Attached files
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EX-32 - SECTION 1350 CERTIFICATION - FOREVERGREEN WORLDWIDE CORP | ex32.htm |
EX-31 - 302 CERTIFICATION OF CEO - FOREVERGREEN WORLDWIDE CORP | ex311.htm |
EX-31 - 302 CERTIFICATION OF CFO - FOREVERGREEN WORLDWIDE CORP | ex312.htm |
EXCEL - IDEA: XBRL DOCUMENT - FOREVERGREEN WORLDWIDE CORP | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ 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) |
(801) 655-5500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
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 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 filer [ ] 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 number of shares outstanding of the registrants common stock as of November 8, 2013 was 16,352,141.
1
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
2
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
4
Condensed Consolidated Statements of Cash Flows
5
Notes to the Condensed Consolidated Financial Statements
6
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
12
Item 3. Quantitative and Qualitative Disclosures about Market Risk
16
Item 4. Controls and Procedures
16
PART II OTHER INFORMATION
Item 1. Legal Proceedings
17
Item 1A. Risk Factors
17
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
17
Item 6. Exhibits
18
Signatures
18
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of operations for the three and nine month periods ended September 30, 2013 and 2012 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the nine month period ended September 30, 2013 are not necessarily indicative of results to be expected for any subsequent period.
2
ForeverGreen Worldwide Corporation
Condensed Consolidated Balance Sheets
|
| September 30, 2013 |
|
| December 31, 2012 |
|
| (Unaudited) |
|
|
|
ASSETS |
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
Cash and cash equivalents | $ | 200,075 |
| $ | 89,253 |
Accounts Receivable |
| 989,801 |
|
| 273,366 |
Prepaid expenses |
| 182,548 |
|
| 47,364 |
Inventory |
| 695,946 |
|
| 532,166 |
Total Current Assets |
| 2,068,370 |
|
| 942,149 |
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net |
| 253,840 |
|
| 85,139 |
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
Deposits and other assets |
| 75,792 |
|
| 68,393 |
Trademarks, net |
| 44,903 |
|
| 50,193 |
Customer base, net |
| 278,168 |
|
| 342,360 |
Total Other Assets |
| 398,863 |
|
| 460,946 |
TOTAL ASSETS | $ | 2,721,073 |
| $ | 1,488,234 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
Bank overdraft | $ | 91,959 |
| $ | 49,875 |
Accounts payable |
| 822,257 |
|
| 874,659 |
Accrued expenses |
| 3,341,309 |
|
| 2,507,885 |
Deferred revenue |
| 207,897 |
|
| 113,085 |
Due to related parties |
| 34,407 |
|
| 54,494 |
Banking line of credit |
| -- |
|
| 97,039 |
Current portion of long-term debt |
| 2,175 |
|
| 2,096 |
Notes payable, related parties |
| 922,478 |
|
| 922,478 |
Convertible notes payable, related parties |
| 245,000 |
|
| 245,000 |
Convertible notes payable, unrelated parties net discount ($18,254 and $9,805, respectively) |
| 858,464 |
|
| 1,023,670 |
Total Current Liabilities |
| 6,525,946 |
|
| 5,890,281 |
|
|
|
|
|
|
LONG-TERM DEBT |
|
|
|
|
|
Notes payable |
| 17,920 |
|
| 18,001 |
Total Long-Term Debt |
| 17,920 |
|
| 18,001 |
TOTAL LIABILITIES |
| 6,543,866 |
|
| 5,908,282 |
|
|
|
|
|
|
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;16,352,141 and 15,212,141 shares respectively issued and outstanding |
| 16,352 |
|
| 15,212 |
Additional paid-in capital |
| 31,445,090 |
|
| 30,973,230 |
Other comprehensive income (loss) |
| (30,632) |
|
| (44,796) |
Accumulated deficit |
| (35,253,603) |
|
| (35,363,694) |
Total Stockholders' Deficit |
| (3,822,793) |
|
| (4,420,048) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 2,721,073 |
| $ | 1,488,234 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ForeverGreen Worldwide Corporation
Condensed Consolidated Statement of Operations and Comprehensive Income (Loss)
(Unaudited)
|
| Three months ended September 30, |
| Nine months ended September 30, | ||||
