Attached files
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EX-32.1 - SECTION 1350 CERTIFICATION - FOREVERGREEN WORLDWIDE CORP | f09sep10qexhibit32.htm |
EX-31.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION - FOREVERGREEN WORLDWIDE CORP | f09sep10qexhibit311.htm |
EX-31.2 - CHIEF FINANCIAL OFFICER CERTIFICATION - FOREVERGREEN WORLDWIDE CORP | f09sep10qexhibit312.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number: 000-26973
FOREVERGREEN WORLDWIDE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) |
87-0621709 (I.R.S. Employer Identification No.) |
972 North 1430 West, Orem, Utah (Address of principal executive offices) |
84057 (Zip Code) |
(801) 655-5500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Non-accelerated filer [ ] |
Accelerated filer [ ] Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of the registrants common stock as of October 26, 2009 was 14,172,141.
1
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
2
Consolidated Balance Sheets
3
Consolidated Statements of Operations and Comprehensive Income (Loss)
4
Consolidated Statements of Cash Flows
5
Notes to the Consolidated Financial Statements
6
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
8
Item 3. Quantitative and Qualitative Disclosures About Market Risk
13
Item 4T. Controls and Procedures
13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
14
Item 1A. Risk Factors
14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
15
Item 6. Exhibits
15
Signatures
16
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of operations for the three and nine month periods ended September 30, 2009 and 2008 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the nine month period ended September 30, 2009, are not necessarily indicative of results to be expected for any subsequent period.
FOREVERGREEN WORLDWIDE CORPORATION
Consolidated Financial Statements
September 30, 2009 and 2008
(Unaudited)
2
ForeverGreen Worldwide Corporation | ||||||||
Consolidated Balance Sheets | ||||||||
(Unaudited) | ||||||||
|
|
| ||||||
|
|
|
|
|
September 30, |
| December 31, | |
|
|
ASSETS |
|
|
2009 |
|
2008 | |
|
|
|
|
|
(Unaudited) |
|
| |
CURRENT ASSETS |
|
|
|
|
| |||
| Cash and cash equivalents |
| $ |
354,303 |
$ |
142,704 | ||
| Prepaid expenses and other |
|
|
48,103 |
| 85,962 | ||
| Inventory |
|
|
987,660 |
|
1,867,241 | ||
|
|
Total Current Assets |
|
|
1,390,066 |
|
2,095,907 | |
|
|
|
|
|
|
|
| |
PROPERTY AND EQUIPMENT, net |
|
|
537,913 |
|
719,058 | |||
|
|
|
|
|
|
|
| |
OTHER ASSETS |
|
|
|
|
| |||
| Deposits and other assets |
|
|
75,091 |
| 99,486 | ||
| Trademarks, net of amortization |
|
|
61,653 |
| 60,551 | ||
| Customer base - net of amortization |
| 620,528 |
| 684,720 | |||
| Goodwill |
|
|
12,799,081 |
|
12,799,081 | ||
|
|
Total Other Assets |
|
|
13,556,352 |
|
13,643,838 | |
|
|
|
|
|
|
|
| |
|
| TOTAL ASSETS |
| $ |
15,484,331 |
$ |
16,458,803 | |
|
|
|
|
|
|
|
| |
|
| LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| |
|
|
|
|
|
| |||
CURRENT LIABILITIES |
|
|
|
|
| |||
| Bank overdraft |
| $ |
629,469 |
$ |
238,475 | ||
| Accounts payable |
|
|
1,259,688 |
| 1,859,151 | ||
| Accrued expenses |
|
|
1,004,156 |
| 1,260,605 | ||
| Due to related parties |
|
|
136,921 |
| - | ||
| Banking line of credit |
|
|
100,073 |
| 100,000 | ||
| Current portion of long-term debt |
|
|
2,629 |
| 1,614 | ||
| Notes payable, related parties |
|
|
1,179,194 |
|
610,000 | ||
|
|
Total Current Liabilities |
|
|
4,312,130 |
|
4,069,845 | |
|
|
|
|
|
|
|
| |
LONG-TERM DEBT |
|
|
|
|
| |||
| Notes payable |
|
|
24,324 |
|
26,179 | ||
|
|
Total Long-Term Debt |
