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 THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER 000-28733
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 88-0430607
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
120 INTERNATIONAL PARKWAY, SUITE 120
HEATHROW, FL 32746
(Address of principal executive offices)
(757) 497-8899
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of November 23, 2004, there
were 58,594,062 shares of common stock, par value $0.0001, issued and
outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes |_| No |X|.
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION................................................3
ITEM 1 Financial Statements..............................................3
ITEM 2 Managements Discussion and Analysis or Plan of Operation.........19
ITEM 3 Controls and Procedures..........................................23
PART II - OTHER INFORMATION..................................................24
ITEM 1 Legal Proceedings................................................24
ITEM 2 Unregistered Sales of Equity Securites and Use of Proceeds.......24
ITEM 3 Defaults Upon Senior Securities..................................24
ITEM 4 Submission of Matters to a Vote of Security Holders..............24
ITEM 5 Other Information................................................24
ITEM 6 Exhibits.........................................................25
PART I - FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of
the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are
based on management's beliefs and assumptions, and on information currently
available to management. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set
forth under the heading "Management's Discussion and Analysis of Financial
Condition or Plan of Operation." Forward-looking statements also include
statements in which words such as "expect," "anticipate," "intend," "plan,"
"believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
ITEM 1 FINANCIAL STATEMENTS
3
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
ASSETS
9/30/2004 12/31/2003
---------- ----------
CURRENT ASSETS
Cash $ 555 $ 1,131
Accounts receivable:
Royalties and rebates (note 1) 11,537 11,537
---------- ----------
Total Current Assets 12,092 12,668
PROPERTY AND EQUIPMENT
At cost net of accumulated depreciation 3,840 3,840
OTHER ASSETS
Franchise contract rights (note 7) 1,063,760 1,063,760
Investment (note 7) 66,000 66,000
TOTAL ASSETS $1,145,692 $1,146,268
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
4
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2004 AND DECEMBER 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
9/30/2004 12/31/2003
----------- -----------
CURENT LIABILITIES
Accounts payable and accrued expenses $ 184,401 $ 134,623
Due to related parties (note 10) 139,523 89,610
Loans payable 86,835 28,100
Contract payable-Current portion (note 5) 88,250 96,020
----------- -----------
Total current liabilities 499,009 348,353
LONG-TERM LIABILITIES
Contract payable (note 5) 178,917 171,147
Convertible debenture (note 6) 86,000 86,000
----------- -----------
Total long-term liabilities 264,917 257,147
----------- -----------
TOTAL LIABILITIES 763,926 605,500
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock - $.0001 par value
authorized 10,000,000 shares
issued and outstanding: none -- --
Common stock - $.0001 par value;
authorized 500,000,000 shares;
issued and outstanding: 55,122,489
and 47,613,533 5,816 5,462
Additional paid-in-capital 2,806,712 2,680,854
Stock Subscription Receivable (86,212)
Accumulated deficit (2,344,550) (2,145,548)
----------- -----------
Total shareholders' equity 381,766 540,768
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,145,692 $ 1,146,268
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE ANDSIX MONTHS ENDED JUNE 30, 2004 AND 2003
Three Months ended Nine Months ended
9/30/2004 9/30/2003 9/30/2004 9/30/2003
------------ ------------ ------------ ------------
REVENUES
Revenue $ 10,713 $ 42,604 $ 13,248 $ 132,461
------------ ------------ ------------ ------------
TOTAL REVENUES 10,713 42,604 13,248 132,461
------------ ------------ ------------ ------------
EXPENSES
General and administrative 17,004 168,797 178,485 385,359
------------ ------------ ------------ ------------
TOTAL EXPENSES 17,004 168,797 178,485 385,359
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (6,291) (126,193) (165,237) (252,898)
Interest expense (11,255) (7,080) (33,765) (21,240)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (17,546) $ (133,273) $ (199,002) $ (274,138)
============ ============ ============ ============
BASIC INCOME (LOSS) PER SHARE: $ (0.00) $ (0.01)
------------ ------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 54,872,486 49,071,217
------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
6
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AS OF SEPTEMBER 30, 2004
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ------------ ------------ -----------
Balances, December 31, 2001 35,114,881 $ 3,511 $ 394,336 $ (670,949) $ (273,102)
----------- ----------- ------------ ------------ -----------
Issuance of stock for services 1,394,652 140 124,326 124,466
Issuance of stock for acquisition of
Advanced Wellness franchise rights 3,204,000 320 127,840 128,160
Issuance of stock for acquisition of
Beverly Hills Weight Loss & Wellness
franchise rights 6,200,000 620 619,380 620,000
Issuance of stock for conversion of debentures 1,625,000 162 64,838 65,000
Issuance of stock for interest on debentures 75,000 8 2,992 3,000
Net Loss (76,310) (76,310)
----------- ----------- ------------ ------------ -----------
Balances, December 31, 2002 47,613,533 4,761 1,333,712 (747,259) 591,214
----------- ----------- ------------ ------------ -----------
