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 September 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.
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 25, 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 1. Legal Proceedings ................................................11
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 nine month periods ended September 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 nine month period ended September 30, 2005, are not
necessarily indicative of results to be expected for any subsequent period.
2
Whole Living, Inc.
Consolidated Financial Statements
September 30, 2005
3
Whole Living, Inc.
Consolidated Balance Sheets
ASSETS
Sept. 30 December 31
2005 2004
------------- ------------
(Unaudited)
Current Assets
Accounts Receivable (Net of Allowance of $18,000) $ 276 $ 24,866
Inventory 415,485 516,551
Employee Advances 22,500 -
Prepaid Expenses 7,664 7,664
------------- ------------
Total Current Assets 445,925 549,081
Property & Equipment, Net 627,391 798,824
Other Assets
Goodwill, Net 17,318 17,318
Deposits 30,540 30,540
------------- ------------
Total Other Assets 47,858 47,858
------------- ------------
TOTAL ASSETS $ 1,121,174 $ 1,395,763
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Overdraft $ 55,871 $ 94,711
Accounts Payable 238,245 603,939
Accrued Expenses 167,328 350,163
Contingent Liabilities - 286,390
Current Portion of Long-Term Liabilities 2,018,939 212,042
------------- ------------
Total Current Liabilities 2,480,383 1,547,245
Long Term Liabilities
Notes Payable - Related Party 2,018,939 212,042
Less Current Portion (2,018,939) (212,042)
------------- ------------
- -
------------- ------------
Total Liabilities 2,480,383 1,547,245
Stockholders' Equity
Common Stock, $.001 Par Value; 100,000,000
Shares Authorized: 66,377,245 Shares Issued
and Outstanding 66,377 66,377
Additional Paid-in Capital 13,710,194 13,710,194
Retained Deficit (15,123,815) (13,837,486)
Prepaid Expenses (11,965) (90,567)
------------- ------------
Total Stockholders' Equity (1,359,209) (151,482)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,121,174 $ 1,395,763
============= ============
4
Whole Living, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
<s> <c> <c> <c> <c>
Sales $ 833,066 $ 1,535,457 $ 3,109,752 $ 5,408,313
Cost of Goods Sold 623,754 1,104,154 2,248,623 4,104,323
------------- ------------- ------------- -------------
Gross Profit 209,312 431,303 861,129 1,303,990
Operating Expenses
Selling Expenses 53,177 195,177 344,307 456,156
General and Administrative 523,283 626,382 1,729,793 2,165,837
------------- ------------- ------------- -------------
Total Operating Expenses 576,460 821,559 2,074,100 2,621,993
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (367,148) (390,256) (1,212,971) (1,318,003)
OTHER INCOME (EXPENSE)
Interest Expense (29,430) (20,866) (98,096) (118,391)
Other Income 58 28 24,737 84
------------- ------------- ------------- -------------
Total Other Income (Expense) (29,372) (20,838) (73,359) (118,307)
------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE
INCOME TAXES (396,520) (411,094) (1,286,330) (1,436,310)
PROVISION FOR INCOME TAXES - - - -
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (396,520) $ (411,094) $ (1,286,330) $ (1,436,310)
============= ============= ============= =============
WEIGHTED AVERAGE INCOME
(LOSS) PER SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.03)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 66,377,245 51,200,408 66,377,245 52,957,364
============= ============= ============= =============
5
Whole Living, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
------------------------------
2005 2004
--------------- --------------
<s> <c> <c>
Cash Flows From Operating Activities
Net Income (Loss) $ (1,286,330) $ (1,436,310)
Adjustments to Reconcile Net Income (loss) to
Net Cash Provided (Used) in Opearating Activities:
Depreciation & Amortization 196,872 457,597
Amortization of Prepaid Expenses (Equity) 78,602 -
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable 24,590 51,783
Inventory 101,066 2,454
Prepaid Expenses - 35,938
Employee Advances (22,500) (1,250)
Increase (Decrease) in:
Bank Overdraft (38,840) 57,119
Accounts Payable and Accrued Expenses (834,918) (143,422)
--------------- --------------
Net Cash Provided (Used) by Operating Activities (1,781,458) (976,091)
Cash Flows From Investing Activities
Proceeds from Escrow - 50,000
Payments for Escrow - (48,185)
Payments for Property & Equipment (25,439) (359,115)
--------------- --------------
Net Cash Provided (Used) by Investing Activities (25,439) (357,300)
Cash Flows from Financing Activities
Proceeds from Issuance of Common Stock - 48,185
Proceeds from Debt Financing 1,806,897 1,285,206
--------------- --------------
Net Cash Provided (Used) by Financing Activities 1,806,897 1,333,391
--------------- --------------
Increase (Decrease) in Cash - -
Cash and Cash Eqivalents at Beginning of Period - -
--------------- --------------
Cash and Cash Eqivalents at End of Period $ - $ -
=============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ - $ 3,089
Income Taxes $ - $ -
6
Whole Living, Inc.
