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, 2006
[ ] 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.)
972 North 1430 West, Orem, Utah 84057
_________________________________________________________________
(Address of principal executive offices)
(801) 655-5500
__________________________________________________________________
(Issuer's telephone number)
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 July 17, 2006, Whole Living, Inc. had a total of 6,667,654 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...........7
Item 3. Controls and Procedures............................................12
PART II: OTHER INFORMATION
Item 5. Other Information.................................................12
Item 6. Exhibits..........................................................13
Signatures.................................................................14
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, 2006 and 2005,
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, 2006 are not necessarily indicative of results to
be expected for any subsequent period.
Whole Living, Inc.
Financial Statements
June 30, 2006
2
Whole Living, Inc
Consolidated Balance Sheets
Assets
June 30 December 31
2006 2005
------------- -------------
(unaudited)
Current Assets
Cash $ 20,894 $ 26,383
Accounts Receivable (Net of Allowance of $8,000) - 899
Inventory 580,730 406,423
Prepaid Expenses 44,183 -
------------- -------------
Total Current Assets 645,807 433,705
Property & Equipment, Net 295,737 372,466
Other Assets
Deposits 30,840 30,540
Investment in Forevegreen Intl. 2,387,729 -
------------- -------------
Total Assets $ 3,360,112 $ 836,711
============= =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 646,869 $ 154,472
Accrued Expenses 151,978 79,725
Derivatives 42,000 145,000
Current Portion of Long-Term Liabilities 2,054,955 121,019
------------- -------------
Total Current Liabilities 2,895,802 500,216
Long Term Liabilities
Notes Payable - Related Party 1,271,114 820,761
Note Payable 783,841 771,257
Less Current Portion (2,054,955) (121,019)
------------- -------------
Total Long Term Liabilities - 1,470,999
------------- -------------
Total Liabilities 2,895,802 1,971,215
Stockholders Equity
Common Stock, $.001 Par Value; 100,000,000
Shares Authorized: 6,667,654 and 5,337,306
Shares Issued and Outstanding, Respectively 6,668 5,337
Additional Paid In Capital 17,364,082 14,995,413
Retained Deficit (16,881,985) (16,081,452)
Prepaid Expenses (24,454) (53,802)
------------- -------------
Total Stockholders' Equity 464,311 (1,134,504)
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,360,112 $ 836,711
============= =============
3
<CAPTION
Whole Living, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30 June 30,
---------------------------- ---------------------------
2006 2005 2006 2005
-------------- ------------- ------------- -------------
<s> <c> <c> <c> <c>
Sales $ 828,882 $ 999,957 $ 1,858,831 $ 2,276,685
Cost of Goods Sold 682,239 784,038 1,388,619 1,625,254
-------------- ------------- ------------- -------------
Gross Profit 146,643 215,919 470,212 651,431
-------------- ------------- ------------- -------------
Operating Expense
Selling Expense 57,262 187,159 197,021 291,130
General and Administrative 399,892 421,122 1,160,443 1,194,923
-------------- ------------- ------------- -------------
Total Operating Expenses 457,154 608,281 1,357,464 1,486,053
-------------- ------------- ------------- -------------
Operating Income (Loss) (310,511) (392,362) (887,252) (834,622)
Other Income (Expense)
Interest Income 292 (45,294) 479 (68,664)
Other Expense (118,942) 56 (118,942) -
Gain/(Loss) on FG Investment 47,175 - 107,729 13,102
Gain on Valuation of derivative 27,000 - 103,000 -
Interest Expense (1,619) - (5,548) -
-------------- ------------- ------------- -------------
Total Other Income (Expense) (46,095) (45,238) 86,718 (55,562)
-------------- ------------- ------------- -------------
Net Income (Loss) Before Income Taxes (356,606) (437,600) (800,533) (890,184)
Provision for Income Taxes - - - -
-------------- ------------- ------------- -------------
Net Income(Loss) $ (356,606) $ (437,600) $ (800,533) $ (890,184)
============== ============= ============= =============
Weighted Average Income (Loss) Per Share $ (0.05) $ (0.07) $ (0.12) $ (0.13)
============== ============= ============= =============
