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 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 (named alternately in this document as the Company, ForeverGreen, or FGI). ForeverGreen is uniquely positioned in the industry in three important ways. First, ForeverGreen has historically been known for the development, manufacturing and marketing of a comprehensive line of meal replacements shakes, nutritional beverages, and marine phytoplankton products using exclusive and proprietary processes. Secondly, ForeverGreen has developed its global Xpress envelope model with customers in more than 200 countries and territories. Thirdly, ForeverGreen sponsors the exclusive personal development training title The U of YOU which has been enjoyed by tens of thousands around the world.
ForeverGreen specializes in the development, manufacturing and marketing of a comprehensive line of, meal replacements shakes, nutritional beverages, and marine phytoplankton products. Three key differentiators separate ForeverGreen from our competitors in the direct sales and traditional consumer spaces. One is our proprietary marine phytoplankton nutritional component which is sourced through exclusive strategic partnerships in both farming and processing. The second is our patent-pending
Aqueous Molecular Partitioning
(AMP
) technology which renders ingredients water-soluble without the use of chemicals or heat which may compromise the nutritional
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value or health benefits of many processed foods. Third is our industry exclusive license agreement to the patented ingredients in KetonX
, the flagship product of the Ketopia weight management product line.
The newest edition to the global Xpress model was launched in the fourth quarter of 2016. After months of development ForeverGreen announced their 2.0 global Xpress model headlined with the unique Prodigy-5. Prodigy-5 includes the groundbreaking TransArmor
technology which provides the body with key nutrients including phytoplankton, antioxidants, vitamins and energy. ForeverGreen partnered with Nutrisorb, LLC, a company dedicated to socially responsible use of nutritional resources that specializes in the development of proprietary ingredients, substances and processes to improve and optimize the absorption by the human body of vitamins, minerals, supplements and foods. F
oreverGreen's license agreement provides the Company with the rights to the proprietary
TransArmor
technology and gives the Company worldwide exclusivity. As part of the license agreement, Dr. Adam Saucedo and Dr. Balamurali Ambati, the developers of
TransArmor
technology agreed to help educate ForeverGreen and all its Members on this new technology and exclusive Prodigy-5 product, the first of several planned products featuring
TransArmor
.
In 2016 ForeverGreen also began to transition several existing products into the global Xpress model. FrequenSea, a flag-ship product, will be among the first products changed to the model. The formerly bottled formula will be released in a powder form, expanding its customer range globally. FrequenSea Pro will be an upgraded and improved version from FrequenSea and will be another great product in the revolutionary global Xpress model. Other products being considered are AIM, Pulse-8 and KetonX which would allow them to grow from currently approximate 12 markets, to customers worldwide.
Other products currenly performing in the global Xpress model include the exclusive production and marketing of PowerStrips, a proprietary topical product that is listed with the U.S. Food and Drug Administration as a Class I Medical Device to offer temporary relief of minor aches and pains. These patented topical adhesive strips are light, thin, and inexpensive to ship in a greeting-card sized envelope, making the product available to customers all around the world. Because of this unique product positioning and configuration, the Company has elected to operate FGXpress as the international business model of FGI.
The global introductions of both SolarStrips and BeautyStrips to the FGXpress model have been well received by ForeverGreen Members. SolarStrips are an exclusive raw food product featuring industry exclusive marine phytoplankton in a unique delivery system. BeautyStrips consists of a face mask and a serum, both specially developed with proprietary ingredients to enhance the healthy, youthful appearance of skin.
The U of YOU is a one-day experiential training designed to help us understand the power of creating a life of design, rather than one of default. At ForeverGreen we believe that the people are our best product and the only sustainable element to our success, and that the U of YOU is the actual product development process in ForeverGreen. The experience is comfortable, entertaining and humorous, while deeply insightful and inspiring. The U of YOU is designed for everyone, be it for family and relationships, business and money, or even health, hope and joy. We believe it may connect you tangibly to your dreams, while bringing the most meaningful areas of your life into the brightest colors imaginable. The U of YOU is about purpose, passion, and you living your truths. The U of YOU has been shared in multiple countries around the world in multiple languages with our intent to create the same positive results and effect on its audience.
While we relentlessly strive to improve our products, processes and profitability, what truly sets ForeverGreen apart is the value system that underlies every aspect of our operations. We value timelessness over trends. Our products and business practices are consciously crafted so that our employees and worldwide community Members will think of ForeverGreen as a lasting career home, not a here-today, gone-tomorrow profit opportunity to be consumed and discarded.
