10-K 1 fvrg0810kfinal.htm ANNUAL REPORT ON FORM 10K FOR THE YEAR ENDED DECEMBER 31, 2008 FORM 10K



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


[X]

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2008


[  ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934


For transition period ___ to ____


Commission file number: 000-26973


FOREVERGREEN WORLDWIDE CORPORATION

(Exact name of registrant as specified in its charter)

Nevada                                                                                    

(State or other jurisdiction of incorporation or organization)

87-0621709                                        

(I.R.S. Employer Identification No.)

972 North 1430 West, Orem, Utah           

(Address of principal executive offices)

84057         

(Zip Code)


Registrant’s telephone number:  (801) 655-5500


Securities registered under Section 12(b) of the Exchange Act:  None


Securities registered under Section 12(g) of the Exchange Act:  Common Stock


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes [  ]   No [X]


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.   Yes [  ]   No [X]


Indicate by check mark whether the registrant (1) 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 [  ]


Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [X]




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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:

Large accelerated filer [  ]

Non-accelerated filer   [  ]

Accelerated filed [  ]

Smaller reporting company [X]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [  ]   No [X]


The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $6,469,574.


The number of shares outstanding of the registrant’s common stock as of March 2, 2009 was 13,992,141.


Documents incorporated by reference:  None



TABLE OF CONTENTS


PART I

Item 1.  Business

3

Item 1A.  Risk Factors

13

Item 2.  Properties

14

Item 3.  Legal Proceedings

14

Item 4.  Submission of Matters to a Vote of Security Holders

15


PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

15

Item 6.  Selected Financial Data

16

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 8.  Financial Statements and Supplementary Data

21

Item9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

42

Item 9A(T).  Controls and Procedures

42

Item 9B.  Other Information

43


PART III

Item 10.  Directors, Executive Officers and Corporate Governance

43

Item 11.  Executive Compensation

44

Item 12.  Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

45

Item 13.  Certain Relationships and Related Transactions, and Director Independence

46

Item 14.  Principal Accounting Fees and Services

48


PART IV

Item 15.  Exhibits, Financial Statement Schedules

48

Signatures

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In this annual report references to “ForeverGreen,” “we,” “us,” and “our” refer to ForeverGreen Worldwide Corp. and its subsidiaries.


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,” “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.


PART I


ITEM 1.  BUSINESS


Historical Development


ForeverGreen Worldwide Corporation, formerly Whole Living, Inc. (“ForeverGreen Worldwide”), was incorporated in the state of Nevada on March 18, 1999 as Whole Living, Inc.  In May of 1999, Whole Living merged with Whole Living Inc., a Utah corporation, which owned the trademark “Brain Garden” and some of the products and formulas presently being marketed by ForeverGreen Worldwide.  Whole Living formed Brain Garden, Inc., a Nevada corporation, in May 2002, and Whole Living transferred the assets related to the Brain Garden products to this wholly-owned subsidiary.


On January 13, 2006, Whole Living acquired a 23% interest in ForeverGreen International, LLC (“ForeverGreen International”) in exchange for 1,266,667 (19,000,000 pre-split) restricted common shares of Whole Living.  ForeverGreen International is a network marketing company that focuses on whole foods and natural products.


Whole Living, Inc. changed the name of the corporation to “ForeverGreen Worldwide Corporation” on December 14, 2006.   On December 29, 2006 ForeverGreen Worldwide acquired the remaining 77% interest of ForeverGreen International.  ForeverGreen Worldwide issued an aggregate of 5,240,549 common shares valued at $9,170,961 in exchange for the member interests and the preferred member interests of ForeverGreen International.  This exchange resulted in ForeverGreen Worldwide owning 100% of ForeverGreen International and ForeverGreen International became a wholly-owned subsidiary of ForeverGreen Worldwide.  The Brain Garden subsidiary was dissolved after this acquisition.


Our Business


ForeverGreen Worldwide is a holding company which operates through its wholly-owned subsidiary, ForeverGreen International LLC.  Our product philosophy is to develop, manufacture and market the best of science and nature through innovative formulations as we produce and manufacture whole foods, nutritional supplements, personal care products and essential oils.


We believe that eating healthy and synthetic-free whole foods and beverages is the basis of health and longevity.  We provide health answers, not only through exclusive nutritional whole food beverages, but also by providing a product line of delicious whole foods that can be eaten for every meal, instead of the



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processed, fatty and preservative-laden synthetic meals found in today’s society.  Many competitor companies provide capsules, powders, pills or tablets as nutritional supplements, but generally fail to provide an every-meal alternative to the processed and nutrient depleted foods found in the three main daily meals of most common consumers.  We provide the every-meal answer with a variety of appetizing healthy food products that allow our Members and customers to eat healthy for every meal and snack throughout the day.  In addition, we provide healthy personal care products as an alternative to the chemical and synthetic products in the marketplace that may negatively impact our health.


We remain committed to developing and providing quality products that are innovative, healthy, efficacious, easy to use and easy to sell.  Our unique products, along with a distinct and fresh corporate philosophy and message of physical, mental, emotional and spiritual health through service to community and others, attract consumers as well as Members who wish to own a home-based business selling our products and spreading our health message.


Principal Products


FrequenSea™.  Our best-selling, product is FrequenSea, a whole food beverage consisting of marine phytoplankton, ionic sea minerals, frankincense, rose, ginger and aloe vera in a blend of blueberry, cranberry and lime juice concentrates processed through a proprietary process named Aqueous Molecular Partitioning (“AMP”) which renders the ingredients water soluble.  FrequenSea is sold as a single bottle, in individual single-serving packets or even in a four-bottle pack.  The marine phytoplankton in FrequenSea contains over 200 different sea algae that are all processed through proprietary and patent pending processes at a one-of-a-kind Sea Farm.  A daily dose of FrequenSea provides over 66 vitamins and minerals and includes amino acids in a convenient bio-available form for easy ingestion and quick absorption.  FrequenSea sales represent approximately 75% of our total product sales.


24 Karat Chocolate®.  ForeverGreen Members and customers are among the first to finally enjoy guilt-free organic chocolate that is high in antioxidants and is processed without the fats, hormone filled dairy milk and waxes common in many chocolate products.  This naturally dark chocolate comes in a variety of flavors as well as fondue chips with a chocolate melter for use at chocolate fondue parties.  The 24 Karat Chocolate® is also used as an ingredient in the weight management products Thunder™ and Lightning Plus™.


Weight Management Products.  For those desiring to maintain their healthy weight or lose weight to obtain the health and vitality associated with good nutrition and their proper weight, we launched an innovative new healthful energy drink in early 2008 to directly compete with the highly-sugared and synthetic caffeine-laden energy drinks commonly available today.  The ForeverGreen energy drink branded as ElectriFire™ comes in Smooth and Spiced flavors that utilize the Aqueous Molecular Partitioning (“AMP”) to incorporate the whole plant in a water soluble form to promote rapid and sustained energy without the crash associated with many other energy drinks.  


In August of 2008 we introduced the O3World product line to support weight management through three unique products, called Fixx, Form and Fibe.  Fixx is a meal replacement drink powder that has an energy component.  Form is a capsule product that taken before a meal creates a feeling of fullness so an individual should eat less.  Fibe is an all natural alternative to Form.  In addition, we offer the Thunder™ meal replacement drink powder that provides 28% of the protein your body needs in an apple fiber base with natural sweeteners and antioxidants.  We also offer Lightning Plus™, a supplement capsule of 24 Karat Chocolate®, cayenne, green tea and cascara sagrada designed to assist the body to naturally cleanse itself for optimal absorption and weight management.    



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Whole Food products.  Pulse – 8 is a new product introduced in 2009 that contains L-Argenine. It is good for heart health.  Pulse™ consists of a variety of nuts, seeds, fruits, grains and other foods and may be used as a snack or a meal replacement.  Pulse is packaged as a food bar or loose in canisters in different natural flavors.  Pulse has natural unprocessed proteins, fibers, carbohydrates and other AMP processed nutrients required for a healthy diet.  Our other nutritional meal and snack products include several soups that also double as nutritious additives to every casserole or meal.  Finally Fruit™, a natural dried fruit medley, Great Start™ breakfast cereal, Harvest Mix™ snack blends, and Parched Pulse round out the pantry offerings for a complete kitchen’s needs for nutritious and natural food choices as alternatives to processed, synthetic and preservative-laden foods.


EarthTribe™ Farmacy.   AMP and Supercritical Fluid Extraction provide exclusive and proprietary processes so that the whole-plant products and combination plants become water-soluble for maximum absorption.  Plant Life Concentrates are combined for a whole-plant green drink or citrus blend of the Dragon products and the Preventatives label brings our consumers a variety of single herbs and spices from Cinnamon to the electrically high frequency found in natural roses of our Rainmaker™ product.


TruEssense™ Essential Oils.  Plant essences sourced from around the world comprise the essential oils available for our customers and Member distributors.  These products are designed to be applied topically to the body for therapeutic and soothing relief.


Personal Care products.  As we believe that what is placed on the skin is absorbed through the skin, our Members and customers have access to all the quality, natural personal care products that a consumer could wish for from SecreSea™, our complete cosmetic package with marine phytoplankton in creams, toners, serums, scrubs and masks to bath salts, deodorant, tooth powder, shaving cream, body wash, shampoo and conditioner.


Healthy Alternatives™.  From sand-free salt to high-fiber apple cleanse products, Healthy Alternatives™ offer products to those desiring to obtain natural and chemical-free health benefits.


Product Guarantees


Our 100% customer satisfaction policy allows product returns for all our products that are resalable, subject to a 10% restocking fee.  This policy improves our customer and Member satisfaction and brings us in line with Direct Selling Association recommendations.  Actual product returns have been less than 0.2% of sales for the past two fiscal years.  We also maintain an insurance policy for product liability claims with a $1,000,000 per claim and $2,000,000 annual aggregate limit.


Product Development


We continue our commitment to innovative and cutting edge products to retain exclusivity for our Members and customers.  Our products take advantage of the latest in nutritional research and science.  Our products are easy to use, easy to sell and the effectiveness is measurable in nutrition and health benefits.


In January 2009 we announced a new branding strategy in which all our products will be placed into four brands.  Each brand will have its own personality, yet will be more unified and coordinated with the ForeverGreen branding, sales methodology and product focus.   The brands are as follows:

·

LegaSea – products featuring the Marine Phytoplankton ingredient..

·

TruEssense – products featuring our Essential Oils.

·

O3World – products featuring a unique technology for weight management.

·

Brain Garden – products featuring whole foods including Pulse – 8, ElectriFire and chocolate.




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Raw Materials and Suppliers


During 2007 and 2008, we had the freedom to use any supplier to purchase raw materials.  We used several different vendor sources since most of the raw materials were readily available in the market place.  We have good vendor relations with our key vendors ensuring a continuous supply of our key products.  During 2007 and 2008 we relied on two principal suppliers for our FrequenSea™ product.  Unique Sea Farms Limited provided the marine phytoplankton and Primal Essence supplied the AMP technology used to process additional ingredients that accompany the marine phytoplankton.  There are other providers of marine phytoplankton in the world, however, we consider Unique Sea Farms Limited’s product to have the very best quality, which is nutritionally superior to other sources of this product.   


During 2007 Marine Life Sciences, LLC, a Nevada limited liability company (“MLS”), acquired the worldwide rights to the exclusive blend of marine phytoplankton produced by Unique Sea Farms Limited.  On March 28, 2008 ForeverGreen International entered into an exclusive world-wide marketing agreement with MLS.  Under the agreement MLS will supply ForeverGreen International with processed marine phytoplankton for a term of five years and if ForeverGreen International satisfies the terms of the agreement for the initial five year term it will have the option to renew the agreement for an additional five year term.


Under the agreement ForeverGreen International agreed to purchase an annual quota of marine phytoplankton from MLS on an increasing schedule from 538 kilograms to 1,400 kilograms per year over the five year term of the agreement.  The price per kilogram of the product varies according to the total kilograms purchased.  If ForeverGreen International fails to meet the annual quota, then it will lose the right of exclusivity unless it pays an additional amount to satisfy the minimum annual quota amount.  