|
| 2013 |
| 2012 |
| 2013 |
| 2012 |
|
|
|
|
|
|
|
|
|
REVENUES, net | $ | 4,793,782 | $ | 3,060,736 | $ | 11,495,871 | $ | 9,781,990 |
COST OF SALES, net |
| 3,266,623 |
| 2,086,174 |
| 7,822,105 |
| 6,784,215 |
GROSS PROFIT |
| 1,527,159 |
| 974,562 |
| 3,673,766 |
| 2,997,775 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Salaries and wages |
| 747,595 |
| 548,280 |
| 2,069,502 |
| 1,651,207 |
Professional fees |
| 187,729 |
| 116,224 |
| 502,943 |
| 377,203 |
General and administrative |
| 290,216 |
| 347,299 |
| 802,741 |
| 1,047,130 |
Total Operating Expenses |
| 1,225,540 |
| 1,011,803 |
| 3,375,186 |
| 3,075,540 |
|
|
|
|
|
|
|
|
|
NET OPERATING INCOME (LOSS) |
| 301,619 |
| (37,241) |
| 298,580 |
| (77,765) |
|
|
|
|
|
|
|
|
|
OTHER EXPENSE |
|
|
|
|
|
|
|
|
Gain on conversion of |
|
|
|
|
|
|
|
|
convertible notes payable |
| 226,230 |
| -- |
| 226,230 |
| -- |
Interest expense |
| (195,656) |
| (70,344) |
| (405,030) |
| (195,537) |
Other Income (Expense) |
| (5,264) |
| -- |
| (9,690) |
| 54 |
Total Other Expense |
| 25,310 |
| (70,344) |
| (188,490) |
| (195,483) |
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax provision |
| 326,929 |
| (107,585) |
| 110,090 |
| (273,248) |
|
|
|
|
|
|
|
|
|
Income Tax Benefit |
| -- |
| -- |
| -- |
| -- |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) | $ | 326,929 | $ | (107,585) | $ | 110,090 | $ | (273,248) |
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER COMMON SHARE | $ | 0.02 | $ | (0.01) | $ | 0.01 | $ | (0.02) |
|
|
|
|
|
|
|
|
|
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
| 15,549,967 |
| 14,892,141 |
| 15,325,987 |
| 14,892,141 |
|
|
|
|
|
|
|
|
|
DILUTED WEIGHTED AVERAGE NUMBER |
|
|
|
|
|
|
|
|
OF COMMON SHARES OUTSTANDING |
| 16,729,794 |
| 14,892,141 |
| 16,504,514 |
| 14,892,141 |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
A Summary of the components of other comprehensive income (loss) for the periods ended September 30, 2013 and 2012 are as follows: |
|
|
|
|
|
|
|
|
Net Income | $ | 326,929 | $ | (107,585) | $ | 110,090 | $ | (273,248) |
Other Comprehensive Income (Loss) |
| 29,888 |
| (31,984) |
| 14,164 |
| 20,487 |
Comprehensive Income (Loss) | $ | 356,817 | $ | (139,569) | $ | 124,254 | $ | (252,761) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ForeverGreen Worldwide Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)
|
| For the Nine Months Ended September 30, | ||
|
| 2013 |
| 2012 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net Income (Loss) | $ | 110,090 | $ | (273,248) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
Depreciation and amortization |
| 107,713 |
| 131,570 |
Debt discount amortization |
| 56,551 |
| -- |
Expenses paid on behalf of the company |
| 13,240 |
|
|
Gain on conversion of debt |
| (226,230) |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
| (717,119) |
| (44,767) |
Prepaid expenses |
| (79,872) |
| (10,384) |
Inventory |
| (164,216) |
| 274,887 |
Deposits |
| (7,431) |
| (138) |
Accounts payable-related parties |
| (21,636) |
| -- |
Accounts payable |
| (43,215) |
| (89,247) |
Accrued expenses |
| 921,953 |
| -- |
Deferred revenue |
| 94,812 |
| -- |
Net Cash Provided by (Used in) Operating Activities |
| 44,640 |
| (11,327) |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Purchase of intangibles |
| (1,114) |
| 2,121 |
Purchases of property and equipment |
| (207,410) |
| -- |
Net Cash Provided by (Used in) Investing Activities |
| (208,524) |
| 2,121 |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Bank overdraft |
| 42,085 |
| (11,647) |
Net proceeds (payments) from revolving bank line of credit |
| (97,039) |
| (46,918) |
Payments on notes payable |
| -- |
| (2,245) |
Payments on notes payable - related parties |
| -- |
| (145,113) |
Proceeds from notes payable - related parties |
| -- |
| 100,000 |
Proceeds from sale of common stock |
| 300,000 |
| -- |
Proceeds from convertible note payable |
| 111,760 |
| -- |
Net Cash Provided by (Used in) Financing Activities |
| 356,806 |
| (105,923) |
|
|
|
|
|
Effect of Foreign Currency on Cash |