Kindness is more than a catch phrase at ForeverGreen. Our goal is for kindness to be at the core of how we treat everyone who comes in contact with our Company. Although we constantly aim for harmony and excellence, there are days when we disagree or make mistakes. When we discover a misalignment we deal with it directly, but in a
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respectful way that leaves our working relationships intact. We embrace the same growth and profit motives as any successful company, but we insist on using those profits to improve the world around us and touch as many lives as possible for the better. Every ForeverGreen Member and employee is encouraged to actively give back to their local communities through selfless acts of service. We model this expectation as a Company through various corporate outreach initiatives.
The Company disseminates products through a direct sales model known as network marketing or multilevel marketing. This form of direct selling provides entrepreneurial opportunities to individuals, often with significantly lower barriers to entry (such as education, technical experience and startup costs) than most other traditional small business ventures. Although the industry does not escape the controversies that arise in any business environment, it is important to note that this marketing model has delivered many of the worlds most respected products and services for decades to a loyal and stable customer base. In keeping with our corporate philosophy, one of the fundamental objectives of ForeverGreen is to dignify the network marketing/direct sales profession through our conduct and the results we deliver.
The lean and agile direct sales model offers unique business advantages not available to old-paradigm wholesale or consumer product companies. Because our products are sold through a global community of independent business owners, ForeverGreen is not required to carry the overhead burden of a large direct-hire sales force or costly, high-risk inventory stockpiles. The resulting margin contributes to our bottom line performance and also enables us to offer our Members competitive commission incentives.
By design, ForeverGreen has remained strategically positioned in direct sales product categories that have seen consistent growth and deliver a higher share of sales revenue. Wellness and personal products continue to be among the most popular and profitable direct sales items. Growing public concern over food additives, GMO products and the proliferation of food-related health problems suggests to management that demand for our products will remain strong for the foreseeable future. In addition, person-to-person sales, as practiced by ForeverGreen independent Members, accounts for nearly two-thirds of industry-wide sales revenue in the U.S. and as much as 80% worldwide. The key industry indicators we monitor support our assertion that ForeverGreen is in the right space at the right time.
Competition
The market for products designed to enhance physical and mental performance is large and intensely competitive. Our primary competitors include other network marketing companies that manufacture and market herbal remedies, nutritional products and personal care products. We also compete with large traditional retail businesses that offer products in similar categories. To attract positive industry attention and hold sustainable market advantage, we emphasize differentiators such as our company culture, our exclusive access to unique ingredients, the quality and efficacy of our products and the reliability and convenience of our distribution system. We emphasize products that improve health through a diet of whole-food beverages and real, natural products rather than fractionated pills and supplements. We take pride in our commitment to offering clean, all natural, and/or organic products.
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 they know and trust or through a catalog, the buying habits of many consumers indicate they may not wish to change their preference for purchasing products through traditional retail channels. We address this challenge directly in our marketing approach.
We also compete for Members (independent distributors) with other direct selling organizations, many of which have a longer operating history, 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, health and nutrition products. We compete for new Members on the strength of our product line, leadership training, compensation plan, marketing focus, corporate values and management leadership strengths.
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Products
ForeverGreens mission is to produce and deliver products that improve total health through a diet of whole foods and beverages and high-quality natural products as an alternative to fractionated, processed pills and supplements. We take pride in our commitment to offering all natural, clean, and/or organic products.
The FGXpress model allows ForeverGreen to broaden its global business reach to many more countries. PowerStrips are a listed Class 1 medical device in the United States as a topical product that offers temporary relief of minor aches and pains. The global introductions of both SolarStrips and BeautyStrips to the FGXpress model have been well received by our Members. SolarStrips are an exclusive raw food nutrition supplement product featuring industry exclusive marine phytoplankton in a unique and convenient delivery system. BeautyStrips consist of a face mask and a serum, both specially developed with proprietary ingredients to enhance the healthy, youthful appearance of skin. All FGXpress products ship within our exclusive envelope model, bringing the power of the global economy to everyones doorstep.
During the 2016 fourth quarter, the Company launched a new addition to its FGXpress product offering, Prodigy-5. We believe that Prodigy-5 is an all-in-one nutritional shot which provides vitamins, minerals, antioxidants and energy, helping you to stay healthy, nourished, and energized. The Prodigy-5 formula contains specific nutrients based on 40 years of peer reviewed science. Prodigy-5 also works as a catalyst for other nutrients you consume in your foods and other supplements.
Prodigy-5 also works with the new, patent-pending, doctor-invented TransArmor
Nutrient Technology
(
TransArmor
) which prepares the body to better absorb and utilize the nutrients, especially those in Prodigy-5.