Due to economic conditions in 2008, ForeverGreen International was unable to meet the annual quota requirements of the agreement with MLS. Therefore, an on-going review of the quota’s and market conditions are being reviewed with MLS to ensure a long-term unique vendor relationship. MLS continues to share research results and other data related to the product with ForeverGreen International and both parties agreed to protect any proprietary information related to the product.  Both parties agreed to indemnify the other for any claims arising out of any action taken or omission by the other.


During 2007 and 2008 we relied primarily on one essential oil vendor.  However, as of January 2009, our essential oil products are formulated, processed and sourced with other key vendors directly by ForeverGreen.  ForeverGreen ended its prior relationship with its oil vendor to have full control over the manufacturing, control, quality, sourcing and label and marketing claims of its oils.  Management believes our oil quality and customer satisfaction is greatly improved with the new ForeverGreen education system and the delivery of quality essential oils.  However, some of  our essential oil raw materials may be limited due to high demand and some raw material shortages that around the world periodically.


We maintain our in-house manufacturing capabilities for our FoodFirst line of products.  We retain our freedom to use any competitive suppliers to garner control over our product costs, quality and the lead times for manufacturing and delivery.  We may purchase our raw materials from several different sources and most of the raw materials we use are readily available in the market place.  We maintain our product inventory using a system in which we ensure an appropriate inventory based on the product’s anticipated movement.



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Distribution Network


Our main distribution center is located in Orem, Utah next to the main corporate office.  We also have a fulfillment center in Queensland, Australia that improves our product delivery with cost savings and efficiencies for our Australian and New Zealand markets.  In addition, we have ForeverGreen offices in Singapore and are using a third party in the Netherlands to service our Members in the European Union.  In Mexico, we also use a third party provider to distribute our products throughout Mexico.  We buy raw materials from third-party suppliers, manufacture our FoodFirst products in-house and warehouse the bulk food product at our facilities.  We service individual product orders and ship to individual customers and Members in the United States, Australia, Canada, Japan, Mexico, New Zealand, Singapore, the United Kingdom, the Netherlands and Germany.


Members and their customers pay for products prior to shipment incurring minimal accounts receivable for us.  Members and customers have access to place orders on the ForeverGreen Internet websites, or through a growing call center or even through facsimile orders.  Typically, Members and customers pay for their product orders with a credit card.  Less than 2% of our sales are paid for with cash.  Typically, we experience back orders with less than .05% of our orders.  


ForeverGreen Takes a Stand for Kindness


One of ForeverGreen’s key missions is Kindness. ForeverGreen believes health is the doorway to kindness, and kindness is health. ForeverGreen and ForeverGreen employees, distributor members, and officers create a higher standard of focus, serving humanity one person at a time by doing individual and hands on acts of kindness. We want to transform the world by transforming people. We call it “Standing in the Drift”.  Standing in the Drift means to do whatever a person can outside of themselves to help lessen the impact of the adversities our world faces.  Each ForeverGreen member takes a stand in their own community to make a difference.  ForeverGreen has launched a National school nutrition program called “The Power Lunch Program,” partnered with the worldwide poverty relief organization, Kiva, we have built homes in Mexico, and has supported an educational drug awareness documentary entitled Happy Valley.


Compensation Plan


We rely on a system of network marketing for the distribution of our products through our Members and customers.  Our revenue depends directly upon the sales efforts of our Members. We distribute our products exclusively through independent contractor Members who have contracted directly with us.  Members are entitled to purchase products from us for personal use or for resale, and the sales by our Members have the potential to earn commissions.  Individuals who join as a Member may enroll and sponsor other Members and earn commissions from the resale of our products as well.  The ForeverGreen Compensation Plan provides many different ways to earn income for our Members, from Fast start earnings to personal rebates on Member purchases to unilevel commissions and leadership pools.


The ForeverGreen Compensation Plan reaches out to every segment of our society.  An individual may join as a Member for the exclusive products offered by our company or for the wholesale prices that are available to Members purchasing product.  An individual may join ForeverGreen and begin earning commissions rapidly with minimal investment.  A Member receives a discount on their personal purchases or the purchases of their customers over a certain amount.  This provides incentive to discuss successful products and programs with others.  As a Member assists other individuals join the Member’s organization, the new Members generate commission payments to the Upline Member through their product purchases.  Our Fast Start bonus program pays out 60% of the point value on a new Member’s first 28 days of purchases to be shared by the enrollment tree, providing incentive to advertise our



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company and products to others.  Leadership pools reward Members that have established a downline organization formed into legs with specific sales volume in each leg.  The leadership pools generate a pro-rata share of a pool in up to 14% of our commissionable volume during a calendar month.  The newly launched car bonus program provides incentives to grow the Member’s business to maximize the higher ranks in the compensation program as well as drive a new car earned thanks to their efforts.  Under our compensation system, any Member can earn commissions and rebates through the ForeverGreen commission structure.


Beginning in 2008 the compensation plan has been enhanced to simplify the teaching and promoting of the commissions available to a ForeverGreen member. A member can now earn 7% seven levels deep from their organization plus 1% on the eighth level for a total payout of 50% on commissionable volume instead of 31% previously available.  This 19% difference in the unilevel plan was adjusted in the leadership pool and the matching bonus was removed from the plan.  The leadership pools payout is now 12% of our commissionable volume and the 50% matching bonus has been eliminated creating an additional overall one and one-half percent (1 1/2%) increase in payout of commissionable volume to Members in the unilevel portion of our plan.


Our Members progress though the compensation plan with recognition and ranks that show their standing and leadership in our.  A Member must generate personal volume (“PV”) through either individual purchases or purchases of their customers.  A Member’s rank may vary from month-to-month based upon the increase and decrease in their monthly sales volume.  Even at the lowest rank requiring minimal volume qualifications, each ForeverGreen Member may earn compensation from Faststart and Jumpstart programs as they grow their businesses.   The rank of “Learning” is indicative of the status of the new Member in the ForeverGreen business and is the first rank a Member receives by helping four Members join under them to form three downline legs with a total of 1,000 points of organizational volume (“OV”).  The rank of “Determined” is earned when a Member has two legs with 1,000 OV and one leg with 100 points.  The “Successful” rank is earned by the Member with two legs of 2,500 OV and one leg of 1,000 OV.  “Part-time” is the rank a Member earns when their organization generates two legs with 6,000 OV and one leg with 2,000 points.  A Member attains “Fulltime” rank when they have two legs with 15,000 OV and one leg with 6,000 OV.  “Free” status is obtained when a Member has four legs with 15,000 OV and “Rainmaker” rank is achieved by the Member that works to develop four legs that are at the rank of Fulltime.  


Beginning in 2008, a Member can immediately earn a $500 car bonus after reaching the rank of Fulltime their first month, which is two legs with 15,000 OV and one leg with 6,000 OV instead of maintaining three month’s time of four legs with seven thousand in organizational volume. The car bonus has been increased to $750 for a qualified Member at the Free rank and to $1,000 at the Rainmaker rank.  These amounts continue month by month for each month qualification is maintained.


At each new rank, the generational compensation percentages and amount of compensation increases.  Therefore, an established Member may receive a percentage of sales generated by an ever growing number of new customers or distributors that are brought into the plan in their downline.  


There are many competitor companies that offer unilevel plans, Fast Start plans, car bonuses and Leadership Pools.  However, we believe that our approach of percentage commission pay out and specific product focus, in conjunction with the ForeverGreen culture and growth models presents a great improvement on competitor plans and represents a competitive advantage for our Members.  Their personal rewards generate incentive to attract many other network marketing professionals and newcomers alike.  As our Members are rewarded financially, they are motivated to continue developing an organization to help others receive financial and recognition rewards and, as a result, we continue to grow.  We continue to look at ways to improve our commission plan in the future as we recognize the importance of staying in touch with economic changes in the market place.



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Enrollment and Sponsorship  


Enrollment and sponsorship activities are encouraged, but not required of our Members.  Successful Members will both enroll and sponsor new Members, as well as assist their downline Members to successfully do the same.  While we provide product and company brochures, magazines, internet websites, DVDs and other sales materials, our greatest success and retention comes from Members who are accountable and responsible for educating new Members with respect to our products, the ForeverGreen Compensation Plan and how to build a successful business.  


Generally, Members who are new to network marketing invite friends, family members, and acquaintances to attend conference calls, review websites or attend personal or company sponsored meetings.  Members with a history of network marketing are quick to invite their contacts within the industry to experience the difference that our company brings to the industry.  Some people are attracted to become Members after using our products and desire to obtain the wholesale prices our Members enjoy.  The new Member is also entitled to enroll and sponsor other Members in order to build a network of Members and customers that provide commissions and further financial incentives as well as recognition from the company.  With the Jumpstart program, a new Member needs to enroll only four other new Members on the Jumpstart program to basically pay for the new Members’ product costs.


Turnover is typical in the direct selling industry.  Our Members understand that to prevent a possible decline in their organization and sales volume, the enrollment, sponsoring and training of new Members is necessary to increase the overall Member force and motivate new and existing Members.  We may experience seasonal decreases in Member sponsoring and product sales because of holidays and customary vacation periods.  We cannot predict the timing or degree of fluctuations because of the number of factors that impact the sponsoring of new Members.  We cannot assure that the number, growth or productivity of our Members will be sustained at current levels or increase in the future.  


Our retention rates improved with the new Jumpstart program that uses tangible steps and guidelines to help the new Member learn the business and how to effectively sell products and enroll new Members and customers.  The weekly calls and training provide a duplicable business model that help new Members successfully begin their independent contractor business.


Compensation


Each company product carries a specified number of commission volume points.  Commissions are based on a Member’s personal qualification, organizational and leg commission volumes.  A Member receives commissions based on a percentage of the sales volume of their downline each month.  Commission qualification volume points are essentially based upon a percentage of the product’s wholesale cost, net of any point-of-sale taxes.  As a Member’s retail business expands and as they successfully sponsor other Members into the business, which in turn expand their own businesses, the Member receives more commissions from the expanded sales volume of the downline.  A Member receives commission bonuses by remaining in good standing with the company and generating at least 50 qualification volume points in the FastStart Program or 100 qualification volume points for the Unilevel program in addition to FastStart or 200 qualification points for all bonuses including the leadership pools in addition to all other named commission bonuses.


Member Contract


A potential Member must enter into a standard Member Agreement which governs the relationship between the company and the Member in accord with our policies and procedures.  Any person may join us as a Member to purchase products for personal use or to build a downline sales organization.  In order to become a Member, a person may purchase a non-commissionable Member Kit which currently sells



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for $19.95.  The Member Kit includes member materials such as the policies and procedures and instructions to access the internet-based virtual business office with library access as well as how to obtain an online personalized website.  This Member Kit accounts for about 1% of our revenues.  No product purchases are required to become a Member and large inventory product purchases are discouraged.  However, in order to receive compensation as a Member, personal or customer monthly purchases and/or personal customer sales are required.


Our Member Agreement and Policies and Procedures, which outline the scope of permissible marketing activities, are posted on our web site and the ForeverGreen Compensation Plan is also posted on our web site.  Our Member rules and guidelines are designed to provide Members with maximum flexibility and opportunity within the bounds of governmental regulations regarding product claims, network marketing and prudent business policies and procedures.  Members are independent contractors and are thus prohibited from representing themselves as our agents or as employees of the company.  Members are obligated to present our products and business opportunity ethically and professionally.  Members contractually agree to abide by all local, state and federal laws and regulations pertaining to the advertising, sale and distribution of our products.  All advertising must be factual and not misleading and a Member may be terminated for making false claims about the income potential, the compensation plan, or product efficacy.


Members must represent to potential Members that the receipt of commissions is based on sales volumes and substantial efforts.  Products may be promoted by personal contact or by literature produced or approved by us.  Products generally may not be sold, and the business opportunity may not be promoted, in traditional retail environments.


We are not in a position to provide the same level of direction, motivation, and oversight to our Members as we would our own employees because the Members are independent contractors residing across the United States and in many other countries.  We review alleged reports of Member misconduct or breach of contract to enforce contract compliance.  If we determine that a Member has violated any of the Member Policies or Procedures, we may elect to educate the Member regarding the contract terms or impose sanctions such as warnings, probation, suspension of privileges of Membership, withholding commissions until specified conditions are satisfied, terminate the distributor’s rights completely or other appropriate injunctive relief.  A Member may voluntarily terminate their Membership at any time.