Issuance of stock for conversion of debt 50,000 5 4,995 5,000
Issuance of stock for services 6,758,956 676 1,276,167 1,276,843
Issuance of stock for investment 200,000 20 65,980 66,000
Net Loss (1,398,289) (1,398,289)
----------- ----------- ------------ ------------ -----------
Balances, December 31, 2003 54,622,489 5,462 2,680,854 (2,145,548) 540,768
----------- ----------- ------------ ------------ -----------
Stock issued as officer compensation
on June 7, 2004 for a value
of $40,000 or $0.08 per share 500,000 50 39,950 40,000
Stock issued on exercise of Warrants 3,043,012 304 85,908 86,212
Stock subscription receivable on warrants (86,212)
Net Loss (199,002) (199,002)
----------- ----------- ------------ ------------ -----------
Balances, June 30, 2004 58,165,501 $ 5,816 $ 2,806,712 $ (2,344,550) $ 381,766
=========== =========== ============ ============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
7
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
CASH FLOWS FROM OPERATING ACTIVITIES 9/30/2004 9/30/2003
--------- ---------
Net (loss) $(199,002) $(274,138)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 40,000 208,930
Changes in operating asserts and liabilities:
Accounts receivable -- (767)
Accounts payable and accrued expenses 49,778 62,452
--------- ---------
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES (109,224) (3,523)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of franchising rights and intellectual property -- (3,840)
--------- ---------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES -- (3,840)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 5,000
Proceeds from loans payable 108,648 --
Payment on loans payable -- (8,000)
Payment on contract payable -- (9,500)
--------- ---------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 108,648 (12,500)
--------- ---------
CASH RECONCILIATION
Net increase (decrease) in cash (576) (19,863)
Cash at beginning of period 1,131 21,951
--------- ---------
CASH AT END OF PERIOD $ 555 $ 2,088
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ -- $ --
Cash paid during the year for income taxes $ -- $ --
The accompanying notes are an integral part of these
consolidated financial statements.
8
BEVERLY HILLS WEIGHT LOSS AND WELLNESS, INC.
F/K/A WEIGHT LOSS FOREVER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(1) SUMMARY OF SIGNIFICANT POLICIES
(A) NATURE OF OPERATIONS
Beverly Hills Weight Loss and Wellness, Inc. (f/k/a Weight Loss Forever
International, Inc)., (the "Company") a Nevada corporation, franchises
weight loss centers under the trade names Weight Loss Forever(R) and
Beverly Hills Weight Loss & Wellness(R), through subsidiary corporations,
Weight Loss Management, Inc. and Beverly Hills Franchising Corp.
At March 31, 2004, the Company franchised 20 Weight Loss Forever(R)
centers and 21 Beverly Hills Weight Loss & Wellness(R) clinics. At
December 31, 2002, the Company franchised 20 Weight Loss Forever(R)
centers and 20 Beverly Hills Weight Loss & Wellness(R) clinics. The
Company, in addition to being a franchisor, had previously operated
company-owned locations. As of May 31, 2002, the Company disposed of all
its company-owned locations to concentrate on franchising. The franchised
locations are primarily in Virginia, North Carolina, New England and
Florida. The Company receives a non-refundable franchise fee, generally
$20,000, from entities which enter into an agreement with the Company to
own and operate a retail location. The franchisees are required to
purchase the necessary furniture, fixtures, equipment and inventory either
from the Company, from an affiliate of the Company, or from a source
approved by the Company. During the term of the agreement, the Company
receives a service fee equal to six percent of gross sales, payable
weekly. Area developers receive a rebate on their units' royalty fees and
a discount on product orders. New agreements provide for a franchise term
of ten years subject to renewal. The agreements provide for other fees and
charges based on various conditions and circumstances. The Company
provides operational assistance, training, periodic inspections, and
continuing new product development. The Company also has the right to
establish an advertising fund to which the franchisees would contribute.
This fund has not yet been established.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of Weight Loss Forever International, Inc. and its subsidiaries, Weight
Loss Management, Inc., from the date of its incorporation, June 4, 2002,
and Beverly Hills Franchising Corp., from the date of its incorporation,
October 31, 2002. All significant intercompany account balances and
transactions between the Company and its subsidiaries have been eliminated
in consolidation.
(C) INVENTORIES
The Company holds no inventory.
(D) PROPERTY AND EQUIPMENT
9
The Company owns an internet website valued at cost, $3,840. The Company
provides depreciation for machinery and equipment using the straight-line
method over the estimated useful lives of the respective assets, which
range from three to 39 years. Amortization of leasehold improvements is
computed using the straight-line method over the lesser of the lease term
or estimated useful lives of the improvements.
(E) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged against income in the year
incurred.
(F) REVENUE RECOGNITION
The principal sources of revenue are derived from the collection of
franchise royalties based on a percentage of the franchisee gross receipts
and franchisee licensing fees and purchase rebates. Income from royalties
is recognized as earned. Revenue from franchisee licensing and revenue
from area franchise agreements are recognized as the initial agreements
are signed. Product rebates are recognized as products are purchased.
