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. Whole Living, Inc. changed the name of the corporation to “ForeverGreen Worldwide Corporation” on December 14, 2006 and acquired the ForeverGreen International, LLC as a wholly-owned subsidiary.
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, FVGR Bolivia S.R.L., Ecuador Forevergreen SA, 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), Forevergreen Puerto Rico LLC, Forevergreen Dominicana S.R.L. (Dominican Republic), Forevergreen Peru, SAC, ForeverGreen SP z.o.o , (Poland), and ForeverGreen Team B.V. (Europe).
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”). 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. ForeverGreen has historically been known for the development, manufacturing and marketing of a comprehensive line of meal replacement shakes, nutritional beverages, and marine phytoplankton products using exclusive and proprietary processes. During 2016 ForeverGreen developed its global express envelope model which expanded our market in more than 200 countries and territories.
During 2017 the Company completed its planned consolidation and restructuring of the Company, including reducing overhead costs, streamlining the Company's product offerings, reducing shipping costs, reduction of personnel and consolidating domestic and foreign warehouse and office spaces. These strategies were directed to reduce overhead and debt, streamline domestic and international operations, improve distribution channels and consolidate the Company's product offerings. While gross profits have decreased and we have recorded a net loss for 2017, the Company is now seeing the positive impact on the Company's model and its profitability.
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 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.
New Brand
Our goal has been to empower a health-conscious global community with emphasis on self-care that necessitates mindfulness. To achieve this objective, during the second half of 2017, we introduced a new brand called Imaginuiti™, which revolutionizes how people take care of their health by facilitating the convergence of the Company’s nutraceuticals, advanced technologies and most complete entrepreneurial opportunity.
Imaginuiti™ will involve the merger of TransArmor™ Nutrient Technology formulated products (Prodigy-5 and reformulated L-Arginine and FrequenSea Pro.) and wearable technology, called CareWear™, and a one-of-a-kind global envelope model with nutraceuticals (PowerStrips, SolarStrips, and the above mentioned products with Trans Armor™ Nutrient Technology) for world-wide distribution. The Imaginuiti™ concept provides real health data, practical resources and residual income via a home-based business for complete and total life balance.
Products
ForeverGreen’s 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, including:
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 allow the body to better absorb a specific array of nutrients.
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 express introductions of both SolarStrips and BeautyStrips to the global express 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 global express products ship within our exclusive envelope model, bringing the power of the global economy to everyone’s doorstep.
FrequenSea, our flag-ship product, will be among the first products changed to the global express distribution 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.
Ketopia product line was launched in 2015 to address weight management. 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.
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.
ForeverGreen also markets supplements including Aim, Pulse-8 and Retrome'.
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 and ship to individual customers and Members in the United States, and more than 200 countries and territories throughout the world.
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 8% of our sales are paid for with check or bank deposit.
The global express model has allowed ForeverGreen to broaden its global business reach to markets which would otherwise be inaccessible. All three global express products ship within our exclusive envelope model, bringing the power of the global economy to everyone’s doorstep. PowerStrips, SolarStrips and BeautyStrips have been well received by our Members due to the global express model.
Philosophy
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 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.
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.
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 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.
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.
Member Enrollment and Sponsorship
Any person may join the Company as a Member to purchase products for personal use or to build a sales organization. Members are independent contractors and are thus prohibited from representing themselves as our agents or as employees of the Company. 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. In order to become a Member, a person may purchase a non-commissionable online digital Member Kit which includes all the business building websites, multi-
language web office and online library. No product purchases are required to become a Member, and large inventory product purchases are discouraged. However, in order to receive compensation as a Member, personal or customer monthly purchases and/or personal customer sales of a certain amount of volume are required. Our Member Agreement and Policies and Procedures, which outline the scope of permissible marketing activities, and information on the ForeverGreen compensation plan are posted on our website. Our Member rules and guidelines are designed to provide Members with maximum flexibility and opportunity within the bounds of governmental regulations regarding product claims, network marketing and prudent business policies and procedures. Members are obligated to present our products and business opportunity ethically and professionally. Members contractually agree to abide by all local, state and federal laws and regulations pertaining to the advertising, sale and distribution of our products. All advertising must be factual and not misleading and a Member’s 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 Member’s 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 organization’s purchases weekly. On top of the Team Bonus, leaders also can receive rewards from helping and leading their team. The Company pays a 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 Member’s personal qualification, organizational, and leg commission volumes. A Member
receives commissions based on a percentage of the sales volume of their downline weekly and monthly. Commission qualification volume points are essentially based upon a percentage of the product’s wholesale cost, net of any sales related taxes. As a Member’s retail business expands, and as they successfully sponsor other Members into the business, both of which expand their businesses, the Member 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 Member’s 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 Company’s 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 Company’s 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
2017 and 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 Company’s 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 or 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
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 also 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 ForeverGreen Worldwide has 39 full-time employees with some services, employee and management functions being performed by ForeverGreen International 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.
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.
We continue to record net losses and must rely on additional financing to implement our business strategies.