Markets


We provide exclusive, innovative nutritional and whole food products which are natural foods and products that are eaten or consumed to achieve healthy effects in the body.  While the nutritional supplement industry consisting of individually standardized supplements, herbs and the like has been flat in recent years, the exclusive and proprietary products protected through trade secrets, proprietary processes and ingredients have experienced great growth.  In addition, the functional foods of our pulse and Nice bars of the FoodFirst line and our organic, dark 24 Karat Chocolate® is experiencing growth as is our essential oils line of products.



We offer our products on the Internet.  We include a virtual office website with each Member Kit purchase so that Members can manage and operate their businesses successfully.  This site is password protected and exclusive to Members with access to company news, product tracking, product information, a library of company documents geared to help them with their business and a frequently asked questions page, among other things.  In addition, we offer the frequensea.com website model to our Members allowing them to obtain an immediate online presence and personal URL for their business.  Features on this website include company information, video and flash presentations, prospect management and follow-up, online registration of new Members, online product ordering, online



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customer service and a “contact me” function that allows anyone visiting the site to contact, via email, the Member directly.  


Competition


The market for products designed to enhance mental and physical performance is large and intensely competitive.  Our primary competition includes other network marketing companies that manufacture and market herbal remedies, personal care and nutritional products.  We also compete with major retail businesses that provide the same categories of products that we offer.  We compete with these other companies by emphasizing our company culture, the exclusive access to certain products, the effectiveness and quality of our products and the convenience of our distribution system.  We emphasize products that improve health through a diet of whole-food beverages and real food rather than pills and supplements.  All of our products strive to be 100% natural and, to the extent possible, organic.


Our health beverage FrequenSea is the first beverage tonic product to provide the benefits of marine phytoplankton in a proprietary health tonic with ionic sea minerals, rose, ginger and frankincense.  Other network marketing beverages compete with FrequenSea in the category of health beverages consisting of fruit juices from around the world such as mangosteen, noni, acai and other fruit or plant products.  


Many of our FoodFirst products compete with “health bars” and nutritional supplements offered by many competitor companies as meal replacement products.  Our essential oils and personal care products compete with companies such as NuSkin, Neways and Young Living Essential Oils.  


Many of our competitors have much greater name recognition and financial resources.  In addition, herbal remedies, personal care and nutritional products can be purchased in a wide variety of channels of distribution.  While we believe that consumers appreciate the convenience of ordering products from home through a sales person or through a catalog, the buying habits of many consumers indicate they may not wish to change their habits of purchasing products through traditional retail channels.  


We also compete for distributor Members with other direct selling organizations, many of which have a longer operating history and higher visibility, name recognition, and financial resources.  Some of the dominant network marketing companies in our existing markets are Amway Corporation, Herbalife and Nu Skin Enterprises.  We also compete with many smaller network marketing companies that also offer personal care products, health and nutrition products.  We compete for new distributors on the strength of our product line, leadership training, compensation plan, marketing focus and direction and management leadership strengths.  


Trademarks, Patents and Intellectual Property  


We have secured or are in the process of securing trademark protection for our important trademarks in the United States and around the world where we are conducting business.  Trademark protection is important to brand name recognition and Member and consumer loyalty as we expand internationally.  We intend to register our important trademarks in the United States and other countries where we are growing.  A number of our products utilize proprietary formulations and processes.  


We do not own any patents, but use trade secrets, confidentiality and non-disclosure agreements and proprietary processes to protect our intellectual property.  Some of our venders have secured patents or are seeking patents to continue the exclusivity for the products they supply to us.



11





Government Regulations


Direct Selling Activities


Direct selling activities are regulated by various federal, state and local governmental agencies in the United States and foreign countries.  We believe that our method of distribution is in compliance in all material respects with the laws and regulations relating to not-for-resale and direct selling activities in the United States, Mexico, Japan, Canada, Singapore, New Zealand, Australia, Germany, the Netherlands and the United Kingdom.  These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as “pyramid,” “money games,” “business opportunity” or “chain sales” schemes, that promise quick rewards for little or no effort, require high entry costs, use high pressure recruiting methods, and/or do not involve legitimate products.  The laws and regulations in our current markets often impose certain cancellation/product return, inventory buy-backs and “cooling-off” rights for consumers and Members, require us or our Members to register with the governmental agency, impose certain requirements on us, and/or impose various requirements.


The purpose of these laws and regulations is to ensure that Members are being compensated for sales of products and not for recruitment of new Members.  The extent and provisions of these laws vary from state to state and internationally.  International laws may impose significant restrictions and limitations on our business operations.  For example, in international countries where we have not yet established a local office, our Members and customers purchase product through a not-for-resale program enabling them to receive product for personal consumption, but not retail the product to customers.  


Any assertion or determination that we are not in compliance with existing laws or regulations could potentially have a material adverse effect on our business and results of operations.  We cannot assure that regulatory authorities in our existing markets will not impose new legislation or change existing legislation that might adversely affect our business in those markets.  Also, we cannot assure that new judicial interpretations of existing law will not be issued that adversely affect our business.  Regulatory action, whether or not it results in a final determination adverse to us, has the potential to create negative publicity, with detrimental effects on the motivation and recruitment of our Members and, consequently, on our revenue and net income.  


Regulation of Personal Care and Nutritional Food Products


Our products and related marketing and advertising are subject to governmental regulation by various domestic agencies and authorities, including the Food and Drug Administration which regulates food, medical products and cosmetics.  The advertising and marketing of our products are regulated by the Federal Trade Commission which enforces consumer protection laws in regard to truth in advertising.  The Consumer Product Safety Commission protects the public from unreasonable risk of injuries and death associated with consumer products, and the United States Department of Agriculture regulates food safety and quality.  Similar types of agencies exist in our foreign markets. To date, we have not experienced any complications regarding health or safety and food and drug regulations for our products.



12






Our markets have regulations concerning product formulation, labeling and packaging.  These laws and regulations often require us to, among other things, conform product labeling to the language and regulations, and register or qualify products with the applicable government authority or obtain necessary approvals or file necessary notifications for the marketing of such products.  Many of our existing markets also regulate product claims and advertising.  These laws regulate the types of claims and representations that can be made regarding the capabilities of products.  For example, in the United States we are unable to make any claim that our nutritional products will diagnose, cure, mitigate, treat, or prevent disease.  In September, 2007, the Australian governmental entity, Therapeutic Goods Administration inspected our third party distribution facility and asked that company modify a product marketing brochure for use in Australia.  The company complied with this request and this issue has been resolved.


Employees


As of the date of this filing we have over 56 full time employees with some services, employee and management functions being performed by ForeverGreen employees.  Many of these employees directly support the Member network.  Our employees are not presently covered by any collective bargaining agreement.  We believe our relationships with our employees are good, and we have not experienced any work stoppages.


ITEM 1A.  RISK FACTORS


Factors Affecting Future Performance


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 plans to increase sales and decrease expenses where appropriate to improve profitability.  Our future internal cash flows will be dependent on a number of factors, including:

·

The recovery of the United States and the global economy;

·

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 our 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 expense.


Our expansion into foreign markets exposes our business to risks related to those economies which may result in loss of revenues.


We have entered into agreements with Members and suppliers in foreign countries and 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.  



13






Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could lead to loss of investor confidence in our reported financial information.


Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting.  If we cannot provide reliable financial reports or prevent fraud, then our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.  In order to achieve compliance with Section 404 of the Act within the prescribed period, we have engaged in a process to document and evaluate our internal control over financial reporting, which has been challenging.  We cannot assure you as to our independent auditors’ conclusions at December 31, 2009 with respect to the effectiveness of our internal control over financial reporting.  There is a risk that our independent auditors will not be able to conclude at December 31, 2009 that our internal controls over financial reporting are effective as required by Section 404 of the Act.


If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.  Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud.



ITEM 2.  PROPERTIES


We have three building leases for office, warehouse and production space located in Orem, Utah.  The office space lease began January 1, 2005 and expires December 31, 2009 with provisions for an automatic five year extension and has a monthly payment of $5,784.  The warehouse space lease began March 1, 2005 and expires February 28, 2010 with provisions for an automatic five year extension and has a monthly payment of $7,500 per month.  The production space lease for $8,531 per month began September 1, 2006 and expires August 31, 2013 with provisions for an automatic five year extension.   All of these leases have a provision for an annual increase of 3%.  The buildings we lease are sufficiently large enough to accommodate all of our administrative, warehouse and production needs.   


Beginning April 1, 2008 we leased an office building in Mexico on a 24 month lease for approximately $2,217US per month.  We leased an office building in Singapore on a one year lease beginning April 2008 for approximately $3,950US per month.  We follow the guidance in the FASB Technical Bulletin No. 85-3 and record rent expense using straight-line over the life of each lease.

 


ITEM 3.  LEGAL PROCEEDINGS


On March 17, 2008 our transfer agent Standard Registrar and Transfer Company filed an interpleader complaint in the Third District Court, State of Utah in and for Salt Lake County, Salt Lake Department to determine the status and ownership of ForeverGreen Share Certificate No. 5931 representing 20,000 shares of common stock.  ForeverGreen claims that the certificate should be surrendered as the shares were not paid for because adequate consideration was not received from Mr. Fifield because he resigned his employment prior to the term ForeverGreen required of him.  Mr. Fifield claims ownership of the certificate and has requested its transfer prior to ForeverGreen requesting a stop transfer on the certificate.  Mr. Fifield has not returned the certificate and this action is ongoing.


On February 5, 2009 Frank R. Spindler, an individual, filed a claim against ForeverGreen International, LLC in Magistrates Court of Queensland - Southport. The claim alleges breach of contract related to the incorporation of ForeverGreen Pty Ltd, an Australian company, and seeks AU$30,100 in damages for



14





costs of incorporating such entity.  Management believes the claim is baseless and intends to vigorously defend against the claim.  Legal counsel is reviewing the matter.  

We are involved in various other disputes and legal claims arising in the normal course of our business.  In the opinion of management any resulting litigation will not have a material effect on our financial position and results of operations.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


We have not submitted a matter to the vote of our shareholders during the fourth quarter of the 2008 fiscal year.


PART II


ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


Market Information


Our common stock is listed on the OTC Bulletin Board under the symbol “FVRG.”  The following table represents the range of the high and low trading prices of our common stock for each quarter of the 2008 and 2007 years as reported by the OTC Bulletin Board.  The following quotations represent prices between dealers and may not include retail markups, markdowns, or commissions and may not necessarily represent actual transactions.


 

2007

 

2008

Fiscal Quarter Ended

High

Low

 

High

Low

March 31

June 30

September 30

December 31

$ 2.95

2.63

2.08

1.70

$ 1.55

1.80

1.20

1.10

 

$ 1.65

1.70

1.65

1.09

$ 1.20

1.35

1.05

0.29


Our shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act, commonly referred to as the “penny stock” rule.  The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions.  The rule provides that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC or excluded from the definition on the basis of price (at least $5.00 per share) or the issuer’s net tangible assets.  


Trading in the penny stocks is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors.  Accredited investors, in general, include certain institutional investors and individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse.  


For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of our securities and must have received the purchaser’s written consent to the transaction prior to the purchase.  Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock.  A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security.  Finally, monthly statements must be sent to the



15





purchaser disclosing recent price information for the penny stocks.  Consequently, these rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of shareholders to sell their shares.


Holders


As of March 2, 2009 we had 180 shareholders of record, which does not include shareholders who hold shares in “street accounts” of securities brokers.


Dividends


We have not paid cash or stock dividends and have no present plan to pay any dividends, intending instead to reinvest our earnings, if any.  For the foreseeable future, we expect to retain any earnings to finance the operation and expansion of our business and the payment of any cash dividends on our common stock is unlikely.


Recent Sales of Unregistered Securities


On November 25, 2008 we issued 63,000 shares of restricted common stock, valued at $37,800, to Donald R. Mayer, officer of Universal Business Insurance, Inc., in consideration for the renewal fee of our Corporation’s Officers and Directors Liability Insurance.  We relied on an exemption from the registration requirements provided for a private transaction not involving a public distribution pursuant to Section 4(2) of the Securities Act.


Issuer Purchase of Securities


None.

ITEM 6.  SELECTED FINANCIAL DATA


Not applicable.


ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


Executive Overview


ForeverGreen Worldwide is a holding company which operates through its wholly-owned subsidiary, ForeverGreen International, LLC.  We intend to continue our emphasis as a total lifestyle company focused on bringing our domestic and international Members and customers the exclusive FrequenSea™ product, any new products and ForeverGreen Compensation Plan earnings and commissions.   In addition, our focus is to assist prospective Members in creating a home based business with home business training, mentorship and accountability to promote our residual income stream opportunities.  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 respond to the economic conditions and properly manage our systems and logistics centers around the world to support the demand for our products and the business opportunity.  Included in this challenge is the need to continue to create a



16





customer service and Member satisfaction level at the highest quality.  Overcoming economic down turns will require skilled personnel, and manufacturing and shipping facilities.  Management will prepare its operating activities, especially production and order fulfillment, for the current economic environment as well as prepare itself for the upturn of demand as people continue to look for other income opportunities and choose ForeverGreen the company they can align with for their future.


We are expanding our markets and exclusive products and we anticipate the need to expand our international logistics centers.  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.


Liquidity and Capital Resources


At December 31, 2008, we had cash of $142,704, with a working capital deficit of $1,973,938.  We recorded revenues of $21,749,773 for 2008, but recorded a net operating loss of $1,048,301.  During 2008 we financed our operations with revenues and loans from related parties totaling $850,000.  Based on these factors, our independent accounting firm has expressed an opinion that there is substantial doubt as to our ability to continue as a going concern.  However, management has reduced our operating costs by reducing overhead and staff, and we have made salary adjustments.  Management is also negotiating with our key vendors to reduce costs.  During 2008 we have introduced new logistic, sales and distribution software that will reduce computer costs going forward.   New products have been and will continue to be introduced to bolster Member recruiting and product sales.  In addition, management intends to improve our marketing plan to enhance overall profitability.  Our management will continue to scrutinize expenses related to our operating activities and order fulfillment to determine appropriate actions to take to reduce these costs; however, we cannot guarantee that we will be able to return to profitability in the short term.  


Our total assets increased to $16,458,803 at December 31, 2008 compared to $15,489,396 at December 31, 2007. The increase is primarily due to product introductions in 2008 and a down turn in revenues in the fourth quarter resulting in an increase in inventory resulting from the timing of ordering and delivery of product; and an increase in property and equipment of $185,069 (net of depreciation) as we invest in our in house business hardware and software.


Management anticipates that any future additional capital needed for cash shortfalls will be provided by debt financing.  We may pay these loans with cash, if available, or convert these loans into common stock.  We may also issue private placements of stock to raise additional funding.  Any private placement likely will rely upon exemptions from registration provided by federal and state securities laws.  The purchasers and manner of issuance will be determined according to our financial needs and the available exemptions.  We also note that if we issue more shares of our common stock then our shareholders may experience dilution in the value per share of their common stock.  


Commitments and Contingent Liabilities


We have three building leases for office, warehouse and production space in Orem, Utah.  The aggregate monthly payments are $21,815 with total lease commitments of $832,841 through 2012.  Rent expense for 2008 was $486,368 compared to $384,056 for 2007.



Our total liabilities at December 31, 2008 were $4,096,024 compared to $2,076,952 at December 31, 2007.  The increase was primarily due to increases in accounts payable, accrued expenses and notes payable.  Accounts payable increased by $934,998 as inventory purchases were committed on new product introductions during 2008.  Current notes payable increased by $610,059 as a result of loans



17





provided by First Equity Holdings Corp. totaling $787,500, of which $240,000 was repaid in 2008, and loans from George Brimhall that totaled $62,500 (See Item 13, below).   ForeverGreen International borrowed these funds from these related parties during 2008 to support the introduction of new product launches, develop and bring in house our own logistic, sales and distributor software and systems, and operating expenses to manage through the worldwide economic downturn.  


In January 2009 we borrowed an additional $60,000 each from First Equity Holdings Corp. and Mr. Brimhall for ongoing operations (See Item 13, below).


Results of Operations


The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the years ended December 31, 2008 and 2007.  The consolidated balance sheets and statements of operations include the books of ForeverGreen Worldwide and its wholly-owned subsidiary ForeverGreen International, LLC.  The following chart is a summary of our financial statements for those periods and should be read in conjunction with the financial statements, and notes thereto, included with this report at Part II, Item 8, below.


 

Year ended December 31

 

2007

 

 2008

SUMMARY OF BALANCE SHEET

 

 

 

Cash and cash equivalents

$           20,382 

 

$       142,704 

Total current assets

1,243,895 

 

2,095,907 

Total assets

15,489,396 

 

16,458,803 

Total current liabilities

2,048,979 

 

4,069,845 

Long-term debt

27,973 

 

26,179 

Total liabilities

2,076,952 

 

4,096,024 

Accumulated deficit

(17,280,529)

 

(18,353,031)

Total stockholders’ equity

$    13,412,444 

 

$  12,362,779 

 

 

 

 

SUMMARY OF OPERATING RESULTS

 

 

 

Revenues, net

$    22,699,525 

 

$   21,749,773 

Cost of sales

16,298,596 

 

16,406,581 

Gross profit

6,400,929 

 

5,343,192 



18







SUMMARY OF OPERATING RESULTS -continued

 

Year ended December 31

 

2007

 

 2008

Total operating expenses

$       6,344,508 

 

$       6,391,493 

Net income (loss) from continuing operations

56,421 

 

(1,048,301)

Total other income (expense)

(11,054)

 

(24,201)

Income tax provision (benefit)

– 

 

– 

Net earnings (loss)

$            45,367 

 

$      (1,072,502)

Net earnings (loss) per share (basic)

$               0.00 

 

$             (0.08)


Our source of revenue is from the sale of various foods, other natural products, distributor sign ups and kits and freight and handling to delivery products to the distributor and customer.  We recognize revenue upon shipment of a sales order.  Sales are net of returns, which have historically been less than 0.2% of sales.  Sales for 2008 decreased in comparison to 2007.  This decrease in sales is attributable to the worldwide economic downturn: ForeverGreen’s revenues are over 90% based in the United States which has been particularly hurt by the economic downturn.  


Cost of sales consists primarily of sales commissions paid to our Members, the cost of procuring and packaging products, and the cost of shipping product to Members, plus credit card sales processing fees.  Cost of sales was approximately 75.4% of revenues for 2008 compared to 71.8% of revenues for 2007.  Sales commissions are paid to several levels of Members on each product sold.  Sales commissions are paid to Members on a monthly basis based upon personal and group sales volume.  Additional bonuses are paid weekly to Members.  The overall payout average for sales commissions increase by approximately 2% for 2008 compared to 2007.  The increase is attributed to two key factors: special promotions were introduced in the fourth quarter to manage the economic downturn and move additional inventory; plus additional payments were made in a transitional phase in the first quarter as the plan was adjusted and enhanced.  Cost of procuring and packaging products increased approximately 0.5% as new product introductions were launched in 2008.  Freight cost increased approximately 1.1% as fuel and transportation cost increased by our carriers.


Total operating expenses increased for 2008 compared to 2007 by $46,988 as a result of increases in general and administrative expense of $284,637 due to the introduction of new products during 2008. General and administrative expenses include our general office, marketing, and travel related expenses.


Salaries and wages decreased in 2008 compared to 2007 by $187,243 as a result of the executives and higher management taking an average salary reduction of more than 15% for approximately five months of 2008.  As revenues continue to be slower in 2009 compared to 2008, necessary layoffs have been made in the first quarter of 2009, as well as the current executives and many of the management team continue at a more then average 20% salary reduction.



19





  

Professional fees decreased for 2008 compared to 2007 by $57,799 due to the introduction of our own in house logistic, sales and distributor software and systems being introduced in August of 2009. Professional fees include payments to third-party operators in foreign offices, legal and accounting fees, programming and maintenance of our distributor and sales software, and other services


Depreciation and amortization increased in 2008 compared to 2007 by $7,390 due to the addition of the assets of ForeverGreen and their related depreciation, as well as asset acquisitions in 2008.


Total other expense for the 2008 year was related to interest expense on loans.


As a result of decreased revenues and a worldwide economic downturn in the 2008, we recorded a net loss for 2008 and a net loss per share of $0.08, as compared to a net profit in 2007 and $0.00 net income per share


Off-balance Sheet Arrangements


None.


Critical Accounting Estimates


We account for our investments in our subsidiaries using the purchase method of accounting.  The excess of the consideration paid for subsidiaries over the fair value of acquired tangible assets less the fair value of acquired liabilities is assigned to intangible assets and goodwill.  We rely on an independent third party valuation to ascertain the amount to allocate to identifiable intangible assets, and the useful lives of those assets.  We amortize identifiable intangible assets over their useful life unless that life is determined to be indefinite.  The useful life of an intangible asset that is being amortized is evaluated each reporting period as to whether events and circumstances warrant a revision to the remaining period of amortization.  Goodwill is not amortized, but is tested for impairment on an annual basis.  The implied fair value of goodwill is determined by allocating fair value to all assets and liabilities acquired; the excess of the price paid over the amounts assigned to assets and liabilities acquired is the implied fair value of goodwill.


We calculated ForeverGreen International’s customer base intangible using a percentage of the gross margin of ForeverGreen International.  We will amortize the customer base over a period of ten years.  The amortization for 2008 was $85,590 compared to $85,590 for 2007.


We recorded impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The company did a annual analysis for the period ended December 31, 2008 and determined no adjustment to long-lived assets was needed.





20





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



FOREVERGREEN WORLDWIDE CORPORATION


CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2008 and 2007



C O N T E N T S



Report of Independent Registered Public Accounting Firm

22


Consolidated Balance Sheets

23


Consolidated Statements of Operations and Comprehensive Income

24


Consolidated Statements of Stockholders’ Equity

25


Consolidated Statements of Cash Flows

26


Notes to the Consolidated Financial Statements

27




21







[Logo]

CHISHOLM, BIERWOLF, NILSON & MORRILL, LLC

Certified Public Accountants

Phone (801) 292-8756  • Fax (801) 292-8809  • www.cbnmcpa.com

Todd D. Chisholm

Nephi J. Bierwolf

Troy F. Nilson

Douglas W. Morrill

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To The Board of Directors and Shareholders

ForeverGreen Worldwide Corp

Orem, Utah


We have audited the accompanying consolidated balance sheets of ForeverGreen Worldwide Corporation as of December 31, 2008 and 2007, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for the years ended December 31, 2008 and 2007. These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ForeverGreen Worldwide Corporation as of December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the years ended December 31, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 12 to the financial statements, the Company has a working capital deficiency, and has negative cash flows from operations and recurring operating losses substantially since inception which raise substantial doubt about its ability to continue as a going concern.  Management's plans in those matters are also described in Note 12.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Chisholm, Bierwolf, Nilson & Morrill LLC


Chisholm, Bierwolf, Nilson & Morrill LLC

Bountiful, Utah

March 31, 2009


PCAOB Registered, Members of AICPA, CPCAF and UACPA

533 West 2600 South, Suite 25  • Bountiful, Utah 84010

             12 South Main, Suite 208, Layton, Utah 84041






22








ForeverGreen Worldwide Corporation

formerly Whole Living, Inc.