(G) ADVERTISING COSTS
Advertising expenditures relating to product distribution and marketing
efforts consisting primarily of franchise materials, product presentation
material, catalog preparation, printing and postage expenses are expensed
as incurred.
(H) USE OF ESTIMATES
The Company's management has made certain estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(I) FINANCIAL INSTRUMENTS FAIR VALUE, CONCENTRATION OF BUSINESS AND
CREDIT RISKS
The carrying amount reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses approximates fair value
because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported in the accompanying balance
sheet for convertible debentures approximates fair value because the
actual interest rate does not significantly differ from current rates
offered for instruments with similar characteristics. Financial
instruments, which potentially subject the Company to concentrations of
credit risk, consist principally of trade and royalty accounts receivable
which amount to approximately $10,000. The Company performs periodic
credit evaluations of its franchisees and generally does not require
collateral. The Company maintains its cash balances at certain financial
institutions in which balances are insured by the Federal Deposit
Insurance Corporation up to $100,000.
(J) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation"; (SFAS 123) which sets forth accounting and
disclosure requirements for stock-based compensation arrangements. The new
statement encourages but does not require, companies to measure
stock-based compensation using a fair value method, rather than the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25 ("APB No. 25";.) The Company has adopted disclosure requirements of
SFAS 123 and has elected to continue to record stock-based compensation
expense using the intrinsic value approach prescribed by APB No. 25.
Accordingly, the Company computes compensation cost for each employee
stock option granted as the amount by which the quoted market price of the
Company's common stock on the date of grant exceeds the amount the
employee must pay to acquire the stock. The amount of compensation cost,
if any, will be charged to operations over the vesting period. SFAS 123
requires companies electing to continue using the intrinsic value method
to make certain pro forma disclosures (see note 7).
10
(K) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(L) CASH FLOWS
For purposes of cash flows, the Company considers all highly liquid
investments with an initial maturity of three months or less to be cash
equivalents.
(M) EARNINGS PER COMMON SHARE
Basic earnings per common share have been computed based upon the weighted
average number of common shares outstanding during the years presented.
Common stock equivalents resulting from the issuance of the stock options
and warrants have not been included in the calculations because such
inclusion would be antidilutive.
(2) HISTORY AND CORPORATE DEVELOPMENTS
REVERSE MERGER WITH YOUTICKET.COM, INC.
Weight Loss Forever International, Inc. (WLFI-VA) was incorporated in
1995, in the state of Virginia. WLFI-VA franchised the right to own and
operate retail centers selling weight loss products under the Weight Loss
Forever(R) trade name. WLFI-VA began selling franchises in June 1996, and
granting area development requests, whereby area developers may operate
multiple stores within a geographic territory. It is also the sole source
supplier of products associated with the Weight Loss Forever(R) program.
On September 30, 2001, WLFI-VA agreed to exchange shares with
youticket.com, inc. (YTIX), a Nevada public company. Accordingly, WLFI
increased its authorized share capital to facilitate, and to effectuate,
the exchange of 10,304,200 shares of WLFI-VA stock for 26,004,716 shares
of youticket.com, inc. stock in a business combination accounted for as a
reverse acquisition. During the period youticket.com was in existence,
prior to the reverse acquisition, it had minimal operations. For
accounting purposes, the reverse acquisition is reflected as if WLFI-VA
issued its stock for the net assets of YTIX. The net assets of YTIX were
not adjusted in connection with the reverse acquisition since they were
monetary in nature. Subsequent to the reverse acquisition, youticket.com,
inc. changed its name to Weight Loss Forever International, Inc.
11
SALE OF WLFI-VA
On May 31, 2002, the Company sold all of the issued and outstanding stock
of the Company's subsidiary WLFI-VA to a corporation owned by the
Company's president. The transaction resulted in a gain to the Company of
approximately $209,000. The Company also acquired from WLFI-VA all rights
to franchise the Weight Loss Forever(R) concept and all related
intellectual property. The Company also changed its operations so as to
only franchise weight loss centers and no longer own and operate them.
Accordingly, the financial statements have been restated to reflect
WLFI-VA as a discontinued operation.
ACQUISITION OF ASSETS OF ADVANCED WELLNESS CORP.
In June 2002, the Company acquired various franchising rights and
intellectual property from Advanced Wellness Corp., located in South
Florida.
FORMATION OF WEIGHT LOSS MANAGEMENT, INC.
On June 4, 2002, the Company formed Weight Loss Management, Inc., a wholly
owned Florida corporation to hold the franchising assets of the Weight
Loss Forever(R) concept and to conduct the business of selling and
servicing Weight Loss Forever(R) franchises which are presently located in
Virginia, North Carolina and Florida.
ACQUISITION OF ASSETS OF BEVERLY HILLS WEIGHT LOSS & WELLNESS AND
FORMATION OF BEVERLY HILLS FRANCHISING CORP.