|
|
24,324 |
|
26,179 | |
|
|
Total Liabilities |
|
|
4,336,454 |
|
4,096,024 | |
|
|
|
|
|
|
|
| |
COMMITMENTS |
|
|
- |
| - | |||
|
|
|
|
|
|
|
| |
STOCKHOLDERS' EQUITY |
|
|
|
|
| |||
| Preferred stock; no stated par value; authorized |
|
|
|
| |||
|
|
10,000,000 shares; no shares issued or outstanding |
|
|
- |
| - | |
| Common stock, par value $0.001 per share; authorized |
|
|
|
| |||
|
|
100,000,000 shares; 14,172,141 and 13,992,141 |
|
|
|
| ||
|
|
shares respectively issued and outstanding |
| 14,172 |
| 13,992 | ||
| Additional paid-in capital |
|
|
30,777,544 |
| 30,742,153 | ||
| Prepaid equity expense |
|
|
(30,695) |
| (19,245) | ||
| Other comprehensive loss |
|
|
(54,768) |
| (21,090) | ||
| Accumulated deficit |
|
|
(19,558,376) |
|
(18,353,031) | ||
|
|
Total Stockholders' Equity |
|
|
11,147,877 |
|
12,362,779 | |
|
|
|
|
|
|
|
| |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
15,484,331 |
$ |
16,458,803 |
The accompanying notes are an integral part of these consolidated financial statements .
3
ForeverGreen Worldwide Corporation | |||||||||||
Consolidated Statements of Operations and Comprehensive Income (Loss) | |||||||||||
(Unaudited) | |||||||||||
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| For the |
| For the | |||||
|
|
|
|
Three Months Ended |
| Nine Months Ended | |||||
|
|
|
|
September 30, |
| September 30, | |||||
|
|
|
|
2009 |
|
2008 |
|
2009 |
|
2008 | |
|
|
|
|
|
|
|
|
|
|
| |
REVENUES |
$ |
2,604,303 |
$ | 5,956,471 |
$ |
9,425,879 |
$ | 16,543,555 | |||
COST OF SALES |
|
2,128,228 |
| 4,179,955 |
|
6,959,635 |
| 12,041,065 | |||
|
|
|
|
|
|
|
|
|
|
| |
GROSS PROFIT |
|
476,074 |
| 1,776,516 |
|
2,466,244 |
| 4,502,490 | |||
|
|
|
|
|
|
|
|
|
|
| |
OPERATING EXPENSES |
|
|
|
|
|
|
|
| |||
|
Salaries and wages |
|
618,127 |
| 895,793 |
| 2,157,966 |
| 2,733,563 | ||
| Professional fees |
| 110,704 |
| 129,238 |
| 410,110 |
| 378,343 | ||
| General and administrative |
| 242,814 |
| 348,013 |
| 791,900 |
| 1,374,993 | ||
| Depreciation and amortization |
|
83,076 |
| 64,648 |
|
250,331 |
| 202,904 | ||
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total Operating Expenses |
| 1,054,722 |
|
1,437,692 |
| 3,610,307 |
|
4,689,803 | |
|
|
|
|
|
|
|
|
|
|
| |
NET OPERATING LOSS |
|
(578,648) |
|
338,824 |
|
(1,144,063) |
| (187,313) | |||
|
|
|
|
|
|
|
|
|
|
| |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
| |||
|
Other Income and (expense) |
| 8,000 |
| 1,057 |
| 8,045 |
| 5,659 | ||
| Net Interest income (expense) |
|
(28,917) |
|
(9,944) |
|
(73,544) |
|
(15,861) | ||
|
|
|
|
|
|
|
|
|
|
| |
|
| Total Other Income (Expense) |
|
(20,916) |
|
(8,887) |
|
(65,499) |
|
(10,202) | |
|
|
|
|
|
|
|
|
|
|
| |
NET INCOME / (LOSS) BEFORE INCOME TAXES |
$ |
(599,564) | $ |
329,937 |
$ |
(1,209,562) |
$ |
(197,515) | |||
|
|
|
|
|
|
|
|
|
|
| |
PROVISION FOR INCOME TAXES |
|
- |
|
- |
|
- |
|
- | |||
|
|
|
|
|
|
|
|
|
|
| |
NET INCOME / (LOSS) |
$ |
(599,564) | $ |
329,937 |
$ |
(1,209,562) |
$ |
(197,515) | |||
|
|
|
|
|
|
|
|
|
|
| |
BASIC AND DILUTED EARNINGS (LOSS) |
|
|
|
|
|
|
|
| |||
PER COMMON SHARE |
$ |
(0.04) | $ |
0.02 |
$ |
(0.09) | $ |
(0.01) | |||
|
|
|
|
|
|
|
|
|
|
| |
WEIGHTED AVERAGE NUMBER OF |
|
|
|
|
|
|
|
| |||
COMMON SHARES OUTSTANDING |
|
14,029,178 |
| 13,929,141 |
|
14,029,178 |
| 13,924,006 | |||
|
|
|
|
|
|
|
|
|
|
| |
COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
|
|
|
| |||
A Summary of the components of other comprehensive income (loss) for the fiscal years ended September 30, 2009 and 2008 are as follows: |
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
| |