Weighted Average Shares Outstanding 6,667,654 6,637,725 6,571,573 6,637,725
============== ============= ============= =============
4
Whole Living, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
----------------------------
2006 2005
-------------- -------------
<s> <c> <c>
Cash Flows From Operating Activities
Net Income (Loss) $ (800,533) $ (890,184)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided(Used) in Operating Activities:
Depreciation and Amortization 76,729 140,837
Amortization of Prepaid Expenses (Equity) 29,348 60,655
Gain on Investment (107,729) -
Stock Issued for Services 90,000 -
Change in Assets and Liabilities
(Increase)Decrease in:
Accounts Receivable 964 15,130
Inventory (174,307) 86,724
Prepaid Expenses (44,549) (10,250)
Increase(Decrease) In:
Related Party Payable - -
Derivatives (103,000) -
Bank Overdraft - (24,434)
Accounts Payable and Accrued Expenses 564,649 (701,731)
-------------- -------------
Net Cash Provided(Used) by Operating Activities 468,427 (1,323,253)
-------------- -------------
Cash Flows from Investing Activities
Cash Paid for Property and Equipment - (25,439)
-------------- -------------
Net Cash Provided(Used) by Investing Activities - (25,439)
-------------- -------------
Cash Flows from Financing Activities
Cash Proceeds from Debt Financing 462,938 1,348,692
-------------- -------------
Net Cash Provided(Used) by Financing Activities 462,938 1,348,692
-------------- -------------
Increase(Decrease) in Cash (5,489) -
Cash and Cash Equivalents at Beginning of Period 26,383 -
-------------- -------------
Cash and Cash Equivalents at End of Period $ 20,894 $ -
============== =============
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest $ - $ 3,089
Income Taxes $ - $ -
Non-Cash Activities:
Stock issued for Investment $ 2,280,000 $ -
5
Whole Living, Inc.
Notes to the Financial Statements
June 30, 2006
GENERAL
Whole Living, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the six months ended June 30, 2006
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, 2005.
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.
SHARE EXCHANGE
On January 13 2006 the company entered into an agreement whereby it exchanged
19,000,000 shares of its common stock for a 23% interest in ForeverGreen
International, LLC, a privately held company. This acquisition is accounted
for on the equity method of accounting. As part of this reorganization the
officers and directors of the company resigned and officers of ForeverGreen
were appointed as officers of the company.
In conjunction with this acquisition the Board of Directors approved a 15:1
reverse split of its common shares, which was subsequently completed in
February, 2006.
The Company and ForeverGreen have blended their product lines and introduced a
new product catalogue.
6
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. In January 2006 we acquired a 23% interest in
ForeverGreen International, LLC, a privately held limited liability company
("ForeverGreen"). The members of ForeverGreen acquired 19,000,000 shares of
Whole Living common stock and the management of ForeverGreen was appointed as
directors and officers of Whole Living. In addition, we effected a 15-to-1
reverse stock split on February 22, 2006.
During the first quarter of 2006 Brain Garden joined forces with ForeverGreen
to obtain access to its corporate leadership, consolidate our management team
and to obtain access to ForeverGreen's exclusive and best-selling
FrequenSea(TM) product with marine phytoplankton. In addition, this
combination increased and enhanced our product lines with the addition of
organic 24 Karat Chocolate and exclusive plant life concentrate products. Our
distributors, now called Members, also benefit through additional compensation
plan earnings through the ForeverGreen Compensation Plan as well as benefit
from the experienced leadership of the combined Whole Living and ForeverGreen
management team. Brain Garden distributors have been welcomed into the
ForeverGreen Compensation Plan and are included within and bound by the
ForeverGreen Contract and Policies and Procedures. Because we have combined
our distributors with ForeverGreen Members, consolidated our product line with
the product line of ForeverGreen and now have the same management as
ForeverGreen, the business of Brain Garden and ForeverGreen are now identical.