| (82,100) |
| 16,245 |
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
| 110,822 |
| (98,884) |
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 89,253 |
| 223,099 |
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 200,075 | $ | 124,215 |
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
Cash paid for interest | $ | 8,716 | $ | 5,072 |
Cash paid for income taxes | $ | -- | $ | -- |
SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
Debt discount on convertible notes | $ | 65,000 | $ | -- |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of and for the period ended September 30, 2013 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Companys December 31, 2012 audited financial statements as reported in its Form 10-K. The results of operations for the nine month period ended September 30, 2013 are not necessarily indicative of the operating results for the full year ended December 31, 2013.
NOTE 2 GOING CONCERN
The Company's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The Company has an accumulated net loss totaling $35,253,603. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared on the basis of accounting principles generally accepted in the United States of America.
Principles of Consolidation
The consolidated balance sheets and statement of operations at September 30, 2013 include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.
6
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Foreign Currency Translation
The Companys 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.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.
Basic and Diluted Earnings and Loss Per Share
For the current year basic earnings per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. For the prior year the basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Our potentially dilutive shares, which include outstanding convertible debentures, have not been included in the computation of diluted net loss per share for 2012, as the results would be anti-dilutive. For 2013 these dilutive potential shares were included in the computation of diluted earnings per share. Accordingly there were 1,178,832 such potentially dilutive shares included as of September 30, 2013 and 6,353,275 such potentially dilutive shares excluded in 2012.
Revenue Recognition
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 Companys 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. All conditions of ASC 605-10 are met and the revenue is recorded upon sale, with an estimated allowance for returns where material.
7
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
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 September 30, 2013 and December 31, 2012 an allowance for obsolete inventory has been recorded in the amount of $5,660 and $45,660, respectively.
Accounts Receivable
Accounts receivable arise from doing business with third party distributor centers in various locations throughout South America and Korea. In 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. In Korea the accounts receivable are for products sold to a third party. 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 September 30, 2013 and December 31, 2012, 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.
Valuation of Long-lived Assets
In accordance with ASC 360-10, the carrying values of the Companys long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable. 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 Companys analysis did not indicate any impairment of assets as of September 30, 2013 and 2012.
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 intangible 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 intangible assets are less than the net carrying amount of intangible assets. No impairment was recognized accordingly, during the periods ended September 30, 2013 and 2012.
New Accounting Pronouncements
After evaluating the recent accounting pronouncements through the date of this filing, the Company has concluded that application of these pronouncements will have no material impact on the Companys financial results.