Consolidated Balance Sheets

 

 

 

 

 

ASSETS

 

 December 31, 2008

 

December 31, 2007

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

               142,704 

$

                 20,382 

 

Prepaid expenses

 

                   85,962 

 

                 277,186 

 

Inventory

 

              1,867,241 

 

                 946,327 

 

 

Total Current Assets

 

              2,095,907 

 

              1,243,895 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

                 719,058 

 

                 533,989 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

Deposits and other assets

 

                   99,486 

 

                   98,482 

 

Trademarks, net

 

                   60,551 

 

                   43,639 

 

Customer base, net

 

                 684,720 

 

                 770,310 

 

Goodwill

 

            12,799,081 

 

            12,799,081 

 

 

Total Other Assets

 

            13,643,838 

 

            13,711,512 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

          16,458,803 

$

          15,489,396 

 

 

 

 

 

 

 

 LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Bank overdraft

$

               238,475 

$

               123,831 

 

Accounts payable

 

              1,710,296 

 

                 775,298 

 

Accrued expenses

 

              1,260,605 

 

              1,148,295 

 

Due to related parties

 

                 148,855 

 

                           - 

 

Banking line of credit

 

                 100,000 

 

                           - 

 

Current portion of notes payable

 

                     1,614 

 

                     1,555 

 

Current portion of notes payable - related parties

                 610,000 

 

                           - 

 

 

Total Current Liabilities

 

              4,069,845 

 

              2,048,979 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

 

 

 

 

Notes payable

 

                   26,179 

 

                   27,973 

 

 

Total Long-Term Debt

 

                   26,179 

 

                   27,973 

 

 

Total Liabilities

 

              4,096,024 

 

              2,076,952 

 

 

 

 

 

 

 

COMMITMENTS

 

                           - 

 

                           - 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

Preferred stock;  no stated par value;  authorized

 

 

 

 

    10,000,000 shares;  no shares issued or outstanding

                           - 

 

                           - 

 

Common stock, par value $0.001 per share;  authorized

 

 

 

 

    100,000,000 shares; 13,992,141 and 13,904,014 shares

 

 

 

 

    issued and outstanding, respectively

                   13,992 

 

                   13,904 

 

Additional paid-in capital

 

            30,742,153 

 

            30,668,761 

 

Prepaid equity expenses

 

                 (19,245)

 

                           - 

 

Other comprehensive income

 

                 (21,090)

 

                   10,308 

 

Accumulated deficit

 

          (18,353,031)

 

           (17,280,529)

 

 

Total Stockholders' Equity

 

            12,362,779 

 

            13,412,444 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

          16,458,803 

$

         15,489,396 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements




23






ForeverGreen Worldwide Corporation

Consolidated Statements of Operations and Comprehensive Income

 

 

 

 

 

 

 

 

 

For the years ended

 

 

 

December 31,

 

 

 

2008

 

2007

 

 

 

 

 

 

REVENUES, net 

 $           21,749,773 

 

 $     22,699,525 

 

 

 

 

 

 

COST OF SALES, net 

      16,406,581 

 

      16,298,596 

 

 

 

 

 

 

GROSS PROFIT 

        5,343,192 

 

        6,400,929 

 

 

 

 

 

 

OPERATING EXPENSES 

 

 

 

 

 

 

 

 

 

 

Salaries and wages 

        3,648,304 

 

        3,835,547 

 

Professional fees 

           638,690 

 

           696,489 

 

General and administrative 

        1,810,902 

 

        1,526,265 

 

Depreciation and amortization 

           293,597 

 

           286,207 

 

 

 

 

 

 

 

 

Total Operating Expenses 

        6,391,493 

 

        6,344,508 

 

 

 

 

 

 

NET OPERATING INCOME (LOSS)

       (1,048,301)

 

             56,421 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

Other income and (expense), net 

               5,835 

 

                     - 

 

Gain/(Loss) on Sale of Fixed Assets 

                     - 

 

              (4,928)

 

Interest (net)

            (30,036)

 

              (6,126)

 

 

 

 

 

 

 

 

Total Other Income (Expense)

            (24,201)

 

            (11,054)

 

 

 

 

 

 

Income (loss) from continuing operations before 

 

 

 

   income tax provision 

       (1,072,502)

 

             45,367 

 

 

 

 

 

 

Income Tax Provision (Benefit)

                     - 

 

                     - 

 

 

 

 

 

 

NET INCOME (LOSS)

$            (1,072,502)

 

 $             45,367 

 

 

 

 

 

 

BASIC INCOME (LOSS) PER COMMON SHARE 

$                      (0.08)

 

 $                  0.00 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF 

 

 

 

 COMMON SHARES OUTSTANDING 

   3,927,231 

 

 13,632,562 

 

 

 

 

 

 

A summary of the components of other comprehensive income (loss) for the 

 

   fiscal years ended December 31, 2008 and 2007 are as follows: 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 $            (1,072,502)

 

 $             45,367 

 

 

Foreign Currency Translation 

            (31,398)

 

             10,308 

 

 

 

 

 

 

 

 

   Comprehensive Income (Loss)

 $            (1,103,900)

 

 $             55,675 


The accompanying notes are an integral part of these consolidated financial statements





24








ForeverGreen Worldwide Corporation

Consolidated Statements of Stockholders' Equity

For the years ended December 31, 2007 and 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Additional

 

 

 

 Other

 

 Prepaid

 

 Preferred Stock

 

 Common Stock

 

 Paid-in

 

 Accumulated

 

 Comprehensive  

 

 Equity

 

 Shares

 

 Amount

 

 Shares

 

 Amount

 

 Capital

 

 Deficit

 

 Income

 

 Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2007

                - 

 

 $                - 

 

  11,908,328 

 

 $        11,909 

 

 $       26,541,052 

 

 $       (17,325,896)

 

 $                             - 

 

 $                          - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  at $1.60 per share

                - 

 

               - 

 

         45,000 

 

              45 

 

            71,955 

 

                    - 

 

                      - 

 

        (54,474)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  at $1.60 per share

                - 

 

               - 

 

         22,500 

 

              22 

 

            35,978 

 

                   - 

 

                      - 

 

                    - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to retire related

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  party notes at $2.00 per share

                - 

 

               - 

 

    1,928,186 

 

         1,928 

 

       4,008,698 

 

                    - 

 

                      - 

 

                   - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forgiveness of related party debt

                - 

 

               - 

 

                - 

 

               - 

 

            11,078 

 

                   - 

 

                      - 

 

                   - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prepaid expenses

                - 

 

               - 

 

                - 

 

               - 

 

                   - 

 

                   - 

 

                      - 

 

         54,474 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

                - 

 

               - 

 

                - 

 

               - 

 

                   - 

 

                   - 

 

              10,308 

 

                   - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  December 31, 2007

                - 

 

               - 

 

                - 

 

               - 

 

                   - 

 

          45,367 

 

                      - 

 

                   - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

                - 

 

             - 

 

  13,904,014 

 

     13,904 

 

   30,668,761 

 

  (17,280,529)

 

            10,308 

 

                   - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  at $1.42 per share

                - 

 

               - 

 

         25,127 

 

              25 

 

            35,655 

 

                   - 

 

                      - 

 

          (15,124)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  at $0.60 per share

                - 

 

               - 

 

         63,000 

 

              63 

 

            37,737 

 

                    - 

 

                      - 

 

         (31,500)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prepaid expenses

                - 

 

               - 

 

                - 

 

               - 

 

                   - 

 

                    - 

 

                      - 

 

           27,379 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

                - 

 

               - 

 

                - 

 

               - 

 

                   - 

 

                     - 

 

            (31,398)

 

                    - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  December 31, 2008

                - 

 

               - 

 

                - 

 

               - 

 

                   - 

 

     (1,072,502)

 

                      - 

 

                   - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                - 

 

 $                 - 

 

  13,992,141 

 

$        13,992 

 

 $       30,742,153 

 

 $       (18,353,031)

 

 $                (21,090)

 

 $             (19,245)


The accompanying notes are an integral part of these consolidated financial statements



25








ForeverGreen Worldwide Corporation

Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 For the years ended

 

 

 

 December 31,

 

 

 

2008

 

2007

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net income (loss)

 $        (1,072,502)

 

 $              45,367 

Adjustments to reconcile net income (loss) to net cash

 

 

 

  provided by (used in) operating activities:

 

 

 

 

Depreciation and amortization

             293,597 

 

              286,207 

 

Common stock issued for services rendered

               42,216 

 

              108,000 

 

Loss on sale of property and equipment

                       - 

 

                  4,928 

Changes in operating assets and liabilities:

 

 

 

     (Increase) decrease in operating assets

 

 

 

 

Accounts receivable

                       - 

 

              237,196 

 

Prepaid expenses

             191,223 

 

             (124,058)

 

Inventory

            (920,914)

 

              389,362 

 

Deposits

                (1,004)

 

                  4,734 

     Increase (decrease) in operating liabilities

 

 

 

 

Accounts payable and accrued expenses

          1,208,182 

 

             (756,301)

 

 

 

 

 

 

 

 

Net Cash Provided by/(Used in) Operating Activities

            (259,202)

 

              195,435 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Cash received on sale of property & equipment

                       - 

 

                  4,000 

 

Purchases of property and equipment

            (389,468)

 

             (243,753)

 

Cash paid for trademarks

              (20,519)

 

               (41,897)

 

 

 

 

 

 

 

 

Net Cash (Used in) Investing Activities

            (409,987)

 

             (281,650)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Bank Overdraft

             114,644 

 

                        - 

 

Proceeds from Line of Credit

          1,880,043 

 

                        - 

 

Payments on Line of Credit

         (1,780,043)

 

                        - 

 

Proceeds from notes payable - related parties

             850,000 

 

                        - 

 

Payments on notes payable - related parties

            (240,000)

 

                        - 

 

Payments on notes payable

                (1,735)

 

                 (1,371)

 

 

 

 

 

 

 

 

Net Cash Provided by/(Used in) Financing Activities

             822,909 

 

                 (1,371)

 

 

 

 

 

 

 

 

Effect of Foreign Currency on Cash

              (31,398)

 

                10,308 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

             122,322 

 

               (77,278)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

               20,382 

 

                97,660 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

$             142,704 

 

 $               20,382 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

Cash Paid for Interest

$                7,670 

 

$                 2,128 

 

Cash Paid for Taxes

                       - 

 

                        - 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES

 

 

 

 

Common Stock Issued for Services Rendered

 $              42,216 

 

 $             108,000 

 

Common Stock Issued for Relief of Debt

 $              12,019 

 

 $          4,010,626 


The accompanying notes are an integral part of these consolidated financial statements



26






FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 1 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


a. Organization


The Company was incorporated on November 25, 1998 in the state of Utah.  On November 30, 1998, Whole Living, Inc. acquired the assets, leases, product line and name of Brain Garden, L.L.C., a Utah limited liability company engaged in the marketing and distribution of various natural food products, oils and bath salts.  The Company did business under the name of Brain Garden, and maintained its headquarters in Provo, Utah.


On November 30, 1998, the Company acquired many of the assets, lease obligations and much of the product line of Brain Garden.  The acquisition was recorded using the purchase method of a business combination.  Intangible assets such as distributor down lines, customer lists and product name identifications were recorded in the acquisition in the amount of $43,294 and were amortized over 60 months.  The Company paid $283,800 for the purchase of Brain Garden assets, and assumed leases in the amount of $14,500.  The Company also assumed an operating lease for office space which expired during 1999.  


On May 24, 1999 the Company entered into an agreement to merge with Whole Living, Inc. a Nevada Corporation (WLN) which was a non-operating public company with cash of $150,000 and a note receivable of $650,000 from Whole Living, Inc. (Utah) for funds advanced in contemplation of the merger.  Pursuant to the merger, WLN issued 6,000,000 shares of common stock to the shareholders of the Company for all outstanding stock of the Company.  The merger was recorded as a reverse merger, with Whole Living, Inc. (Utah) being the accounting survivor.  A reverse merger adjustment was made to the books of the Company to reflect the change in capital to that of WLN.  No goodwill or intangible assets were recorded in the reverse acquisition.   


In March 2002, the Company incorporated Brain Garden, Inc. as a wholly owned subsidiary.  The assets of the Company were subsequently transferred to Brain Garden.


On January 13, 2006 the Company entered into an agreement whereby it exchanged 1,266,667 shares of its post-reverse split 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 International, LLC were appointed as officers of the Company.


ForeverGreen International, LLC was organized on February 19, 2003 in the state of Utah.  The Company engages in the marketing and distribution of chocolate and various natural food products, oils and bath salts.  In August 2005 the Company introduced FrequenSea, a nutritional beverage which includes marine phytoplankton, which helped the Company to increase sales dramatically.  ForeverGreen International, LLC does business under the name of ForeverGreen International, and maintains its headquarters in Orem, Utah.



27





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


a. Organization - continued


In conjunction with the January 13, 2006 acquisition the Board of Directors of the Company approved a 15:1 reverse split of its common shares, which was subsequently completed in February, 2006.


The companies operated under common management to distribute the products of both companies jointly as though from one company. The combined operation subsequently combined their product lines and created a new unified catalog.


On October 15, 2006, Whole Living, Inc. entered into an agreement to purchase the remaining 77% interest of ForeverGreen International, LLC and to formally merge with Brain Garden Inc., a wholly owned subsidiary of Whole Living, Inc., to become effective December 31, 2006.  They announced they would change the combined company name to ForeverGreen Worldwide Corporation.  The combined company sells products in the United States, Canada, Australia, New Zealand, Singapore, Japan, United Kingdom, the Netherlands, and Germany and currently has plans to expand into other areas of the world.   Whole Living, Inc. changed its name to ForeverGreen Worldwide Corporation in December 2006.