At the successful joint convention with Brain Garden and ForeverGreen Members
in early March, 2006, the Matrix Magic Tour in April, May and June, 2006
with company executives traveling throughout the United States, Canada, Japan
and Australia was announced. The tour recognized Member leaders for their
contributions, taught the ForeverGreen culture, that includes random acts of
kindness and service to others and business training with a focus on becoming
Matrix qualified as a means of advancing within the ForeverGreen compensation
plan and establishing a strong foundation for future growth individually and
to assist other Members succeed as well.
In June, 2006, we conducted a soft-launch of the Australia market with CEO Ron
Williams and Paul Frampton, VP of International Sales conducting six
well-attended meetings throughout Australia and introducing our Members to the
logistic support company that is providing customer service, warehousing and
shipping services for us. In Japan, we finalized a local manufacturing
contract with a well-known local company for the FrequenSea product as well as
held two successful promotional meetings teaching about Whole Living, the
product FrequenSea and the ForeverGreen business opportunity.
We finalized a lease for our new manufacturing facility of about 14,000 square
feet located close to the Company headquarters in Utah in April, 2006. We
plan to move into and begin manufacturing in the new building during the third
quarter of 2006. Monthly payments of approximately $8,500 per month will
begin thereafter. Our challenge
7
will be to make the transition and move smooth, so we do not affect our
customers' purchases and the business operations of our Members.
Whole Living hired Timothy Simpson as our Vice President of IT. Mr. Simpson
has many years of experience in network marketing as well as the information
technology industry. He will help the company with connectivity, shipping and
support issues so critical to our Members in the United States and around the
world.
During the remainder of 2006, we plan to continue our focus on the
FrequenSea(TM) business model. In addition to the logistic and warehouse
offices now open in Australia and New Zealand, we plan to expand our current
customer service office in Japan to include manufacturing, logistics, and
operations. We intend to expand our personal consumption model to the
European Union. Management anticipates that these facilities and expanded
services will decrease our shipping costs and the time it takes to ship
product to our customers effecting better service and increased sales.
We will continue our emphasis as a total lifestyle company focused on bringing
our domestic and international Members and customers the exclusive
FrequenSea(TM) product and ForeverGreen Compensation Plan earnings and
commissions. We also intend to provide organic chocolates, weight management
products, convenient whole foods for meals and snacks, personal care products
and essential oils to our domestic Members and customers. As our
international markets mature, additional ForeverGreen products may also be
introduced in each international market. We will seek relations with key
vendors to continue developing cutting edge products that are exclusive to our
Members.
Our major challenge for the next twelve months will be to increase our
domestic logistics centers and around the world to keep up with the increased
demand for our products and the business opportunity. Included in this
challenge is the need to decrease shipping times and any back order issues
related to the increased demand for our products. Overcoming these challenges
will require additional skilled personnel, and manufacturing and shipping
facilities. In addition, we need to obtain sufficient essential oil raw
materials to ensure a continuous supply of our high demand essential oils
product line.
International expansion has its rewards and risks. The rewards include
increased sales and diversified market incomes. International expansion is
very expensive and key Members are required to experience rapid growth to be
profitable in a foreign country.
Management will continue to surround themselves with key experienced personnel
and vendors while evaluating expenses related to operating activities,
especially production and order fulfillment, in order to make adjustments to
improve profitability.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2006, we had cash of $20,894, but had negative working capital of
$2,249,995. We have had recurring net operating losses since inception and
historically we have financed our operations through revenues and debt
financing. For the six month period ended June 30, 2006 (the "2006 six month
period"), in addition to a revenue of $1,858,831, we relied on debt financing
of $462,938 to fund our operations. At our current sales levels we require
approximately $70,000 per month in addition to sales revenue to meet our basic
operations. We intend to use our cash for working capital.