Beverly Hills Franchising Corp., was formed on October 31, 2002 as a
Florida corporation. From inception, it has been a wholly owned subsidiary
of Weight Loss Forever International, Inc., a Nevada corporation. Beverly
Hills Franchising Corp. was organized to hold the franchising assets of
the Beverly Hills Weight Loss & Wellness(R) concept and to conduct the
business of selling and servicing Beverly Hills Weight Loss & Wellness
franchises. Beverly Hills Franchising Corp. acquired franchise agreements
with 22 clinics located in North Carolina, Virginia, Rhode Island, New
Hampshire, Kentucky and Colorado and is presently offering franchises in
those and other states pursuant to the Beverly Hills Weight Loss &
Wellness(R) Uniform Offering Circular.
(3) GOODWILL
As a consequence of the sale by the Company, on May 31, 2002, of its
subsidiary WLFI-VA, the Company disposed of all recorded goodwill
resulting from prior acquisitions made by the subsidiary. Although, as of
December 31, 2002, the Company did not include goodwill as a corporate
asset, it has adopted Financial Accounting Standards Board (FASB) approved
SFAS No. 142, "Goodwill and Other Intangible Assets.", and will not, in
the future, amortize goodwill and other intangible assets with indefinite
lives. The Company plans to test goodwill for impairment on an annual
basis or on an interim basis if an event occurs or circumstances change
that would reduce the fair value of a reporting unit below its carrying
value.
12
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2003 and
2002:
2003 2002
------------- -------------
Furniture and equipment $ -- $ --
Website 3,840 --
Leasehold improvements -- --
------------- -------------
Less accumulated depreciation and
amortization -- --
------------- -------------
$ 3,840 $ --
============= =============
(5) CONTRACT PAYABLE
As part of the consideration for the assets acquired by it, the Company
entered into a five-year consulting agreement with Bolianites Enterprises,
LLC, which is owned by the president of the seller of the franchising
assets referred to in Note 2 above. The total to be paid pursuant to the
agreement is $375,000, payable in 60 monthly payments of $6,250. The
consulting agreement does not provide for any specific obligations on the
part of Bolianites Enterprises, LLC other than the requirement that its
managing member, Mr. Charles Bolianites, serve on the Board of Directors
of Weight Loss Forever International, Inc. The Company has treated the
discounted value of the contract as an additional cost of the assets
acquired. The contract payable in the total amount of $375,000 has been
discounted to its present value of $285,000, based on an interest rate of
12%. As monthly payments are made in the future, approximately 76% will be
applied to the contract payable and the balance would be interest expense.
(6) CONVERTIBLE DEBENTURES
SERIES A DEBENTURES
On September 30, 2001, the Company issued $101,000 of one-year 12%
convertible debentures. During 2002, $15,000 of principal amount of the
debentures were converted into 375,000 shares of the Company's common
stock. The maturity date of the remaining $86,000 of debentures was
extended to December 31, 2004. The debentures are convertible at the
option of the holders at the conversion price of $0.04 per share or a
total of 2,150,000 shares.
SERIES B DEBENTURES
In June 2002, the Company issued $50,000 of one-year 12% convertible
debentures. As of December 31, 2002, the debentures were converted into
1,250,000 shares of the Company's common stock. Also, as of December 31,
2002, accrued interest on the debentures in the amount of $3,000 was
converted into 75,000 shares of common stock.
13
(7) STOCKHOLDERS' EQUITY
On June 7, 2004 the Company issued 500,000 common shares for services by
the Company's Secretary for a value of $40,000, or $0.08 per share.
On January 6, 2003 the Company issued 50,000 common shares for services
for a value of $5,000, or $0.10 per share.
On January 6, 2003 the Company issued 50,000 common shares to retire debt
owed by the Company for a value of $5,000, or $0.10 per share.
On April 1, 2003 the Company issued 3,058,956 common shares for services
for a value of $458,843, or $0.15 per share
On August 13, 2003 the Company issued 2,400,000 common shares for services
for a value of $468,000, or $0.195 per share.
On October 30, 2003 the Company issued 750,000 common shares for services
for a value of $180,000, or $0.24 per share.
On November 26, 2003 the Company issued 500,000 common shares for services
for a value of $165,000, or $0.33 per share.
On November 26, 2003 the Company issued 200,000 common shares for an
investment in Tammy Philips Fitness Boot Camp, LLC, a 50% interest, for a
value of $66,000, or .33 per share.
INVESTMENT
The Company invested in Tammy Philips Fitness Boot Camp, LLC, a 50%
interest, for a value of $66,000, or .33 per share as noted above with the
issuance of 200,000 common shares of Company stock. The value of the stock
issued was based on the trading value of the Company's stock in a public
market and approximates the fair value of the investment. The investment
may be considered temporary by the Company's management and therefore is
accounted for at its fair value. The method of accounting for this
investment may change depending on management's future plans regarding
this investment and therefore the equity method and consolidation method
may be future options. The Company applies Financial Accounting Standard
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", for its investments.
