UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
[ ]
TRANSITION REPORT PURSUANT TO 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 Act: None
Securities registered under Section 12(g) of the 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 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| 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 5,043,588 shares of the registrant’s voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold ($0.14) on the last business day of its most recently completed second fiscal quarter (June 29, 2012) was approximately $706,102.
The number of shares outstanding of the registrant’s common stock as of April 9, 2013 was 15,212,141.
Documents incorporated by reference: None
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TABLE OF CONTENTS
PART I
Item 1. Business
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Item 1A. Risk Factors
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Item 2. Properties
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Item 3. Legal Proceedings
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Item 4. Mine Safety Disclosure
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Item 6. Selected Financial Data
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data
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Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A. Controls and Procedures
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Item 9B. Other Information
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
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Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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Item 14. Principal Accounting Fees and Services
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PART IV
Item 15. Exhibits, Financial Statement Schedules
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Signatures
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In this annual report references to “ForeverGreen,” “the Company,” “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.
On January 13, 2006, Whole Living acquired a 23% interest in ForeverGreen International, LLC (“ForeverGreen International”). 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 and acquired the remaining 77% interest of ForeverGreen International. 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 that 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 a wide array of whole foods, nutritional supplements, personal care products and essential oils.
We believe that consuming healthy and natural 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 broad product line of delicious whole foods that can be eaten for every meal, instead of the processed, fatty and preservative-laden synthetic meals prevalent in society today. Many competing companies provide capsules, powders, pills or tablets as nutritional supplements, but we believe these 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-laden and synthetic products in the marketplace that may potentially negatively impact our health.
We remain committed to developing and providing high quality products that are innovative, healthy, efficacious,
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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.
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 corporate, along with 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 each day. We believe you can transform the world by transforming people. We call it “Standing in the Drift”. Standing in the Drift means doing everything a person can outside of themselves to help lessen the impact of the adversities our world faces. Each ForeverGreen Member is encouraged to take a stand in their own community to make a difference. ForeverGreen has corporately created and/or supported a national school nutrition program called The Power Lunch Program.
Principal Products
We intend to continue our emphasis as a total lifestyle company focused on bringing to our domestic and international Members and customers our exclusive products. In November 2012, we launched a new brand called FG Xpress featuring the product Power Strips which allows us to broaden our business reach to more countries around the world. FGXpress has a simple business practice that allows everyone to begin their business for as low as $60 which meets the current economic status for many countries around the world. Power Strips are a fusion of modern energy technologies and ancient herbs. We believe everyone needs energy, while many need relief. Power Strips feature a state-of-the-art, water-soluble adhesive technology, and ForeverGreen’s exclusive marine phytoplankton. Power Strips are topical patches, which contain Korean Red Ginseng and other herbal formulas. Using key technologies combined with ancient herbal formulas, customers are experiencing positive results.
In an effort to simplify the products available by ForeverGreen the products are all now branded under the philosophy of Restoration Biology, branded as RESTORATION90. We define RESTORATION90 as the simple concept that the body doesn’t know its chronological age, but only acts its biological age. We believe that if the body is given the proper raw materials the body can work miracles and the body can restore itself to a more youthful biological age. ForeverGreen International specializes in providing high quality raw materials. In November 2012, we have also streamlined our product offering and retired many items from our catalogue to strengthen our inventory positions. We will bring back some popular items during certain seasons to help boost the sales during summer and winter months.
ForeverGreen’s many products that provide excellent raw materials include:
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The ecofriendly VERSATIVA products including Inspirin, Hemp Pulse and Hemphoria.
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FrequenSea, A.I.M. Transfer Factor, Pulse-8, a heart healthy product that features L-arginine, ZMP 400, and Azul. All of these products contain marine phytoplankton as a key ingredient.
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The TRUessence Apothecary and Essential Oils includes all of our essential oils, personal care and household products.
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The raw promise healthy weight management products and Powercode e2L.
Our best-selling product is FrequenSea, a whole-food beverage consisting of a proprietary blend of marine phytoplankton, ionic sea minerals, frankincense, rose, ginger and aloe vera in a base of blueberry, cranberry and lime juice concentrate. Many of FrequenSea’s ingredients are processed through a patent-pending process known as Aqueous Molecular Partitioning (AMP), which, without the use of chemicals or heat, renders the ingredients water-soluble. FrequenSea is sold as a single bottle, in individual single-serving packets or even in four-bottle packs. The marine phytoplankton in FrequenSea contains more than 200 different sea algae that are all processed through proprietary and patent-pending harvesting processes at a unique $30 million sea farm in the Pacific Northwest. A daily recommended amount of FrequenSea provides more than 66 vitamins and minerals and includes amino acids in a convenient bio-available form for easy ingestion and quick absorption. FrequenSea sales represent
approximately 60 percent of our total product sales.
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Azul is a rich-in-antioxidant, delicious powdered blend of 24 raw whole food and super fruit ingredients and probiotics that are naturally dried and blended to preserve their natural integrity. A.I.M. Transfer Factor capsules contain a proprietary blend of raw materials that we believe optimize immune, metabolic, and antioxidant support. ZMP 400 features zeolite, a volcanic mineral known for attracting and removing harmful metals, chemicals and toxins from the body, naturally activated in 400 milligrams of our exclusive, mineral-rich, marine phytoplankton.
Pulse-8 is a product that was introduced in 2009 that contains a specific ratio of L-Arginine with marine phytoplankton that is designed to support heart health.
Our whole food offerings consist of a variety of healthy, natural food products that are made onsite in our whole-food manufacturing facility. Versativa Pulse™ based with hemp seed, consists of 17 different nuts, seeds, fruits, grains and other whole foods. Pulse™ is offered in various flavors, either “loose” in bags or in snack bars, and may be used as a snack or a meal replacement. Pulse has natural unprocessed proteins, fibers, carbohydrates and other “AMPed” nutrients required for a healthy diet. The new additional to our whole food snack line are our dehydrated Kale chips, which combine the goodness and nutrition of cashews, onion, offering a unique and satisfying crunchy and healthy alternative to regular potato chips.
Additionally, ForeverGreen offers our Members and customers a variety of pure, therapeutic-grade wild crafted essential oil singles and blends, sourced from all around the world. We believe there are many preventative and pleasurable ways to use essential oils topically, aromatically, as well as therapeutically in personal care products.
We believe the plant kingdom offers an abundance of our best medicines. Utilizing the patent-pending and, exclusive to ForeverGreen, Aqueous Molecular Partitioning (AMP) process, HYDRessence Plant Life Concentrates contain the nutrients of the entire plant in three effective, delicious, and highly concentrated liquid products that can be added to water or juice for an enhanced nutritious and pH-balancing experience.
We believe that everything you put on your skin will be absorbed into the bloodstream. With the potentially-harmful and cheap synthetic ingredients in many personal care products today, ForeverGreen’s Members and customers have access to healthy, natural personal care alternatives. Our personal care products include a variety of products to suit your personal care needs, from tooth powder to chemical-free house cleaners, to luxurious bath salts. Some highlighted products from this line include a lavender-based all-purpose body wash called Silk, Quench, a natural moisturizer, Touch antibacterial foaming hand soap and Protect hand sanitizer.
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 individually wrapped Teasers, as well as in 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 meal replacement products Thunder™ and FIXX, as well as in many of the whole-food bars offered by the Smart Food line. Thunder™ is a meal replacement drink powder formulated to provide 28% of the protein your body needs in an apple fiber base with natural sweeteners and antioxidants for a healthy, yet delicious experience.
Product Guarantees
Our 100% customer satisfaction policy allows product returns for all our products that are resalable, subject to a ten percent 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 2% of sales for the past two fiscal years. We also maintain an insurance policy for product liability claims of $1,000,000 USD per claim and $2,000,000.00 USD annual aggregate limit.
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Product Development
We continue our commitment to providing innovative, natural, 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 and easy to sell. We believe the effectiveness of our products is measurable in their nutrition and health benefits.
Raw Materials and Suppliers
Throughout 2012, 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 marketplace. We maintain good relationships with our key vendors to ensure a continuous supply of our key products. During 2012, we relied on two principal suppliers for our FrequenSea™ product. Marine Life Sciences provided the marine phytoplankton, and Primal Essence supplied the “AMP” technology used to process additional ingredients that accompany the marine phytoplankton in FrequenSea™. Although there are other providers in the world who claim to produce marine phytoplankton, we consider Marine Life Sciences’ product to be the very best quality, from the most ideal geographical location, with the very best harvesting and extraction methods, which makes for the best nutritionally superior and unique marine phytoplankton offering.
