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, 2016 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, 2015 audited financial statements as reported in its Form 10-K. The results of operations for the nine month period ended September 30, 2016 are not necessarily indicative of the operating results for the full year ended December 31, 2016.
NOTE 2 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, 2016 include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.
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.
6
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Reclassification
Certain balances in previously issued financial statements have been reclassified to be consistent with the current period presentation.
Basic and Diluted Loss Per Share
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. As of September 30, 2016, there were 9,846,754 common stock equivalents from convertible notes that were excluded from the diluted EPS calculation as their effect is anti-dilutive.
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 members for a 30 day period and the consumer has the same return policy in effect against the member. All conditions of ASC 605-10 are met and the revenue is recorded upon sale, with an estimated allowance for returns where material.
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, 2016 and December 31, 2015, the reserve for obsolete inventory had balances in the amount of $40,000 and $40,000, respectively.
Accounts Receivable and Member Advances
Normally the majority of accounts receivable are sales deposits processed by third parties from the prior one to four days that have not posted to the Companys bank account.
Members are required to pay for products prior to shipment. Members typically pay for products in cash, by wire transfer or by credit card. Accordingly, the Company seldom carries accounts receivable from members that are not distribution centers and any balances carried would be minimal. In order to increase business, the Company occasionally makes advances to new Members to assist them with building their businesses.
7
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
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 assessment of events and circumstances indicated that an analysis for impairment of long-lived assets as of September 30, 2016 was not needed.
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 periods ended September 30, 2016 and 2015.
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.
NOTE 3 DEBT
Convertible notes payable and notes payable as of September 30, 2016
|
|
|
|
|
| |
TYPE
|
CONVERSION RATE PER SHARE
|
ORIGINATION DATE
|
INTEREST
RATE
|
DUE DATE
|
BALANCE
|
Convertible,
Related party
|
0.68
|
12/01/2015
|
10%
|
12/31/2018
|
$ 1,501,024
|
Convertible,
Related party
|
0.15
|
10/7/2010
|
10%
|
12/31/2017
|
$ 45,000
|
Convertible,
Related party
|
0.20
|
1/19/2011
|
10%
|
12/31/2017
|
$ 200,000
|
Convertible,
Non-related
|
0.20
|
3/9/2010
|
10%
|
12/31/2017
|
$ 231,756
|
Convertible,
Non-related
|
0.20
|
3/14/2011
|
14%
|
12/31/2015
|
$ 100,000
|
8
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 DEBT - continued
Convertible notes payable and notes payable as of September 30, 2016 - continued
|
|
|
|
|
| |
TYPE
|
CONVERSION RATE PER SHARE
|
ORIGINATION DATE
|
INTEREST
RATE
|
DUE DATE
|
BALANCE
|
Convertible,
Non-related
|
0.70
|
02/25/2015
|
14%
|
12/31/2015
|
$ 891,718
|
Convertible,
Non-related
|
1.00
|
07/06/2015
|
12%
|
08/31/2015
|
$ 200,000
|
Convertible,
Non-related
|
0.35
|
05/27/2016
|
10%
|
12/31/2018
|
$ 500,000
|
Convertible,
Non-related
|
0.35
|
06/23/2016
|
10%
|
12/31/2018
|
$ 150,000
|
Convertible,
Non-related
|
0.35
|
07/08/2016
|
10%
|
12/31/2018
|
$ 50,000
|
Non-related
|
NA
|
08/10/2016
|
NA
|
04/15/2018
|
$ 489,000
|
Debt Discount
|
NA
|
08/10/2016
|
NA
|
04/15/2018
|
$ (22,920)
|
Non-related
|
NA
|
03/01/2016
|
4.66%
|
03/01/2018
|
$ 405,115
|
Total
|
|
|
|
|
$ 4,740,693
|
On March 1, 2016, the Company issued a promissory note for $506,158 in exchange for leasehold improvements to a Company warehouse and offices. This note has an annual interest rate of 4.66%. The principal amount of the note and all accrued interest is due and payable on or before March 1, 2018. As of September 30, 2016 the Company has paid $101,043 toward the note balance, leaving a balance of $405,115 due on this note.