The Company has recorded a working capital deficit of $5,242,933 and accumulated deficit of $44,902,363 at December 31, 2017, and negative cash flows from operations and has experienced periodic cash flow difficulties. These factors combined, raise substantial doubt about the Company’s ability to continue as a going concern. 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 one supplied for 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.
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.
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 Company’s 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.
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.
ITEM 2.
ITEM 2. PROPERTIES
On September 29, 2015 the Company signed a new ten year lease with WI Commercial West Lindon, LLC, for its offices and warehouse located in Lindon, Utah. The current lease rate for that building is $26,827 per month and the Company is leasing 32,720 square feet.
During the year the Company leased office space in the countries of Mexico, Costa Rica, Bolivia, Colombia, Philippines, Japan, and Taiwan.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any legal proceedings as of the date of this filing.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable to our operations.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTC Bulletin Board under the symbol “FVRG.” The following table represents the range of the high and low trading prices of our common stock for each quarter of the 2016 and 2017 years as reported by the OTC Bulletin Board.
Our shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act, commonly referred to as the “penny stock” rule. The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Trading in the penny stocks is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include certain institutional investors and individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of our securities and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent to the purchaser disclosing recent price information for the penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of shareholders to sell their shares.
Holders
As of April 17, 2018, the Company had 146 shareholders of record, which does not include shareholders who hold shares in “street accounts” of securities brokers. Our transfer agent, Standard Registrar and Transfer Company, Inc. is located in Salt Lake City, Utah.
Dividends
We have not paid cash or stock dividends and have no present plan to pay any dividends, intending instead to reinvest our earnings, if any. For the foreseeable future, we expect to retain any earnings to finance the operation and expansion of our business and the payment of any cash dividends on our common stock is unlikely.
Recent Sales of Unregistered Securities
We relied on an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act.
Issuer Purchase of Securities
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
ForeverGreen Worldwide is a holding company which operates through its wholly-owned 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, FVGR Bolivia S.R.L., Ecuador Forevergreen SA, 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), Forevergreen Puerto Rico LLC, Forevergreen Dominicana S.R.L. (Dominican Republic), Forevergreen Peru, SAC, ForeverGreen SP z.o.o , (Poland), and ForeverGreen Team B.V. (Europe).
During the coming year, ForeverGreen intends to empower a health-conscious global community with emphasis on self-care that necessitates mindfulness. To achieve this objective, the Company is strengthening its focus on its domestic and international Membership and consumer base by introducing a new brand called Imaginuiti™, which revolutionizes how people take care of their health by facilitating the convergence of the company’s nutraceuticals, advanced technologies and most complete entrepreneurial opportunity.
Imaginuiti™ will involve the merger of TransArmor™ Nutrient Technology formulated products (Prodigy-5 and reformulated L-Arginine and FrequenSea Pro) and wearable technology, called CareWear™, and a one-of-a-kind global envelope model with nutraceuticals (PowerStrips, SolarStrips, and the above mentioned products with Trans Armor™ Nutrient Technology) for world-wide distribution. The Imaginuiti™ concept provides real health data, practical resources and residual income via a home-based business for complete and total life balance. We call the implemented outcome of that concept the Total Health Experience.
Furthermore, ForeverGreen is dedicated to its Members by continuing to give home business training and mentorship while facilitating accountability so residual income is a reality and is attractive to prospective Members. As our international markets mature, additional ForeverGreen products are expected to 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 with opportunities that include a complete build-out of a Preferred Customer program.
Our major challenge for the next twelve months will be to respond to current economic conditions and to properly manage our systems and logistics centers around the world to support the demand for our products and business.
Results of Operations
The following chart summarizes the consolidated statements of operations of ForeverGreen Worldwide and Subsidiaries for the years ended December 31, 2017 and 2016.
We recognized revenues of $18,492,769 for 2017 compared to revenues of $40,279,290 for 2016. Our source of revenues is from the sale of various foods, other natural products, member sign up fees, kits, and freight and handling to deliver products to the members and customers.
The Company experienced a 54.1% decrease in revenues in 2017 compared to 2016. Some of the cost cutting initiatives implemented resulted in a loss of revenues, but the net effect of the changes was to put the Company in a position for improved profitability. Also, in 2017 active Members decreased to 31,821 compared to 72,470 active members in 2016. The lower number of revenues and Members is due to Members leaving the Company.
Cost of sales consists primarily of the cost of procuring and packaging products, shipping product, and credit card sales processing fees. Cost of sales was approximately 24.7% of revenues for 2017 compared to 28.5% of revenues for 2016. The 2017 decrease is primarily due to increased focus on our envelope products, which have lower shipping and storage costs.
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. As the TransArmor™ technology is implemented in additional products, the Company expects the global express product mix to become a larger part of its total revenues. With this shift to more envelope products, the Company will be able to deliver those products more inexpensively than a corresponding Farmer’s Market product. 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.
Selling and marketing expenses include sales commissions paid to our Members, special incentives, costs for incentive trips and other rewards incentives. In 2017 selling and marketing expenses decreased to 41.9 % of revenues compared to 42.4% in 2016. Selling and marketing expenses are commuted from the commission structure for the product sold and the commission tier the member receiving the commission is in.