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, Ltd. In 2008 ForeverGreen International entered into an exclusive worldwide marketing agreement with MLS. Under the agreement, ForeverGreen International agreed to purchase an annual quota of marine phytoplankton.
Due to economic conditions in 2008, ForeverGreen International was unable to meet the annual quota requirements for the exclusive rights of the agreement with MLS. Therefore, an ongoing review of the quotas and market conditions is 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.
Our essential oil products are formulated, processed and sourced with key vendors directly by ForeverGreen. We strive 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 delivery of quality essential oils.
We maintain our in-house manufacturing capabilities for our whole foods and VERSATIVA 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 marketplace. We maintain our product inventory using a system in which we ensure an appropriate inventory based on a product’s anticipated movement.
Markets
We provide exclusive, innovative nutritional and whole-food products that are eaten or consumed to achieve healthy results within 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 and products we offer are experiencing favorable growth.
We offer our products online and each Member Kit purchased also includes a virtual online website, known as a Web Office, designed for Members, where they can manage, monitor, and operate their businesses successfully, anytime. This site is password protected and exclusive to Members with access to Company news, product tracking, product information, and a library of company documents geared to help them with their business, such as
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frequently asked questions and various forms and references. In addition, we offer a replicated website model to our Members allowing them to obtain an immediate online presence and personal URL for their business, which they can use as a place to direct potential new Members to learn about the Company and sign up as Members. 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 customer service and a “contact me” function that allows anyone visiting the site to contact, via email, the Member directly
Distribution Network
Our main distribution center is located in Orem, Utah near the main corporate office. We also have a fulfillment center in Auckland, New Zealand that improves our product delivery with cost savings and efficiencies for our Australian and New Zealand markets. In addition, we have ForeverGreen offices in Costa Rica, Colombia and Chile, Singapore, Japan and Mexico, but are using a third party in the Netherlands to service our Members in the European Union, and a third-party provider to distribute our products throughout Mexico. We buy raw materials from third-party suppliers, manufacture our whole-food 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, Spain, the Netherlands, Germany, Argentina, Ecuador, Bolivia, Peru, Dominican Republic and other South American countries.
Members and their customers pay for products prior to shipment, incurring minimal accounts receivable for us. Members and customers have access to place orders online through their ForeverGreen websites, by phone through a growing call center, or even by facsimile. Typically, Members and customers pay for their product orders by credit card. Less than 10% of our sales are paid for with cash.
Enrollment and Sponsorship
Enrollment and sponsorship activities are encouraged, but not required of our Members. Successful Members will both enroll and sponsor new Members. The sponsoring of new distributors creates multiple levels in a network marketing structure. Individuals that a distributor sponsors are referred to as “downline,” or “sponsored” distributors. If downline distributors also sponsor new distributors, they create additional levels in the structure, but their downline distributors remain in the same downline network as their original sponsoring distributor.
Enrollment and sponsorship activities are encouraged, but not required of our Members. Successful Members will both enroll and sponsor new Members, who are known as downline members of that Member. Members assist their downline Members to successfully do the same. While we provide product and company brochures, magazines, websites, DVDs and other sales and marketing materials, our greatest success and retention comes from Members who are accountable and responsible for educating and training new Members with respect to our products, the ForeverGreen Money Tree Compensation Plan, and how to build and maintain a successful business.
Generally, Members who are new to network marketing invite friends, family members, and acquaintances to attend conference calls, review websites and marketing materials, 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 experiencing our products and desiring to enjoy the wholesale pricing offered to our Members. 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.
Turnover is a typical aspect of the direct selling or network marketing 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.
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Weekly conference calls, the materials included in the Member Kit, training events, corporate events and online support offerings help to provide a duplicable business model that help new Members successfully begin their independent contractor business.
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 the Company 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 online digital Member Kit which includes all the business building websites, multi-language web office and online library. 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 of a certain amount of volume are required.
Our Member Agreement and Policies and Procedures, which outline the scope of permissible marketing activities, and information on the ForeverGreen compensation plan are posted on our website. 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 the company. 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.
Compensation Plan
We rely on a network marketing system for the distribution of our products through our Members and customers. Our revenue depends directly upon the sales efforts of our Members around the world. 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, depending on their market, and the sales by our Members have the potential to earn the Member commissions. Individuals who join as Members may enroll and sponsor other Members, and may further earn commissions from the resale of products. The ForeverGreen Compensation Plan provides many different ways to earn income for our Members, from FastStart earnings, to personal rebates on Member purchases, to downline commissions and leadership pools.
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ForeverGreen’s People’s Plan is very simple to learn, which in turn means it is simple to teach and duplicate with our current Members and new Members. Part of the simplicity of the new People’s Plan is it incorporates the People’s Pack. The purchase of this pack by our Members allows each Member to maximize earnings via retail market up, commissions and bonuses available as they and their downline organization also purchase and resale the People’s Pack or any other ForeverGreen product.
Each company product carries a specified number of commissionable volume, or “points”. Commissions or bonuses 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 weekly and monthly. 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, both of which expand their businesses, the Member receives more commissions from the expanded sales volume of the downline. A Member receives monthly commission bonuses by remaining in good standing with the Company and by generating a minimum of 50 points of Personal Volume (PV).
We believe the ForeverGreen “People’s Plan” 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 if they follow the value based purchase of FrequenSea or Azul with a product categorized as A, B or C, or other value package product combinations. 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.
A Member can earn retail profits for the difference between sales price and the wholesale price of the product. Beginning April 2011 a Member can earn a 20% Fast Start Bonus on a new enrollee’s first purchase. This new feature still works with the current month end and can earn 5%, 10% or 20% on that purchase and other first level or generational volume. Members earn first level 5% payout at the rank of Apprentice or earn 10% or 20% at the rank of Learning or higher on first generation monthly personal volume purchases via their distributorship. At MVP rank there is a 2% Bonus pool and at higher ranks there is an 8% leadership pools.
Our Members progress though the “People’s Plan” compensation plan with recognition and ranks that show their standing and leadership within the Company. A Member must generate Personal Volume (PV) with individual purchases or customer purchases. A Member’s rank may vary from month to month based upon the increase and decrease in their monthly sales volume. The new weekly “Fast Start Bonus” feature allows for even the lowest member status, requiring minimal volume qualifications, to earn compensation as they grow their businesses on a weekly basis. The rank of Apprentice is indicative of the status of the new Member’s first rank in the ForeverGreen business, which is achieved by creating a total of 100 points of Personal Enrolled Member Volume (PEMV) and 50 points PV. PEMV is volume points purchased by those member personal introduced on the Members first level. The progressive ranks include: Apprentice, Learning, Determined, Successful, Leader, Team Leader, MVP, Hall of Fame, Free and Rainmaker. Each rank qualifies for varying percentages paid monthly upon volume purchases per downline generations. The rank of MVP also earns a 2% pool shares with all MVP’s. The ranks of Hall of Fame, Free and Rainmaker also share a 6% pool with all Members in those ranks.
There are many competitor companies that offer unilevel plans, FastStart bonuses, and leadership pools. However, we believe that our approach and percentage of commission payout, combined with our unique and specific product focus and Company culture and growth, presents a far superior opportunity that that offered by competitor plans. This represents a unique, competitive advantage for our Members. The personal rewards for our Members generate incentive to attract additional 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, the Company continues to grow. We continue to look at ways to improve our compensation plan in the future, as we recognize the importance of staying in touch with economic changes within
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the marketplace. In March of 2012 we updated our compensation plan to pay 9 generation along with a 5 level fast start payout.
With the new branding of FG Xpress Power Strips launched in November 2012, we also introduced a companion compensation plan to support this business and reward people who purchase and build their FGX business. A FGX Member could begin their commissions earning by introducing people to their FGX business. When their personally invited person makes the first purchase, the member can earn a one-time 25% Fast Start Bonus. We wanted to make sure everyone knew what to do to achieve success in this business, therefore we introduced the X-Tribe concept. X-Tribe is an easy road map to success in the FGX business. Each person begins building their X-Tribe by enrolling 4 people into their business. They then teach each person to do the same. When a person has 4 personally enrolled members and with 1000 points in their X-Tribe group, they can earn $100 or $200 depending on their personal contribution. The X-Tribe is the way to keep the beginner engaged. We believe when everyone is following the same actions the result can be impressive.
FG Xpress also promotes team building. As people work as a team, they can get rewarded by their team actions. The Company pays 8 or 12% of their small leg organization’s purchases weekly. On top of the Team Bonus, leaders also can receive rewards from helping and leading their team. The Company pays a Matching Bonus up to 100% and 4 levels to leaders who achieve various ranks.