REVERSE SPLIT
On June 4, 2001, the Company's shareholders approved a 1-for-30 reverse
split of the common stock. All references to shares have been adjusted
retroactively.
STOCK OPTIONS AND WARRANTS
During 1999, YTIX granted options to purchase 15,000 shares of common
stock. These options were granted with an exercise price of $0.25 with a
term of five years.
14
During 2000, YTIX granted options to employees to purchase 400,000 shares
of common stock. These options were granted with an average exercise price
of $0.21 with a term of five and one half years. No options were granted
in 2001, 2002 and 2003.
In June 2001, the board of directors of the Company approved the 2001
Stock Option Plan that authorized up to 3,000,000 shares to be issued. The
Company has reserved 3,000,000 shares of Common Stock for issuance under
this plan.
The Company has also granted options under non-qualified option
agreements.
Activity under the performance equity plan and non-qualified option
agreements is as follows:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ ------
Outstanding at December 31, 2002 42,750 $ 8.71
Granted -- --
Exercised -- --
Canceled -- --
------ ------
Outstanding at December 31, 2003 42,750 $ 8.71
====== ======
In September 2001, the Company granted warrants to purchase 3,398,440
shares of common stock to an investor relations firm which has entered
into a consulting agreement with the Company. The warrants, which expire
at various dates between June 30, 2003 and March 31, 2004, were granted at
exercise prices ranging from $.035 - $.08 which were below the market
value of the underlying stock at the date of the grant. Accordingly, the
Company, in 2001, recorded consulting fee expense of $144,433 in
connection with this transaction. In addition, the Agreement provided for
the issuance of a total of 3,228,518 shares of common stock in exchange
for consulting services. At December 31, 2001, 2,208,986 shares had been
issued in connection with the consulting agreement described herein. In
September 2002, the consulting agreement was extended for an additional
year. The extended agreement provides for payment of 3,398,440 shares of
common stock of which 1,019,652, valued at $101,965, were issued as of
December 31, 2002. No shares were issued during the year ended December
31, 2003. During the year ended December 31, 2004, warrants were exercised
for a value of $86,212 for 3,043,012 shares of common stock.
All other stock options issued to employees have an exercise price not
less than the fair market value of the common stock on the date of grant,
and in accounting for such options utilizing the intrinsic value method,
there is no related compensation expense recorded in the Company's
consolidated financial statements. If compensation cost for stock-based
compensation had been determined based on the fair market value of the
stock options and stock purchase warrants on their dates of grant in
accordance with SFAS 123, the Company's net loss for the year ended
December 31, 2003 and 2002 would have been:
15
2003 2002
------------ ----------
Net loss:
As reported $ (1,398,289) $ (76,310)
Pro forma (1,389,289) (76,310)
Basic and diluted loss per common share:
As reported $ (0.027) $ (0.002)
Pro forma (0.027) (0.002)
Additional information relating to stock options and warrants outstanding
and exercisable at December 31, 2003, summarized by exercise price
follows:
OUTSTANDING WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
-------------------------------------------------- ------------------------------------
LIFE EXERCISE EXERCISE
SHARES (YEARS) PRICE SHARES PRICE
------------ ----------- ---------------- -------------- ----------------
6,500 .9 $ 7.50 6,500 $ 7.50
3,333 2.4 8.10 3,333 8.10
12,917 1.4 8.45 12,917 8.45
20,000 .8 9.38 20,000 9.38
------------ ----------- ---------------- -------------- ----------------
42,750 42,750
The computation of the effect on net earnings and earnings per share with
respect to outstanding options and warrants in accordance with SFAS 123
was calculated using the Black-Scholes option-pricing model which included
the following significant assumptions:
PURCHASE
OPTIONS WARRANTS
---------------- -----------------
Risk-free interest rate 7.0% 5.0%
Expected volatility 5.0% 5.0%
Expected dividend yield 0.0% 0.0%
Expected life 6.5 years 2 years
The weighted average fair value at the date of grant of the options
granted during 2000 and 1999 was $0.21 and $0.28 per option, respectively.
ACQUISITION OF FRANCHISE RIGHTS OF ADVANCED WELLNESS
In June 2002, the Company issued 3,204,000 shares of common stock, valued
at $0.04 per share for total of $128,160 for the acquisition of the
franchise rights and intellectual property of Advanced Wellness Corp.
ACQUISITION OF FRANCHISE CONTRACT RIGHTS OF BEVERLY HILLS WEIGHT LOSS &
WELLNESS
16
On October 30, 2002, the Company acquired intellectual property, franchise
agreements, trademarks and the rights to the names Beverly Hills Weight
Loss & Wellness(R) and Roseglen Weight Loss and Wellness(R) for 6,200,000
shares of the Company's stock, valued at $620,000 or $0.10 per share. As
additional consideration, the Company entered into a five-year consulting
agreement with Bolianites Enterprises, LLC at $75,000 per year. (See
Contract Payable - Note 5.)