The TransArmor nutrient technology is a scientific breakthrough created by
Doctor Ambati, MD and Doctor Saucedo, MD
. This technology
uses natural processes of the body by ensuring that specific anatomic regions (mouth and small intestine) are optimized at the moment that nutrients are found in these regions to
allows the body to better absorb a specific array of nutrients.
Dr. Ambati teamed up with Dr. Saucedo as university researchers in the areas of eye disease and cardiovascular disease. Two years ago these doctors joined forces to study and research the global crisis of malnutrition. Using Dr. Saucedo's decades of research into nutrition as a springboard, they developed TransArmor, the revolutionary nutrient tool. Their belief is that the global crisis of micronutrient malnutrition that our race faces, now truly has a tool equal to the challenge.
In July, 2015 the Company launched the Ketopia product line. Many leading scientists, medical professionals, and nutrition experts agree the ketosis lifestyle is the pinnacle of health and well-being. Ketosis is a natural metabolic state where the body burns fat for energy rather than carbohydrates. The majority of people today have sugar-burning bodies instead of fat-burning bodies. Because of having more balanced blood sugar levels, those with fat-burning bodies typically experience better energy and fewer cravings with the use of Ketopia products.
The ForeverGreen Ketopia line is a three-product regimen consisting of KetonX
, Dough Bites
and FIXX®. The patented KetonX is a drink that shifts the body into a state of nutritional ketosis within hours. Without KetonX, this shift typically takes days of fasting, detox or extreme diets. The product is a safe and simple way to achieve ketosis without the negative side effects of a typical ketogenic diet. Dough Bites are a cookie dough snack that are high in fiber and prebiotics and act as a "phantom" carb. They are filling, help reduce cravings and keep blood sugars level within the normal range. Finally, FIXX is a chocolate meal replacement shake that gives the body energy. Users are able to track their ketosis levels through ketone testing sticks that are available at any drug store or pharmacy.
We remain committed to providing innovative, natural products to retain exclusivity for our Members and customers. Our products take advantage of the latest in nutritional research and are designed to be easy to use and easy to sell. We believe the efficacy of our products is measurable in their nutritional and health benefits.
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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.
Product Guarantees
Our 100% customer satisfaction policy allows product returns for all our products that are resalable, subject to a restocking fee. This policy improves our customer and Member satisfaction and brings us in line with Direct Selling Association recommendations. Product returns have averaged less than 2% of sales for the past several years. We also maintain an insurance policy for product liability claims of $1,000,000 USD per claim and $2,000,000 USD annual aggregate limit.
Sales and Marketing
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 ForeverGreen exclusive and proprietary products protected through trade secrets and our proprietary processes and ingredients have experienced significant growth. In addition, the functional foods and products we offer are experiencing favorable growth.
We offer our products online and each Membership purchased also includes a virtual online website. Known as a web office, this is where Members can manage, monitor, and operate their businesses 24 hours a day from any location with internet access. This site is password protected, exclusive to Members and provides access to Company news, order information, commission information, product tracking, product information, and a library of Company documents geared to help them with their business, such as frequently-asked questions and various forms and reference materials. We also offer additional for-purchase tools like SmartBuilder to help enhance their business experience.
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 the Member directly via email.
We rely on a network marketing system for the distribution of our products through our independent business owners (referred to as Members by ForeverGreen) and customers. Our revenue depends directly upon the sales efforts of our Members around the world. We distribute our products exclusively through independent Members who have contracted directly with the Company. 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. Our ForeverGreen compensation plan provides many different ways to earn income for our Members.
Distribution
Our main distribution center is located in Lindon, Utah along with 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, Chile, and Peru, Singapore, Taiwan, Japan and Mexico, but are using a third party in the Netherlands and Poland 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 through manufacturing partners and warehouse the bulk food product at our facilities. We service individual product orders
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and ship to individual customers and Members in the United States, and more than 200 countries and territories throughout the world.
The global Xpress model has allowed ForeverGreen to broaden its global business reach to markets which would otherwise be inaccessible.. Several products have experienced proven success through this model. PowerStrips, SolarStrips and BeautyStrips have been well received by our Members. All three Xpress products ship within our exclusive envelope model, bringing the power of the global economy to everyones doorstep.
Members and their customers pay for products prior to shipment, incurring minimal accounts receivables. Members and customers have access to place orders online through the ForeverGreen website or by phone through a growing call center. Typically, Members and customers pay for their product orders by credit card. Less than 5% 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 Members creates multiple levels in a network marketing structure. Individuals that a Member sponsors are referred to as downline, or sponsored Members. If downline Members also sponsor new Members, they create additional levels in the structure, but their downline Members remain in the same downline network as their original sponsoring Member.