We also offer lucrative one-time cash bonuses to people who reach new ranks for the first time. These cash bonuses range from $500 to $25,000 depending on the level of their success.
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. To gain market and industry attention and advantage, we emphasize our Company culture, the exclusive access we have to certain unique 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, natural products rather than pills and supplements. We take pride in our commitment to offering all natural, clean, and/or organic products.
We believe our health beverage, FrequenSea™, is the first beverage or “juice product” to provide the benefits of marine phytoplankton in a proprietary whole-food tonic blend with ionic sea minerals, rose, ginger, aloe vera, frankincense, and other quality ingredients in a delicious base of cranberry, blueberry, and a twist of lime. Other network marketing beverages compete with FrequenSea™ in the category of health beverages consisting of a variety of fruit juices from around the world such as mangosteen, noni, acai and other fruit or plant products.
Many of our Smart Food 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 that offer similar products, 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 NuSkin Enterprises, to name a few. We also compete with many smaller network marketing companies that also offer personal care products,
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health and nutrition products. We compete for new distributors on the strength of our product line, leadership training, compensation plan, marketing focus, 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 experiencing growth. 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.
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, the United Kingdom, and other markets. 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
12
markets. To date, we have not experienced any governmental actions related to health or safety and food and drug regulations for our products.
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.
Employees
As of the date of this filing we have 35 fulltime 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
You should carefully review and consider the risks described below, as well as the other information in this report and in other reports and documents we file with the SEC when evaluating our business and future prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, not presently known to us, or that we currently see as immaterial, may also occur. If any of the following risks or any additional risks and uncertainties actually occurs, then our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline and you could lose all or a portion of the value of your investment in our common stock. You should not draw any inference as to the magnitude of any particular risk from its position in the following discussion.
We have a history of losses and may never become profitable.
We have recorded net losses for the past two fiscal years. Our revenues from sales may not be sufficient to meet our working capital needs and/or to implement our business strategies. We may be required to rely on debt financing, further loans from related parties, and private placements of our common stock for our additional cash needs. Such funding sources may not be available or the terms of such funding sources may not be acceptable to the Company. If the Company is unable to find such funding it could have a material adverse effect on our ability to continue as a going concern.
Recent economic conditions have made it more difficult for companies to raise capital and obtain financing. Our inability to raise additional capital or to obtain additional financing, if needed, would negatively affect our ability to implement our business strategies and meet our goals. This, in turn, would adversely affect our financial condition and results of operations.
Because our direct-to-consumer sales rely on the marketability of key personalities, the inability of a key personality to perform his or her role or the existence of negative publicity surrounding a key personality may adversely affect our revenues.
Direct-to-consumer products may be marketed with a key personality through our independent distributor channels. The inability or failure of a key personality to fulfill his or her role, or the ineffectiveness of a key personality as a spokesperson for a product, a reduction in the exposure of a key personality due to the discontinuance of a marketing program, or otherwise, or negative publicity about a key personality may adversely
13
affect the sales of our product associated with that personality and could affect the sale of other products. A decline in sales would negatively affect our results of operations and financial condition.
The failure of our suppliers to supply quality materials in sufficient quantities, at a favorable price, and in a timely fashion could adversely affect our results of operations.
We buy our raw materials from a variety of suppliers. The loss of any of our principal suppliers or of a supplier that provides any hard to obtain materials could adversely affect our business operations. Although we believe that we could establish alternate sources for most of our raw materials, any delay in locating and establishing relationships with other sources could result in product shortages, with a resulting loss of sales and customers. In certain situations we may be required to alter our products or to substitute different materials from alternative sources.
We rely solely on one supplier for our phytoplankton products and the loss of, or unexpected interruption in this service would materially adversely affect our results of operations and financial condition.
A shortage of raw materials or an unexpected interruption of supply could also result in higher prices for those materials. During 2011, the U.S. experienced increases in various product raw material costs, transportation costs and the cost of petroleum based raw materials and packaging supplies used in our business, which were associated with higher oil and fuel costs. Although we may be able to raise our prices in response to significant increases in the cost of raw materials, we may not be able to raise prices sufficiently or quickly enough to offset the negative effects of the cost increases on our results of operations or financial condition.
There can be no assurance that suppliers will provide the quality raw materials needed by us in the quantities requested or at a price we are willing to pay. Because we do not control the actual production of these raw materials, we are also subject to delays caused by interruption in production of materials based on conditions outside of our control, including weather, transportation interruptions, strikes and natural disasters or other catastrophic events.
Product liability claims could harm our business.
We may be required to pay for losses or injuries purportedly or actually caused by our products. Although historically we have had no claims and relatively low financial exposure from product claims, we have experienced difficulty in finding insurers that are willing to provide product liability coverage at reasonable rates due to insurance industry trends and the rising cost of insurance generally. As a result, we have elected to self-insure our product liability risks for our product lines. Until we elect and are able at reasonable rates to obtain product liability insurance, if any of our products are found to cause any injury or damage, we will be subject to the full amount of liability associated with any injuries or damages. This liability could be substantial and may exceed our reserves. We cannot predict if and when product liability insurance will be available to us on reasonable terms.
Collectively, our officers and directors own a significant amount of our common stock, giving them influence over corporate transactions and other matters and potentially limiting the influence of other stockholders on important policy and management issues.
Our officers and directors, together with their families and affiliates, beneficially owned approximately 70% of our outstanding shares of common stock as of April 9, 2013. As a result, our officers and directors could influence such business matters as the election of directors and approval of significant corporate transactions. Various transactions could be delayed, deferred or prevented without the approval of stockholders, including:
•
transactions resulting in a change in control;
•
mergers and acquisitions;
•
tender offers;
•
election of directors; and
•
proxy contests.
14
There can be no assurance that conflicts of interest will not arise with respect to the officers and directors who own shares of our common stock or that conflicts will be resolved in a manner favorable to us or our other stockholders.
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.
ITEM 2. PROPERTIES
ForeverGreen has two building leases for office and production warehouse space in Orem, Utah. The Company signed a new 3 year lease in 2011, with monthly rent of $9,750 for the office space. The production warehouse lease for $10,061 per month began September 1, 2006 and expires August 31, 2013 with provisions for an automatic five year extension. All leases have a provision for an annual increase of 3%. The buildings ForeverGreen leases are sufficiently large enough to accommodate all of our administrative, warehouse and production needs. The Company has an office in Mexico with a one year lease paying $2,000 per month and an office in Colombia with a one year least paying $945 per month. The Chile office has a one year lease and is paying $1,390 per month, and the Costa Rica office has a 3 year lease and is paying $1,900 per month. The Company added an office in Ecuador with a one year lease paying $672, plus a one year warehouse lease paying $112. All lease amounts above are in USD.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various 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.
On June 13, 2012, Environmental Research Center, a non-profit corporation, filed a complaint in the Superior Court of California, County of Orange, against ForeverGreen Worldwide Corporation and ForeverGreen International, LLC. ForeverGreen Worldwide received service of the complaint on July 29, 2012. The complaint alleges that the Company failed to provide health hazard warnings related to lead to consumers of its products in California. Environmental Research Center is seeking injunctive relief, an order compelling the Company to provide the health hazard warnings to past consumers and unspecified civil penalties. The Complaint contains two alleged causes of action. Both allege violations of Health and Safety Code §25249.5 and seek injunctive relief as well as damages of $2500.00 per day for each violation alleged.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable to our operations.
15
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 2012 and 2011 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.
|
| 2012 |
| 2011 | ||
| Fiscal Quarter Ended | High | Low |
| High | Low |
| March 31 June 30 September 30 December 31 | 0.25 0.22 0.20 0.25 | 0.10 0.05 0.04 0.75 |
| 0.34 0.38 0.29 0.16 | 0.10 0.15 0.14 0.05 |
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. 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 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 April 9, 2013, we had 148 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.
16
Recent Sales of Unregistered Securities
On November 12, 2012 the Company issued 320,000 shares to Donald Mayer to convert debt of $30,605 related to Directors and Officers Liability Insurance. We relied on an exemption from the registration requirements provided by Section 4(2) of the Securities Act.
Issuer Purchase of Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
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.
We experienced a significant increase in sales in March 2011 as compared to February 2011 primarily as the result of the introduction of our new products “VERSATIVA” which was designed to improve our business opportunity for our independent distributors. We continue to experience sales growth trends in 2011 that have again continued into the first quarter of 2012. We anticipate that the increase in sales will continue in the short term. The Company has simplified is message and products under the philosophy of Restoration Biology, branded as RESTORATION90. Manage believes this will allow a great ease of entry to our many products and there uses to support the body’s needs.