Net Income (Loss) |
| (599,564) |
| 329,937 |
| (1,209,562) |
| (197,515) | |||
Other Comprehensive Income (Loss) |
|
(22,412) |
|
(22,804) |
|
(33,678) |
|
(28,463) | |||
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive Income (Loss) |
|
(621,976) |
|
307,133 |
|
(1,243,240) |
| (225,978) |
The accompanying notes are an integral part of these consolidated financial statements
4
ForeverGreen Worldwide Corporation | |||||||
Statements of Cash Flows | |||||||
(Unaudited) | |||||||
|
|
|
|
|
For the Nine Months Ended | ||
|
|
|
|
|
September 30, | ||
|
|
|
|
|
2009 |
|
2008 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| |||
Net Income / (loss) |
| $ |
(1,209,561) |
$ |
(197,515) | ||
Adjustments to reconcile net loss to net cash |
|
|
|
| |||
used in operating activities: |
|
|
|
|
| ||
| Depreciation and amortization |
|
|
250,331 |
| 202,904 | |
| Amortization of prepaid expenses (equity) |
| (11,450) |
| 10,833 | ||
| Common stock issued for services rendered |
| 35,573 |
| - | ||
| Gain on sale of property and equipment |
| 5,303 |
| - | ||
Changes in operating assets and liabilities: |
|
|
|
| |||
| Prepaid expenses |
|
|
37,808 |
| (56,329) | |
| Inventory |
|
|
879,581 |
| (974,738) | |
| Deposits |
|
|
24,395 |
| (2,737) | |
| Accounts payable and accrued expenses |
|
(832,321) |
|
812,608 | ||
|
|
|
|
|
|
|
|
|
| Net Cash Provided (Used) in Operating Activities |
|
(820,341) |
|
(204,974) | |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| |||
| Cash received on sale of property & equipment |
| - |
| (18,355) | ||
| Investment in trademarks |
|
|
(1,102) |
|
- | |
| Cash acquired from related party |
| - |
| (362,026) | ||
| Purchases of property and equipment |
|
(5,884) |
|
| ||
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
| (6,987) |
|
(380,381) | |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| |||
| Bank overdraft |
|
|
504,324 |
| 279,019 | |
| Advances on revolving bank line of credit |
| 660,639 |
| 1,380,042 | ||
| Payments on revolving bank line of credit |
| (660,712) |
| (1,380,042) | ||
| Payments on notes payable |
|
|
(881) |
|
(968) | |
| Proceeds from notes payable - related parties |
| 734,234 |
| 500,000 | ||
| Payments on notes payable -related parties |
|
(165,000) |
|
(152,500) | ||
|
|
|
|
|
|
|
|
|
| Net Cash Provided by Financing Activities |
|
1,072,605 |
| 625,551 | |
|
|
|
|
|
|
|
|
|
| Effect of Foreign Currency on Cash |
| (33,678) |
| (28,463) | |
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
| 211,599 |
| 11,733 | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
142,704 |
|
20,382 | ||||
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ |
354,303 |
$ |
32,115 | |||
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
| |||
|
|
|
|
|
|
|
|
CASH PAID FOR: |
|
|
|
|
| ||
|
|
Interest |
|
$ |
(73,544) | $ |
(15,861) |
|
|
Income taxes |
|
$ |
- | $ |
- |
The accompanying notes are an integral part of these consolidated financial statements
5
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Consolidated Financial Statements
September 30, 2009 and 2008
NOTE 1 BASIS OF PRESENTATION
The unaudited consolidated financial statements of ForeverGreen Worldwide Corporation (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Companys financial position as of September 30, 2009, and results of the nine month period ended September 30, 2009 and 2008. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008. The results of operations for the three and nine months ended September 30, 2009 may not be indicative of results that may be expected for the fiscal year ending December 31, 2009.