(8) INCOME TAXES
At December 31, 2003, the Company had net operating loss carryforwards of
approximately $2,145,548 for financial statement and income tax purposes
which will expire in varying amounts through 2023. Due to change in
ownership, the losses will be limited in their use and management has not
determined the amount of losses that may ultimately be utilized.
Realization of deferred tax assets is dependent upon generating sufficient
taxable income prior to their expiration. A valuation allowance equal to
the tax benefit of the net operating losses has been established since it
is uncertain that future taxable income will be realized during the
carryforward period. Accordingly, a provision for income taxes had not
been recorded in the accompanying financial statements.
(9) LEASE COMMITMENTS
Office facilities have been provided, without charge, to the Company by
shareholder, Ultimate Franchise Systems, Inc. This arrangement is not
covered by a lease. The Company may be required to pay rent in the future.
As of December 31, 2003, the Company was not obligated under any lease
commitments.
Total lease and rental expense for continuing operations was $0 in 2003
and 2002.
(10) RELATED PARTY TRANSACTIONS
At December 31, 2003 and 2002, the Company has balances due from
affiliates amounting to $0 and $100, respectively. The Company has
received advances from certain related parties during the years ending
December 31, 2003 and 2002. The balances at December 31, 2003 and 2002
amount to $89,610 and $68,600, respectively. The advances are due on
demand and are non-interest bearing.
In June 2002, a firm, which was owned at that time by two Company
directors, acquired $50,000 of the Company's convertible debentures. As of
December 31, 2002, the debentures, together with accrued interest, were
converted into shares of the Company's common stock.
On May 31, 2002, the Company sold its wholly owned subsidiary, WLFI-VA to
a corporation owned by the Company's president. Pursuant to that
agreement, the Company's president is now the area developer for Weight
Loss Forever for the states of Virginia and North Carolina and the owner
of several franchises in those states.
In June 2002, the Company acquired certain franchise contract and royalty
rights from Advance Wellness Corporation (AWC). After that acquisition, an
employee of AWC became a director of the Company.
17
In October 2002, the Company acquired the assets of Beverly Hills Weight
Loss & Wellness from Charles Bolianites. Upon completion of the
acquisition, Mr. Bolianites, became a director of the Company. As part of
the acquisition, the Company entered into a consulting agreement whereby
Mr. Bolianites is scheduled to receive $6,250 per month for 60 months.(See
Consulting Agreement- Note 5)
(11) GOING CONCERN
The Company's consolidated financial statements have been presented on a
going concern basis which contemplates the realization and the
satisfaction of liabilities in the normal course of business. As more
fully described below, the liquidity of the Company has been adversely
affected by significant losses from operations. The Company reported net
losses of $1,398,289 and $76,310 for the years ended December 31, 2003 and
2002, respectively. Additionally, there is a working capital deficit of
$335,685 at December 31, 2003.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern without additional capital contributions
and/or achieving profitable operations. Management's plans are to generate
revenue from the sale of new franchises and to raise additional capital
through either debt or equity instruments.
18
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
DISCLAIMER REGARDING FORWARD LOOKING STATEMENTS
Our Management's Discussion and Analysis contains not only statements that
are historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by their very
nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; our
ability to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other risks that might be detailed from time to time in our
filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Report reflect
the good faith judgment of our management, such statements can only be based on
facts and factors currently known by them. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties,
the actual results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. You are urged to carefully
review and consider the various disclosures made by us in this report and in our
other reports as we attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, and results of
operations and prospects.
OVERVIEW
We franchise weight loss and nutrition retail clinics offering all-natural
herbal dietary supplements. As of September 30, 2004, we have franchised 20
Weight Loss Forever(R) centers, 19 Beverly Hills Weight Loss & Wellness(R)
clinics, and we have 3 Tammy Phillips Fitness Boot Camps opened and another 30
under contract. We generate revenue through royalty agreements, and we generally
receive 6% of the revenues of our franchised locations, payable on a weekly
basis.
We have historically grown by selling additional franchises, and we have
done several acquisitions. We anticipate continuing to grow using these methods.
We have 30 Tammy Phillips Boot Camps under contract, which we anticipate will
increase our revenues in the next fiscal year.
Explanatory Paragraph in Report of Our Independent Certified Public Accountants
Our independent accountants have included an explanatory paragraph in
their most recent report, stating that our audited financial statements for the
period ending December 31, 2003 were prepared assuming that we will continue as
a going concern. However, they note that we have not yet generated significant
revenues, that we have experienced net losses, that we continue to have a large
accumulated working capital deficit, and that there are no assurances that we
will be able to meet our financial obligations in the future.
19
Our independent accountants included the explanatory paragraph based
primarily on an objective test of our historical financial results. Our going
concern paragraph may be viewed by some shareholders and investors as an
indication of financial instability, and it may impair our ability to raise
capital.