We introduced the FG Xpress brand in November of 2012 we have since seen the sales trend averaging 30% sales growth per month since the launch. With this global, seamless, Not For Resale program, we were able to attract industry leaders around the world and we project great sales increases in the year of 2013.
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 customer service and Member satisfaction level at the highest quality. Overcoming economic down turns will require skilled personnel, and manufacturing and shipping facilities. Management intends to modify our operating activities, especially production and order fulfillment, for the current economic environment as well as prepare the Company for the upturn of demand as people continue to look for other income opportunities and choose ForeverGreen as 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, 2012 we had cash and cash equivalents of $89,253, with a working capital deficit of $5,042,793. We recognized revenues of $12,480,716 for 2012 and recorded a net loss of $884,858 compared to $13,701,802 in revenues and a net loss of $1,459,268 for 2011. During 2012 we financed our operations with revenues, a $100,000 revolving line of credit, a third party loan of $25,000, and three related party loans of $100,000. 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.
Management continues to negotiate better costs and terms with our key vendors to lower our cost of goods sold.
17
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.
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
Our total liabilities at December 31, 2012 were $5,908,282 compared to $5,950,954 at December 31, 2011. The decrease reflects a decrease of accounts payable by $445,813, accrued expenses increasing by $260,024, and bank overdraft decreasing by $129,711.
On December 3, 2012 the Company secured a $200,000 line of credit from a third party. Under the terms and conditions of the line of credit the Company can draw against the line as needed to fund operations. The line has a fixed interest rate of 10% per annum and the principle amount of all draws and outstanding interest is due and payable on or before June 30, 2013. The note has a conversion feature that provides the creditor with the option to convert any outstanding balance of the note to the Company's restricted common shares at $0.08 per share. The line of credit is secured by the Company's assets including, but not limited to, business furniture, fixtures equipment and up to 2,500,000 restricted shares held in escrow. During the twelve months ending December 31, 2012 the Company entered into a $25,000 promissory note in exchange for cash of $14,000 and expenses paid for by a third party of $11,000 under the terms of this line of credit to fund operations.
At December 31, 2012 the Company was in default for an aggregate of $1,253,476 in notes payable and convertible notes payable. The Company and the lenders are discussing consolidating the defaulted notes into new notes within the next six months.
Results of Operations
The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the years ended December 31, 2012 and 2011. The consolidated balance sheets and statements of operations includes ForeverGreen Worldwide and its wholly-owned subsidiaries ForeverGreen International, LLC, Productos Naturales Forevergreen Internacional en Mexico S.A. de C.V., FVGR Colombia S.A.S., 3-101-607360 S.A. (a Costa Rican corporation), ForeverGreen Chile SpA, Forevergreen (Aust & NZ) Pty, Ltd, and ForeverGreen Singapore. 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.
18
|
| Year ended December 31 | ||
|
| 2012 |
| 2011 |
| SUMMARY OF BALANCE SHEET |
|
|
|
| Cash and cash equivalents | $ 89,253 |
| $ 223,099 |
| Total current assets | 847,490 |
| 1,631,143 |
| Total assets | 1,393,575 |
| 2,326,010 |
| Total current liabilities | 5,890,281 |
| 5,929,807 |
| Long-term debt | 18,001 |
| 21,147 |
| Total liabilities | 5,908,282 |
| 5,950,954 |
| Accumulated deficit | (35,458,353) |
| (34,573,495) |
| Total stockholders’ deficit | $ (4,514,707) |
| $ (3,624,944) |
Our total assets decreased to $1,369,575 at December 31, 2012 compared to $2,326,010 at December 31, 2011. The decrease is primarily due to the decrease in inventory and cash and cash equivalents. Total liabilities also decreased primarily due to decreases in accounts payable and bank overdraft.
|
| Year ended December 31 | ||
|
| 2012 |
| 2011 |
| SUMMARY OF OPERATING RESULTS |
|
|
|
| Revenues, net | $ 12,480,716 |
| $ 13,701,802 |
| Cost of sales | 8,637,659 |
| 11,319,292 |
| Gross profit | 3,843,057 |
| 2,382,510 |
| Total operating expenses | 4,188,994 |
| 3,611,207 |
| Net operating loss | (345,937) |
| (1,228,697) |
| Total other expense | (538,921) |
| (230,571) |
| Income tax provision | – |
| _ |
| Net loss | (884,858) |
| (1,459,268) |
| Net loss per share (basic and diluted) | $ (0.06) |
| $ (.10) |
We experienced a 8.9% decrease in revenues in 2012 over 2011 resulting from a slower than expected fourth quarter revenues. 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.
Gross profits increased due to reducing our two largest cost of sales expenses, commission expense and product costs as we were able to optimize pricing with our key vendors.
19
Cost of sales consists primarily of sales commissions paid to our distributors, the cost of procuring and packaging products, and the cost of shipping product to our international subsidiaries and warehouses and to our distributors, plus credit card sales processing fees. Cost of sales was approximately 69.21% of revenues for 2012 compared to 82.61% of revenues for 2011. The 2012 decrease is primarily due to reducing the amount of bonus commissions paid to distributors and decreasing our product costs.
Total operating expenses increased for 2012 compared to 2011 by $577,787. The majority of the increases came in the fourth quarter as management was growing the company for future growth in 2013. Salaries and wages along with general and administrative expenses increased due to creating a larger IT team to better customize our point of sale system to our distributor needs. In addition, operating expenses largely increased due to recording an inventory impairment of $257,314 during 2012.
Off-balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Critical Accounting Estimates
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. 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.
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 2012 and 2011 was $85,590 and $92,489, respectively.
We record 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 an annual analysis for the period ended December 31, 2012 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, 2012 and 2011
INDEX
Report of Independent Registered Public Accounting Firm
22
Consolidated Balance Sheets
23
Consolidated Statements of Operations and Comprehensive Income
24
Consolidated Statements of Stockholders’ Deficit
25
Consolidated Statements of Cash Flows
26
Notes to the Consolidated Financial Statements
27
21
![[forevergreen1231201210kfi001.jpg]](forevergreen1231201210kfi001.jpg)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
ForeverGreen Worldwide Corporation and subsidiaries
We have audited the accompanying balance sheets of ForeverGreen Worldwide Corporation and subsidiaries as of December 31, 2012 and 2011 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
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 consolidated 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of ForeverGreen Worldwide Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the consolidated financial statements, the Company has suffered accumulated net losses of $35,458,353 and has had negative cash flows from operating activities during the year ended December 31, 2012 of $8,860. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
April 16, 2013
![[forevergreen1231201210kfi003.jpg]](forevergreen1231201210kfi003.jpg)
22
| ForeverGreen Worldwide Corporation and Subsidiaries | |||||||||
| Consolidated Balance Sheets | |||||||||
|
|
|
|
|
| December 31, |
| December 31, | ||
| ASSETS |
|
| 2012 |
| 2011 | ||||
| CURRENT ASSETS |
|
|
|
|
| ||||
|
| Cash and cash equivalents |
|
| $ 89,253 |
| $ 223,099 | |||
|
| Accounts receivable, net |
|
| 130,302 |
| 103,770 | |||
|
| Prepaid expenses and other assets |
|
| 95,769 |
| 158,714 | |||
|
| Inventory |
|
| 532,166 |
| 1,145,560 | |||
|
|
| Total Current Assets |
|
| 847,490 |
| 1,631,143 | ||
|
|
|
|
|
|
|
|
| ||
| PROPERTY AND EQUIPMENT, net |
|
| 85,139 |
| 151,144 | ||||
|
|
|
|
|
|
|
|
| ||
| OTHER ASSETS |
|
|
|
|
| ||||
|
| Deposits and other assets |
|
| 68,393 |
| 64,454 | |||
|
| Trademarks, net of amortization |
|
| 50,193 |
| 51,319 | |||
|
| Customer base, net of amortization |
| 342,360 |
| 427,950 | ||||
|
|
| Total Other Assets |
|
| 460,946 |
