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 Quarter Ended: September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-26973
Whole Living, Inc.
(Exact name of registrant as specified in its charter)
Nevada 87-0621709
(State of incorporation) (I.R.S. Employer
Identification No.)
629 East 730 South, Suite 201, American Fork, UT 84003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 772-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of October 23, 2000, the Registrant had a total of 12,744,000 shares of
common stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Whole Living, Inc.
Financial Statements
September 30, 2000
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Whole Living, Inc.
Balance Sheets
ASSETS
------
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
Current Assets
Cash $ - $ 183,069
Accounts Receivable 27,525 2,548
Inventory 415,397 355,082
Prepaid Expenses 127,607 46,729
------------- ------------
Total Current Assets 570,529 587,428
------------- ------------
Property & Equipment, Net 512,884 295,485
------------- ------------
Other Assets
Goodwill, Net 31,143 34,636
Distributor List, Net 29,500 -
Deposits 18,906 11,506
------------- ------------
Total Other Assets 79,549 46,142
------------- ------------
Total Assets $ 1,162,962 $ 929,055
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts Payable $ 442,795 $ 328,478
Accrued Expenses 328,294 241,556
Notes Payable 1,069,030 884,721
------------- ------------
Total Current Liabilities 1,840,119 1,454,755
------------- ------------
Long Term Liabilities
Notes Payable - Related Party 1,012,000 840,000
Notes Payable 123,466 41,298
Capital Lease Obligations 4,359 7,905
Less Current Portion (1,069,030) (884,721)
------------- ------------
Total Long Term Liabilities 70,795 4,482
------------- ------------
Total Liabilities 1,910,914 1,459,237
------------- ------------
Stockholders' Equity
Common Stock, $.001 par value; 50,000,000
shares authorized; 13,379,000 and 11,109,000
shares issued and 12,744,000 and 10,709,000
outstanding, respectively 12,744 10,709
Additional Paid-In Capital 2,234,714 1,213,249
Retained Deficit (2,995,410) (1,754,140)
------------- ------------
Total Stockholders' Equity (747,952) (530,182)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,162,962 $ 929,055
============= ============
<PAGE> 4
Whole Living, Inc.
Statement of Operations
(Unaudited)
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Sales $ 1,565,799 $ 1,049,591 $ 3,689,838 $ 2,083,089
Cost Of Goods Sold 1,176,803 745,404 2,556,492 1,590,335
------------- ------------- ------------- -------------
Gross Profit 388,996 304,187 1,133,346 492,754
------------- ------------- ------------- -------------
Operating Expenses
General &
Administrative 644,247 453,083 1,676,191 1,328,147
Selling Expenses 358,534 166,178 657,842 401,832
Research & Development 20 16,037 20 17,084
------------- ------------- ------------- -------------
Total Operating
Expenses 1,002,801 635,298 2,334,053 1,747,063
------------- ------------- ------------- -------------
OPERATING LOSS (613,805) (331,111) (1,200,707) (1,254,309)
------------- ------------- ------------- -------------
OTHER INCOME(EXPENSE)
Interest Expense (1,536) (440) (48,176) (1,549)
Interest Income 2,615 2,854 7,613 3,753
Loss on Sale of Asset - - - (6,090)
------------- ------------- ------------- -------------
Total Other Income
(Expense) 1,079 2,414 (40,563) (3,886)
------------- ------------- ------------- -------------
NET INCOME(LOSS) $ (612,726) $ (328,697) $ (1,241,270) $ (1,258,195)
============= ============= ============= =============
WEIGHTED AVERAGE INCOME
(LOSS) PER SHARE $ (0.048) $ (0.031) $ (0.109) $ (0.215)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,726,500 10,702,333 11,381,500 5,860,778
============= ============= ============= =============
<PAGE> 5
Whole Living, Inc.
Statement of Cash Flows
(Unaudited)
For the nine months ended
September 30
---------------------------
2000 1999
------------- -------------
Cash Flows From Operating Activities
Net Income(Loss) $ (1,241,270) $ (1,258,195)
Adjustments to Reconcile Net Income(Loss) to Net
Cash Provided(Used) in Operating Activities:
Depreciation & Amortization 81,314 40,155
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (24,977) (108,399)
Inventory (60,315) (409,731)
Prepaid Expenses (57,378) (74,354)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 201,055 351,011
------------- -------------
Net Cash Provided(Used) by Operating Activities (1,101,571) (1,459,513)
------------- -------------
Cash Flows from Investing Activities
Payments for Property & Equipment (293,719) (173,635)
Payments for Goodwill - (16,767)
Payments for Deposits (7,400) -
Payments for Distributor List (30,000) -
------------- -------------
Net Cash Provided(Used) by Investing Activities (331,119) (190,402)
------------- -------------
Cash Flows from Financing Activities
Proceeds from Stock Issuance - 1,300,000
Proceeds from Debt Financing 1,320,732 490,000
Principal Payments on Debt Financing (71,111) (32,263)
------------- -------------
Net Cash Provided(Used) by Financing Activities 1,249,621 1,757,737
------------- -------------
Increase in Cash (183,069) 107,822
Cash and Cash Equivalents at Beginning of Period 183,069 68,205
------------- -------------
Cash and Cash Equivalents at End of Period $ - $ 176,027
============= =============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 2,644 $ -
============= =============
Income Taxes $ - $ -
============= =============
Non-Cash :
Common Stock Issued for Notes Payable &
Accrued Interest $ 1,000,000 $ -
============= =============
Common Stock Issued for Insurance $ 23,500 $ -
============= =============
<PAGE> 6
Whole Living, Inc.