8
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4 NOTES PAYABLE
Long-term notes payable
Long term liabilities are detailed in the following schedules as of September 30, 2013 and December 2012:
|
| Sept. 30, 2013 |
|
| Dec. 31, 2012 |
Note payable to financial institution bearing interest at 7%, principle and interest due monthly, matures August, 2019, secured by equipment | $ | 20,095 |
| $ | 20,097 |
Less current portion of notes payable |
| (2,175) |
|
| (2,096) |
Net Long-Term Liabilities | $ | 17,920 |
| $ | 18,001 |
Current notes payable
|
|
|
|
| ||||||
AMOUNT | TYPE | CONVERSION RATE PER SHARE | ORIGINATION DATE | INTEREST RATE | DUE DATE | |||||
$ 485,000 | Related party | NA | 12/9/2008 | 10% | 12/31/2015 | |||||
$ 437,478 | Related party | NA | 7/31/2009 | 10% | 12/31/2015 | |||||
$ 45,000 | Convertible, Related party | .15 | 10/7/2010 | 10% | 12/31/2015 | |||||
$ 200,000 | Convertible, Related party | .20 | 1/19/2011 | 10% | 12/31/2015 | |||||
$ 394,962 | Convertible, Non-related | .20 | 1/19/2011 | 10% | 12/31/2015 | |||||
$ 100,000 | Convertible, Non-related | .20 | 3/14/2011 | 10% | 12/31/2015 | |||||
$ 231,756 | Convertible, Non-related | .20 | 3/9/2010 | 15% | 12/31/2015
| |||||
$200,000 | Convertible, Non-related | .08 | 12/28/2012 see below for details | 10% | 12/31/2013 |
On December 28, 2012 the Company entered into a line of credit promissory note agreement for a maximum line of $200,000. The note included an interest rate of 10% and a stock conversion price of $.08. Below are the details of the draws against that line of credit.
9
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4 NOTES PAYABLE continued
On December 28, 2012 the Company entered into a promissory note agreement of $25,000, under the terms of the $200,000 line of credit to fund its operations. The Company recognized a beneficial conversion feature discount of $12,500 of which $12,305 and $195 have been recognized as interest expense during the periods ending September 30, 2013 and December 31, 2012, respectively.
On January 11, 2013, the Company entered into a convertible promissory note agreement of $25,000, under the terms of the $200,000 line of credit to fund its operations. The Company recognized a beneficial conversion feature discount of $12,500 of which $12,500 has been recognized as interest expense during the period ending September 30, 2013.
On February 19, 2013, the Company entered into a convertible promissory note agreement of $28,740, under the terms of the $200,000 line of credit in exchange for expenses of $3,740 paid on behalf of the Company and cash of $25,000. The Company recognized a beneficial conversion feature discount of $12,500 of which $12,500 has been recognized as interest expense during the period ending September 30, 2013.
On April 18, 2013, the Company entered into a convertible promissory note agreement of $21,205, under the terms of the $200,000 line of credit in exchange for expenses of $9,445 paid on behalf of the Company and cash of $11,760. The Company recognized a beneficial conversion feature discount of $12,500 of which $12,500 has been recognized as interest expense during the period ending September 30, 2013.
On August 27, 2013 the Company entered into a convertible promissory note agreement of $50,000 under the terms of the $200,000 line of credit in exchange for cash of $50,000. The Company recognized a beneficial conversion feature discount of $25,000 of which $6,746 has been recognized as interest expense during the period ending September 30, 2013.
On May 26, 2011, the Company entered into a convertible promissory note for $281,758 with a conversion price of $.20 per share. On September 9, 2013 the creditor converted the principle note of $281,758 and accrued interest of $52,472 totaling $334,230 for 540,000 shares of common stock at a share price of $.62 per share. Because the note holder agreed to the increased conversion price, the Company realized a gain of $226,230 on the conversion.
NOTE 5 - 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 $2,500 per day for each violation alleged. The Company has engaged legal counsel to vigorously defend against these allegations. The parties have reached a tentative settlement. A settlement conference is scheduled for November 2013, at which time the Judge will either accept or reject the settlement offer.
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FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 6 INVENTORY
Inventories for September 30, 2013 and December 2012 were classified as follows:
|
| September 30, 2013 |
| December 31, 2012 |
Raw Materials | $ | 212,969 | $ | 100,788 |
Finished Goods |
| 488,637 |
| 477,038 |
Total Inventory |
| 701,606 |
| 577,826 |
Less Reserve for Obsolete Inventory |
| (5,660) |
| (45,660) |
Total Inventory (net of reserve) | $ | 695,946 | $ | 532,166 |
NOTE 7 RELATED PARTY TRANSACTIONS
Company officers have paid for expenses on behalf of the Company from time to time, which amounts are non-interest bearing and are due on demand. These amounts are recorded as due to related parties amounting to $34,407 and $54,494 at September 30, 2013 and December 31, 2012, respectively.