On March 11, 2016, the Company issued two promissory notes for $100,000 each. Both notes have an annual interest rate of 10% and are secured by the Company's inventory. The principal amount of the notes and all accrued interest is due and payable on or before February 28, 2021. The notes have a conversion feature for common shares at $0.40 per share. Due to the fact that the trading price of our stock was greater than the stated conversion rate of this note, a total discount of $55,000 for the beneficial conversion was recorded against these notes and will be amortized against interest expense through the life of the notes. As of September 30, 2016 interest expense of $55,000 was recorded as part of the amortization of the beneficial conversion feature of these notes. Both of these notes were paid off on May 18, 2016.
On May 27, 2016, the Company issued a promissory note for $500,000. The note has an annual interest rate of 10% and is secured by the Company's inventory. The principal amount of the note and all accrued interest is due and payable on or before December 31, 2018. The note has a conversion feature for common shares at $0.35 per share.
9
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
On June 23, 2016, the Company issued a promissory note for $150,000. The note has an annual interest rate of 10% and is secured by the Company's inventory. The principal amount of the note and all accrued interest is due and payable on or before December 31, 2018. The note has a conversion feature for common shares at $0.35 per share.
On July 8, 2016, the Company issued a promissory note for $50,000. The note has an annual interest rate of 10% and is secured by the Company's inventory. The principal amount of the note and all accrued interest is due and payable on or before December 31, 2018. The note has a conversion feature for common shares at $0.35 per share.
On August 10, 2016, the Company entered into an investment agreement with a third party for $525,000, including an original issue discount of $25,000. Pursuant to the agreement, the third party agreed to invest $500,000 and will be paid back the $525,000, in one of the following ways: A royalty of $0.75 for each Prodigy-5 product sold and membership position calculated weekly or a guaranteed minimum weekly cash payment of $6,000 whichever is greater. As of September 30, 2016 the Company has paid $36,000, leaving a balance of $489,000 due and interest expense of $2,080 was recorded as part of the amortization of the original issue discount. This agreement was terminated subsequent to period end, on October 21, 2016, and replaced by a new investment agreement (see Note 8).
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company has evaluated commitments and contingencies from the balance sheet date through the date the financial statements were issued and has determined that there are no such commitments and contingencies that would be a material impact on the financial statements.
NOTE 5 INVENTORY
|
|
|
| |
|
|
September 30,
2016
|
|
December 31,
2015
|
Raw Materials
|
$
|
1,307,660
|
$
|
1,055,243
|
Finished Goods
|
|
1,172,976
|
|
1,012,399
|
Total Inventory
|
|
2,480,636
|
|
2,067,642
|
Less Reserve for Obsolete Inventory
|
|
(40,000)
|
|
(40,000)
|
Total Inventory (net of reserve)
|
$
|
2,440,636
|
$
|
2,027,642
|
NOTE 6 LITIGATION SETTLEMENT
On August 24, 2015, Pruvit Ventures, Inc. filed a complaint in the United States District Court, Eastern District of Texas, Sherman Division, against Axcess Global LLC (Axcess) and ForeverGreen International LLC (FGI) alleging, among other things, breach of contract and unfair competition. Both Axcess and FGI answered the complaint and asserted counterclaims against Pruvit for, among other things, patent infringement, false advertising, and misappropriation of trade secrets. Both FGI and Axcess claimed injunctive relief as well as damages in an amount to be determined. As of February 25, 2016, Axcess Global Sciences, LLC, ForeverGreen International, LLC and Pruvit Ventures, Inc. reached an agreement to settle the existing lawsuit between them. The settlement resolves all claims between all parties to the litigation. Under the settlement agreement, the parties have agreed to dismiss the pending litigation and to refrain from any statements that disparage or criticize the other. Other terms of the settlement agreement are confidential.