Notes to the Consolidated Financial Statements
September 30, 2005
GENERAL
Whole Living, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the nine months ended September 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 twelve months 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
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 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 we 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 $1,286,330 for the nine month period ended September
30, 2005. Net cash used by operating activities was $1,781,458 for the nine
month period ended September 30, 2005 (the "2005 nine month period ") compared
to $976,091 for the nine month period ended September 30, 2004 (the "2004 nine
month period"). Net cash used by investing activities was $25,439 for the
2005 nine month period compared to $357,300 for the 2004 nine month period.
The investing activities for both periods were primarily related to the
purchase of property and equipment.
8
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 $1,806,897 for the
2005 nine month period compared to $1,333,391 for the 2004 nine 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 September 30, 2005, were $2,480,383 and
included a bank overdraft of $55,871, accounts payable of $238,245, accrued
expenses of $167,328, and the current portion of long-term liabilities of
$2,018,939. 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 nine month periods ended September 30,
2005 and 2004 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 2005 and 2004 Three and Nine Month Period Operations
- ------------------------------------------------------------------
Nine month Nine month Three month Three month
period ended period ended period ended period ended
Sept. 30, 2005 Sept. 30, 2004 Sept. 30, 2005 Sept. 30, 2004
-------------- -------------- -------------- --------------
Sales $ 833,066 $ 1,535,457 $ 3,109,752 $ 5,408,313
Cost of goods sold 623,754 1,104,154 2,248,623 4,104,323
Gross profit 209,312 431,303 861,129 1,303,990
9
Total operating
expenses 576,460 821,559 2,074,100 2,621,993
Total other expense (29,372) (20,838) (73,359) (118,307)
Net loss (396,520) (411,094) (1,286,330) (1,436,310)
Net loss per
share $ (0.01) $ (0.01) $ (0.02) $ (0.03)
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 nine month period decreased 45.7% compared to the 2004 nine month period
and sales for the 2005 third quarter decreased 42.5% from the 2004 third
quarter.
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 ranged
from approximately 72% to 75% of total sales for the comparable 2005 and 2004
periods.
Cost of goods sold also 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 29.8% for the 2005 nine month period
compared to the 2004 nine month period and these expenses decreased 20.8% for
the 2005 third quarter compared to the 2004 third quarter. Selling expenses,
which include marketing expenses, the support of sales meetings and events,
and certain customer service expenses, decreased 72.8% for the 2005 nine month
period compared to the 2004 nine month period. Selling expenses decreased
24.5% for the 2005 third quarter compared to the 2004 third quarter. This
decrease was primarily due to a reduction in marketing efforts in the 2005
periods.
General and administrative expenses, which include general office expense,
management and employees' salaries, and the support systems for the
distributor network, decreased 15.0% for the 2005 nine month period compared
to the 2004 nine month period and these expenses decreased 20.1% for the 2005
third quarter compared to the 2004 third 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 and net loss per share for
the 2005 and 2004 periods.
The following chart summarizes our balance sheet at September 30, 2005, and
December 31, 2004.
Summary of Balance Sheet
-------------------------
As of September 30, 2005 As of December 31, 2004
------------------------ -----------------------
Cash $ - $ -
Total current assets 455,925 549,081
Total assets 1,121,174 1,395,763
Total current liabilities 2,480,383 1,547,245
10
Total liabilities 2,480,383 1,547,245
Retained deficit (15,123,815) (13,837,486)
Total stockholders equity $ ( 1,359,209) $ (151,482)
At September 30, 2005 our total current liabilities increased primarily due to
notes payable of $2,018,939.
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 changes made
in our internal controls over financial reporting during the third quarter of
2005 that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 17, 2003 Whole Living filed an action for a preliminary injunction in
the United States District Court, District of Utah, Central Division against
Don Tolman, a former consultant and founder of Brain Garden, LLC. The purpose
of the injunction was to stop Mr. Tolman from competing against the company in
violation of a non-compete agreement he signed. At a preliminary hearing on
April 2, 2003, the Court issued a temporary restraining order which expired
April 10, 2003. On May 5, 2003 Mr. Tolman filed a counterclaim for payments
he alleges are due and owing to him. On August 2, 2003, the Court granted
Whole Living's preliminary injunction against Mr. Tolman and other interested
parties. On November 29, 2004 the Court issued a memorandum decision and
order finding Mr. Tolman, Mark Bowen and Think Again, Inc., doing business as
Great American, the Wholefood Farmacy, in contempt for violation of the
preliminary injunction and granted preliminary damages of approximately
$240,430. On January 10, 2005, Think Again, Inc. filed for relief under
Chapter 11 of the United States Bankruptcy
11
Code and sought removal of the Utah litigation to the United States Bankruptcy
Court for the Eastern District of Tennessee. On September 28, 2005 Whole
Living voluntarily dismissed without prejudice Think Again, Inc., doing
business as Great American, the Wholefood Farmacy, from the civil litigation.
Whole Living intends to pursue the remaining defendant's actions in the civil
lawsuit. On August 5, 2005 Mark Bowen filed for relief under Chapter 7 of
the United States Bankruptcy Code in the Eastern District of Tennessee. We
are reviewing our options against this defendant and will pursue collection of
the judgment against Wholefood Farmacy in its bankruptcy action.
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: November 9, 2005 By: /S/ Douglas J. Burdick
---------------------------------------
Douglas J. Burdick
President, Chief Executive Officer and
Director, Principal Financial and
Accounting Officer
12