NOTE 8 FIXED ASSETS
On August 1, 2013 the Company began the Application Development Stage of a new POS software system. Through the third quarter of 2013 the Company has capitalized $184,867 of the software project.
NOTE 9 ISSUANCE OF COMMON STOCK
On August 30, 2013 the Company agreed to issue 600,000 shares of common stock at .50 per share in exchange for $300,000 cash with an unrelated third party.
On May 26, 2011, the Company entered into a convertible promissory note for $281,758 with a conversion price of $.20 per share. On September 9, 2013 the creditor converted the principle note of $281,758 and accrued interest of $52,472 totaling $334,230 for 540,000 shares of common stock at a share price of $.62 per share.
NOTE 10 SUBSEQUENT EVENTS
On October 4, 2013 the Company entered into a convertible promissory note agreement of $50,000, under the terms of the $200,000 line of credit in exchange for expenses of $6,189 paid on behalf of the Company and cash of $43,811. The Company will record a beneficial conversion feature discount of $25,000, which will be amortized over the life of the note.
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In this report references to ForeverGreen, we, us, our, and the Company refer to ForeverGreen Worldwide Corp. and its subsidiary.
NOTE REGARDING FORWARD LOOKING STATEMENTS
The U.S. Securities and Exchange Commission (SEC) encourages reporting 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.
ITEM 2. MANAGEMENTS 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 life-enhancing products. With our new FGXpress brand test launched in November 2012, we were able to reach out to Members around the world through our e-commerce business model. Since the pre-launch in January 2013, we have exceeded our original FGXpress growth goal by 27%, and are projected to continue to be on track to exceed $16 million in total revenues by December 2013. We anticipate that we will reach this sales goal if we maintain current sales numbers.
Through our exclusive FrequenSea product and ForeverGreen Compensation Plan earnings and commissions, 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 opportunities. We also intend to provide 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.
The Company has simplified its message and products under the philosophy of Restoration Biology, branded as RESTORATION90. Management believes this will allow the consumer to find the product that will be best suited for their individual needs and promote customer loyalty.
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 high quality customer service experience and increase Member satisfaction. 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.
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We are expanding our markets and exclusive products and we anticipate the need to expand our international logistics centers. To set up more international logistics centers will require us to have more inventory and also the additional funds to operate. The rewards from this expansion include increased sales and diversified market incomes.
With our strong second quarter and continued increasing sales in July, which traditionally is one of our slower sales months of the year, we feel confident that we are still on track to reach our sales goal for 2013 of $16,000,000 to $18,000,000 in revenues.
Liquidity and Capital Resources
At September 30, 2013 we had cash and cash equivalents of $200,075 compared to $89,253 at December 31, 2012, with a working capital deficit of $4,457,576 and $4,948,132, respectively. We recognized revenues of $11,495,871 for the nine month period ended September 30, 2013 (2013 nine month period) and recorded net operating income of $298,580 compared to $9,781,990 in revenues and a net loss of $77,765 for the nine month period ended September 30, 2012 (2012 nine month period).
For the nine month period ending September 30, 2013 cash used in operations of $44,640 resulted primarily from the increase in accounts receivable with our third party distribution center in Korea, a net decrease in inventory due to only keeping our better selling products in stock and an increase in our prepaid expenses. Cash used in investing of $208,524 resulted from the investment in a new POS software and other fixed assets to more efficiently assist our distributors. Cash provided by financing activities of $356,806 was the result of a gain on the conversion of a promissory note to common stock, paying off the banking line of credit, and payments on a note payable to a related party.
Management continues to negotiate better costs and terms with our key vendors to lower our cost of goods sold. 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 September 30, 2013 were $6,543,866 compared to $5,908,282 at December 31, 2012. The increase is due to an increase in accrued expenses, primarily commissions payable with an increase of $596,000. This large increase is due to a sales promotion ran during the third quarter ended September 30, 2013 (2013 third quarter) where if a distributor bought extra product their commission for that product would be paid over a 5 month period instead of the normal following month. The increase in total liabilities is also due to an increase in sales, VAT, and GST tax payable of $62,000 due to increase revenues, a decrease in the banking line of credit of $97,000 due to paying off the line, an increase in deferred revenue of $94,000 due to increased revenues, a decrease in accounts payable of $52,000 due to paying our vendors in a timely manner, an increase in bank overdraft of $42,000 due to revenue increase.