| 543,723 | ||
|
|
| TOTAL ASSETS |
| $ | 1,393,575 | $ | 2,326,010 | ||
|
|
|
|
|
|
|
|
| ||
| LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
| ||||||
| CURRENT LIABILITIES |
|
|
|
|
| ||||
|
| Bank overdraft |
|
| $ 49,875 |
| $ 179,586 | |||
|
| Accounts payable |
|
| 796,345 |
| 1,183,101 | |||
|
| Accrued expenses |
|
| 2,507,885 |
| 2,110,674 | |||
|
| Deferred Revenue |
|
| 113,085 |
| -- | |||
|
| Due to related parties |
|
| 132,808 |
| 178,127 | |||
|
| Banking line of credit |
|
| 97,039 |
| 100,420 | |||
|
| Current portion of long-term debt |
|
| 2,096 |
| 1,945 | |||
|
| Notes payable, related parties |
|
| 922,478 |
| 922,478 | |||
|
| Convertible notes payable, related parties |
|
| 245,000 |
| 245,000 | |||
|
| Convertible Notes payable, unrelated parties, net discount ($9,805 and $0, respectively) |
|
|
1,023,670 |
|
1,008,476 | |||
| Total Current Liabilities |
|
| 5,890,281 |
| 5,929,807 | ||||
| LONG-TERM DEBT |
|
|
|
|
| ||||
|
| Notes payable |
|
| 18,001 |
| 21,147 | |||
|
| Total Long-Term Debt |
|
| 18,001 |
| 21,147 | |||
|
|
| TOTAL LIABILITIES |
|
| 5,908,282 |
| 5,950,954 | ||
|
|
|
|
|
|
| ||||
|
|
| Commitment and Contingencies |
|
| -- |
| -- | ||
|
|
|
|
|
|
|
|
| ||
| STOCKHOLDERS' DEFICIT |
|
|
|
|
| ||||
|
| 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; 15,212,141 and 14,892,141 |
|
|
|
| |||
|
|
| shares respectively issued and outstanding |
| 15,212 |
| 14,892 | |||
|
| Additional paid-in capital |
|
| 30,973,230 |
| 30,934,109 | |||
|
| Other comprehensive loss |
|
| (44,796) |
| (450) | |||
|
| Accumulated deficit |
|
| (35,458,353) |
| (34,573,495) | |||
|
|
| Total Stockholders' Deficit |
|
| (4,514,707) |
| (3,624,944) | ||
|
|
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
| $ 1,393,575 |
| $ 2,326,010 | |||
The accompanying notes are an integral part of these consolidated financial statements
23
| ForeverGreen Worldwide Corporation and Subsidiaries | ||||||
| Consolidated Statements of Operations and Comprehensive Loss | ||||||
|
| ||||||
|
|
|
|
| For the Year Ended | ||
|
|
|
|
| December 31, | ||
|
|
|
|
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| REVENUES, net |
| $ 12,480,716 |
| $ 13,701,802 | ||
| COST OF SALES, net |
| 8,637,659 |
| 11,319,292 | ||
|
|
|
|
|
|
|
|
| GROSS PROFIT |
| 3,843,057 |
| 2,382,510 | ||
|
|
|
|
|
|
|
|
| OPERATING EXPENSES |
|
|
|
| ||
|
| Salaries and wages |
| 2,164,653 |
| 2,035,647 | |
|
| Professional fees |
| 453,726 |
| 406,775 | |
|
| General and administrative |
| 1,313,301 |
| 1,168,785 | |
|
|
| Inventory impairment |
| 257,314 |
| -- |
|
|
| Total Operating Expenses |
| 4,188,994 |
| 3,611,207 |
|
|
|
|
|
|
|
|
| NET OPERATING LOSS |
| (345,937) |
| (1,228,697) | ||
|
|
|
|
|
|
|
|
| OTHER INCOME (EXPENSE) |
|
|
|
| ||
|
| Other Loss |
| (3,340) |
| -- | |
|
| Loss on settlement of liabilities |
| (87,364) |
| 410 | |
|
| Interest expense |
| (448,217) |
| (230,981) | |
|
|
|
|
|
|
|
|
|
|
| Total Other Expense |
| (538,921) |
| (230,571) |
|
|
|
|
|
|
|
|
| Loss from continuing operations before income tax provision |
| (884,858) |
| (1,459,268) | ||
| Income Tax Provision (Benefit) |
| -- |
| -- | ||
|
|
|
|
|
|
|
|
| NET LOSS |
| $ (884,858) |
| $ (1,459,268) | ||
|
|
|
|
|
|
|
|
| BASIC AND DILUTED LOSS |
|
|
|
| ||
| PER COMMON SHARE |
| $ (0.06) |
| $(0.10) | ||
|
|
|
|
|
|
|
|
| WEIGHTED AVERAGE NUMBER OF |
|
|
|
| ||
| COMMON SHARES OUTSTANDING |
| 14,935,857 |
| 14,892,141 | ||
|
|
|
|
|
|
|
|
| COMPREHENSIVE LOSS |
|
|
|
| ||
| A summary of the components of other comprehensive (loss) for the fiscal years ended December 31, 2012 and 2011 is as follows: |
|
|
|
| ||
| Net Loss |
| $ (884,858) |
| $ (1,459,268) | ||
|
|
|
|
|
|
|
|
| Other Comprehensive Income (Loss) |
| (44,346) |
| 142,230 | ||
|
|
|
|
|
| ||
|
|
| Comprehensive Loss |
| $ (929,204) |
| $ (1,317,038) |
The accompanying notes are an integral part of these consolidated financial statements
24
| ForeverGreen Worldwide Corporation and subsidiaries |
| |||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Statements of Stockholders' Equity |
| |||||||||||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, 2012 and 2011 |
| |||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
| Other |
|
| Stockholder’s | ||||||||||||||||||||||||||||||||
|
| Preferred Stock |
| Common Stock |
| Paid-in |
| Accumulated |
| Comprehensive |
| Prepaid | Equity | ||||||||||||||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Income |
| Expenses | (Deficit) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Balance, December 31, 2010 | -- |
| $ -- |
| 14,892,141 |
| $14,892 |
| $ 30,862,628 |
| $ (33,114,227) |
| $ (142,680) |
| $ (39,550) | (2,418,937) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Amortization of prepaid expenses | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| 39,550 | 39,550 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Contributed capital | -- |
| -- |
| -- |
| -- |
| 71,481 |
| -- |
| -- |
| -- | 71,481 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Foreign currency translation | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| 142,230 |
| -- | 142,230 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Net loss for the period ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| December 31, 2011 | -- |
| -- |
| -- |
| -- |
| -- |
| (1,459,268) |
| -- |
| -- | (1,459,268) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Balance, December 31, 2011 | -- |
| $ -- |
| 14,892,141 |
| $14,892 |
| $ 30,934,109 |
| $ (34,573,495) |
| $ (450) |
| $ -- | (3,624,944) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Shares issued for services $.09 per share | -- |
| -- |
| 320,000 |
| 320 |
| 29,121 |
| -- |
| -- |
| -- | 29,441 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Beneficial conversion on note payable | -- |
| -- |
| -- |
| -- |
| 10,000 |
| -- |
| -- |
| -- | 10,000 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Foreign currency translation | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| (44,346) |
| -- | (44,346) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Net loss for the period ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| December 31, 2012 | -- |
| -- |
| -- |
| -- |
| -- |
| (884,858) |
| -- |
| -- | (884,858) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
| Balance, December 31, 2012 | -- |
| $ -- |
| 15,212,141 |
| $15,212 |
| $ 30,973,230 |
| $ (35,458,353) |
| $ (44,796) |
| $ -- | (4,514,707) | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
25
| ForeverGreen Worldwide Corporation and Subsidiaries | |||||||||||
| Consolidated Statements of Cash Flows | |||||||||||
|
|
|
|
|
| For the Years Ended | ||||||
|
|
|
|
|
| December 31, | ||||||
|
|
|
|
|
| 2012 |
| 2011 | ||||
|
|
|
|
|
| |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| |||||||
| Net Loss |
|
| $ (884,858) |
| $ (1,459,268) | ||||||
| Adjustments to reconcile net loss to net cash |
|
|
|
| |||||||
| provided by (used in) operating activities: |
|
|
|
| |||||||
|
| Depreciation and amortization |
|
| 231,144 |
| 213,948 | |||||
|
| Common stock issued for services rendered |
| 29,441 |
| -- | ||||||
|
| (Gain) loss on settlement of liabilities |
| 87,364 |
| -- | ||||||
|
| Expenses paid on behalf of the Company |
| 11,000 |
| -- | ||||||
|
| Inventory impairment |
| 257,314 |
| -- | ||||||
| Changes in operating assets and liabilities: |
|
|
|
| |||||||
|
| Accounts receivable |
|
| (25,558) |
| (738,086) | |||||
|
| Prepaid expenses |
|
| 49,595 |
| (126,744) | |||||
|
| Deposits and other assets |
|
| (3,800) |
| 489,111 | |||||
|
| Inventory |
|
| 357,521 |
| (296,198) | |||||
|
| Accounts payable |
|
| (445,813) |
| 502,130 | |||||
|
| Accounts payable – related parties |
|
| (45,319) |
| -- | |||||
|
| Deferred revenue |
|
| 113,085 |
| -- | |||||
|
| Accrued expenses |
|
| 260,024 |
| 505,263 | |||||
|
|
| Net Cash Used in Operating Activities |
| (8,860) |
| (909,844) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| |||||||
|
| Cash paid for trademarks |
|
| (5,485) |
| -- | |||||
|
| Purchases of property and equipment |
| (1,624) |
| (732) | ||||||
|
|
| Net Cash Used in Investing Activities |
| (7,109) |
| (732) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| |||||||
|
| Payments from bank overdraft |
|
| (129,711) |
| 145,198 | |||||
|
| Net proceeds from banking line of credit |
| (3,381) |
| 100,420 | ||||||
|
| Proceeds from notes payable |
|
| 6,141 |
| -- | |||||
|
| Payments on notes payable |
|
| (2,995) |
| (2,108) | |||||
|
| Payments on notes payable - related parties |
| (100,000) |
| (267,500) | ||||||
|
| Proceeds from notes payable – related parties |
| 100,000 |
| 200,000 | ||||||
|
| Proceeds from convertible note payable |
| 14,000 |
| 776,720 | ||||||
|
|
| Net Cash (Used in) Provided by Financing Activities |
| (115,946) |
| 952,730 | |||||
|
|