10
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 7 GOING CONCERN
As reported in the accompanying consolidated financial statements the Company has a working capital deficit of $2,950,578 and accumulated deficit of $37,803,749 at September 30, 2016, negative cash flows from operations, and has experienced periodic cash flow difficulties. These factors combined, raise substantial doubt about the Companys ability to continue as a going concern. Managements plans to address and alleviate these concerns are as follows: The Company has reviewed its cost structure and is taking steps to implement cost saving measures deemed to be effective. This includes a reduction in labor force, restructuring of lease agreements, revised pricing of certain products to enhance sales incentives, and a marketing plan which involves more interaction with a broad scope of customers and Members.
Additionally, we expect we will take advantage of limited international expansion opportunities. These expansion opportunities will continue to be evaluated and those which provide the best opportunity for success will be pursued on a priority basis. New products have been and will continue to be introduced to bolster Member recruiting and sales. Management is reviewing improvements to the marketing plan which will enhance the opportunities for continued growth. The Company intends to seek debt and equity financing as necessary.
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.
NOTE 8 SUBSEQUENT EVENTS
On October 18, 2016, as part of our expense restructuring initiative, the Company negotiated the exit from one building lease with Lindon LLC in order to consolidate the corporate offices and warehouse all within the same space. Under the terms of the agreement the Company agreed to pay $30,000 on October 19, 2016 and 12 monthly payments of $10,000 each beginning in November of 2016. In addition, the Company agreed to transfer ownership of all tenant improvements (book value of $270,838) and office furnishings (book value of $447,499).
On October 21, 2016 the Company terminated the investment agreement dated August 10, 2016 (see Note 3) and entered into a new investment agreement with the same third party for $1,025,000, including an original issue discount of $425,000. Pursuant to the agreement, the third party agreed to invest $600,000 (of which $500,000 was paid in the prior period on August 10, 2016 and an additional $100,000 was paid on November 7, 2016). The $1,025,000 amount due will be paid back in one of the following ways: A royalty of $0.75 for each Prodigy-5 product sold calculated weekly or a guaranteed minimum weekly cash payment of $5,000, whichever is greater.
On October 19, 2016 the Company issued 1,000,000 shares of common stock for cash proceeds of $300,000 at $0.30 per common share.
11
In this report references to ForeverGreen, the Company, we, us, and our refer to ForeverGreen Worldwide Corp. and its subsidiaries.
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 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, ForeverGreen Singapore Pte Ltd, ForeverGreen Taiwan, ForeverGreen Japan (KK), ForeverGreen Peru SAC, ForeverGreen (HK) Limited (Hong Kong), ForeverGreen Marketing Corporation (Philippines), FG International LLP (India), Forevergreen Puerto Rico LLC, Forevergreen Dominicana S.R.L. (Dominican Republic), Forevergreen Peru, SAC, ForeverGreen SP z.o.o , (Poland), FGXpress do Brasil Comercio de Alimentos LTDA (Brazil), and ForeverGreen Team B.V. (Netherlands).
We intend to continue our emphasis as a total lifestyle company focused on bringing our domestic and international customers and Members our newly announced global Xpress product, Prodigy-5 along with our exclusive Ketopia line, PowerStrips, SolarStrips, and BeautyStrips products. In addition, we will continue to evaluate and share our array of nutrition, supplement, and weight management products to our customers and Members. Our focus is to assist prospective Members in creating a home-based business with home business training, mentorship and accountability so that they can benefit from the residual income stream opportunities we offer. 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 innovative new products that are exclusive to our Members.
During the first nine months of 2016 the Company experienced exciting updates that included, changes and additions involving ForeverGreens executive team, new product announcements, and an exciting new face on the Scientific Advisory Board.