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003
RESULTS OF OPERATIONS
Introduction
Our operations for the first three quarters of 2004 were essentially the
same as for the same three quarters in 2003. Since 2002, we disposed of all of
our company-owned locations and have focused our business plan only on being a
franchisor and on targeting one or more acquisition candidates.
Revenues and Loss from Operations
Our revenue, general and administrative expenses, and loss from continuing
operations for the quarter ended September 30, 2004 as compared to the quarter
ended September 30, 2003 and the quarter ended June 30, 2004 are as follows:
Quarter Ended Quarter Ended Quarter Ended
September 30, September 30, June 30,
2004 2003 2004
----------------- ------------------ ----------------
Revenue $10,713 $42,604 $2,534
General & Administrative Expenses
17,004 168,797 88,627
----------------- ------------------ ----------------
Loss from Operations (6,291) (126,193) (86,093)
Our revenue for the third quarter of 2004 is higher than the second
quarter because our franchisees are expanding their clinic locations, and
because we granted discounted royalties to the franchisees during the second
quarter to help them with this expansion. Our revenue for the third quarter of
2004 is significantly less than the same quarter in 2003, because of this same
plan being continued by management.
Our general and administrative expenses for the third quarter of 2004 are
significantly less than the expenses for the third quarter of 2003, $17,004
compared to $168,797, respectively, as we are no longer operating Company
stores. Further cost cutting measures have reduced our general and
administrative expenses as compared to the second quarter of 2004 as well,
$17,004 compared to $88,627, respectively. Our general and administrative
expenses for the first quarter of 2004 were relatively the same as during the
second quarter of 2004.
Interest Expense, Taxes, and Net Loss
Our interest expense, taxes, and net loss for the quarter ended September
30, 2004 as compared to the quarter ended September 30, 2003 and the quarter
ended June 30, 2004 are as follows:
20
Quarter Ended Quarter Ended
September 30, September 30, Quarter Ended
2004 2003 June 30, 2004
-------------- -------------- --------------
Interest Expense $11,255 $7,080 $11,255
Taxes - - -
Net Loss (17,546) (133,273) (97,348)
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
Revenues and Loss from Operations
Our revenue, general and administrative expenses, and loss from continuing
operations for the nine months ended September 30, 2004 as compared to the nine
months ended September 30, 2003 are as follows:
Nine Months Nine Months
Ended September Ended September
30, 2004 30, 2003
---------------- -------------
Revenue $13,248 $132,461
General & Administrative Expenses
178,485 385,359
-------- ---------
Loss from Operations 165,237 252,898
Interest Expense, Taxes, and Net Loss
Our interest expense, taxes, and net loss for the nine months ended
September 30, 2004 as compared to the nine months ended September 30, 2003 are
as follows:
Nine Months Nine Months
Ended September Ended September
30, 2004 30, 2003
---------------- -------------
Interest Expense $33,765 $21,240
Taxes - -
Net Loss (199,002) (274,138)
21
LIQUIDITY AND CAPITAL RESOURCES
Introduction
During the first three quarters of 2004, as with all of 2003, we did not
generate positive operating cash flows. As the Tammy Phillips Boot Camps are
opened, and as our franchise stores increase operations, we anticipate an
increase in our operating cash flow. We also anticipate that one-time and
transaction related expenses will decrease, as they have during the first three
quarters of 2004. However, we will not achieve positive operating cash flow
during 2004. To date, we have funded operations primarily through the issuance
of equity securities, and anticipate continuing to do so through 2004 and 2005.
Our cash, current assets, total assets, current liabilities, and total
liabilities as of September 30, 2004 as compared to June 30, 2004 were:
As of As of
September 30, June 30,
2004 2004 Change
----------- ----------- -----------
Cash $ 555 $ (654) $ 1,209
Total current assets 12,092 11,537 555
Total assets 1,145,692 1,145,137 555
Total current liabilities 499,009 469,654 29,355
Total liabilities 763,926 734,571 29,355
Cash Requirements
For the nine months ended September 30, 2004 our net cash used in
operating activities was ($109,224), as compared to ($3,523) for the nine months
ended September 30, 2003. Negative operating cash flows during the nine months
were primarily created by a net loss from operations of $199,002, offset by an
increase in accounts payable and accrued expenses of $49,778.
Sources and Uses of Cash
Net cash used in investing activities was $zero for all three quarters of
2004. Net cash provided by financing activities was $108,648 and $(12,500),
respectively, for the nine months ended September 30, 2004 and 2003,
respectively.
We are not generating sufficient cash flow from operations to cover our
working capital expenses or to fund our growth. If we can successfully complete
one or more capital raises, and one or more acquisitions of profitable
businesses, then we anticipate that we can operate at a profitable level. Until
such time, however, and in order to complete the acquisitions, we will need to
raise additional capital through the sale of our equity securities. If we are
unsuccessful in raising the required capital, we may have to curtail operations.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company's financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. In consultation with its
Board of Directors, the Company has identified accounting policies related to
the valuation of stock issued for services that it believes are key to an
understanding of its financial statements. These are important accounting
policies that require management's most difficult, subjective judgments.