General and administrative expense (inclusive of depreciation and amortization) increased as a percentage of revenues to 41.2% from 39.2% in 2016. The primary increase is due to an increase in professional fees in 2017 compared to 2016.
Total other expenses decreased in 2017 compared to 2016 by $1,120,131. The primary overall decrease was from not having any loss from settlements of debt and disposals of assets in 2017. Interest expense increased in 2017 as a result in an increase in notes payable accruing interest during 2017.
Liquidity and Capital Resources
Our total assets decreased to $3,906,285 at December 31, 2017 from $5,724,550 at December 31, 2016. The decrease is primarily due to a $762,019 decrease in inventory to keep inventory supply in line with the lower revenues, a net decrease of $744,958 in property plant and equipment, a $79,024 decrease in cash and cash equivalents, a $27,028 decrease in prepaid expenses and other assets, and a $104,412 decrease in receivables. All of these decreases are due to the reduced revenues in 2017.
Our total liabilities at December 31, 2017 were $12,262,348 compared to $13,374,162 at December 31, 2016. The decrease consists of a decrease in accrued expenses of $1,294,115 primarily due to lower accrued commissions (based on revenues) and a decrease in accounts payable of $662,850 due to lower level of activity during the year. Net convertible notes payable from related parties increased by $935,553, net convertible notes payable from non-related parties increased by $457,681, and notes payable decreased by $480,753, the changes in all notes payable is from new note additions, note restructurings, and principal and interest payments made during 2017.
At December 31, 2017, the Company had cash and cash equivalents of $108,112, a working capital deficit of 5,242,933, an accumulated deficit of $44,902,363, negative cash flows from operations, and has experienced cash flow difficulties. The decrease from the 2016 working capital deficit of $801,762 was due to the reductions of accounts payable and accrued expenses. During 2017 the Company financed its operations with net cash flows from operations, the issuance of promissory notes. These factors combined raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans to address and alleviate these concerns are as follows.
The Company continues to monitor its cost structure and implements cost saving measures deemed to be effective. The Company has initiated some new marketing initiatives to stimulate growth in its monthly revenues, which combined with some new financing is allowing the Company to continue to invest in its expansion plan. This plan has involved hosting a number of industry leaders who are performing their due diligence on our Company. Additionally, we expect we will take advantage of some 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 will make improvements to the marketing plan to enhance the success that is developed. The Company intends to seek debt and equity financing as necessary.
Management anticipates that future additional capital needed for cash shortfalls will be provided by either debt or equity financing. We may pay these loans with cash, if available, or convert these loans into common stock. Any common stock issuance 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 our shareholders may experience dilution in the value per share of their common stock.
The net cash used in operating activities increased by $501,359 in 2017 compared to 2016. This is attributable to significant reductions in revenues and management’s cost reduction initiatives not keeping pace with the decline. The initiatives included reductions in labor force, negotiating out of building leases, and paying one-time costs associated with the termination of certain contracts.
Net cash used in investing activities decreased by $875,090 in 2017 compared to 2016. This decrease is due to less fixed asset purchases in 2017.
Net cash provided by financing activities decreased by $681,949 in 2017 compared to 2016. This decrease is due to less cash received from note issuances and no cash received from equity issuances in 2017.
Commitments and Obligations
The Company has an agreement with one vendor, Marine Life Sciences, LLC, that supplies 100% of the marine phytoplankton included in several top selling products. If that vendor were to discontinue the supply of this ingredient, our sales could decrease significantly. There are other providers of that ingredient in the world, however, the Company considers this provider to have the very best quality, which is nutritionally superior to other sources of this ingredient, and has no intention of obtaining it from any other provider. Marine Life Sciences, LLC is 50% owned by a board member.
As of December 31, 2017, the Company has $2,128,003 in debt that will be due in the next twelve months. Management anticipates it will satisfy these notes payable through increased revenues or negotiation of new payment due dates.
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 Company records impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company did an annual analysis for the period ended December 31, 2017 and determined no adjustment to long-lived assets was needed.
The Company adjusts its inventories to lower of cost or market. Additionally we adjust the carrying value of our inventory based on assumptions regarding future demand for our products and market conditions. If future demand and market conditions are less favorable than management’s assumptions, additional inventory write-downs could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if previously written down inventories are sold. We had obsolete and slow moving inventories which was reserved against in the amount of $433,225 at December 31, 2016. The $433,225 was written off and the Company set a $40,000 reserve during 2017. Inventory is presented at their lower of cost or market in our consolidated balance sheets.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
INDEX
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of ForeverGreen Worldwide Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ForeverGreen Worldwide Corporation (“the Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 13. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2011.
Salt Lake City, UT
April 17, 2018
The accompanying notes are an integral part of these consolidated financial statements
NON-CASH INVESTING AND FINANCING ACTIVITIES
Convertible note payable issued for treasury shares
$
--
$
1,000,000
Beneficial conversion feature
734,603
55,000
Extinguishment of convertible notes payable
1,908,826
--
Extinguishment of convertible notes payable, related parties
1,718,000
--
Discount on notes payable
--
25,000
Notes payable issued for leasehold improvements
--
506,158
Convertible notes issued for accrued commissions
--
636,475
The accompanying notes are an integral part of these consolidated financial statements
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was incorporated on March 18, 1999 in the state of Nevada. On November 30, 1999, Whole Living, Inc. acquired the assets, leases, product line and name of Brain Garden, L.L.C., a Utah limited liability company engaged in the marketing and distribution of various natural food products, oils and bath salts. The Company maintained its headquarters in Lindon, Utah.