Notes to the Financial Statements
September 30, 2000
NOTES TO FINANCIAL STATEMENTS
Whole Living, Inc. (the "Company") has elected to omit substantially all
footnotes to the financial statements for the nine months ended September 30,
2000, 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 Form 10-KSB for the Fiscal year ended December 31,
1999.
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 period presented. The information presented is not necessarily
indicative of the results from operations expected for the full fiscal year.
COMMON STOCK
On June 21, 2000, the Company's $1,000,000 notes payable, which includes
accrued interest, was converted to 2,000,000 shares of the Company's common
stock at $.50 per share.
ORGANIZATION COSTS
During the nine months ended September 30, 2000, the Company incurred costs
of $41,501 for the organization of a wholly owned subsidiary in Queensland,
Australia. As of September 30, 2000, the operations in Queensland is being
operated as a division of the Company and not as a wholly owned subsidiary.
The Company intends to establish a wholly owned subsidiary at a future date.
The organization costs incurred have been expensed.
<PAGE> 7
References in this quarterly report to "Whole Living" "we," "us," and
"our" refer to Whole Living, Inc.
This Form 10Q-SB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this Form 10Q-SB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Whole Living's control. These factors include but are not limited to economic
conditions generally and in the industries in which Whole Living may
participate; competition within Whole Living's chosen industry, including
competition from much larger competitors; technological advances and failure
by Whole Living to successfully develop business relationships.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Whole Living is a direct selling company involved in the distribution and
sale of proprietary whole food products, essential oils, personal care
products and turn-key, home-based business systems. Our revenue is primarily
dependent upon the efforts of a network of independent distributors who
purchase products and sales materials from us for personal use or for resale
to customers or sponsored distributors. We recognize revenue upon the receipt
of the sales order, which is simultaneous with the payment and delivery of
such goods. Revenue is net of return, which have historically been less than
1% of gross sales. Distributor commissions are paid to several levels of
distributors on each product sale. The amount and recipient of the
commissions vary depending on the purchaser's position within our Unigen
compensation plan.
Results of Operations
The following table summarizes our operations for the nine and three
month periods ended September 30, 1999 and 2000. Starting January 1, 2000 we
have implemented a change in our method of accounting for cost of sales and
for general and administrative expenses. Management made the change to
produce more useful managerial accounting. Cost of sales now include:
freight-in for product, sales commissions paid to independent distributors and
credit card sales processing fees (merchant account). Previously, cost of
sales had consisted almost entirely of cost of goods. We have adjusted the
figures for the three month period ended September 30, 1999 in order to
maintain a consistent presentation with the current year.
<PAGE> 8
Three Month Period Ended Nine Month Period Ended
------------------------- ------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
------------ ------------ ------------- -----------
Sales $ 1,565,799 $1,049,591 $ 3,689,838 $ 2,083,089
Cost of Sales 1,176,803 745,404 2,556,492 1,590,335
Gross Profit 388,996 304,187 1,133,346 492,754
------------ ------------ ------------- -----------
General & Administrative
Expenses 644,247 453,083 1,676,191 1,328,147
Selling Expenses 358,534 166,178 657,842 401,832
Research & Development
Expenses 20 16,037 20 17,084
------------ ------------ ------------- -----------
Total Operating Expense $(1,002,801) $ (635,298) $ (2,334,053) $(1,747,063)
------------ ------------ ------------- -----------
Operating Loss (613,805) (331,111) (1,200,707) (1,254,309)
------------ ------------ ------------- -----------
Net Loss $ (612,726) $ (328,697) $ (1,241,270) $(1,258,195)
------------ ------------ ------------- -----------
Sales increased $516,208 for the third quarter of 2000 compared to the
same quarter the prior year, and sales increased $1,606,749 for the first nine
months of 2000 compared to the same period in 1999. These increases were due
primarily to the continued development of our distributor network,
particularly the expansion of distribution into Australia in the last half of
2000.