During the last quarter of 2007, the company began operations in Mexico.


b. Recognition of Revenue

Revenues and costs of revenues from services are recognized during the period in which the services are provided.  The Company applies the provisions of SEC Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition in Financial Statements ("SAB 104"), which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to monthly contracted amounts for services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectibility is reasonably assured.


The Company’s source of revenue is from the sale of various food and other natural products.  The Company recognizes the sale upon shipment of such goods.  The Company offers a 100% satisfaction guarantee against defects for 30 days after the sale of their product.  The Company extends this return policy to its distributors for a 30 day period and the consumer has the same return policy in effect against the distributor.  Returns are less than 0.2% of sales for both periods presented.  Revenues are reported net of returns.  All conditions of FASB 48 are met and the revenue is recorded upon sale, with an estimated accrual for returns where material.   


Members are required to pay for products prior to shipment. Accordingly, we seldom carry accounts receivable and any balances carried would be minimal. Distributors typically pay for products in cash, by wire transfer or by credit card.  



28






FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


c. Principles of Consolidation


The consolidated balance sheets and statement of operations for the periods ended December 31, 2007 and 2008 include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries ForeverGreen International LLC (Utah) and Brain Garden.  All intercompany transactions and balances have been eliminated in the consolidation.


d. Earnings (Loss) Per Share


The computation of earnings per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements.


 

December 31,

 

2008

 

2007

Income (Loss) Numerator

$      (1,072,502)

 

 $          45,367 

Shares (Denominator)

13,927,231 

 

 13,632,562 

 

 

 

 

Per Share Amount

$               (0.08)

 

 $              0.00 


There are no reconciling items to net income for the computation of earnings per share at December 31, 2008 and 2007


e. Provision for Income Taxes  

The provision for income taxes consists of the following:


 

2008

 

2007

Current


 

 

  Federal

$                     -   

 

$                 -   

  State

    -   

 

 -   

 

$                     -   

 

$                 -   

 

 

 

 

Deferred

 

 

 

  Federal

$                     -   

 

$                 -   

  State

 -   

 

 -   

 

 -   

 

 -   

    Total income tax expense (benefit)

$                     -   

 

$                 -   






29





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


e. Provision for Income Taxes - continued

The income tax provision reconciled to the tax computed at the federal statutory rate of 34% as follows:


 

2008

 

2007

Income Tax at federal statutory rate

$            (328,897)

 

$              15,425 

State income tax benefit

(28,113)

 

 5,306 

Non-deductible expenses

 39,247 

 

 39,247 

Change in estimate from prior year

 (62,493)

 

 (62,493)

Change in valuation allowance

455,481 

 

 2,515 

 

$              75,225 

 

$                       - 

 

 

 

 

 

 

 

 

Deferred tax assets (liabilities) are as follows:

 

 

 

 

 

 

 

Current

 

 

 

  Inventory reserves

$               47,165 

 

$              40,468 

  Accrued vacation

 38,717 

 

 36,624 

 

$               85,882 

 

$              77,092 

 

 

 

 

Long-tem

 

 

 

  Depreciation and amortization

$               50,780 

 

$            (15,655)

  Net operating loss carryforwards

 6,328,819 

 

 5,951,078 

 

$          6,379,599 

 

$         5,935,423 

 

 

 

 

    Total deferred tax assets

 6,465,481 

 

 6,012,515 

 

 

 

 

    Valuation Allowance

   (6,465,481)

 

  (6,012,515)

 

$                       - 

 

$                       - 

The Company assesses the need for a valuation allowance against its deferred income tax assets at December 31, 2008.  Factors considered in this assessment include recent and expected future earnings and the Company’s liquidity and equity positions.  As of December 31, 2008 and 2007, the Company has determined that a valuation allowance is necessary against the entire amount of its net deferred income tax asset.

As of December 31, 2008, the Company has net operating loss carryforwards of approximately $17,000,000.  These carryforwards are available to offset future taxable income, if any, and begin to expire in 2019.  The utilization of the net operating loss carryforwards is dependent upon the tax laws in effect at the time the net operating loss carryforwards can be utilized and may be significantly limited based on ownership changes as set forth in the Internal Revenue Code.




30





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


f. Cash and Cash Equivalents


The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.


g. Property and Equipment


Expenditures for property and equipment and for renewals and betterments, which extend the originally estimated economic life of assets or convert the assets to a new use, are capitalized at cost. Expenditures for maintenance, repairs and other renewals of items are charged to expense. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts, and any gain or loss is included in the results of operations.


The provision for depreciation is calculated using the straight-line method over the estimated useful lives of the assets.  Depreciable asset lives range from 3 to 7 years with leasehold improvements being depreciated over the lesser of the term of the lease or the life of the improvements.  Depreciation expense for the period ended December 31, 2008 and 2007 is $208,007, and $200,617, respectively.


In accordance with Financial Accounting Standards Board Statement (FASB) No.144, the Company records impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount.   At December 31, 2006, the company did an analysis of the combined assets and made an adjustment to the property and equipment for assets that no-longer had value to the corporation and which were fully depreciated.  The aggregate amount of this adjustment is $963,097 for both the fixed assets and accumulated depreciation to remove those assets and the applicable accumulated depreciation associated with them.  There was no affect on the income statement or the net value of the fixed assets or total assets as a result of this adjustment.  The company did continuing analysis for the period ended December 31, 2008 and determined no adjustment to long term assets was needed.


h. Inventory


Inventory is recorded at the lower of cost or market and valued on a first-in, first-out basis. Inventory consists primarily of consumable food products and ingredients.  Food products are discarded as they reach the expiration dates, because the food products are made with natural foods containing a minimum of preservatives.  Non-food products are reviewed periodically to determine any obsolescence and a reserve is booked when appropriate.  The products have expiration dates that range from 3 months on some of the food products to 2 years for non-food products.  On December 31, 2008 and 2007 there was an allowance for obsolete inventory in the amount of $126,448 and $108,492,  respectively.





31





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


i. Fair Value of Financial Instruments


Unless otherwise indicated, the fair values of all reported assets and liabilities which represent financial instruments (none of which are held for trading purposes) approximate the carrying values of such amounts.


j. Use of Estimates


The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions that affect the amounts reported in the financial statements and accompanying notes.  In these financial statements, assets, liabilities and earnings involve extensive reliance on management’s estimates. Actual results could differ from those estimates.


k. Concentrations


Financial instruments that potentially subject the Company to concentrations of credit risks consist of cash and cash equivalents.  The Company places its cash and cash equivalents at well-known, quality financial institutions.  At times, such cash and investments may be in excess of the FDIC insurance limit.  The accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 each.  The amounts held for the Company regularly exceed that amount.


The company has an agreement with one vendor that supplies 100% of a significant ingredient that is included in several top selling products.  It could decrease sales significantly if that vendor were to discontinue the supply of this ingredient.     There are other providers of that ingredient in the world, however, the Company considers this provider to have the very best quality, which is nutritionally superior to other sources of this ingredient, and has no intention of obtaining it from any other provider.


l. Equity Instruments


The Company's accounting policy for equity instruments issued to consultants and

vendors in exchange for goods and services follows the provisions of EITF Issue No.

618, "Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" and EITF Issue No. 00-18, "Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees." The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.  In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with EITF Issue No. 00-18, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes.  The Company



32





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


l. Equity Instruments- continued


recognized $54,235 and $72,000 for the periods ended December 31, 2008 and 2007 respectively.


m. Intangible Assets


Intangible assets consist of patent and trademark costs.  Patent costs are costs incurred to develop and file patent applications.  Trademark costs are costs incurred to develop and file trademark applications.  If the patents or trademarks are approved, the costs are amortized using the straight-line method over the estimated lives of 7 years for patents and 10 years for trademarks.  Unsuccessful patent and trademark application costs are expensed at the time the application is denied.  Management assesses the carrying values of long-lived assets for impairment when circumstances warrant such a review.  In performing this assessment, management considers current market analysis and appraisal of the technology, along with estimates of future cash flows.  The Company recognizes impairment losses when undiscounted cash flows estimated to be generated from long-lived assets are less than the amount of unamortized assets.  


The Company capitalizes legal fees incurred to register trademarks for its products.  Trademarks consist of the following for the period ended December 31, 2008 and 2007:


 

2008

 

2007

Trademarks

$     67,666

 

$     47,147

Less accumulated amortization

 (7,116)

 

 (3,508)

   Net trademarks

$     60,550

 

$     43,639


There was amortization expense for the years ended December 31, 2008 and 2007 were $3,608, and $3,508, respectively.


n. Advertising


Advertising expense for the years ended December 31, 2008 and 2007 were $564,309 and $394,705 respectively.


NOTE 2 - PROPERTY AND EQUIPMENT


The Company capitalizes the purchase of equipment and fixtures for major purchases in excess of $1,000 per item.  Property and equipment consists of the following at December 31, 2008 and 2007:








33





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 2 - PROPERTY AND EQUIPMENT- continued


 

2008

 

2007

Leasehold improvements

 $        76,767 

 

 $           80,355 

Office furniture & fixtures

 180,162 

 

 177,690 

Equipment

 470,414 

 

 446,234 

Vehicles

 56,548 

 

 56,548 

Computer equipment

 507,178 

 

 470,254 

Computer software

 633,084 

 

 279,665 

Computer software - capitalized

 - 

 

 53,837 

    Total Assets

 1,924,153 

 

 1,564,583 

Accumulated depreciation

 (1,205,095)

 

 (1,030,594)

     Total Property &   Equipment

 $      719,058 

 

 $         533,989 


Depreciation expense for the years ended December 31, 2008 and 2007 were $208,007 and $200,617, respectively.


NOTE 3 – ACCRUED EXPENSES


Accrued expenses consist of the following at December 31, 2008 and 2007:


 

2008

 

2007

Distributor liabilities

 $         589,609 

 

 $        668,920 

Accrued employee benefits

 134,193 

 

 121,571 

Accrued royalty payable

 - 

 

 97,152 

Accrued audit fees

 48,000 

 

 48,000 

Accrued bank charges

 32,300 

 

 44,874 

Accrued taxes

 388,740 

 

 149,426 

Other accrued liabilities

 67,763 

 

 18,352 

     Total

 $      1,260,605 

 

 $     1,148,295 


NOTE 4 - LONG-TERM LIABILITIES


Long term liabilities are detailed in the following schedules as of December 31, 2008 and 2007:


 

Note payable to Wells Fargo Bank bearing interest

2008

 

2007

 At 7%, principle and interest due monthly, matures

 

 

 

 August, 2019, secured by asset

 $       27,793 

 

 $        29,528 

 

 

 

 

Less current portion of Notes payable

 (1,614)

 

 (1,555)

     Net Long-Term Liabilities

 $       26,179 

 

 $        27,973 




34






FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 4 - LONG-TERM LIABILITIES - continued


Accrued interest for the periods ended December 31, 2008 and 2007 were $36,685 and $0, respectively, of which $1,675 was related to the above note.  The remaining portion is due on the notes described in note 9.


Future minimum principal payments on notes payable and notes payable-related party are as follows at December 31, 2008:


2009

 $            1,614

2010

      1,805

2011

      1,945

2012

      2,097

2013

      2,259

Therafter

    18,073

   Total

 $          27,793


NOTE 5 – OPERATING LEASES


The Company has three building leases for office, warehouse and production space in Orem, Utah.  The office lease for $5,784 per month began January 1, 2005 and expires December 31, 2009 with provisions for an automatic 5 year extension.  The warehouse lease for $7,500 per month began March 1, 2005 and expires February 28, 2010 with provisions for an automatic 5 year extension.  The production lease for $8,531 per month began September 1, 2006 and expires August 31, 2013 with provisions for an automatic 5 year extension.   All leases have a provision for an annual increase of 3%.   The buildings the Company leases are sufficiently large enough to accommodate all of its administrative and warehouse and production needs.   The company leased an office building in Mexico on a 24 month lease beginning April 1, 2008 for approximately $2,217 USD per month.  The Company leased an office building in Singapore on a one year lease beginning April 2008 for approximately $3,950 USD per month.  The company follows the guidance in the FASB Technical Bulletin No. 85-3 and records rent expense using straight-line over the life of each lease.