On October 15, 2006 the Company announced they would change the combined company name to ForeverGreen Worldwide Corporation. The combined company sells products in the United States, Canada, Australia, New Zealand, Singapore, Japan, United Kingdom, the Netherlands, and Germany and currently has plans to expand into other areas of the world.
b. Principles of Consolidation
The consolidated financial statements include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.
c. Recognition of Revenue
Revenues and costs of revenues are recognized during the period in which the products are provided. The Company applies the provisions of FASB Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
The Company’s sources of revenue are from the sale of various food and other natural product sales and royalties earned. 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. Returns are less than 2.0% of sales for both years presented. Revenues are reported net of returns. All conditions of ASC 605-10 are met and the revenue is recorded upon sale, with an estimated allowance for returns where material.
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
d. Accounts Receivable, Member Advances, and Other Receivables
The majority of accounts receivable are now sales deposits processed by third parties from the prior one to three business days that have not posted to the Company’s bank account. The Company evaluates the need for an allowance for doubtful accounts when it is determined that collection amounts owed is unlikely. An allowance of $0 and $0 had been recorded at December 31, 2017 and 2016, respectively.
e. 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 December 31, 2017, there were 37,518,891 common stock equivalents from convertible notes that were excluded from the diluted loss per share calculation as their effect is anti-dilutive.
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.
The Company is using a credit card processor that currently requires a reserve amount of $56,976 which the Company presents this as restricted cash.
g. Property and Equipment
Expenditures for property and equipment and for renewals and betterments, which extend the originally estimated economic life of assets or convert the assets to a new use, are capitalized at cost. Expenditures for maintenance, repairs and other renewals of items are charged to expense. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts, and any gain or loss is included in the results of operations.
It is our policy to capitalize certain costs incurred in connection with developing or obtaining internal use software. Capitalized software costs are included in “Property, Plant and Equipment” on our consolidated balance sheets and are primarily amortized over a 3-5 year period. Software costs that do not meet capitalization criteria are expensed immediately.
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Depreciable asset lives range from 3 to 7 years with leasehold improvements being depreciated over the lesser of the term of the lease or the life of the improvements. Depreciation expense for the period ended December 31, 2017 and 2016 is $936,878 and $945,717, respectively.
h. Impairment of Long-Lived Assets
In accordance with ASC 360-10, the Company records impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company determined no impairment adjustment was needed based on the analysis for the years ended December 31, 2017 and 2016.
i. Inventory
Inventory is recorded at the lower of cost or market and valued on a first-in, first-out basis. Inventory consists primarily of consumable food products and ingredients. Food products are discarded as they reach the expiration dates, because the food products are made with natural foods containing a minimum of preservatives. Non-food products are reviewed periodically to determine any obsolescence and a reserve is booked when appropriate. The products have expiration dates that range from 3 months on some of the food products to 2 years for non-food products. On December 31, 2017 and 2016 there was a reserve for obsolete inventory in the amount of $40,000 and $433,225, respectively.
j. Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of convertible notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of December 31, 2017 and 2016.
k. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions that affect the amounts reported in the financial statements and accompanying notes. In these financial statements, assets, liabilities and earnings involve extensive reliance on management’s estimates. Actual results could differ from those estimates.
l. Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risks consist of cash and cash equivalents. The Company places its cash and cash equivalents at well-known, quality financial institutions. At times, such cash and investments may be in excess of the FDIC insurance limit. The accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 each. The amounts held for the Company regularly exceed that amount.
The Company has an agreement with one vendor, owned 50% by a Company director that supplies 100% of a significant ingredient that is included in several top selling products. It could decrease sales significantly if that vendor were to discontinue the supply of this ingredient. There are other providers of that ingredient in the world, however, the Company considers this provider to have the very best quality, which is nutritionally superior to other sources of this ingredient, and has no intention of obtaining it from any other provider.
m. Deferred Revenue
The Company recognizes revenues upon the shipment of product. As of December 31, 2017, the Company had received payment of $14,409 for sales which were not shipped as of the period end compared to $81,739 for December 31, 2016.