Cost of Sales consists primarily of the cost of procuring and packaging
products plus sales commissions paid to our independent distributors. Cost of
sales were 74.2% of sales for the third quarter of 2000 compared to 71.0% for
the same period in 1999. This increase was primarily the result of the
implementation of the company-wide "Retail Bonus Pool" commission plan, which
significantly increased our commission payout on sales to new customers in
order to increase the size of our overall customer and distributor base.
Despite the increase in the third quarter of 2000, cost of sales for the first
nine months of 2000 were 69.3% of sales compared to 76.3% of sales during the
same period of 1999. This decrease was the result of better product
procurement along with a substantially lower sales commission payout as a
percentage of sales during the first two quarters of 1999.
General and administrative expenses, which include general office
expenses, management and employee salaries, outsourced services, support
systems for the distributor network, and certain shipping charges increased
$191,164 for the third quarter of 2000 compared to the third quarter of 1999.
These expenses increased $348,044 for the first nine months of 2000 compared
to the same period of 1999. These expenses increased because of: 1) start up
costs involved in establishing distribution in Australia and New Zealand; and
2) the increase in the number of employees and other resources required to
service the growth in company revenues.
Selling expenses, which includes marketing expenses, the support of sales
meetings and events, and certain customer service expenses, increased $192,356
during the third quarter of 2000 compared to the same period of 1999, and
increased $256,010 from the 1999 nine-month period to the 2000 nine-month
period. Selling expenses for the 2000 third quarter were 22.9% of sales
compared to 15.8% for the third quarter of 1999. This increase was primarily
the result of recognizing Selling and marketing costs associated with
expanding distribution in Australia and New Zealand, plus additional costs
involved in laying the groundwork for expansion into certain Asian markets.
For the 2000 nine-month period, these expenses were 17.8% of sales compared to
19.3% for the comparable 1999 period. This decrease as a percentage of sales
were primarily attributable to the implementation of tighter operating budgets
during a period of significant sales growth.
Research and development expenses declined from about 1.5% of sales
during the third quarter of 1999 and 0.82% of sales during the first nine
months of 1999, to a negligible amount during the
<PAGE> 9
comparable periods of 2000.
Total operating expenses were 64.0% of sales in the third quarter of
2000. This compares to 60.5% in the third quarter of 1999. The increase in
total operating expenses during this period is summarized in the discussion of
its component parts above. Primarily, the increase was a result of expenses
involved in: 1) increased sales commissions resulting from implementation of
the company's Retail Bonus Plan; and 2) expenses of establishing, and
preparing to establish, overseas distribution. Total operating expenses were
63.3% of sales for the first nine months of 2000, compared to 83.9% of sales
in the comparable 1999 period. The decrease during this period is primarily
attributable to management's implementation of tighter departmental budgets.
Net losses increased 86.4% during the third quarter of 2000 compared to
the comparable period in 1999. Net losses decreased 4.5% during the nine-month
period of 2000 compared to the comparable period in 1999. Cash to fund
operating losses came primarily from loans from related parties. Management
expects operating losses to continue in the fourth quarter as the company
continues to invest in expansion of its overseas distribution.
During the third quarter of 2000, we added approximately 3,000 new
distributors and preferred customers in Australia. Revenues from Australia
operations exceeded $500,000 during the quarter.
Liquidity and Capital Resources
We have funded our cash requirements primarily through sales, loans and
private placement of equity securities. For the nine-month period ended
September 30, 2000, we had no net cash on hand with $570,529 in total current
assets compared to $183,069 cash on hand and $587,428 total current assets for
the year ended December 31, 1999. Our total current liabilities were
$1,840,119 for the 2000 nine-month period compared to total current
liabilities of $1,454,755 for the 1999 year. We recorded a loss per share of
$0.109 for the nine-month period ended September 30, 2000 compared to a loss
per share of $0.215 for the full year of 1999.
As of December 31, 1999 our principal commitments consisted of notes
payable and office and equipment leases. Future minimum capital lease
payments totaled $7,905 through the year 2002. Future minimum payments on
operating leases totaled $438,702 through 2002.
Net cash used for operating activities in the 2000 nine month period was
$1,101,571 compared to $1,459,513 for the 1999 nine month period. Net cash
used by investing activities was $331,119 for the 2000 nine month period
compared to $190,402 for the 1999 nine month period. Cash flows provided by
financing activities was $1,249,621 for the 2000 nine month period and came
primarily from debt financing, compared to $1,757,737 provided by financing
activities for the 1999 nine month period.
In September 2000 we established relationships with three independent
distributor groups to promote and distribute our products. We have issued
235,000 common shares, currently held in escrow, to the individual leaders of
these independent groups. The shares will be released upon certain
performances by these groups.
