.
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. As
sales have decreased so have cost of goods sold. Cost of goods sold was 71.4%
of total sales for the 2005 six month period compared to 77.5% of total sales
for the 2004 six month period. Cost of goods sold was approximately 78.4% of
total sales for the 2005 second quarter compared to 76.2% of total sales for
the 2004 second quarter.
Cost of goods sold includes distributor commissions that 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.
Total operating expenses decreased 17.5% for the 2005 six month period
compared to the 2004 six month period and these expenses decreased 28.9% for
the 2005 second quarter compared to the 2004 second quarter. Selling
expenses, which include marketing expenses, the support of sales meetings and
events, and certain customer service expenses, increased 11.6% for the 2005
six month period compared to the 2004 six month period. Selling expenses
increased 68.9% for the 2005 second quarter compared to the 2004 second
quarter. This increase was primarily due to the marketing efforts associated
with our product seminars.
General and administrative expenses, which include general office expense,
management and employees' salaries, and the support systems for the
distributor network, decreased 22.4% for the 2005 six month period compared to
the 2004 six month period and these expenses decreased 43.5% for the 2005
second quarter compared to the 2004 second quarter.
Total other expense for the 2004 and 2005 periods was primarily related to
interest expense from debt financing.
As a result of the above, we recorded net losses for the 2005 and 2004
periods. However, our net loss decreased 13.2% for the 2005 six month period
compared to the 2004 period and decreased 9.6% for the 2005 second quarter
compared to the 2004 second quarter.
The following chart summarizes our balance sheet at June 30, 2005, and
December 31, 2004.
10
Summary of Balance Sheet
-------------------------
As of June 30, 2005 As of December 31, 2004
-------------------- -----------------------
Cash $ - $ -
Total current assets 457,477 549,081
Total assets 1,188,761 1,395,763
Total current liabilities 2,169,772 1,547,245
Total liabilities 2,169,772 1,547,245
Retained deficit (14,727,670) (13,837,486)
Total stockholders equity $ (981,118) $ (151,482)
At June 30, 2005 our total current liabilities increased primarily due to
notes payable of $1,560,734.
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 attain 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; 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 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, who acts in the capacity of principal financial
officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, he concluded that our disclosure controls and procedures were
effective.
Also, our Chief Executive Officer determined that there were no significant
changes made in our internal controls over financial reporting during the
second quarter of 2005 that have materially affected, or are reasonably likely
to materially affect our internal control over financial reporting.
11
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS
Part I Exhibits
31.1 Chief Executive Officer Certification
31.2 Principal 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 Certificate of Amendment to Articles of Incorporation for Whole Living,
Inc. (Incorporated by reference to exhibit 3.2 for Form 10-QSB, filed
November 15, 2004)
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)
21.1 Subsidiaries of Whole Living, Inc. (Incorporated by reference to exhibit
21.1 for Form 10-QSB, filed November 14, 2003)
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 11, 2005 By: /s/ Douglas J. Burdick
---------------------------------
Douglas J. Burdick
President, Chief Executive Officer
and Director