We are expanding our markets and we anticipate expanding our domestic and
international logistics centers. We anticipate that our portion of the cost
to expand our domestic and international logistics centers will likely be
approximately $40,000. We intend to fund these expenditures with internally
generated cash flows and additional borrowing.
Beginning in January 2006 we expanded our product line to include
ForeverGreen's products in addition to Brain Garden products. Management
believes the expansion of products and distributors will increase sales;
however, we
8
cannot guarantee that we will be able to attain or maintain profitability.
Management will continue to scrutinize expenses related to our operating
activities and order fulfillment to determine appropriate actions to take to
reduce costs.
Management anticipates that additional working capital shortfalls will be
funded with 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 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
During 2005 and 2004 we leased warehouse space for $18,000 a month, but this
lease expired December 31, 2005. We continue to lease the warehouse portion
of this property on a month-to-month basis at $10,000 per month. We will
vacate the premises during August 2006. In April 2006 we entered into a lease
agreement for a new manufacturing facility. We expect the payments will be
approximately $8,500 per month and will start in the later part of 2006,
depending on the date the building is ready to move into. (See Part II, Item
5, below.)
Our total current liabilities increased to $2,895,802 at June 30, 2006, from
$500,216 at December 31, 2005. This increase was primarily due to the
$2,054,955 current portion of our long term liabilities and accounts payable
of $646,869. The $492,397 increase in accounts payable is a result of the
purchasing of all inventory and accrual and payment for other transactions for
the combined operation with ForeverGreen. The current portion of long term
liabilities includes notes payable to a shareholder, First Equity Holdings
Corp., of $1,271,114 and notes payable to third parties of $783,841.
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. and the 2005 periods have been restated
to reflect the reverse common stock split effected February 24, 2006. The
following chart summarizes our financial statements for the three and six
month periods ended June 30, 2006 and 2005 and should be read in conjunction
with the financial statements, and notes thereto, included with this report at
Item I, above.
Summary Comparison of 2006 and 2005 Period Operations
-----------------------------------------------------
Three month period ended Six month period ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
------------- ------------- ------------- -------------
Sales $ 828,882 $ 999,957 $ 1,858,831 $ 2,276,685
Cost of goods sold 682,239 784,038 1,388,619 1,625,254
Gross profit 146,643 215,919 470,212 651,431
Total operating expenses 457,154 608,281 1,357,464 1,486,053
Operating loss (310,511) (392,362) (887,252) (834,622)
Total other income
(expense) (46,095) (45,238) 86,718 (55,562)
Net loss (356,606) (437,600) (800,533) (890,184)
Net loss per share $ (0.05) $ (0.07) $ (0.12) $ (0.13)
9
We recognize revenue upon shipment of a sales order. Sales are net of
returns, which have historically been less than 2% of sales. Sales for the
2006 six month period and the three month period ended June 30, 2006, (the
"2006 second quarter") decreased in comparison to the 2005 six month period
and the three month period ended June 30, 2005, (the "2005 second quarter").
This decrease in sales is attributable to an adjustment period to the new
commission plan. While the consolidation of operations and management with
ForeverGreen has not increased Brain Garden revenues for the 2006 periods when
compared to the first and second quarters of 2005, when compared to the third
and fourth quarters of 2005 there has been significant growth in sales.
Management believes the ForeverGreen Compensation Plan, leadership and
expanded product line will continue to increase sales over the long term.
Cost of goods sold consists primarily of the cost of procuring and packaging
products, sales commissions paid to our Members, the cost of shipping product
to Members, plus credit card sales processing fees. Cost of goods sold was
82.3% of sales for the 2006 second quarter and was 74.7% of sales for the 2006
six month period compared to 78.4% of sales for the 2005 second quarter and
71.4% of sales for the 2005 six month period. The increase in the cost of
goods sold is related to transitional costs in the move to the ForeverGreen
commission plan and a higher payout as a percent of sales for the ForeverGreen
commission plan versus the Brain Garden Unigen plan. We anticipate that these
costs will be significantly lower in the third quarter of 2006 and thereafter,
and are expected to be about 73% to 76% of sales. This still represents an
increase from the 2005 six month period. The increase results from the
ForeverGreen commission plan paying about 2% to 4% more than the Brain Garden
Unigen plan and FrequenSea costs slightly more than the average product Brain
Garden sold previously as a percent of sales.