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
n. Foreign Currency Translation
The Company’s functional currency is recorded in various currencies, corresponding to the various foreign subsidiaries and its reporting currency is the United States dollar. Management has adopted ASC 830-20, “Foreign Currency Matters - Foreign Currency Transactions”. All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. For revenues and expenses, the weighted average exchange rate for the period is used. Gains and losses arising on translation of foreign currency balances are included in other comprehensive loss.
o. Advertising
Advertising cost are expensed as incurred and are presented as part of the general and administrative expense. Advertising expense totaled $80,813 in 2017 compared to $102,390 in 2016.
p. Shipping and Handling
The Company’s shipping and handling costs are included in the cost of sales for all periods presented. Shipping and handling revenues are included in total revenues, net for all periods presented.
q. Sales and Marketing
Selling and marketing expenses include sales commissions paid to our members, special incentives, costs for incentive trips and other rewards incentives.
r. Reclassification
Certain balances in previously issued financial statements have been reclassified to be consistent with the current period presentation.
s. Accounting Pronouncements
The Company has reviewed the FASB ASU 2014-09 “Topic 606 Revenue Recognition from Contracts with Customers,” originally issued on May 28, 2014, which the FASB has issued a few clarifying ASU’s regarding this update. The standard was effective for public companies with annual periods beginning after December 15, 2017. We have begun evaluating the impact this standard will have on our revenue recognition and we do not believe it will have a material impact on our business. The new standard requires companies to identify contracts with customers, performance obligations within those contracts, and the transaction price.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 2 - RESTRICTED CASH
In 2016 the Company implemented a new credit card processor option to better serve our members world-wide. Due to the Company not having prior experience with this processor, an initial 10% reserve of all processed transactions was implemented. This is a six-month revolving reserve until the contract is modified. At December 31, 2017, the total amount of this reserve was $56,976.
NOTE 3 - INVENTORIES
Inventories for December 31, 2017 and 2016 were classified as follows:
Raw Materials
$ 433,463
$ 1,290,902
Finished Goods
325,312
623,117
Total Inventory
758,775
1,914,019
Less Reserve
(40,000)
(433,225)
Total Inventory (net of reserve)
$ 718,775
$ 1,480,794
NOTE 4 - PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method and is recognized over the estimated lives of the property and equipment. Depreciation expense was $936,878 and $945,717 for the years ended December 31, 2017 and 2016, respectively.
Property and equipment consists of the following at December 31, 2017 and 2016:
Leasehold improvements
$ 600,691
$ 600,691
Office furniture & fixtures
271,984
292,492
Equipment
619,567
619,567
Vehicles
72,154
72,154
Computer equipment
973,944
973,944
Computer software
4,446,765
4,250,606
Total Fixed Assets
6,985,105
6,809,454
Accumulated depreciation
(4,305,467)
(3,384,858)
Property and equipment, net
$ 2,679,638
$ 3,424,596
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2017 and 2016.
Customer Base
$ 855,900
$ 855,900
Trademarks
86,191
86,191
Less accumulated amortization
(942,091)
(936,397)
Net intangible assets
$ --
$ 5,694
Trademark, patent and customer based amortization expense for the years ended December 31, 2017 and 2016 were $5,694 and $107,997, respectively.
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2017 and 2016:
Accrued employee benefits
$
103,206
$
62,869
Accrued taxes
1,082,008
1,124,064
Accrued member commissions
573,840
1,515,123
Accrued Interest
535,071
496,069
Accrued royalty
--
323,593
Other accrued liabilities
135,370
201,892
Total
$
2,429,495
$
$ 3,723,610
NOTE 7 - DEBT
Convertible notes payable and notes payable as of December 31, 2017 and December 31, 2016
TYPE
CONVERSION RATE PER SHARE
ORIGINATION DATE
INTEREST RATE
DUE DATE
BALANCE AS OF 12/31/2017
BALANCE AS OF 12/31/2016
Convertible, Related party
0.15
10/07/2010
14%
12/31/2017
$45,000
$45,000
Convertible, Related party
0.20
01/19/2011
14%
12/31/2017
$200,000
$200,000
Convertible, Related party
0.68
12/01/2015
10%
12/31/2018
--
$1,501,024
Convertible, Related party
0.20
04/05/2017
10%
12/31/2018
$500,000
--
Convertible, Related party
0.20
05/02/2017
10%
12/31/2018
$500,000
--
Convertible, Related party
0.20
08/10/2017
10%
12/31/2019
$1,718,000
--
Convertible, Non-related
0.20
03/09/2010
14%
12/31/2017
$231,756
$231,756
Convertible, Non-related
0.20
01/19/2011
14%
12/31/2015
--
$100,000
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
$200,000
Convertible, Non-related
0.35
05/27/2016
10%
12/31/2018
--
$700,000
Convertible, Non-related
0.16
08/04/2017
10%
12/31/2019
$1,858,826
--
Convertible, Non-related
0.20
08/11/2017
10%
12/31/2019
$50,000
--
Convertible, Non-related
0.20
08/11/2017
10%
12/31/2019
$200,000
--
Convertible, Non-related
0.15
09/19/2017
10%
12/31/2017
$150,000
--
Convertible, Non-related
0.10
12/20/2017
10%
06/30/2018
$200,000
--
Convertible, Non-related
0.40
11/04/2016
6%
03/30/2017
--
$23,186
Convertible, Non-related
0.40
11/04/2016
6%
05/30/2019
$176,495
$269,769
Convertible, Non-related
0.40
11/04/2016
6%
11/30/2019
$324,414
$324,414
Convertible, Non-related
0.63
11/21/2016
6%
05/30/2023
$1,000,000
$1,000,000
Non-related
NA
03/01/2016
4.66%
03/01/2018
$66,247
$322,000
Non-related
NA
10/21/2016
0%
09/25/2020
$658,000
$918,000
Non-related
NA
11/15/2017
0%
03/09/2018
$35,000
--
Debt discount
(474,390)
--
Total
$7,639,348
$6,726,867
Less current portion
(1,846,580)
(1,691,660)
Total long term
$5,792,768
5,035,207
Convertible Notes Related Parties
On April 5, 2017, the Company issued a convertible promissory notes for $500,000 to a related party. 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 $0.20 per share. Due to the fact that the trading price of FG stock was greater than the stated conversion rate of this note on the date of issuance, a total discount of $332,250 for the beneficial conversion was recorded against the note and will be amortized against interest expense through the life of the note. As of December 31, 2017, interest expense of $140,876 was recorded as part of the amortization of the beneficial conversion feature of this note.