Total Lease Commitments:


2009

 $             361,363

2010

        157,934

2011

        117,579

2012

        117,579

Therafter

          78,386

     Total

 $             832,841


Rent expense for operating leases for December 31, 2008 and 2007 was $486,368, and $384,056, respectively.



35






FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 6 - COMMITMENTS AND CONTINGENCIES


On March 17, 2003, Whole Living filed an action for a preliminary injunction in the United States District Court, District of Utah, Central Division against Don Tolman, a former consultant and founder of Brain Garden, LLC.  The purpose of the injunction was to stop Mr. Tolman from competing against the Company in violation of a non-compete agreement he signed.  At a preliminary hearing on April 2, 2003, the Court issued a temporary restraining order which expired April 10, 2003.


On May 5, 2003, Mr. Tolman filed a counterclaim complaint against the Company in which he sought damages for payments he alleged were due and owing to him and not paid by the Company.  On August 2, 2003, the Court granted the Company a preliminary injunction against Mr. Tolman and other interested parties.  On November 29, 2004 the Court issued a memorandum decision and order finding Mr. Tolman, Mark Bowen and Think Again, Inc. doing business as Great American and Wholefood Farmacy, in contempt for violation of the preliminary injunction and granted preliminary damages of approximately $240,430.  During February 2007 the company was informed by the Bankruptcy court that they were to receive a payment in the settlement of approximately $237,196.  The Company received the funds in March 2007.


On February 5, 2009 Frank R. Spindler, an individual, filed a claim against ForeverGreen International, LLC in Magistrates Court of Queensland - Southport. The claim alleges breach of contract related to the incorporation of ForeverGreen Pty Ltd, an Australian company, and seeks AU$30,100 in damages for costs of incorporating such entity.  Management believes the claim is baseless and intends to vigorously defend against the claim.  Legal counsel is reviewing the matter.  


NOTE 7 – STOCKHOLDERS’ EQUITY


On February 27, 2007 the Company issued an aggregate of 1,928,186 shares of restricted common stock in satisfaction of $4,010,626 related party notes payable and accrued interest balances. The remaining balance of $11,078 in related party interest was forgiven by the shareholders. In accordance with APB 26, “Early Extinguishment of Debt”, paragraph 20, the forgiveness of the interest has been recorded in the Statements of Stockholders’ Equity.


During February 2007, the Company issued 67,500 shares of restricted common stock to a vendor for services rendered.


On April 28, 2008 the Company issued 25,127 shares valued at $1.42 per share of restricted common stock to vendor for services rendered. On November 25, 2008 the Company issued an additional 63,000 shares valued at $.60 per share of restricted common stock to the same vendor for additional services rendered.




36





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 8 – ALLOCATION OF PURCHASE CONSIDERATION IN BUSINESS COMBINATIONS


The Company accounts for its investments in its subsidiaries using the equity method of accounting.  The excess of the consideration paid for subsidiaries over the fair value of acquired tangible assets less the fair value of acquired liabilities is assigned to intangible assets and goodwill.  On January 15, 2006 the Company purchased a 23% share of ForeverGreen International LLC, by issuing 1,266,667 post split shares of common stock at $1.80 per share for a value of $2,280,000.  On December 31, 2007 the Company purchased the remaining 77% of ForeverGreen International LLC, by issuing 5,240,549 post split shares at $1.75 per share for a value of $9,170,961.   The


Customer Base intangible was calculated using a percentage of the gross margin of ForeverGreen International LLC.  The Company will amortize the customer base over a period of ten years.  The 23% ownership in ForeverGreen International LLC, for the year resulted in an entry to other expense in the amount of $53,933.  The Company obtained an independent third party valuation to ascertain the amount to allocate to identifiable intangible assets, and the useful lives of those assets.  The useful life of an intangible asset that is being amortized is evaluated each reporting period as to whether events and circumstances warrant a revision to the remaining period of amortization. In accordance with SFAS 142, goodwill is not amortized and is tested for impairment on an annual basis.  The implied fair value of goodwill is determined by allocating fair value to all assets and liabilities acquired; the excess of the price paid over the amounts assigned to assets and liabilities acquired is the implied fair value of goodwill.


NOTE 9 - RELATED PARTY TRANSACTIONS


On February 23, 2007 ForeverGreen Worldwide Corporation issued an aggregate of 1,928,186 shares of restricted common stock to convert outstanding debt and interest of $4,010,626. ForeverGreen Worldwide Corporation issued 705,529 shares to satisfy a promissory note and interest totaling $1,467,500 held by a related party.  They also issued 1,126,503 shares to a shareholder in consideration for a promissory note and interest totaling $2,343,126.  They also issued 96,154 shares to an individual in consideration for debt and interest totaling $200,000. In 2007, a total of $11,078 interest was recorded as forgiveness of debt in accordance with APB 26, “Early Extinguishment of Debt”, paragraph 20, the forgiveness of the interest has been recorded in the statements of stockholders equity.


The Company borrowed $50,000 from a director on Feb 28, 2008 which was paid back on March 3, 2008. The Company borrowed $150,000 from the director on March 7, 2008 secured by a note that carries interest at 8% per annum and was payable on May 7, 2008.   On July 1, 2008 the Company amended this note from the director to postpone the due date to November 5, 2008 and borrowed an additional $100,000 on that note. On November 10, 2008 the Company executed a third amendment of this note from the director to postpone the due date with a new payment schedule and



37





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 9 - RELATED PARTY TRANSACTIONS - continued


borrowed an additional $200,000. On December 10, 2008 the Company did a fourth amendment of this note from the director that increased interest to 10% and postponed the payment schedule through September 2009 and borrowed an additional $150,000. Throughout the year $115,000 in payments were made on these notes.  The Company borrowed $75,000 from the director on August 11, 2008 secured by a note that carries interest at 9% per annum that is payable on October 31, 2008 which was paid off according to the terms of the note.   The Company borrowed $62,500 from the board member and another $62,500 from a different director on June 2, 2008 secured by notes that carry interest at 9% per annum and are payable on March 31, 2009.  At December 31, 2008 accrued interest on these notes amounted to $15,427.   The unpaid balance due at December 31, 2008 for all the above notes is $610,000.


During 2008 and 2007, directors loaned the Company $810,000 and $0, respectively.  The balance payable to the shareholders at December 31, 2008 and 2007 was $610,000 and $0, respectively.  These notes had accrued interest at a rates ranging from 8% to 10% that totaled $26,545 and $0 for the periods ended December 31, 2008 and 2007.


NOTE 10 – INVENTORY


Inventories for December 31, 2008 were classified as follows:


 

2008

 

2007

Raw Materials

 $         865,376 

 

 $         652,697 

Finished Goods

 1,128,313 

 

 402,122 

     Total Inventory

 1,993,689 

 

 1,054,819 

Less Reserve for Obsolete Inventory

 (126,448)

 

 (108,492)

     Total Inventory (net of  reserve)

 $      1,867,241 

 

 $         946,327 


NOTE 11 - NEW TECHNICAL PRONOUNCEMENTS


SFAS NO. 159, “THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES “


In February 2007, the FASB issued FAS  159, The Fair Value Option for Financial Assets and Financial Liabilities, or FAS 159. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. FAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the fiscal year beginning on or before November 15, 2007, provided the provisions of FAS 157 are applied. We will adopt FAS 159 on January 1, 2008. We are evaluating FAS 159 and have not yet



38





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 11 - NEW TECHNICAL PRONOUNCEMENTS - continued


determined the impact the adoption, if any, will have on our consolidated financial statements.


SFAS NO. 141(R),  “BUSINESS COMBINATIONS” 


In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.  SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business


combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, the Company will adopt this standard in fiscal 2009.  The Company is currently evaluating the potential impact of the adoption of SFAS 141(R) on its consolidated financial statements.


SFAS NO. 160, “NONCONTROLLING INTEREST IN CONSOLIDATING FINANCIAL STATEMENTS”


In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders.  SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively.  SFAS 160 is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2009.  The Company is currently evaluating the potential impact of the adoption of SFAS 160 on its consolidated financial statements.


SFAS NO. 161, “DISCLOSURE ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES”


In March 2008, FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133" ("SFAS 161"), which requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. The statement requires disclosure about (a) why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and its related



39





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 11 - NEW TECHNICAL PRONOUNCEMENTS - continued


interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. SFAS 161 is not expected to have a material effect on the Company's financial statements.


SFAS NO. 162 “THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES”


In May 2008, FASB issued SFAS No. 162 "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of generally accepted accounting principles in the United States. SFAS 162 is effective sixty days following the SEC's approval of PCAOB amendments to AU


Section 411, "The Meaning of 'Present fairly in conformity with generally accepted accounting principles'". The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its financial statements.


SFAS NO. 163  “Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60”


On May 23, 2008, FASB issued SFAS 163, "Accounting for Financial Guarantee Insurance Contracts" ("SFAS 163"). The new standard clarifies how SFAS 60, "Accounting and Reporting by Insurance Enterprises", applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts. SFAS 163 is not expected to have a material effect on the Company's financial statements.


NOTE 12 – GOING CONCERN


The accompanying financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  As reported in the accompanying consolidated financial statements the Company has a working capital deficit of $1,973,938, a net operating loss of $1,048,301, and accumulated deficit of $18,353,031 (excluding other comprehensive loss) at December 31, 2008, negative cash flows from operations, and has experienced periodic cash flow difficulties.  These factors combined, raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans to address and alleviate these concerns are as follows:  


The Company is reviewing the cost structure and has implemented cost saving measures that have begun to reduce overhead which have included staff reductions and



40





FOREVERGREEN WORLDWIDE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 and 2007


NOTE 12 – GOING CONCERN - continued


salary adjustments.  The Company is negotiating with its key vendors and is gaining cooperation and concessions.   The Company has introduced our own in house logistic, sales and distributor software system that will reduce computer costs going forward.   New products have been and will continue to be introduced to bolster Distributor recruiting and sales, and management will make improvements to the marketing plan to enhance the success that is developed.  The Company intends to seek debt and equity financing as necessary.


The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations.  The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.


NOTE 13 – SUBSEQUENT EVENTS


The Company borrowed an additional $60,000 from a director and another $60,000 from a different director on January 28, 2009 secured by notes that carry interest at 9% per annum and are payable on July 31, 2009.



41





ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE


We have not had a change in, or disagreement with our independent registered public accounting firm for the past two fiscal years.


ITEM 9A(T).  CONTROLS AND PROCEDURES


Disclosure 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 and concluded that our disclosure controls and procedures were effective.


Management’s Annual Report on Internal Control over Financial Reporting


Our management is responsible to establish and maintain adequate internal control over financial reporting.   Our Chief Executive Officer and Chief Financial Officer are responsible to design or supervise a process that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The policies and procedures include:


·

maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of  assets,

·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors, and

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.


For the year ended December 31, 2008, management has relied on the Committee of Sponsoring Organizations of the Treadway Commission (COSO), “Internal Control - Integrated Framework,” issued in 1992, to evaluate the effectiveness of our internal control over financial reporting.  Based upon that framework, management has determined that our internal control over financial reporting is effective.


Our management determined that there were no changes made in our internal controls over financial reporting during the fourth quarter of 2008 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.


This annual report does not include an attestation report of our registered public accounting firm regarding management’s report on internal control over financial reporting.  The management’s report was not subject to attestation by the our registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only the management’s report in this annual report.



42





ITEM 9B.  OTHER INFORMATION


None.


PART III


ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


Directors and Executive Officers


Our directors and executive officers and their respective ages and positions and biographical information are presented below.  Our bylaws require three directors who serve until our next annual meeting or until each is succeeded by another qualified director.  Our executive officers are chosen by our board of directors and serve at its discretion.  As of the date of this filing, we have a vacancy in the office of corporate secretary.  There are no existing family relationships between or among any of our executive officers or directors.