In July and August, ForeverGreen made adjustments and additions to their executive team. Chief Information Officer, Rob Ferguson, took on the additional role of guiding daily operations as Chief Operating Officer. Jorge Alvarado, Vice President of Latin America, added the role of Chief Marketing Officer to his responsibilities. Chief Sales Officer, Joe Jensen added Europe to his areas of Asia and North America. Joining Jensen as co-Chief Sales Officer was Rick Redford, a veteran team leader.
Redford brings over 25 years of successful Direct Selling industry experience, previously working at Unicity International, Genesis Pure and Viz. His extensive experience includes contract manufacturing, sales, marketing and international expansion. Along with his experience in direct selling, Redford brings his expertise in running several businesses, international sales and public speaking.
12
August also saw the announcement of ForeverGreens continued commitment to overall cost reductions and a path to profitability. Management believes that with the amount of global marketing momentum the Company achieved by the end of 2015, the Company intends to shift our focus from top-line revenue growth to expense management and profitability.
September marked the official addition of Dr. Balamurali Ambati, Ph.D., M.D. to ForeverGreens scientific advisory board. In 1995, Ambati entered the Guinness Book of World Records as the world's youngest doctor, at the age of seventeen. He has won numerous awards including the Ludwig von Sallmann Clinician-Scientist Award from the ARVO Foundation in 2014 and the Troutman-Véronneau Prize from the Pan-American Association of Ophthalmology in 2013. Dr. Ambati joined the company as a developmental part of ForeverGreen's revolutionary and scientific, recently announced product, Prodigy-5, described below.
With the addition of Dr. Ambati, ForeverGreen also acquired the exclusive, proprietary technology, Nutrisorb. This key ingredient will be featured in the upcoming (anticipated late November) new global Xpress model product, Prodigy-5. Dr. Balamurali Ambati, who recently joined the ForeverGreen scientific advisory board, helped develop the technology along with Dr. Adam Saucedo, M.D. of ForeverGreen. Nutrisorb, is an ingredient used to improve and optimize the absorption by the human body of vitamins, minerals, supplements and foods. ForeverGreen's license agreement provides the Company with the rights to the proprietary Nutrisorb technology and gives the Company worldwide exclusivity. As part of the license agreement,
It was in mid-September that ForeverGreen officially announced the development of our new global product, Prodigy-5. In brief, the product Prodigy-5's worldwide, exclusive technology answers the phrase, You're not just as healthy as what you ingest, but rather what you absorb. This key technology aids the body in absorbing more of the nutrition than it normally would, thereby increasing efficiencies and overall health. Prodigy-5 will be the newest offering in ForeverGreen's global Xpress model and management believes this new product could reframe the current conversation on supplementation. ForeverGreen has scientifically combined several products into one and as a part of the global Xpress model the Company expects to bring this all-in-one nutritional habit to the public.
The Company continues to look for opportunities to improve upon or expand the restructuring and cost cutting initiatives implemented in the first, second and third quarters. Management has instigated cost cutting measures to reduce overhead and anticipates the November launch of Prodigy-5 will grow revenues. Pre-orders for the product already total more than $1.5M. The Company is also reviewing its entire line of products to determine which may be phased out or reworked to fit into their exciting global Xpress model. We continually manage our systems and logistics centers around the world to support the demand for our products and business opportunity. We continually challenge ourselves to continue to meet a high standard of quality and customer service and maintain the highest levels of Member satisfaction.
Overcoming periodic economic downturns and managing profitability will continue to require skilled personnel and responsive manufacturing and shipping facilities. Management intends to continue ongoing process improvement initiatives, especially in the areas of production and order fulfillment. These new operating efficiencies are targeted to address the current economic environment as well as prepare the Company for the upturn in demand as Prodigy-5 begins to ship and as people continue to look for alternative income opportunities. We are actively positioning ForeverGreen to be the Company they can align with for the future as traditional employment options.
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13
Results of Operations
The following chart summarizes the consolidated statements of operations of ForeverGreen Worldwide and subsidiaries for the three and nine month periods ending September 30, 2016 and 2015.