NOTE 2 INVENTORIES
Inventory is recorded at the lower of cost or market and valued on a first-in, first-out basis. Inventories for September 30, 2008 and 2009 were classified as follows:
|
2008 |
|
2009 |
Raw Materials |
$ 874,642 |
| $ 351,255 |
Finished Goods |
1,139,922 |
|
663,484 |
Total Inventory |
2,014,564 |
| 1,014,739 |
Less Reserve for Obsolete Inventory |
(93,499) |
| (27,079) |
Total Inventory (net of reserve) |
$ 1,921,065 |
|
$ 987,660 |
NOTE 3 RELATED PARTIES
On July 22, 2009 the Company borrowed $45,000 from a director with payment due on November 30, 2009. On July 31, 2009 the Company consolidated previous promissory notes totaling $422,500 from one director, plus accrued interest of $14,978, into one note for $437,478 and payment is due July 31, 2011. On July 31, 2009 the Company consolidated previous promissory notes totaling $122,500 from one director plus accrued interest of $9,256 into one note for $131,756 and payment is due July 31, 2011. On August 21, 2009 the Company borrowed $35,000 from a director with payment due on September 28, 2009 and $17,500 of the $35,000 loan was repaid on October 30, 2009. On August 21, 2009 the Company borrowed $45,000 from a director with payment due on November 30, 2009. All of the above loans carry interest at 10% per annum.
NOTE 4 STOCK ISSUED
On August 11, 2009 the Company issued 180,000 shares of restricted common stock valued at $.20 per share to an insurance vendor for payment of an insurance policy.
6
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Consolidated Financial Statements
September 30, 2009 and 2008
NOTE 5 SUBSEQUENT EVENTS
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 16, 2009, the date the financial statements were issued.
On October 30, 2009 the Company repaid $17,500 of the $35,000 loan borrowed from a director on August 21, 2009. The remaining $17,500 remains outstanding.
7
In this report references to ForeverGreen, we, us, our and the Company refer to ForeverGreen Worldwide Corp. and its subsidiary.
NOTE REGARDING FORWARD LOOKING STATEMENTS
The Securities and Exchange Commission (SEC) encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as may, expect, believe, anticipate, estimate, project, or continue or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
ForeverGreen Worldwide Corporation is a holding company which operates through its wholly-owned subsidiary, ForeverGreen International, LLC (ForeverGreen). We intend to continue our emphasis as a total lifestyle company focused on bringing our domestic and international Members and customers the exclusive FrequenSea product as well as a newly launched Azul. Azul is a product that not only includes our unique proprietary marine phytoplankton, but it also has high antioxidant properties and micro encapsulated probiotics. Azul is part of the LegaSea brand line of products and is in a powder form for lighter weight and convenience and it is packaged in environmentally friendly packaging. Azul is available in all current ForeverGreen markets and is also a key part of our new global not-for-resale program called the No Fences program that supports the purchase of Azul for personal consumption in over 25 new countries. We believe the No Fences program will have a positive impact on the Companys overall sales and profitability.
ForeverGreen has four brand names:
§
LegaSea brand includes FrequenSea, SecreSea, Zmp400 and, now, Azul. All these products have marine phytoplankton as their key ingredient.
§
TRUessence brand includes all our essential oils and personal care products.
§
Smart Food (formerly Brain Garden) brand includes Pulse-8, a heart healthy product, Electrifire, Thunder and many other whole food based products.
§
O3WORLD brand line includes our weight management line of products.
These four brands are now presented to our Members and consumers in a simple business model. This business model for our Members supports a simplistic, easily duplicated presentation and value proposal. The model is called the ABCs of Your Business.
A is for our AIM TF product that is high in Antioxidants, Immune and Metabolic support. B is for Burn or weight management, and C is for Cardio support, and highlights our Pulse 8 product. In simple terms when a Member buys and A, B or C featured product with Azul, the Member gets a price value or discount and qualifies for the compensation plan.