Name

Age

Position Held

Term of Director

Ronald Williams

47

Chairman of the Board, President and CEO

From January 2006 until our next annual meeting

George H. Brimhall II

67

Director

From April 2008 until our next annual meeting

John S. Clayton

44

Director

From April 2008 until our next annual meeting

Paul T. Frampton

44

CFO and Treasurer

 


Ronald Williams – Mr. Williams was appointed as our President and CEO in January 2006.  Mr. Williams was an original founder of Whole Living in 1998.  He previously served as Director, President and CEO of Whole Living from November 1998 to October 2002.  From October 2002 to October 2003 he was bound by a non-compete agreement and was not employed.  From November 2003 through May 2004 he formed ForeverGreen International, LLC and he launched ForeverGreen International, LLC operations in May 2004.  He started in the network marketing industry in the 1980's as a distributor for NuSkin International and learned the trade and business with them.  He then went on to Neways International from 1992 to 1997 and became its Vice-president of Sales and Marketing.  During 1997 and 1998 he was a Senior Executive at Young Living Essential Oils.


George H. Brimhall II – Mr. Brimhall was appointed as a Director on April 25, 2008.  Since 1974 he has been self-employed with GNS Development Corporation with a business plan focused on commercial recreational development.


John S.Clayton – Mr. Clayton was appointed as a Director on April 24, 2008.  Since 2002 he has been self-employed with First Equity Holdings Corp., an investment company.


Paul T. Frampton – On July 31, 2007, our board of directors appointed Mr. Frampton to serve as our Chief Financial Officer and Treasurer.  He has over fifteen years of senior management experience, primarily focused in the accounting field for the network marketing industry.  He was employed as a



43





Certified Public Accountant for Grant Thornton for four years and has experience auditing network marketing companies.  From October 2005 through June 2007 he was employed as our Vice President of International Sales.  He has been primarily responsible for the expansion of our operations and sales in Australia, New Zealand, Singapore, Japan and the European Union markets – UK, Germany and the Netherlands.  From May 1994 to September 2005 he was employed by Unicity International, Inc. and one of its predecessor companies, Enrich International, Inc.  He started there as the Director of International Finance and Tax Manager and was promoted to Senior Managing Director of Malaysia/Southeast Asia in 2000, then he was appointed as General Manager of Canada, and he served as Vice President of the America’s.  Mr. Frampton received a Master of Accountancy and a Bachelor of Sciences from Brigham Young University.  


Compliance with Section 16(a) of the Exchange Act


Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons who own more than ten percent of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock.  Officers, directors and ten-percent or greater beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.  Based upon a review of those forms and representations regarding the need for filing Forms 5, we believe that all forms were filed timely for the year ended December 31, 2008.


Code of Ethics


We have not adopted a code of ethics for our principal executive and financial officers.  Management has determined that a code of ethics is appropriate for the company and intends to establish one in 2009.  In the meantime, our management intends to continue to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations.  


Committees


We do not currently have a standing nominating or audit committee; accordingly, we do not have an audit committee financial expert serving on an audit committee.  Management has determined that it is appropriate for the company to have an audit committee with an audit committee financial expert and intends to establish an audit committee in 2009.



ITEM 11.  EXECUTIVE COMPENSATION


Executive Compensation


The following tables show the compensation paid to our named executive officers in all capacities during the years ended December 31, 2008 and 2007.  


SUMMARY COMPENSATION TABLE

Name and

Principal Position


Year


Salary

All Other Compensation


Total

Ronald Williams

CEO

2008

$   163,750

$ 364,185 (1)

$    527,935

2007

195,000

  367,421 (2)

562,421



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SUMMARY COMPENSATION TABLE - CONTINUED

Name and

Principal Position


Year


Salary

All Other Compensation


Total

Paul T. Frampton

CFO

2008

$  115,525

–

$    115,525

2007

132,251

 –

 132,251

Chris Patterson

Former COO & Secretary

2008

$  117,846

–

$    117,846

2007

 135,516

–

135,516


(1)

Represent $364,121 from commissions earned through the ForeverGreen Compensation Plan.

(2)

Represent $364,121 from commissions earned through the ForeverGreen Compensation Plan and $3,300 for company provided vehicles.


We have not entered into any employment contracts with the above named executive officers, except Mr. Frampton.   Mr. Frampton had an employment agreement with ForeverGreen Worldwide, dated March 12, 2007, when he was appointed as CFO.  Under the agreement Mr. Frampton is an at-will salary employee.  He receives a salary of $128,500 per year and for a period of four years we agreed to grant him 27,536 shares of our common stock for each full year of employment.  In order to receive the share compensation, Mr. Frampton must remain an employee in good standing and ForeverGreen Worldwide must be profitable as a company.


We do not offer a retirement benefit plan to our executive officers, nor have we entered into any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to a named executive officer at or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the company or a change in the named executive officer’s responsibilities following a change in control.


Outstanding Equity Awards


The named executive officers did not have any outstanding equity awards at December 31, 2008.


Compensation of Directors


We do not have any standard arrangement for compensation of our directors for any services provided as director, including services for committee participation or for special assignments.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


Securities Authorized under Equity Compensation Plans


We did not have any equity compensation plans in effect at December 31, 2008.



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Beneficial Owners


The following tables set forth the beneficial ownership of our management.  We are unaware of any other person or group who beneficially owns more than 5% of our outstanding common stock.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with respect to the shares of common stock shown as beneficially owned by them.  The percentage of beneficial ownership is based upon 13,992,141 shares of common stock outstanding as of March 2, 2009.


MANAGEMENT


Name of beneficial owner

Amount and nature

of beneficial ownership

Percent

of class

Ronald Williams

2,149,395

15.4

Paul T. Frampton

20,000

Less than 1%

George H. Brimhall

6,327,144 (1)

45.2

John S. Clayton

1,574,648 (2)

11.3

All executive officers and

directors as a group    

10,071,187

72.0


(1)

Represents 1,796,439 shares held by Mr. Brimhall and his spouse, 1,905,965 shares held by GBB Trust and 2,624,740 shares held in a children’s trust.

(2)

Represents 407,022 shares held by Mr. Clayton and 1,167,626 shares held by his company First Equity Holdings Corp.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

AND DIRECTOR INDEPENDENCE


Related Transactions


The following information summarizes transactions we have either engaged for the past two fiscal years, or propose to engage in, involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons.  These transactions were negotiated between related parties without “arms length” bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons.


MLS  Agreements


On March 28, 2008 ForeverGreen International entered into an exclusive world-wide marketing agreement with MLS that provided that MLS would supply ForeverGreen International with processed marine phytoplankton for a term of five years.  Mr. Brimhall, our director and beneficial owner of 45.2% of our outstanding common stock is a 40% member of MLS.  Mr. Clayton, our director and an officer of First Equity Holdings Corp., a holder of 8.3% of our outstanding common stock, is a 60% member of MLS.  Due to 2008 economic downturn the quotas in the agreement were not met and therefore the



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exclusivity between MLS and ForeverGreen International has ended; however, the relationship continues to be strong and discussions continue as to the nature of a future exclusivity.  We purchased $1,047,900 of this product in 2008 and anticipate that we will purchase $1,200,000 in 2009.


On April 23, 2008, the Company’s wholly-owned subsidiary, ForeverGreen International, LLC, entered into an exclusive sales and marketing agreement with MLS in which ForeverGreen International granted to MLS an exclusive right to market and sell and offer for sale in retail stores throughout the world certain formulas ForeverGreen International owns for personal care products.  MLS agreed to pay thirty-five percent of the ingredient costs of the products to ForeverGreen International within thirty days after the end of each month.  The initial term of the exclusive right is for a five year term, expiring March 31, 2013, with an option to renew for an additional five year term, subject to certain conditions.  During the year ended December 31, 2008 we recognized $0 from this agreement.


Other Related Party Transactions


We have entered into a series of transactions with First Equity Holdings Corp. (“First Equity”).  The transactions are as follows:

·

On February 23, 2007, we issued 1,126,503 shares to First Equity in consideration for a promissory note and interest totaling $2,343,126.  

·

On March 7, 2008, we borrowed $150,000 from First Equity, with 8% interest per annum and payable on May 7, 2008.  

·

On July 1, 2008, the First Equity agreed to amend the March note to postpone the due date to November 5, 2008 and we borrowed an additional $100,000.  

·

On August 11, 2008, we borrowed $75,000 from First Equity with 9% interest, payable on October 31, 2008, which was paid-off according to the terms of that note.

·

On November 10, 2008, ForeverGreen executed a revised note to postpone the due date of the March note until February 2009, and we borrowed an additional $200,000, at 8% interest.

·

On December 10, 2008, the parties executed a revised promissory note in the amount of  485,000, representing the prior notes from March, July and November, reduced by payments of $115,000 made by ForeverGreen during 2008.  With this notes we borrowed an additional $150,000.  The interest rate under this note is 10% and the due date is September 2009.

·

On January 28, 2009, we borrowed $60,000 from First Equity, at 9% interest per annum and payable on July 31, 2009.


On February 28, 2008, we borrowed $50,000 from Mr. Clayton and the note carried 8% interest.  The short term loan was repaid on March 3, 2008.   On June 2, 2008 we borrowed $62,500 from Mr. Clayton, with 9% interest, payable on March 31, 2009.


On February 23, 2007, we issued 705,529 shares to Mr. Brimhall in consideration for a promissory note and interest totaling $1,467,500.  On June 2, 2008 we borrowed $62,500 from Mr. Brimhall, with 9% interest per annum and payable March 31, 2009.  On January 28, 2009, we borrowed an additional $60,000 from Mr. Brimhall at 9% interest, payable on July 31, 2009.


Director Independence


We do not have an independent director, as defined under Nasdaq Stock Market Rule 4200(a)(15), serving on our board.





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ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES


Accountant Fees


The following table presents the aggregate fees billed for each of the last two fiscal years by our independent registered public accounting firm, Chisholm, Bierwolf, Nilson & Morrill, LLC, Certified Public Accountants, in connection with the audit of our financial statements and other professional services rendered by that accounting firm.  


 

   2007

   2008  

Audit fees

$   58,876

$   59,685

Audit-related fees

0

0

Tax fees

0

0

All other fees

$          0

$          0


Audit fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial statements included in quarterly reports, along with services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements.  Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.  


Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning.  All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other categories.


Pre-approval Policies


We do not have a standing audit committee currently serving and as a result our board of directors performs the duties of an audit committee.  Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an accounting firm before the accounting firm renders audit and non-audit services.  We do not rely on pre-approval policies and procedures.


PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES


Exhibits


No.

Description

3.1

Articles of incorporation, as revised (Incorporated by reference to exhibit 3.1 for Form 8-K, as amended, filed December 18, 2006)

3.2

Bylaws, as revised (Incorporated by reference to exhibit 3.2 for Form 8-K, as amended, filed December 18, 2006)

10.1

Lease agreement between Whole Living and C & R Fiveplex, LLC, dated April 7, 2006



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(Incorporated by reference to exhibit 10.3 to Form 10-QSB, filed November 14, 2006)

10.2

Paul Frampton Employment Agreement, dated March 1, 2007 (Incorporated by reference to exhibit 10.3 of Form 10-QSB, filed August 14, 2007)

10.3

Agreement between ForeverGreen International LLC and Marine Life Sciences LLC, dated March 28, 2008 (Incorporated by reference to exhibit 10.4 of Form 10-K, filed April 7, 2008)

10.4

Personal Care Exclusive Sales and Marketing Agreement between ForeverGreen International and Marine Life Sciences, LLC, dated April 23, 2008 (Incorporated by reference to exhibit 10.1 to Form 8-K filed April 29, 2008)

10.5

Form of Promissory Note

21.1

Subsidiaries of ForeverGreen (Incorporated by reference to exhibit 21.1 to Form 10-KSB, filed April 17, 2007)

31.1

Chief Executive Officer Certification

31.2

Chief Financial Officer Certification

32.1

Section 1350 Certification




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SIGNATURES


Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized


FOREVERGREEN WORLDWIDE CORPORATION



By:  /s/ Ronald K. Williams

Ronald K. Williams, President




Date:  April 14, 2009



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.




/s/ Ronald K. Williams

Ronald K. Williams

Chairman of the Board

President

Chief Executive Officer



Date:   April 14, 2009




/s/ Paul T. Frampton

Paul T. Frampton

Chief Financial Officer

Treasurer




Date:   April 14, 2009



 


/s/ John S. Clayton

John S. Clayton

Director



Date:   April 14, 2009




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