|
|
|
|
|
| |||||
|
|
| Effect of Foreign Currency on Cash |
| (1,931) |
| 2,821 | |||||
|
|
|
|
|
|
|
|
| ||||
| NET INCREASE (DECREASE) IN CASH |
| (133,846) |
| 44,975 | |||||||
|
|
|
|
|
| |||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 223,099 |
| 178,124 | |||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ 89,253 |
| $ 223,099 | |||||||
26
| ForeverGreen Worldwide Corporation and Subsidiaries | ||||||||
| Consolidated Statements of Cash Flows (Continued) | ||||||||
|
|
|
|
|
| For the Year Ended | |||
|
|
|
|
|
| December 31, | |||
|
|
|
|
|
| 2012 |
| 2011 | |
|
|
|
|
|
| ||||
| SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
| ||||
| Interest |
| $ 11,092 |
| $ 18,691 | ||||
| Income taxes |
| $ -- |
| $ -- | ||||
|
|
|
|
|
| ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
| ||||
| Debt discount on beneficial conversion feature – convertible notes payable |
| $ 10,000 |
| $ -- | ||||
|
|
|
|
|
| ||||
The accompanying notes are an integral part of these consolidated financial statements
27
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was incorporated on March 18, 1999 in the state of Nevada. On November 30, 1999, 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 maintained its headquarters in Provo, Utah.
On November 30, 1999, 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, 2000 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, LLC. as a wholly owned subsidiary.
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.
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 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.
28
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
a. Organization - continued
During the last quarter of 2007, the Company began operations in Mexico. In 2009 the Company introduced a program to make its products available to more international countries. This program is called “the NFR program” NFR means not for resale and supports consumer in many countries to enjoy limited ForeverGreen products for personal use in these countries include Argentina, Austria, Barbados, Bolivia, Chile, China, Curacao Island, Colombia, Ecuador, Dominican Republic, Ghana, Greece,
Guam, Hungry, Indonesia, Ireland, Israel, Ivory Coast, Italy, Kenya, Korea, Malaysia, Morocco, Pakistan, Peru, Philippines, Poland, Portugal, Puerto Rico, South Africa, Spain, Sweden, Switzerland, Taiwan, and Trinidad.
b. Recognition of Revenue
Revenues and costs of revenues are recognized during the period in which the products are provided. The Company applies the provisions of FASB Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 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 for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability 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 except for a few circumstances. 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 2.5% of sales for both years presented. Revenues are reported net of returns. All conditions of ASC 605-10 are met and the revenue is recorded upon sale, with an estimated allowance for returns where material.
c. Accounts Receivable
Accounts receivable arise from doing business with third party distributor centers in various locations throughout South America. The accounts receivable are made up of fees owed by the distribution centers to the Company for the right to do business in our name. The Company evaluates the need for an allowance for doubtful accounts when it is determined that collection amounts owed is unlikely. No allowance has been recorded at December 31, 2012 and 2011, accordingly.
Distributors are required to pay for products prior to shipment. Distributors typically pay for products in cash, by wire transfer or by credit card. Accordingly, the Company seldom carries accounts receivable from distributors that are not distribution centers and any balances carried would be minimal.
d. Principles of Consolidation
The consolidated balance sheets and statement of operations for the periods ended December 31, 2012 and 2011 include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.
e. 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. Basic and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Our potentially dilutive shares, which include convertible debentures, have not been included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the results would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 15,411 and 0 such potentially dilutive shares excluded as of December 31, 2012 and 2011.
29
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
|
| December 31, | ||
|
| 2012 |
| 2011 |
| Income (Loss) Numerator | $ (884,858) |
| $ (1,459,268) |
| Shares (Denominator) | 14,935,857 |
| 14,892,141 |
|
|
|
|
|
| Per Share Amount | $ (.06) |
| $ (0.10) |
f. Income Taxes
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Company’s predecessor operated as entity exempt from Federal and State income taxes.
g. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.
h. 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.
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, 2012 and 2011 is $66,005, and $113,743, respectively.
i. Long-Lived Assets
In accordance with ASC 360-10, 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. The Company determined no impairment adjustment was needed based on the analysis for the years ended December 31, 2012 and 2011.
j. 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, 2012 and 2011 there was an allowance for obsolete inventory in the amount of $45,660 and $27,079, respectively.
30
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
k. Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of convertible notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of December 31, 2012 and 2011.
l. 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.
m. 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.
n. Equity Instruments
The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the ASC 505-50. 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.
o. Intangible Assets
Intangible assets consist of patent costs, trademark costs and the customer base. 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 of the technology and future cash flows. The Company recognizes impairment losses when undiscounted cash flows estimated to be generated from long-lived assets are less than the net carrying amount of intangible assets. No impairment was recognized accordingly, during the years ended December 31, 2012 and 2011.
p. Deferred Revenue
The Company recognizes revenues upon the shipment of product. As of December 31, 2012, inventory was depleted causing backorders, resulting in $113,085 of deferred revenue ($-0- as of December 31, 2011).
31
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
q. Foreign Currency Translation
The Company’s functional currency is recorded in various currencies, corresponding to the various foreign subsidiaries and its reporting currency is the United States dollar. Management has adopted ASC 830-20, “Foreign Currency Matters – Foreign Currency Transactions”. All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. For revenues and expenses, the weighted average exchange rate for the period is used. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in other comprehensive loss.
r. Recent Accounting Pronouncements
In September 2011, the FASB clarified ASC 350-20 to amend and simplify tests for goodwill impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. The amendments in ASC 350-20 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of this new guidance is not expected to have a material impact on the Company’s financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 2 – PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method and is recognized over the estimated lives of the property and equipment. Depreciation expense was $66,005 and $113,743 for the years ended December 31, 2012 and 2011, respectively.
Property and equipment consists of the following at December 31, 2012 and 2011:
|
| 2012 |
| 2011 |
| Leasehold improvements | $ 87,565 |
| $ 85,838 |
| Office furniture & fixtures | 191,123 |
| 187,548 |
| Equipment | 458,414 |
| 458,414 |
| Vehicles | 56,548 |
| 56,548 |
| Computer equipment | 516,749 |
| 515.170 |
| Computer software | 635,446 |
| 635,446 |
| Total Fixed Assets | 1,945,845 |
| 1,938,764 |
| Accumulated depreciation | (1,860,706) |
| (1,787,620) |
| Property and equipment, net | 85,139 |
| 151,144 |
NOTE 3 – ACCRUED EXPENSES
The Company recognizes revenues and expenses of those revenues upon the shipment of product. At year-end, inventory was depleted causing backorders. The Company pays its monthly commission to our distributors on the 10th of the following month. Due to year-end sales being on back order, the commissions paid to distributors were classified as prepaid expenses instead distributor liabilities.