Members assist their downline Members to successfully sponsor new Members. While we provide product and Company brochures, magazines, websites, videos 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 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 in direct sales are quick to invite their contacts within the industry to experience the difference that our Company brings to the network marketing profession. Some people are attracted to become Members after experiencing our products and desiring to enjoy the wholesale pricing that Members receive.
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 these enrollment 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.
Regular conference calls, the materials available online, training events, corporate events and Member 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 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.
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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 Members account 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 and substantial efforts. Products may be promoted by personal contact or by literature produced or approved by the Company. In traditional retail environments, our products generally may not be sold, and the business opportunity may not be promoted.
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, termination of the Members rights completely or other appropriate injunctive relief. A Member may voluntarily terminate their Membership at any time.
Compensation Plan
We believe the ForeverGreen Hybrid Compensation Plan brings together the best of unilevel and binary compensation plans. Each personally enrolled Member is part of two trees. The Enrollment Tree addresses the unilevel features of the plan, with no limit to how many Members can be enrolled per level. The Placement Tree addresses the binary features of the plan. Each Member can only have two organizational legs, so everyone contributes building their two legs by placing their enrollments underneath.
A ForeverGreen Member could begin their commissions earning when their personally invited Member makes the first purchase. Our intention is to ensure all new members know what to do to achieve success in this business; therefore, we introduced the Starter concept. We believe Starter is an easy road map to success in the ForeverGreen business. Each person begins the Starter program by enrolling a Member (PEM) in each of their binary legs. They then work to help and teach the Members they recruited and others in their organization do the same. The next step in the Starter program is to recruit 2 more PEMs, a total of four PEMs recruited into their business. When a person has four active PEMs with a total of 1000 points within 2 levels of their group, they can earn $75 or $150 depending on their personal contribution. Starter is the way to keep the beginner engaged. We believe when everyone is following the same actions the result can be impressive.
ForeverGreen also promotes team building. We believe when people work as a team, they can be rewarded for their team actions. The Company pays 8% or 12% of their small leg organizations purchases weekly. On top of the Team Bonus, leaders also can receive rewards from helping and leading their team. The Company pays a floating Matching Bonus from one to four 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 $100,000 depending on the level of their success.
Each Company product carries a specified number of commissionable volume, or points. Commissions or bonuses are based on a Members personal qualification, organizational, and leg commission volumes. A Member
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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 products wholesale cost, net of any sales related taxes. As a Members retail business expands, and as they successfully sponsor other Members into the business, both of which expand their businesses, the Member can receive more commissions from the expanded sales volume of the downline. A Member receives weekly commission bonuses by remaining in good standing with the Company and by generating a minimum of 50 points of Personal Volume (PV).
The ForeverGreen compensation plan provides weekly payout. To be eligible to participate in the plan, receive bonuses, earn rank advancements, and to keep your carry-over from week to week, it is necessary to have an active order for 50 QV (qualifying volume) at all times. To maximize the plan, a member must be fully qualified at 100 QV per 4 week period. With every product purchase, this volume (QV) is active for the current weekly pay period plus three more (four weekly periods total). Without an active order, qualification expires after the fourth weekly pay period, which begins on Tuesday at 12 a.m. U.S Mountain Time and ends on Monday at 11:59 p.m. U.S. Mountain Time.
As with any business, individual results may vary, and will be based on the Members personal capacity, business experience, expertise and level of desire. There are no guarantees concerning the level of success ForeverGreen Members may experience. The examples used in the Companys training materials are exceptional results, which may not apply to an average Member, and are not intended to represent or guarantee that anyone will achieve the same or similar results.
There are several ways for Members to get paid under the Companys compensation plan. The Starter Bonuses reward duplication. The Team Bonus rewards Members for helping the leg that needs it most through training, mentoring and various forms of business support. There is no limit to how many PEMs can be enrolled. The Rank Advancement Bonus rewards leadership development as a leader. Achieve a new rank once and get the title, achieve it twice and get the bonus. The Matching Bonus rewards activity that supports the business growth of PEMs. ForeverGreen has published a detailed Compensation Plan Manual and supporting collateral training materials to assist Members in building their commission and bonus income.