A portion of cost of goods sold relates to distributor commissions paid to
several levels of Members on each product sold. Member commissions are paid
on a monthly basis based upon their personal and group sales volume.
Additional bonuses are paid weekly to Members. During the 2005 periods the
amount and recipient of the commission varied depending on the purchaser's
position within the Brain Garden Unigen Plan. The overall payout average for
sales commissions under the Unigen Plan was approximately 36% to 38% of
product sales. In January 2006 Brain Garden adopted the ForeverGreen
Compensation Plan and the overall payout average for sales commissions for the
2006 periods under that plan were approximately 40%.
Total operating expenses decreased in the 2006 periods when compared to the
2005 periods as a result of decreases in selling expense. Selling expense
decreased 69.4% in the 2006 second quarter compared to the 2005 second quarter
and dropped 32.2% for the 2006 six month period when compared to the 2005 six
month period. Selling expenses include marketing expenses, the support of
sales meetings and events, and certain customer service expenses. During the
2005 periods this expense was higher primarily due to the marketing efforts
associated with our "Changing Lives Seminars" series where we conducted an
eleven city tour and followed it up with a second round city tour in the
continental United States, Hawaii and Brisbane.
General and administrative expenses include general office expense, management
and employees' salaries, and the support systems for the distributor network.
These expenses decreased 2% to 5% in the 2006 periods when compared to the
2005 periods.
Total other expense of $46,095 for the 2006 second quarter included interest
expense of $1,619 related to interest on loans and a write off of $118,942 in
marketing materials that were obsolete with the transition to combine with
ForeverGreen and that have been disposed of subsequent to the end of the
quarter. We are in an ongoing process of reviewing products to determine what
products will work most synergistically in combination with ForeverGreen.
Other products may be discontinued with future versions of the catalogue. Any
items discontinued will be offered on a "while supplies last" basis and any
product not sold may result in future inventory write-offs. In addition, we
10
recognized a $27,000 gain on the valuation of warrants granted in 2002 that
remain outstanding. The gain on warrants is due to the periodic reevaluation
of warrants granted in 2002 for services that are classified as a liability.
We also recognized a $47,175 gain on our investment in ForeverGreen.
Total other income of $86,718 for the 2006 six month period included interest
expense of $5,548 related to interest on loans and a write off of $118,942 in
marketing materials. We recognized a $103,000 gain on the valuation of
warrants granted in 2002 that remain outstanding, and we recognized a $107,729
gain on our investment in ForeverGreen.
As a result of the above, we recorded a net loss and net loss per share for
both the 2006 and 2005 periods; however, our net losses and net losses per
share for the 2006 periods were reduced when compared to the 2005 periods.
The following chart summarizes our balance sheet at June 30, 2006 and December
31, 2005.
2006 Second Quarter Balance Sheet
---------------------------------
Quarter ended Year ended
June 30, 2006 December 31, 2005
------------- -----------------
Cash $ 20,894 $ 26,383
Total current assets 645,807 433,705
Total assets 3,360,112 836,711
Total current liabilities 2,895,802 500,216
Total liabilities 2,895,802 1,971,215
Retained deficit (16,881,985) (16,081,452)
Total stockholders equity $ 464,311 $ (1,134,504)
At June 30, 2006 our total assets increased compared to the year ended
December 31, 2005, primarily due to recognizing a $2,387,729 investment in
ForeverGreen. At June 30, 2006, total liabilities increased when compared to
December 31, 2006. This is partially due to increased accounts payable
related to Whole Living purchasing all inventory and the accrual and payment
for other transactions for the combined operation with ForeverGreen. We also
borrowed an aggregate of $2,054,955 to fund ongoing operations.