ForeverGreen adopted a hybrid compensation plan in May 2009 called the ForeverGreen Money Tree Compensation Plan. This compensation plan is a hybrid compensation plan using two-leg binary properties that
8
is expected to enhance the synergistic work of our distributors in two-leg organizations. Instead of having to build three or four legs, as in the older plan, now distributors rely on a two-leg structure plan. This compensation plan pays on a weekly basis an overall payout similar to our former plan, but the focus of the payout is towards the purchase of product by downline distributors enrolled as ForeverGreen Members.
The new ForeverGreen Money Tree Compensation Plan provides many different ways to earn income for our Members. A Member can earn retail profits for the difference between sales price and the wholesale price of the product. The Member can earn a commission of 20% of a Fast Start bonus on a new enrollees first purchase, as well as a 10% Growth bonus on the Members small leg organizations purchases. Members at the rank of Determined and below can earn from the 2% Enrollers bonus pool. At higher ranks there are other leadership pools. This plan also pays a dynamic enrollers matching bonus on the checks of the enrollers tree structure based on generations. The check from the 10% growth bonus for upline enrollers in the tree structure, within qualified generations of pay based on rank achieved, are matched and factored after all payouts have been calculated.
ForeverGreens goal continues to be the improvement of peoples lives through Health, Kindness and Opportunity. In addition, our focus is to assist prospective Members in creating a home based business with home business training, mentoring and accountability to promote residual income stream opportunities. We provide whole food drinks, organic chocolates, weight management products, convenient whole foods for meals and snacks, personal care products and essential oils to our domestic Members and customers with some of the above mentioned products also offered to select international markets as opportunities are created. We will seek relations with key vendors to continue developing cutting-edge products that are exclusive to our Members at a competitive price.
During 2009 ForeverGreen continued to be active in building sales throughout the world and also working to reduce costs. The Company had to face the challenges associated with the economic downturn that is affecting the lives of so many. Total revenues declined during both the first quarter, second quarter and third quarter of 2009, but the Company has taken steps for necessary cost reductions to bring our business back toward profitability. The cost reductions include staff reductions, salary reductions, cutting back on unnecessary spending, negotiating with our vendors for more feasible repayment plans and continually looking for new and better, yet more cost effective, ways of doing business. Our management believes the efforts already made are beginning to establish the foundation for success for the months and years to come.
Our major challenge for the next twelve months will be to increase and sustain our field leadership and momentum along with systems capabilities and logistics centers around the world to keep up with the demand for our products and the business opportunity. Included in this challenge is the need to support our customers and keep Member satisfaction at a high level. Overcoming current business challenges will require a motivated and trained field leadership team and skilled corporate personnel, and manufacturing and shipping facilities. Management believes that the new hybrid compensation plan using two-leg binary properties coupled with the new product, Azul, and the simple duplication model ABCs of Your Business, along with the new No Fences program will be the catalyst to create enthusiasm and growth. Management will continue to surround themselves with key experienced personnel and vendors while finding and motivating distributor leaders, as well as evaluating expenses related to operating activities, especially production and order fulfillment, in order to make adjustments to improve profitability.
We are expanding our markets and we anticipate expanding our domestic and international logistics centers as necessary. The rewards may include increased sales and diversified market incomes. International expansion is very expensive and key Members and vendors are required to experience rapid growth to become profitable in a foreign country.
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Liquidity and Capital Resources
During the nine month period ended September 30, 2009 (2009 nine month period) we were challenged by the continuing downturn in the global economy. At September 30, 2009, we had a negative working capital of $2,922,064 and recorded a net loss of $1,209,562 for the 2009 nine month period. Our net loss was minimized through effective management of our resources and cost reductions through financial and operational efficiencies. However, the losses and negative working capital raise doubt as to our ability to continue as a going concern. In this regard, management intends to continue to increase revenues and reduce expenses, improving profitability and the liquidity of ForeverGreen.
During the 2009 nine month period we relied upon our revenues and a line of credit of $100,000, which is secured with the guarantee of two stockholders, to fund our operations. In addition, in January 2009 we borrowed $60,000 each from two directors to increase our working capital needed for operations. During the second quarter of 2009 we borrowed $420,000 from a director (of which $140,000 has been repaid) to fund the transition between compensation plans because the new plan pays all commission payouts weekly, whereas the former plan paid a majority of commission payouts monthly. This created an approximately double cash flow payout in May 2009. During the three month period ended September 30, 2009 (2009 third quarter) we borrowed $125,000 from a director to increase our working capital needed for operations.