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On December 3, 2012 the Company secured a $200,000 line of credit from Capital Communications, Inc., 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. 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 nine month period ending September 30, 2013 the Company drew funds from this LOC totaling $125,000 under the terms of the line of credit to fund operations. In connection with these promissory notes, the Company received cash of $111,760 and expenses paid for on the Companys behalf of $13,240.
At March 31, 2013 the Company was in default for an aggregate of $1,253,476 in notes payable and convertible notes payable. At June 30, 2013 the Company has renegotiated the notes and they are no longer in default.
The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the nine month period ended September 30, 2013 and the year ended December 31, 2012. The consolidated balance sheets include 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 I, Item 1, above.
SUMMARY OF BALANCE SHEET |
| Nine month period ended Sept. 30, 2013 |
| Year ended Dec. 31, 2012 |
|
| (Unaudited) |
|
|
Cash and cash equivalents | $ | 200,075 | $ | 89,253 |
Total current assets |
| 2,068,370 |
| 942,149 |
Total assets |
| 2,721,073 |
| 1,488,234 |
Total current liabilities |
| 6,525,946 |
| 5,890,281 |
Long-term debt |
| 17,920 |
| 18,001 |
Total liabilities |
| 6,543,866 |
| 5,908,282 |
Accumulated deficit |
| (35,253,603) |
| (35,363,694) |
Total stockholders equity | $ | (3,822,793) | $ | (4,420,048) |
Results of Operations
The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the nine month periods ended September 30, 2013 and 2012. 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 I, Item 1, above.
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SUMMARY OF OPERATIONS |
| Three month period ended September 30, |
| Nine month period ended September 30, | ||||
|
| 2013 |
| 2012 |
| 2013 |
| 2012 |
Revenues, net | $ | 4,793,782 | $ | 3,060,736 | $ | 11,495,871 | $ | 9,781,990 |
Cost of sales |
| 3,266,623 |
| 2,086,174 |
| 7,822,105 |
| 6,784,215 |
Gross profit | $ | 1,527,159 | $ | 974,562 | $ | 3,673,766 | $ | 2,997,775 |
Total operating expenses |
| 1,225,540 |
| 1,011,803 |
| 3,375,186 |
| 3,075,540 |
Net income (loss) from continuing operations |
| 301,619 |
| (37,241) |
| 298,580 |
| (77,765) |
Total other income (expense) |
| 25,310 |
| (70,344) |
| (188,490) |
| (195,483) |
Net earnings (loss) | $ | 326,929 | $ | (107,585) | $ | 110,090 | $ | (273,248) |
Net earnings (loss) per share both |
|
|
|
|
|
|
|
|
(basic) and diluted | $ | 0.02 | $ | (0.01) | $ | 0.01 | $ | (0.02) |
|
|
|
|
|
|
|
|
|
Our source of revenue is from the sale of various foods, other natural products, distributor sign up kits and freight
and handling. Sales are net of returns, which have historically averaged 1.6% of sales; however, for the 2013 nine month period returns were .41%, down from .52% in the 2012 comparable period. Revenues for the 2013 nine month period increased by 17.52% ($1,713,881) compared to the same period in 2012. This was largely due to the introduction of FG Xpress. During the 2013 third quarter revenues increased by 56.62% ($1,733,046) compared to the quarter ended September 30, 2012 (2012 third quarter). This is due to the increased sales of FG Xpress product.
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 Members, plus credit card sales processing fees. Cost of sales was approximately 68.04 % of revenues for the 2013 nine month period. This is an improvement compared to cost of sales of 69.35 % of revenues for the 2012 nine month period, which is an increase of $1,037,890 for the nine month period over the same time period in 2012. The percentage decrease in the 2013 nine month period was mostly attributable to decreasing our product costs and shipping costs. During the 2013 third quarter cost of sales was approximately 68.14 % of revenues compared to 68.16 % the same quarter in 2012. This slight percentage decrease is again attributable to decreased product and shipping costs. The increase of expense of the cost of sales of $1,180,449 over the same period in 2012 is in line with the increase in sales for the same period.