On May 2, 2017, the Company issued a convertible promissory note for $500,000 to a related party. 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 $0.20 per share. Due to the fact that the trading price of FG stock was greater than the stated conversion rate of this note on the date of issuance, a total discount of $150,000 for the beneficial conversion was recorded against the note and will be amortized against interest expense through the life of the note. As of December 31, 2017, interest expense of $59,951 was recorded as part of the amortization of the beneficial conversion feature of this note.
On August 10, 2017, the Company extinguished an outstanding related party convertible note with a principal balance of $1,501,024 and accrued interest of $216,976, and consolidated these amounts into a new convertible note totaling $1,718,000 with the same note holder. The new 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, 2019. The note has a conversion feature for common shares at $0.20 per share.
Convertible Notes Unrelated Parties
On August 4, 2017, the Company extinguished two outstanding convertible notes with a principal balance totaling $1,591,718 ($891,718 and $700,000) and accrued interest totaling $167,108 ($85,560 and $81,548), and consolidated these amounts into a new convertible note totaling $1,858,826 (an additional $100,000 loaned) with the same note holder. The new 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, 2019. The note has a conversion feature for common shares at $0.16 per share. Due to the fact that the trading price of FG stock was greater than the stated conversion rate of this note on the date of issuance, a total discount of $232,353 for the beneficial conversion was recorded against the note and will be amortized against interest expense through the life of the note. As of December 31, 2017, interest expense of $39,386 was recorded as part of the amortization of the beneficial conversion feature of this note.
On August 11, 2017, the Company extinguished an outstanding convertible note with a principal balance of $100,000 and accrued interest of $50,000, and consolidated these amounts into a new convertible note totaling $200,000 (an additional $50,000 loaned) with the same note holder. The new 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, 2019. The note has a conversion feature for common shares at $0.20 per share.
On August 11, 2017, the Company issued a convertible 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, 2019. The note has a conversion feature for common shares at $0.20 per share.
On September 19, 2017, the Company issued a convertible promissory note with a line of credit up to $200,000. 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, 2017. As of December 31, 2017 the Company received $150,000 on this line of credit. The note has a conversion feature for common shares at $0.15 per share. Due to the fact that the trading price of FG stock was greater than the stated conversion rate of this note on the date of issuance, a total discount of $20,000 for the beneficial conversion was recorded against the note and will be amortized against interest expense through the life of the note. As of December 31, 2017, interest expense of $20,000 was recorded as the full amortization of the beneficial conversion feature of this note. Going forward this note is in default with a default interest rate of 16%.
On December 20, 2017, the Company issued a convertible promissory note for $200,000. 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 June 30, 2018. The note has a conversion feature for common shares at $0.10 per share.
Notes Payable
On November 15, 2017, the Company issued a verbal promissory note for $35,000. The note will pay $3,500 in interest at maturity. The principal amount of the note and all accrued interest was paid in full in March 2018. As of December 31, 2017, the note had a balance of $35,000 and accrued interest of $1,500.
NOTE 8 - COMMON STOCK
2017 Issuances
There were no stock issuances in 2017.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has note payable agreements with related parties. See Note 7 for obligations under the agreements.
NOTE 10 - PROVISION FOR INCOME TAXES
The Company provides for income taxes under ASC 740, Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Net deferred tax assets consist of the following components as of:
The Company assesses the need for a valuation allowance against its deferred income tax assets at December 31, 2017. Factors considered in this assessment include recent and expected future earnings and the Company’s liquidity and equity positions. As of December 31, 2017, and 2016, the Company has determined that a valuation allowance is necessary against the entire amount of its net deferred income tax asset.
As of December 31, 2017, the Company has U.S. federal and state net operating loss carry forwards of $21,247,330 and $21,365,507, respectively. These carry forwards are available to offset future taxable income, if any, and begin to expire in 2020. The utilization of the net operating loss carry forwards is dependent upon the tax laws in effect at the time the net operating loss carry forwards can be utilized and may be significantly limited based on ownership changes within the meaning of section 382 of the Internal Revenue Code.
Under FASB ASC 740-10-05-6, tax benefits are recognized only for the tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the company's tax return that do not meet these recognition and measurement standards.
The Company had no liabilities for unrecognized tax benefits and the Company has recorded no additional interest or penalties.