We anticipate that new products and programs will increase revenues in the short term. ForeverGreens launch of the new marine phytoplankton drink, Azul, in our April 2009 leadership convention was well received, as well as the introduction of the No Fences program that was officially started in late June 2009. Management will continue to scrutinize expenses related to our operating activities and order fulfillment to determine appropriate actions to take to reduce costs.
Management anticipates that any cash shortfalls will be covered by debt financing. We may pay these loans with cash, if available, or convert these loans into common stock. We may also issue private placements of stock to raise additional funding or to pay for services provided to us. Any private placement likely will rely upon exemptions from the registration requirements provided by federal and state securities laws. The purchasers and manner of issuance will be determined according to our financial needs and the available options. 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.
Commitments and Contingent Liabilities
ForeverGreen has three building leases for office, warehouse and production space in Orem, Utah. The office lease for $5,784 per month began January 1, 2005 and expires December 31, 2009, but includes a provision for an automatic five year extension. The warehouse lease for $7,500 per month began March 1, 2005 and expires February 28, 2010 and includes provisions for an automatic five year extension. The production lease for $8,531 per month began September 1, 2006 and expires August 31, 2013 with provisions for an automatic five year extension. All leases have a provision for an annual increase of 3%. The buildings ForeverGreen leases are sufficiently large enough to accommodate all of our administrative, warehouse and production needs.
ForeverGreen International has entered into a new agreement at a new location in Singapore beginning May 1, 2009 for approximately $3,900 per month for one year with the option to extend an additional year. The Company follows the guidance in the FASB Technical Bulletin No. 85-3 and records rent expense using straight-line over the life of each lease. Rent expense for the 2009 nine month period was $252,838 as compared to $265,735 for the nine month period ended September 30, 2008 (2008 nine month period). The decrease is a result of renegotiating with our landlords to stabilize this expense for the short term.
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Our total current liabilities increased by $242,285 to $4,312,130 at September 30, 2009 compared to $4,069,845 at December 31, 2008. This amount reflects the continued use of a line of credit and bank overdraft, along with accounts payable and notes payable, including the $569,194 increase in short-term notes payable due to additional loans. We continue to negotiate with our vendors to find ways to meet our obligations while continuing to provide outstanding service to our distributors.
Due to a civil action brought by Wellosophy Corporation (Wellosophy) in April 2009, our management entered into a settlement agreement and release with Wellosophy on July 27, 2009. The settlement required ForeverGreen Worldwide to pay an aggregate of $91,100 (representing a $75,698.56 product invoice, plus $15,401.44 of interest and legal fees) to Wellosophy in two installments. After the final payment, Wellosophy agreed to dismiss the litigation with prejudice.
Results of Operations
The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the three and nine month periods ended September 30, 2009 and 2008. The consolidated balance sheets and statements of operations include the books of ForeverGreen Worldwide and its wholly-owned subsidiary ForeverGreen International, LLC. The following chart is a summary of our financial statements for the periods noted and should be read in conjunction with the financial statements, and notes thereto, included with this report at Part I, Item 1, above.
SUMMARY OF BALANCE SHEET
|
Year ended Dec. 31, 2008 |
|
Nine months ended Sept. 30, 2009 |
Cash and cash equivalents |
$ 142,704 |
| $ 354,303 |
Total current assets |
2,095,907 |
| 1,390,066 |
Total assets |
16,458,803 |
| 15,484,331 |
Total current liabilities |
4,069,845 |
| 4,312,130 |
Long-term debt |
26,179 |
| 24,324 |
Total liabilities |
4,096,024 |
| 4,336,454 |
Accumulated deficit |
(18,353,031) |
| (19,558,376) |
Total stockholders equity |
$ 12,362,779 |
| $ 11,147,877 |
At September 30, 2009 our total assets decreased primarily because we reduced our inventory levels to more appropriate levels and revalued costs of inventory. The Company is trying to use a just-in-time approach for inventory to improve our inventory management and cash utilization and turn inventory into cash. Our total liabilities increased at September 30, 2009 compared to December 31, 2008 as the result of an increased bank overdraft and increases of short-term notes payable of $569,194.