Total operating expenses increased in the 2013 nine month period by $299,647 compared to the 2012 nine month period. Salaries and wages have increased by $418,295 for the 2013 nine month period over the 2012 nine month period. Professional fees increased by $125,740. These increases are a direct cause of management investing in our IT and sales departments to better serve our distributors and increase sales. General and administrative expenses decreased by $244,389 for the 2013 nine month period as compared to the 2012 nine month period. The decrease is due to management working to keep expenses in line with revenues. For the 2013 third quarter operating expenses increased by $213,737 over the 2012 same period. Salaries and wages increased by $199,315 over the same period in 2012. Professional fees increased by $71,505 for the 2013 third quarter compared to the 2012 third quarter. All of increases are a direct result of management investing in our IT and sales departments to better serve our distributors and sales.
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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 Internationals 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.
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. No impairment was recorded during the nine month period ended September 30, 2013.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow timely decisions regarding required disclosure. On September 16, 2013 the Company hired a new Chief Financial Officer. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and concluded that our disclosure controls and procedures were not effective. In May 2013 the Company determined that we needed to restate our audited financial statements for the year ended December 31, 2012 because we had understated revenue for the fiscal year 2012. In July 2013 we filed an amended Form 10-K for the year ended December 31, 2012. Management has instigated new internal controls to improve our timely disclosures.
Changes to Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has determined that there were no changes made in the implementation of our internal controls over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 $2,500 per day for each violation alleged. The Company has engaged legal counsel to vigorously defend against these allegations. The parties have reached a tentative settlement. A settlement conference is scheduled for November 2013, at which time the Judge will either accept or reject the settlement offer.
ITEM 1A. RISK FACTORS
Factors Affecting Future Performance
Actual costs and revenues could vary from the amounts we expect or budget, possibly materially, and those variations are likely to affect how much additional financing we will need for our operations.
Management plans to increase sales and decrease expenses where appropriate to improve profitability. Our future internal cash flows will be dependent on a number of factors, including:
The growth of the United States and the global economy;
Our ability to encourage our Members to sponsor new Members and increase their own personal sales;
Our ability to promote our product lines with our Members and customers;
Our ability to develop successful new exclusive product lines;
Our ability to obtain essential oil raw materials for some of our products;
Effects of future regulatory changes in the area of direct marketing, if any;
Our ability to remain competitive in our domestic and international markets; and
Our ability to decrease shipping time and expense.
Our expansion into foreign markets exposes our business to risks related to those economies which may result in loss of revenues.
We have entered into agreements with Members and suppliers in foreign countries and we may establish similar arrangements in other countries in the future. As a result, our future revenues may be affected by the economies of these countries. Our international operations are subject to a number of risks, such as, longer payment cycles, unexpected changes in regulatory environments, import and export restrictions and tariffs, difficulties in staffing and managing international operations, potentially adverse recessionary environments and economies outside the United States, and possible political and economic instability.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 30, 2013 the Company issued 60,000 shares to Empire Fund Managers in consideration for $300,000. On September 9, 2013 the Company issued 540,000 to Liberty Partners in consideration for conversion of a convertible promissory note and accrued interest totaling $334,230. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.
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ITEM 6. EXHIBITS
Part I Exhibits
No. | Description |
31.1 | Chief Executive Officer Certification |
31.2 | Chief Financial Officer Certification |
32 | Section 1350 Certification |
Part II Exhibits
No. | Description |
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, LLC, dated July 1, 2011 (Incorporated by reference to exhibit 10.1 to Form 10-K, filed May 18, 2012) |
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. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FOREVERGREEN WORLDWIDE CORPORATION By: /s/ Ronald K. Williams Ronald K. Williams Chairman of the Board, President, Chief Executive Officer | Date: November 13, 2013 |
By: /s/ Jack B. Eldridge Chief Financial Officer | Date: November 13, 2013 |
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