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 obtain profitability
during the past two fiscal years. 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 Members to sponsor new Members and increase
their own personal sales;
.. Our ability to promote our product lines with our Members and customers;
.. Our ability to develop successful new exclusive product lines;
.. Our ability to obtain essential oil raw materials for some of those
products;
.. Effects of future regulatory changes in the area of direct marketing, if
any;
.. Our ability to remain competitive in our domestic and international
markets; and
.. Our ability to decrease shipping time and expenses.
11
In addition, we have entered into agreements with Members and suppliers
located in Australia, Canada, Japan, New Zealand, Singapore 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, potentially adverse
recessionary environments and economies outside the United States, and
possible political and economic instability.
ITEM 3: CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our filings under the Exchange
Act is recorded, processed, summarized and reported within the periods
specified in the rules and forms of the SEC. This information is accumulated
and communicated to our executive officers to allow timely decisions regarding
required disclosure.
Our Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. They concluded that our disclosure controls
and procedures were not effective as of June 30, 2006 due to the conclusion on
April 28, 2006 that our financial statements for prior years that had not been
restated should not be relied upon due to the required reclassification of an
equity transaction as a liability in the financial statements. Management
caused a restatement of our financial statements for the years ended December
31, 2004 and 2003 to be filed with the SEC on April 10, 2006, and a current
report on Form 8K disclosing non-reliance on prior financials was filed May 5,
2006. In addition, management is taking steps to implement appropriate
corrective action including, but not limited to, discussions with our
independent accountants as to any other required restatements and changes to
the way we process equity transactions so that we select the proper accounting
treatment for such transactions.
Other than the actions described above, there has been no change in our
internal control over financial reporting during the second quarter of 2006
that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Entry into a Material Definitive Agreement
On April 7, 2006 we entered into a lease agreement with C & R Fiveplex, LLC (
the "landlord") for office and production space located in Orem, Utah. We
leased approximately 14,539 square feet for a term of seven years commencing
June 15, 2006. We agreed to make a security deposit of $75,000 and the base
rent will be approximately $8,530. We also will be obligated to pay
maintenance fees and other adjustments.
There were no material relationships between the landlord and Whole Living and
Whole Living's affiliates prior to the signing of the lease.
We agreed to carry public liability and property damage insurance and products
liability insurance with a single combined liability limit of not less than
$2,000,000, and property damage limits of not less than $500,000.
If we default under the terms of the lease, the landlord may elect to
terminate our right of possession at any time or
12
may elect not to terminate our right of possession. So long as our right of
possession is not terminated, we will remain obligated to pay the rent. The
landlord may sublet the property and offset any amount we owe the landlord
from the rent received from the subleasee.
The rent will be adjusted annually by multiplying the base rent for the month
immediately prior to the applicable anniversary date by one hundred three
percent (103%).
The lease may be extended automatically for a five year period upon expiration
of the initial seven year term. We may terminate the lease with a 365 day
advance written notice. We may not assign our interest in the lease, sublease
or encumber the property without consent of the landlord.
ITEM 6. EXHIBITS
Part I Exhibits
31.1 Chief 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 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 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)
10.2 Member Interest Purchase Agreement between Whole Living and ForeverGreen
International, LLC, dated January 13, 2006 (Incorporated by reference to
exhibit 10.1 for Form 8-K, as amended, filed January 13, 2006)
10.3 Lease agreement between Whole Living and C & R Fiveplex, LLC, dated April
7, 2006
21.1 Subsidiaries of Whole Living, Inc. (Incorporated by reference to exhibit
21.1 for Form 10-QSB, filed November 14, 2003)
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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.
/s/ Ronald K. Williams
Date: August 11, 2006 ___________________________________________
Ronald K. Williams
Chairman of the Board, President and Chief
Executive Officer
/s/ Robert Reitz
Date: August 11, 2006 ___________________________________________
Robert Reitz
Chief Financial Officer, Secretary/Treasurer
and Director
14