On May 16, 2000 we negotiated a settlement of the $340,000 promissory
note, dated March 17, 1999, payable to PHI Mutual Ventures LLC on May 1, 2000.
This loan was secured by common stock held in the name of Messrs. Williams,
Turnbull and Vassel, our officers. Pursuant to the terms of the settlement,
Mr. Vassel transferred to PHI Mutual Ventures 632,567 common shares of the
total 1,567,567
<PAGE> 10
shares pledged by him in consideration for release from the debt. 225,000
shares were returned to Mr. Vassel and 700,000 shares were transferred to an
escrow account and subsequently transferred to certain distributors,
employees, consultants and vendors. The principal and interest amount of
$371,500 was consolidated with a note payable to Capital Communications, Inc.
of $676,500, principal and interest, resulting in a promissory note of
$1,100,000 payable to Capital Communications. Subsequently, $1,000,000 of
this note was converted into 2,000,000 shares of common stock on June 21,
2000. The remaining $100,000 due on the note payable was consolidated with an
new note payable to Capital Communications, dated August 1, 2000, for an
additional $300,000 that we borrowed. This note is secured by all the
business assets of Whole Living, including inventory, as well as, the
3,135,134 shares pledged as collateral by Messrs. Williams and Turnbull. It
carries an interest rate of 14% per annum and is due February 7, 2001.
Since our inception, internal cash flows, alone, have not been sufficient
to maintain our operations. Our future internal cash flows will be dependent
on a number of factors: 1) our ability to encourage our distributors to
sponsor new distributors and increase their own personal sales; 2) our
ability to promote our product lines with our distributors; 3) our ability to
develop successful new product lines; 3) effects of regulatory changes, if
any; and 4) our ability to remain competitive in our markets. 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.
Management believes that our cash needs for at least the next six months
can be met by loans from our directors, officers and shareholders. We have an
understanding with such individuals that such loans will be repaid once we
have sufficient internal cash flows and/or are able to obtain additional
funding through private placements of our stock.
Management anticipates that additional capital will be provided by
private placements of our common stock. We intend to issue such stock
pursuant to 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 do not currently intend to
make a public offering of our stock. 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.
If we fail to raise the necessary funds through private placements, we
anticipate we will require debt financing. We have not investigated the
availability, source and terms for external financing at this time and we can
not assure that funds will be available from any source, or, if available,
that we will be able to obtain the funds on terms agreeable to us. Also, the
acquisition of funding through the issuance of debt could result in a
substantial portion of our cash flows from operations being dedicated to the
payment of principal and interest on the indebtedness, and could render us
more vulnerable to competitive and economic downturns.
Seasonal Aspects
In the direct selling industry, the summer months of June, July and
August, and the holiday months of November and December are relatively soft.
However, in our short operating history we have experienced an increase in
sales during these time periods and are unsure how the industry-wide
fluctuations will affect our business in the future.
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Sale of Unregistered Securities
The following describes the securities we sold from June 30, 2000
through September 30, 2000.
On July 21, 2000 we issued an aggregate of 2,000,000 common shares to
convert notes payable valued at $1 million with principal and interest. We
issued 800,000 shares to Capital Communications, Inc. and 1,200,000 shares to
Development Specialties for notes payable of $400,000 and $600,000,
respectively. We relied on an exemption from the registration requirements of
the Securities Act of 1933 by reason of Section 4(2) as a private transaction
not involving a public distribution.
On September 11, 2000 we issued an aggregate of 235,000 common shares in
consideration for future consulting services. Specifically we issued 75,000
common shares to Earl Shaw, 85,000 common shares to Dennis Windsor and 75,000
common shares to Dwight Johnson. The shares are currently held in escrow
pending performance by these parties. We relied on an exemption from the
registration requirements of the Securities Act of 1933 by reason of Section
4(2) as a private transaction not involving a public distribution.
ITEM 5. OTHER INFORMATION
On August 16, 2000 our board of directors accepted the resignation of Mark
Burdge as our Chief Financial Officer. We appointed Richard Wogksch as Chief
Financial Officer on November 16, 2000.
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Part I: Exhibits.
Exhibit # Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
On September 5, 2000, we filed a current report on Form 8-K under Item 4
concerning the replacement of our auditor, Crouch, Bierwolf & Chisholm, with
Chisholm & Associates. No financial statements were filed.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned who are duly authorized.
WHOLE LIVING, INC.
Date: 11/20 , 2000 By: /s/ Bill Turnbull
---------------------------------------
Bill Turnbull, Secretary and Director
By: /s/ Richard Wogksch
----------------------------------------
Richard Wogksch, Chief Financial Officer