32
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 3 – ACCRUED EXPENSES – CONTINUED
Accrued expenses consist of the following at December 31, 2012 and 2011:
|
| 2012 |
| 2011 |
| Distributor liabilities | $ - |
| $ 440,361 |
| Accrued employee benefits | 48,178 |
| 58,689 |
| Accrued taxes | 1,351,979 |
| 1,032,382 |
| Other accrued liabilities | 1,107,728 |
| 579,242 |
| Total | $ 2,507,885 |
| $ 2,110,674 |
NOTE 4 – NOTES PAYABLE
Long term liabilities are detailed in the following schedules as of December 31, 2012 and 2011:
|
| 2012 |
| 2011 |
| Note payable to financial institution bearing interest |
|
|
|
| At 7%, principle and interest due monthly, matures |
|
|
|
| August, 2019, secured by equipment | $20,097 |
| $23,092 |
| Less current portion of Notes payable | (2,096) |
| (1,945) |
| Net Long-Term Liabilities | $18,001 |
| $ 21,147 |
Future minimum principal payments on notes payable and are as follows at December 31, 2012:
| 2013 | 2,096 |
| 2014 | 2,259 |
| 2015 | 2,435 |
| 2016 | 2,624 |
| Thereafter | 10,683 |
| Total | $ 20,097 |
| 2012 NOTES PAYABLE | |||||
| AMOUNT | TYPE | CONVERSION RATE PER SHARE | ORIGINATION DATE | INTEREST RATE | DUE DATE |
| $ 485,000 | Related party | NA | 12/9/2008 | 10% | Due on demand |
$ 437,478 | Related party | NA | 7/31/2009 | 10% | 12/31/2013 |
| $ 45,000 | Convertible, Related party | .15 | 10/7/2010 | 14% | 09/30/2012 * |
$ 200,000 | Convertible, Related party | .20 | 1/19/2011 | 14% | 07/31/2012 * |
| $ 394,962 | Convertible, Non-related | .20 | 1/19/2011 | 10% | 07/31/2012 * |
$ 100,000 | Convertible, Non-related | .20 | 3/14/2011 | 14% | 07/31/2012 * |
| $ 281,758 | Convertible, Non-related | .20 | 5/26/2011 | 10% | 07/31/2012 * |
$ 231,756 | Convertible, Non-related | .20 | 3/9/2010 | 15% | 01/01/2012 * |
All notes with an * were in default as of 12/31/12. The Company and the lenders are discussing consolidating the defaulted notes into new notes before June 30, 2013.
33
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 4 – NOTES PAYABLE -CONTINUED
On December 3, 2012 the Company secured a $200,000 line of credit from an unrelated third party. Under the terms and conditions of the line of credit the Company can draw against the line as needed to fund operations. The line has a fixed interest rate of 10% per annum and the principle amount of all draws and outstanding interest is due and payable on or before June 30, 2013. The note has a conversion feature that provides the creditor with the option to convert any outstanding balance of the note to the Company's restricted common shares at $0.08 per share. The line of credit is secured by the Company's assets including, but not limited to, business furniture, fixtures equipment and up to 2,500,000 restricted shares held in escrow. During the twelve months ending December 31, 2012 the Company entered into a promissory note agreement of $25,000 under the terms of the line of credit to fund its operations. The Company recognized a beneficial conversion feature discount of $10,000 of which $195 has been recognized as interest expense at December 31, 2012.
NOTE 5 – COMMON STOCK
On November 12, 2012 the Company issued 320,000 shares of restricted common stock shares at a conversion rate of approximately $0.10 per share in exchange for insurance policy of $30,605.
NOTE 6 – OPERATING LEASES
The Company has operating leases as follows:
| Country | Start Date | End Date | Monthly Payments |
| Ecuador Office | 06/19/2012 | 06/19/2013 | $ 672 |
| Ecuador Warehouse | 10/15/2012 | 10/15/2013 | $ 112 |
| Chile Office | 05/01/2011 | 04/30/2012
| $ 1,390 currently on a month to month basis |
| Colombia Office | 06/15/2012 | 06/15/2013 | $ 945 |
| Costa Rica Office | 06/01/2012 | 05/31/2015 | $ 1,900 |
| Mexico Office | 04/01/2012 | 03/31/2014 | $ 2,000 |
| US Office | 11/02/2004 | 08/31/2013 | $ 9,750 |
| US Warehouse | 09/01/2006 | 08/31/2013 | $10,061 |
Total Lease Commitments:
| 2013 | 241,372 |
| 2014 | 28,800 |
| 2015 | 9,500 |
| Total | $ 279,672 |
NOTE 7 – INTANGIBLE ASSETS
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.
34
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 7 – INTANGIBLE ASSETS – CONTINUED
The Customer base intangible was calculated using a percentage of the gross margin of ForeverGreen International LLC. The Company is amortizing 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 ASC 360-10-35, intangible assets tested for impairment on an annual basis and whenever circumstances indicate that the fair value of the reporting unit may be less than the carrying amount of the intangible asset. See Note 1 (o) above for gross book value, accumulated amortization and net book value of the customer base intangible asset. No impairment was recorded as of December 31, 2012 and 2011.
The Company capitalizes legal fees incurred to register trademarks for its products. Trademarks consist of the following for the period ended December 31, 2012 and 2011:
|
| 2012 |
| 2011 |
| Trademarks | 85,320 |
| $ 78,787 |
| Less accumulated amortization | (35,127) |
| (27,157) |
| Net trademarks | 50,193 |
| $ 51,630 |
The Customer Base intangible was calculated using a percentage of the gross margin of ForeverGreen International LLC. The Company amortizes the customer base over a period of ten years. The customer base consists of the following for the period ended December 31, 2012:
|
| 2012 |
| 2011 |
| Customer Base | $ 855,900 |
| $855,900 |
| Less accumulated amortization | (513,540) |
| (427,950) |
| Net Customer Base | $ 342,360 |
| $427,950 |
Trademark, patent and customer based amortization expense for the years ended December 31, 2011 and 2012 were $91,894 and $93,560, respectively.
NOTE 8 – INVENTORY
During the year ended December 31, 2012 The Company impaired its inventory by $257,314 for slow moving and obsolete items. Additionally the reserve for obsolete inventory account was increased by $18,581.
Inventories for December 2012 and 2011 were classified as follows:
|
| 2012 |
| 2011 |
| Raw Materials | $ 100,788 |
| $ 442,147 |
| Finished Goods | 477,037 |
| 730,492 |
| Total Inventory | 577,825 |
| 1,172,639 |
| Less Reserve for Obsolete Inventory | (45,659) |
| (27,079) |
| Total Inventory (net of reserve) | $532,166 |
| $1,145,560 |
NOTE 9 – PROVISION FOR INCOME TAXES
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Company’s predecessor operated as entity exempt from Federal and State income taxes.
35
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 9 – PROVISION FOR INCOME TAXES - CONTINUED
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 34% to the net loss before provision for income taxes for the following reasons:
|
| For the Years Ended | ||
|
| December 31, | ||
|
| 2012 |
| 2011 |
| Book income (loss) from operations | $ (330,052) |
| $ (496,151) |
| Inventory reserve | 17,031 |
| 9,207 |
| State tax benefit | (26,546) |
| (43,778) |
| Other | 3,524 |
| 1,891 |
| Employee expenses | (2,555) |
| (278) |
| Change in valuation allowance | 338,598 |
| 529,109 |
| Total provision for income taxes | $ - |
| $ - |
Net deferred tax assets consist of the following components as of:
|
| December 31, | ||
|
| 2012 |
| 2011 |
| Net operating loss carry forwards | $ 10,518,428 |
| $ 10,175,796 |
| Meals | 4,509 |
| (628) |
| Inventory reserve | 17,031 |
| 18,696 |
| Employee accruals | (2,555) |
| 19,954 |
| Depreciation and amortization | 42,739 |
| 35,434 |
| Valuation allowance | (10,580,152) |
| (10,249,252) |
| Net deferred taxes | $ - |
| $ - |
The Company assesses the need for a valuation allowance against its deferred income tax assets at December 31, 2012. Factors considered in this assessment include recent and expected future earnings and the Company’s liquidity and equity positions. As of December 31, 2012 and 2011, 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, 2012, the Company has net operating loss carry forwards of approximately $27,861,606. These carry forwards are available to offset future taxable income, if any, and begin to expire in 2019. The utilization of the net operating loss carry forwards is dependent upon the tax laws in effect at the time the net operating loss carry forwards can be utilized and may be significantly limited based on ownership changes as set forth in the Internal Revenue Code.
Under FASB ASC 740-10-05-6, tax benefits are recognized only for the tax positions that are more likely than not be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the company's tax return that do not meet these recognition and measurement standards.
The Company had no liabilities for unrecognized tax benefits and the Company has recorded no additional interest or penalties.
The Company's policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits with the income tax expense. For the years ended December 31, 2012, and 2011, the Company did not recognized any interest or penalties in its Statement of Operations, nor did it have any accrued interest or penalties relating to unrecognized benefits.
The tax years 2012, 2011, 2010, 2009 and 2008 remain open to examination for federal income tax purposes and by other major taxing jurisdictions to which the Company is subject.