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SUMMARY COMPARISON OF 2008 AND 2009 INTERIM PERIOD OPERATIONS
| Three month period ended September 30, |
| Nine month period ended September 30, | ||
|
2008 |
2009 |
|
2008 |
2009 |
Revenues |
$ 5,956,471 |
$ 2,604,303 |
| $ 16,543,555 |
$ 9,425,879 |
Cost of sales |
4,179,955 |
2,128,228 |
| 12,041,065 |
6,959,635 |
Gross profit |
1,776,516 |
476,074 |
| 4,502,490 |
2,466,244 |
Total operating expenses |
1,437,692 |
1,054,722 |
| 4,689,803 |
3,610,307 |
Net operating profit (loss) |
338,824 |
(578,648) |
| (187,313) |
(1,144,063) |
Other income (expense) |
(8,887) |
(20,916) |
| (10,202) |
(65,499) |
Net income (loss) |
329,937 |
(599,564) |
| (197,515) |
(1,209,562) |
Basic earnings (loss) per share |
$ 0.02 |
$ (0.04) |
| $ (0.01) |
$ (0.09) |
Our source of revenues is from the sale of various food and other natural products and we recognize revenue upon shipment of a sales order. Revenues are net of returns, which have historically been less than 0.2% of sales; however, in the nine month period September 20, 2009 our returns increased significantly to 2.6% as we had high returns due to economic challenges. Revenues for the 2009 third quarter and nine month period decreased in comparison to the comparable 2008 periods. The decrease in revenues was primarily the result of the continued slowdown in sales attributable to the economic slowdown that began in the fourth quarter of 2008, which is continuing to grip the United States. Management anticipates that revenues will increase due to our introduction of new products and programs and our new compensation plan and increasing new members joining in the fourth quarter.
Cost of sales consists primarily of the cost of procuring and packaging products, sales commissions paid to our Members, the cost of shipping product to Members, plus credit card sales processing fees. Cost of sales as a percentage of revenues increased by 3.3% in the 2009 nine month period compared to the 2008 nine month period. A correction of valuation of inventory of approximately $380,000 was made in the 2009 third quarter.
Total operating expenses decreased 23.0% for the 2009 nine month period compared to the 2008 nine month period and decreased 26.6% for the 2009 third quarter compared to the 2008 third quarter. The decrease in operating expenses is attributable primarily to reductions in general and administrative expense and in salaries and wages related to reductions in personnel and wage adjustments.
Total other expense increased for both the 2009 nine month period and 2009 third quarter as compared to the 2008 comparable periods as a result of increased interest expense on loans.
As a result of the above, our net loss for the 2009 third quarter increased due to an inventory valuation adjustment compared to the 2008 third quarter and our net loss for the 2009 nine month period increased as compared to the loss for the 2008 nine month period primarily due to decreased revenues.
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Off-balance Sheet Arrangements
None.
Critical Accounting Estimates
We account for our investments in our subsidiary using the purchase method of accounting. The excess of the consideration paid for a subsidiary over the fair value of acquired tangible assets less the fair value of acquired liabilities is assigned to intangible assets and goodwill. We rely on an independent third party valuation to ascertain the amount to allocate to identifiable intangible assets, and the useful lives of those assets. We amortize identifiable intangible assets over their useful life unless that life is determined to be indefinite. The useful life of an intangible asset that is being amortized is evaluated each reporting period as to whether events and circumstances warrant a revision to the remaining period of amortization. Goodwill is not amortized, but is tested for impairment on an annual basis. The implied fair value of goodwill is determined by allocating fair value to all assets and liabilities acquired; the excess of the price paid over the amounts assigned to assets and liabilities acquired is the implied fair value of goodwill.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and concluded that our disclosure controls and procedures were effective.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management determined that there were no changes made in our internal control over financial reporting during the third quarter of our 2009 fiscal year that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 18, 2009 R&L Publishing, Ltd., d/b/a Plus Publishing, filed a civil action in the United States District Court for the Eastern District of Texas, Sherman Division, against ForeverGreen International, L.L.C. The complaint alleges that Plus Publishing provided advertising and publishing services valued at $195,953 to ForeverGreen International and ForeverGreen International failed to pay for those services. ForeverGreen International has filed a motion to dismiss this action based upon insufficient service of process and is awaiting the Courts decision upon that motion.