Trademarks, Patents and Intellectual Property
We have secured, or are in the process of securing, trademark protection in the United States and around the world in markets where we currently do business or where we have a future strategic interest. The Company holds multiple U.S. trademarks and no foreign trademarks. As we continue to expand internationally, trademark protection is increasingly important for brand recognition and Member and consumer loyalty. It is standard Company practice to follow through with ongoing trademark registration in the United States and other countries where we are experiencing growth.
A number of our products utilize proprietary formulations and processes. Although ForeverGreen does not directly hold any patents at this time, a number of our key vendors have secured or applied for patents to maintain exclusivity for the ingredients or integrated products they supply to us. To protect our own intellectual property and proprietary processes that are material to the long term health and profitability of the Company, ForeverGreen makes it a disciplined business practice to manage trade secrets and various forms of confidentiality and non-disclosure agreements.
Our exclusive PowerStrips product is listed as a Class I medical device. ForeverGreen exercises special vigilance in the area of compliance. For this reason we employ a full time compliance team that closely monitors all Company and Member messaging and is empowered to edit or remove all non-compliant language pertaining to our products. This team reports directly to our corporate General Counsel.
Strategic Partnerships
We maintain good relationships with our key vendors to ensure a continuous supply of our key products. During
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2016, we relied on two principal suppliers for our FrequenSea product. Marine Life Sciences, LLC a Nevada limited liability company (MLS) 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, our sourcing information indicates that the MLS product offers the best quality, the most ideal geographical location and the best harvesting and extraction methods. These factors contribute to the uniqueness and nutritional superiority of the marine phytoplankton component in our products.
In 2007, MLS acquired the worldwide rights to the exclusive blend of marine phytoplankton produced by Unique Sea Farms, Ltd. In 2008 ForeverGreen International entered into a worldwide marketing agreement with MLS, and the parties reviewed the quotas and market conditions to ensure the long-term stability of this key vendor relationship. MLS continues to share research results and other product data with ForeverGreen International and both parties have agreed to protect any proprietary information related to the product. The parties have further agreed to indemnify one another for any claims arising out of any action taken or omission by the other.
We retain the freedom to use any competitive suppliers to garner control over our product costs, quality and lead times for manufacturing and delivery. Our inventory control system ensures appropriate volumes of finished product based on the anticipated movement of each item in our catalog.
Government Regulation
Direct Selling Activities
Direct selling activities are regulated by various federal, state and local governmental agencies in the United States and foreign countries. To our knowledge, the Companys 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 many other markets. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as pyramids, 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 a governmental agency impose various regulatory requirements on us.
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 foreign 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 to 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
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agencies and authorities, including the Food and Drug Administration, which regulates food, medical products and cosmetics. The advertising and marketing of our products are regulated by the Federal Trade Commission, which enforces consumer protection laws in regard to truth in advertising. The Consumer Product Safety Commission protects the public from unreasonable risk of injuries and death associated with consumer products, and the United States Department of Agriculture regulates food safety and quality. Similar types of agencies exist in our foreign markets. To date, we have not experienced any 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 65 full-time employees with some services, employee and management functions being performed by ForeverGreen employees. Many of these employees directly support the Member network. Our employees are not presently covered by any collective bargaining agreement. We believe our relationships with our employees are good, and we have not experienced any work stoppages.
ITEM 1A. RISK FACTORS
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.
Recent economic conditions have made it more difficult for some companies to raise capital and obtain financing.
The Company continues to attract new Members to join our Company. However, the Company has a working capital deficit of $6,044,695 and accumulated deficit of $42,746,469 at December 31, 2016, and 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. Our inability to raise additional capital or to obtain additional financing, if needed, could inhibit our ability to implement our business strategies and meet our goals. This, in turn, could slow the financial momentum the Company is currently experiencing.
We rely solely on one supplier for our marine phytoplankton and PowerStrips 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 product supply from these suppliers could result in higher prices for these products. In the event of loss of these suppliers we may no longer be able to continue to offer these products. We may not be able to raise prices sufficiently or quickly enough to offset the negative effects of the loss of product lines, which may adversely affect our results of operations or financial condition.
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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 member 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 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.
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.
Historically we have had no claims and relatively little 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. However, we have elected to purchase product liability insurance which minimizes the Companys financial risk. If any of our products are found to cause any injury or damage, we believe the liability insurance coverage should substantially minimize the financial impact to the company. However, there is some risk the Company will be subject an amount of liability associated with any injuries or damages. This liability could be substantial and may exceed our reserves.
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 29.3% of our outstanding shares of common stock as of April 11, 2017. 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:
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transactions resulting in a change in control
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mergers and acquisitions
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tender offers
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election of directors
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proxy contests
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.
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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, 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.