22
ITEM 3 CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer (or
those persons performing similar functions), after evaluating the effectiveness
of the Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended)
as of a date within 90 days of the filing of this quarterly report (the
"Evaluation Date"), have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures were effective to ensure the timely
collection, evaluation and disclosure of information relating to the Company
that would potentially be subject to disclosure under the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the internal controls subsequent to the
Evaluation Date.
23
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In the ordinary course of business, we are from time to time involved in
various pending or threatened legal actions. The litigation process is
inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon our financial condition and/or results
of operations. However, in the opinion of our management, matters currently
pending or threatened against us are not expected to have a material adverse
effect on our financial position or results of operations.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITES AND USE OF PROCEEDS
On July 14, 2004, we issued 4,467,213 shares of common stock, restricted
in accordance with Rule 144, to an unrelated, accredited entity upon conversion
of an outstanding promissory note in the original principal amount of $171,541,
plus accrued interest of $7,147.54. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
There have been no events which are required to be reported under this
Item.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no events which are required to be reported under this
Item.
ITEM 5 OTHER INFORMATION
On July 1, 2004, we entered into a Consulting Agreement with Wellness
Ventures, LLC, an entity controlled by our former officer and director,
Christopher Swartz. Under the terms of the agreement, in exchange for services
to be rendered by Wellness, the Company is obligated to pay Wellness One Million
Two Hundred Fifty Thousand Dollars ($1,250,000), payable to Wellness on the
following terms:
a. In the event we are successful in obtaining equity or debt financing
from any source during the term of the agreement, then we agree to
pay the first $250,000 from said financing (unless amounts are first
due to individuals or parties introducing the financing sources) to
Wellness. After the initial payment, we agree to pay one-half (1/2)
of the proceeds of all financing transactions to Wellness until the
obligations under the agreement are paid in full. We may otherwise
prepay any amounts due and owing under the agreement at any time;
b. We may, at any time or from time to time, satisfy our obligations to
Wellness under the terms of the agreement in our common stock at a
price of $0.08 per share;
c. Wellness may, at any time or from time to time, convert the unpaid
amounts due under the agreement into our common stock at a price
equal to fifty percent (50%) of the closing bid price on the date of
conversion. Wellness shall deliver a notice of conversion no later
than 5pm, EST, on the date it intends to effect a conversion;
24
d. Interest shall begin to accrue on any unpaid amounts due to Wellness
under the agreement after one (1) year at the rate of ten percent
(10%) per annum;
e. Any unpaid amounts due to Wellness under the agreement, including
accrued but unpaid interest, shall all be due and payable in two (2)
years.
ITEM 6 EXHIBITS
(a) Exhibits
3.1 (1) Articles of Incorporation of BNE Associates, Inc. dated
May 9, 1996.
3.2 (1) Certificate of Amendment of Articles of Incorporation
dated May 5, 1998 changing our name to Occidental Rand
Corporation, increasing our authorized common stock, and
effecting a forward stock split.
3.3 (1) Certificate of Amendment of Articles of Incorporation
dated December 30, 1998 effecting a forward stock split.
3.4 (1) Certificate of Amendment of Articles of Incorporation
dated August 27, 1999 changing our name to youticket.com, inc.
and increasing our authorized common stock.
3.5 (2) Certificate of Amendment of Articles of Incorporation
dated April 2001 increasing our authorized common stock and
effecting a reverse stock split.
3.6 (2) Restated Articles of Incorporation of youticket.com, inc.
dated April 2001.
3.7 (3) Certificate of Amendment of Articles of Incorporation
dated March 2002 changing our name to Weight Loss Forever
International, Inc.
3.8 (4) Corrected Certificate of Amendment of Articles of
Incorporation dated June 25, 2004
3.9 (1) Bylaws of youticket.com, inc.
10.1 Consulting Agreement dated July 1, 2004 with South Beach
Securities, Inc.
10.2 Consulting Agreement dated July 1, 2004 with Wellness
Ventures, LLC
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
25
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
32.1 Chief Executive Officer Certification Pursuant to 18 USC,
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer Certification Pursuant to 18 USC,
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference from our Form 10-SB filed with the
Commission on December 30, 1999.
(2) Incorporated by reference from our Schedule 14C Information
Statement filed with the Commission on May 11, 2001.
(3) Incorporated by reference from our Schedule 14C Information
Statement filed with the Commission on March 1, 2002.
(4) Incorporated by reference from our Quarterly Report on Form 10-QSB
filed with the Commission on September 7, 2004.
(b) Reports on Form 8-K
On July 7, 2004, we filed an Item 5 Current Report on Form 8-K dated July
6, 2004 regarding the results of our 2004 Annual Shareholders meeting.
26
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.
Dated: November 23, 2004 /s/ John Martin
----------------------------
By: John Martin
Its: President
Dated: November 23, 2004 /s/ Byron Rambo
----------------------------
By: Byron Rambo
Its: Chief Financial Officer
27