UTI United States, Inc. (UTI) filed a complaint against ForeverGreen International, L.L.C. on August 27, 2009 in the Third District Court, State of Utah Salt Lake County, West Jordan Department. UTI alleges that it has not been paid $51,983 for shipping and freight services provided to ForeverGreen International and is seeking that amount, plus interest and costs of the action. ForeverGreen International has answered the complaint and is challenging the amount due.
ITEM 1A. RISK FACTORS
Factors Affecting Future Performance
Actual costs and revenues could vary from the amounts we expect or budget, possibly materially, and those variations are likely to affect how much additional financing we will need for our operations.
Management plans to increase sales and decrease expenses where appropriate to improve profitability. Our future internal cash flows will be dependent on a number of factors, including:
§
The recovery of the United States and the global economy;
§
Our ability to encourage our Members to sponsor new Members and increase their own personal sales;
§
Our ability to promote our product lines with our Members and customers;
§
Our ability to develop successful new exclusive product lines;
§
Our ability to obtain essential oil raw materials for some of our products;
§
Effects of future regulatory changes in the area of direct marketing, if any;
§
Our ability to remain competitive in our domestic and international markets; and
§
Our ability to decrease shipping time and expense.
Our expansion into foreign markets exposes our business to risks related to those economies which may result in loss of revenues.
We have entered into agreements with Members and suppliers in foreign countries and we may establish similar arrangements in other countries in the future. As a result, our future revenues may be affected by the economies of these countries. Our international operations are subject to a number of risks, such as, longer payment cycles, unexpected changes in regulatory environments, import and export restrictions and tariffs, difficulties in staffing and managing international operations, potentially adverse recessionary environments and economies outside the United States, and possible political and economic instability.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could lead to loss of investor confidence in our reported financial information.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management
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on our internal control over financial reporting. If we cannot provide reliable financial reports or prevent fraud, then our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. In order to achieve compliance with Section 404 of the Act within the prescribed period, we have engaged in a process to document and evaluate our internal control over financial reporting, which has been challenging. There is a risk that our independent auditors will not be able to conclude at December 31, 2010 that our internal controls over financial reporting are effective as required by Section 404 of the Act.
If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for the Company to produce reliable financial reports and are important to helping prevent financial fraud.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 10, 2009 we issued 180,000 shares of restricted stock to Donald R. Mayer, the President of Universal Business Insurance. These shares were issued in consideration for insurance premiums valued at $35,571.67. We relied on an exemption provided by Section 4(2) from the registration requirements of the Securities Act of 1933 for a private transaction not involving a public distribution.
ITEM 6. EXHIBITS
Part I Exhibits
No.
Description
31.1
Chief Executive Officer Certification
31.2
Chief Financial Officer Certification
32.1
Section 1350 Certification
Part II Exhibits
No.
Description
3.1
Articles of incorporation, as revised (Incorporated by reference to exhibit 3.1 for Form 8-K, as amended, filed December 18, 2006)
3.2
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 Whole Living and C & R Fiveplex, LLC, dated April 7, 2006 (Incorporated by reference to exhibit 10.3 to Form 10-QSB, filed November 14, 2006)
10.2
Paul Frampton Employment Agreement, dated March 1, 2007 (Incorporated by reference to exhibit 10.3 of Form 10-QSB, filed August 14, 2007)
10.3
Agreement between ForeverGreen International LLC and Marine Life Sciences LLC, dated March 28, 2008 (Incorporated by reference to exhibit 10.4 of Form 10-K, filed April 7, 2008)
10.4
Personal Care Exclusive Sales and Marketing Agreement between ForeverGreen International and Marine Life Sciences, LLC, dated April 23, 2008 (Incorporated by reference to exhibit 10.1 to Form 8-K filed April 29, 2008)
10.5
Form of Promissory Note (Incorporated by reference to exhibit 10.5 to Form 10-K, filed April 15, 2009)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FOREVERGREEN WORLDWIDE CORPORATION By: /s/ Ronald K. Williams Ronald K. Williams Chairman of the Board, President and Chief Executive Officer |
Date: November 16, 2009 |
By: /s/ Paul T. Frampton Paul T. Frampton Chief Financial Officer and Treasurer |
Date: November 16, 2009 |
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