FOREVERGREEN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases facilities and warehouses under operating leases with terms ranging from 12 months to 120 months. The total rent expense recorded in 2017 was $415,264. The future annual non-cancelable operating lease payments on these leases are as follows:
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 12 - CONCENTRATION OF RISK
The Company purchases its signature product ingredient of Marine Phyto Plankton from an independent supplier during the years ended December 31, 2017 and 2016. This material is significant in several of our top selling products. If our vendor were to discontinue supplying those materials, it could decrease sales significantly. The Company recognizes there are other providers, but consider this supplier to have the very best quality. This main vendor, Marine Life Science, is 50% owned by a director.
NOTE 13 - GOING CONCERN
The accompanying financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As reported in the accompanying consolidated financial statements, the Company has a working capital deficit of 5,242,933 and accumulated deficit of $44,902,363 at December 31, 2017, negative cash flows from operations, and has experienced cash flow difficulties. These factors combined, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address and alleviate these concerns are as follows:
The Company continues to monitor its cost structure and implements cost saving measures deemed to be effective. The Company has initiated some new marketing initiatives to stimulate growth in its monthly revenues, which combined with some new equity financing is allowing the Company to continue to invest in its expansion plan. This plan has involved hosting a number of industry leaders who are performing their due diligence on our Company. Additionally, we expect we will take advantage of some 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 will make improvements to the marketing plan to enhance the success that is developed. The Company intends to seek debt and equity financing as necessary.
NOTE 14 - SUBSEQUENT EVENTS
On April 13, 2018 the Company issued a convertible promissory note for $75,000 to a non-related party. The note has an annual interest rate of 10% and is secured by the Company’s inventory. The principle 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 $0.08 per share.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
We have not had a change in or disagreement with our independent registered public accounting firm on accounting financial disclosure during the past two fiscal years.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer, who also acts as our Principal Financial Officer, management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The disclosure controls and procedures ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rule and forms; and (ii) accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, management concluded that our controls were not effective as of December 31, 2017.
Notwithstanding this finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible to establish and maintain adequate internal control over financial reporting. Our Chief Executive Officer is responsible to design or supervise a process that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The policies and procedures include:
•
maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of assets,
•
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors, and
•
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
For the year ended December 31, 2017, our management has relied on the Committee of Sponsoring Organizations of the Treadway Commission (COSO), “Internal Control - Integrated Framework,” to evaluate the effectiveness of our internal control over financial reporting. Based upon that framework, management concluded that our internal control over financial reporting had material weaknesses and was not effective as of December 31, 2017. A material weakness is a deficiency, or combination thereof, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process of evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses.
Changes in Internal Controls over Financial Reporting
Our Principal Financial Officer has determined that there were no changes made in the implementation of our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2017.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting because as a small reporting company we are not subject to that requirement.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors and executive officers and their respective ages and positions and biographical information are presented below. Our bylaws require three directors who serve until our next annual meeting or until each is succeeded by another qualified director. Our executive officers are chosen by our board of directors and serve at its discretion. There are no existing family relationships between or among any of our executive officers or directors.
Name
Age
Position Held
Term of Director
Rick Redford
Chief Executive Officer
Principal Financial Officer
From April 2017 to present
Ronald K. Williams
Chairman of the Board
From January 2006 until our next annual meeting
George H. Brimhall II
Director
From April 2008 until our next annual meeting
John S. Clayton
Director
Secretary
From April 2008 until our next annual meeting
Rick Redford - Mr. Redford was appointed as Chief Executive Officer on April 26, 2017. He had served as the Company’s Chief Operating Officer and Chief Sales Officer since August 2016. Mr. Redford’s prior experience includes serving as President and Chief Sales/Marketing Officer for All Resort Group, LLC, a leading company in
the transportation industry in Utah, from December 2014 to 2016. From 2005 to 2009 he was employed by ForeverGreen International, LLC as Vice President of Global Sales. For over twenty years he has had Senior Management experience and has been employed in executive management positions, focusing on sales strategies, intercompany efficiencies and management.
Ronald K. Williams - Mr. Williams resigned as President of the Company on April, 26, 2017, but continued as Chairman of the Board. He formerly served as President and CEO from January 2006 to April 2017 and served as Secretary and Treasurer from March 2013 to February 2014. Mr. Williams was an original founder of Whole Living in 1998. He previously served as Director, President and CEO of Whole Living from November 1998 to October 2002. He formed and he launched ForeverGreen International, LLC operations in May 2004. He started in the network marketing industry in the 1980's as a member for NuSkin International and learned the trade and business with them. He then went on to Neways International and became its Vice-President of Sales and Marketing. Then he served as a Senior Executive at Young Living Essential Oils.
George H. Brimhall II - Mr. Brimhall was appointed as a Director in April 2008. Since 1974 he has been self-employed with GNS Development Corporation which has a business plan focused on commercial recreational development.
John S. Clayton - Mr. Clayton was appointed as a Director in April 2008 and he was appointed as Secretary in February 2014. Since 2002 he has been self-employed with First Equity Holdings Corp., an investment company.