36
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 and 2011
NOTE 10 - 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 $5,067,107 a net operating loss of $884,858 for the year ended December 31, 2012, and accumulated deficit of $35,458,353 at December 31, 2012, 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 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.
NOTE 11 – SUBSEQUENT EVENTS
We have evaluated events occurring after the date of our accompanying balance sheets through the date the financial statements were available to be issued. Other than the events described below, we did not identify any material subsequent events requiring adjustment to our accompanying condensed financial statements.
On January 11, 2013, the Company entered into a convertible note payable of $25,000, drawn against the $200,000 line of credit discussed in Note 4. This agreement has the option to convert any part of this loan into the Company’s restricted common stock at a conversion rate of $0.08 per share.
On February 19, 2013, the Company entered into a convertible note payable of $28,740, drawn against the $200,000 line of credit discussed in Note 4. This agreement has the option to convert any part of this loan into the Company’s restricted common stock at a conversion rate of $0.08 per share.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
On June 13, 2012, Environmental Research Center, a non-profit corporation, filed a complaint in the Superior Court of California, County of Orange, against ForeverGreen Worldwide Corporation and ForeverGreen International, LLC. ForeverGreen Worldwide received service of the complaint on July 29, 2012. The complaint alleges that the Company failed to provide health hazard warnings related to lead to consumers of its products in California. Environmental Research Center is seeking injunctive relief, an order compelling the Company to provide the health hazard warnings to past consumers and unspecified civil penalties. The Complaint contains two alleged causes of action. Both allege violations of Health and Safety Code §25249.5 and seek injunctive relief as well as damages of $2500 per day for each violation alleged. The Company has engaged legal counsel to vigorously defend against these allegations.
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
As reported in our Current Report on Form 8-K, we dismissed our former auditing firm Chisholm, Bierwolf, Nilson & Morrill, LLC on February 3, 2011 and engaged Morrill & Associates, LLC as our independent public registered accounting firm.
As reported in our Current Report on Form 8-K, we dismissed Morrill & Associates, LLC as our independent registered public accounting firm on August 1, 2011 and engaged Sadler, Gibb & Associates, LLC, Certified Public Accountants, as our independent registered public accounting firm.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer who also acts as our principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer concluded that, as of December 31, 2012, these disclosure controls and procedures were ineffective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer as appropriate to allow timely decisions regarding required disclosure. During the year ended December 31, 2012 we were unable to timely file our December 31, 2011 annual report. Management has since instigated controls and procedures to insure our reports are filed timely.
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 is 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,
•
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
•
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, 2012, our management has relied on the Committee of Sponsoring Organizations of the Treadway Commission (COSO), “Internal Control - Integrated Framework,” to evaluate the effectiveness of our internal control over financial reporting and based upon that framework management has determined that our internal control over financial reporting was not effective for the period covered by this report.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
38
Changes in Internal Controls over Financial Reporting
Our management has determined that there were no changes made in the implementation of our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2012.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting because as a small reporting company we are not subject to that requirement.
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. There are no existing family relationships between or among any of our executive officers or directors.
| Name | Age | Position Held | Term of Director |
| Ronald K. Williams | 51 | Chairman of the Board President, CEO, Secretary and Treasurer | From January 2006 until our next annual meeting |
| George H. Brimhall II | 71 | Director | From April 2008 until our next annual meeting |
| John S. Clayton | 48 | Director | From April 2008 until our next annual meeting |
Ronald K. Williams – Mr. Williams was appointed as our President and CEO in January 2006 and was appointed Secretary and Treasurer in March 2013. 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. He formed 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 and became its Vice-president of Sales and Marketing. Then he served as 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.
39
During the past ten years none of our executive officers have been involved in any legal proceedings that are material to an evaluation of their ability or integrity; namely: (1) filed a petition under federal bankruptcy laws or any state insolvency laws, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; (2) been convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting his/her involvement in any type of business, securities or banking activities; or (4) been found by a court of competent jurisdiction in a civil action, by the SEC or the Commodity Futures Trading Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated.
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 all required reports were filed timely.
Code of Ethics
We have not adopted a code of ethics for our principal executive and financial officers. Until we establish a code of ethics, 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.
Corporate Governance
We do not have a standing nominating committee for directors, nor do we have an audit committee with an audit committee financial expert serving on that committee. Our entire board of directors, including Messrs. Williams, Brimhall and Clayton, act as our nominating and audit committee.
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, 2011 and 2012.
| SUMMARY COMPENSATION TABLE | ||||
| Name and Principal Position | Year | Salary | All Other Compensation | Total |
| Ronald K.Williams CEO | 2011 | $ 78,000 | $ 142,107 (1) | $ 220,107 |
| 2012 | $146,000 | $ 56,461(1) | $ 202,461 | |
| Paul T. Frampton Former CFO | 2011 | $ 109,500 | 0 | $ 109,500 |
| 2012 | $ 105,000 | 0 | $ 105,000 | |
(1) Represent commissions earned through the ForeverGreen Compensation Plan.
(2) Represent commissions earned through the ForeverGreen Compensation Plan.
40
We do not have any employment contracts with the above named executive officers. 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, 2012.
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, 2012.
Beneficial Owners
The following tables set forth the beneficial ownership of our management and any other person or group who beneficially owns more than 5% of our voting 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 15,212,141 shares of common stock outstanding as of April 9, 2013.
| BENEFICIAL OWNERS | ||
| Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
| Donald R. Mayer 9980 S. 300 W #320 Sandy, UT 84070 | 1,375,627 | 9.04 |
| MANAGEMENT | ||
| Name of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
| Ronald K. Williams | 1,883,128 | 12.37 |
| George H. Brimhall II | 7,312,445 (1) | 48.06 |
| John S. Clayton | 1,574,648 (2) | 10.35 |
41
| MANAGEMENT – continued | ||
| Name of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
| All executive officers and directors as a group | 10,770,221 | 70.80 |
| (1) Represents 2,781,740 shares held by Mr. Brimhall and his spouse, 1,905,965 shares held by GBB Trust and 2,624,740 shares held in his 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 in 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.
During 2010 the Company borrowed a total of $160,000 from a related party, First Equity Holdings Corp., a corporation owned by John Clayton, our director. As of December 31, 2010 the Company owed a total amount of $752,500 to First Equity Holdings. During 2011 the Company borrowed $394,962 from an unrelated party and used the funds to pay off $267,500 of the loans and accrued interest due to First Equity Holdings Corp. During 2012 the Company borrowed and paid back $100,000 to from First Equity Holdings Corp. As of December 31, 2012 the Company owed a total of $437,478 to First Equity Holdings Corp.
During 2010 the Company borrowed $45,000 from George Brimhall, our director. The Company borrowed an additional $200,000 from George Brimhall in 2011. As of December 31, 2012 the Company owed a total of $245,000 to George Brimhall.
Director Independence
We do not have an independent director, as defined under NASDAQ Stock Market Rule 5605(a)(2), serving on our board. This rule defines persons as “independent” who are neither officers nor employees of the company and have no relationships that, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors.
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 accounting firm, Sadler, Gibb and Associates, LLC in connection with the audit of our financial statements and other professional services rendered by those accounting firms.
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|
| 2011 |
| 2012 |
| Audit fees | $ 64,832 |
| $ 55,000 |
| Audit-related fees | 0 |
| 0 |
| Tax fees | 0 |
| 0 |
| All other fees | $ 0 |
| $ 0 |
Audit fees represent fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants 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 three 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
(a)(1)
Financial Statements
The audited financial statements of ForeverGreen Worldwide Corp. are included in this report under Item 8 on pages 21 through 36.
(a)(2) Financial Statement Schedules
All financial statement schedules are included in the footnotes to the financial statements or are inapplicable or not required.
(a)(3)
Exhibits
| 3 (i) | Articles of incorporation, as revised (Incorporated by reference to exhibit 3.1 for Form 8-K, as amended, filed December 18, 2006) |
| 3(ii) | 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 ForeverGreen International LLC and Rocky Mountain Development, dated July 1, 2011 (Incorporated by reference to exhibit 10.1 to Form 10-K, filed May 18, 2012) |
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(a)(3)
Exhibits- continued
| 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 | Principal Financial Officer Certification |
| 32.1 | Section 1350 Certification |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document |
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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 16, 2013 |
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.
| By: /s/ Ronald K. Williams Ronald K. Williams Chairman of the Board, President, Secretary, Treasurer, Chief Executive Officer, and Principal Financial Officer | Date: April 16, 2013 |
| By: /s/ John S. Clayton John S. Clayton Director | Date: April 16, 2013 |
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