During the past ten years none of our executive officers have been involved in any legal proceedings that are material to an evaluation of their ability or integrity; namely: (1) filed a petition under federal bankruptcy laws or any state insolvency laws, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; (2) been convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting his/her involvement in any type of business, securities or banking activities; or (4) been found by a court of competent jurisdiction in a civil action, by the SEC or the Commodity Futures Trading Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons who own more than ten percent of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock. Officers, directors and ten-percent or greater beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based upon a review of those forms and representations regarding the need for filing for the year ended December 31, 2017, we believe all reports were filed timely.
Code of Ethics
We have not adopted a code of ethics for our principal executive and financial officers. Until we establish a code of ethics, our management intends to continue to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations.
Corporate Governance
We do not have a standing nominating committee for directors, nor do we have an audit committee with an audit committee financial expert serving on that committee. Our entire board of directors, including Messrs. Williams,
Brimhall and Clayton, act as our nominating and audit committee.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following tables show the compensation paid to our named executive officers in all capacities during the recent two years.
We do not have any employment contracts with the above named executive officers. We do not offer a retirement benefit plan to our executive officers, nor have we entered into any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to a named executive officer at or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the company or a change in the named executive officer’s responsibilities following a change in control.
Outstanding Equity Awards
The named executive officers did not have any outstanding equity awards at December 31, 2017.
Compensation of Directors
We do not have any standard arrangement for compensation of our directors for any services provided as director, including services for committee participation or for special assignments.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized under Equity Compensation Plans
We did not have any equity compensation plans in effect at December 31, 2017.
Beneficial Owners
The following tables set forth the beneficial ownership of our management and any other person or group who beneficially owns more than 5% of our voting common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with
respect to the shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based upon 25,692,286 shares of common stock outstanding as of April 17, 2018.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
The following information summarizes transactions we have either engaged in for the past two fiscal years or propose to engage in, involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons. These transactions were negotiated between related parties without “arm’s length” bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons.
On April 5, 2017, the Company issued a convertible promissory note for $500,000 to John Clayton, our Director and Secretary. 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 $0.20 per share.
On May 2, 2017, the Company issued a convertible promissory note for $500,000 to George H. Brimhall II, our Director. 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 $0.20 per share.
On August 10, 2017, the Company extinguished an outstanding convertible note held by John S. Clayton. The note had a principal balance of $1,501,024 and accrued interest of $216,976. We consolidated those amounts into a new convertible note totaling $1,718,000 with Mr. Clayton. The new 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, 2019. The note has a conversion feature for common shares at $0.20 per share.
As of December 31, 2017, the Company owes John S Clayton a total of $2,218,000 in principle and $104,104 in accrued interest.
As of December 31, 2017 the Company owed a total of $745,000 in principal plus $149,504 of accrued interest to George Brimhall.
Director Independence
We do not have an independent director, as defined under NASDAQ Stock Market Rule 5605(a)(2), serving on our board. This rule defines persons as “independent” who are neither officers nor employees of the company and have no relationships that, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Accountant Fees
The following table presents the aggregate fees billed for each of the last two fiscal years by our independent registered public accounting firm, Sadler, Gibb & Associates, LLC in connection with the audit of our financial statements and other professional services rendered by the accounting firm.
Audit fees
$ 97,500
$ 97,500
Audit-related fees
--
--
Tax fees
--
--
All other fees
--
--
Audit fees represent fees for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning.
All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other three categories.
Pre-approval Policies
We do not have a standing audit committee currently serving and as a result our board of directors performs the duties of an audit committee. Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an accounting firm before the accounting firm renders audit and non-audit services. We do not rely on pre-approval policies and procedures.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements
The audited financial statements of ForeverGreen Worldwide Corp. are included in this report under Item 8 on pages XX through XX.
(a)(2) Financial Statement Schedules
All financial statement schedules are included in the footnotes to the financial statements or are inapplicable or not required.
(a)(3)
Exhibits
3 (i)
Articles of incorporation, as revised (Incorporated by reference to exhibit 3.1 for Form 8-K, as
amended, filed December 18, 2006)
3(ii)
Bylaws, as revised (Incorporated by reference to exhibit 3.2 for Form 8-K, as amended, filed December 18, 2006)
10.1
Lease agreement between ForeverGreen International LLC and WI Commercial West Lindon LLC, dated September 29, 2015 (Incorporated by reference to exhibit 10.1 to Form 10-Q, filed November 14, 2016)
21.1
Subsidiaries of ForeverGreen (Incorporated by reference to exhibit 21.1 to Form 10-K, filed March 23, 2015)
31.1
Chief Executive Officer Certification
31.2
Principal Financial Officer Certification
32.1
Section 1350 Certification
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Label Linkbase Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized
FOREVERGREEN WORLDWIDE CORPORATION
By: /s/ Patrick A. Redford
Patrick A. Redford
Chief Executive Officer
Date: April 17, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Patrick A. Redford
Patrick A. Redford
Chief Executive Officer
Principal Financial Officer
Date: April 17, 2018
By: /s/ Ronald K. Williams
Ronald K. Williams
Chairman of the Board
Date: April 17, 2018
By: /s/ John S. Clayton
John S. Clayton
Director and Secretary
Date: April 17, 2018