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FOREVERGREEN WORLDWIDE CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 4 – NOTES PAYABLE – continued

On December 28, 2012 the Company entered into a promissory note agreement of $25,000, under the terms of the $200,000 line of credit to fund its operations. The Company recognized a beneficial conversion feature discount of $12,500 of which $12,305 and $195 have been recognized as interest expense during the periods ending September 30, 2013 and December 31, 2012, respectively.

On January 11, 2013, the Company entered into a convertible promissory note agreement of $25,000, under the terms of the $200,000 line of credit to fund its operations.  The Company recognized a beneficial conversion feature discount of $12,500 of which $12,500 has been recognized as interest expense during the period ending September 30, 2013.

On February 19, 2013, the Company entered into a convertible promissory note agreement of $28,740, under the terms of the $200,000 line of credit in exchange for expenses of $3,740 paid on behalf of the Company and cash of $25,000. The Company recognized a beneficial conversion feature discount of $12,500 of which $12,500 has been recognized as interest expense during the period ending September 30, 2013.

On April 18, 2013, the Company entered into a convertible promissory note agreement of $21,205, under the terms of the $200,000 line of credit in exchange for expenses of $9,445 paid on behalf of the Company and cash of $11,760. The Company recognized a beneficial conversion feature discount of $12,500 of which $12,500 has been recognized as interest expense during the period ending September 30, 2013.

On August 27, 2013 the Company entered into a convertible promissory note agreement of $50,000 under the terms of the $200,000 line of credit in exchange for cash of $50,000. The Company recognized a beneficial conversion feature discount of $25,000 of which $6,746 has been recognized as interest expense during the period ending September 30, 2013.

On May 26, 2011, the Company entered into a convertible promissory note for $281,758 with a conversion price of $.20 per share.  On September 9, 2013 the creditor converted the principle note of $281,758 and accrued interest of $52,472 totaling $334,230 for 540,000 shares of common stock at a share price of $.62 per share. Because the note holder agreed to the increased conversion price, the Company realized a gain of $226,230 on the conversion.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

On June 13, 2012, Environmental Research Center, a non-profit corporation, filed a complaint in the Superior Court of California, County of Orange, against ForeverGreen Worldwide Corporation and ForeverGreen International, LLC. ForeverGreen Worldwide received service of the complaint on July 29, 2012. The complaint alleges that the Company failed to provide health hazard warnings related to lead to consumers of its products in California.

Environmental Research Center is seeking injunctive relief, an order compelling the Company to provide the health hazard warnings to past consumers and unspecified civil penalties. The Complaint contains two alleged causes of action. Both allege violations of Health and Safety Code §25249.5 and seek injunctive relief as well as damages of $2,500 per day for each violation alleged. The Company has engaged legal counsel to vigorously defend against these allegations. The parties have reached a tentative settlement.  A settlement conference is scheduled for November 2013, at which time the Judge will either accept or reject the settlement offer.

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FOREVERGREEN WORLDWIDE CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 6 – INVENTORY

Inventories for September 30, 2013 and December 2012 were classified as follows:

NOTE 7 – RELATED PARTY TRANSACTIONS

Company officers have paid for expenses on behalf of the Company from time to time, which amounts are non-interest bearing and are due on demand. These amounts are recorded as due to related parties amounting to $34,407 and $54,494 at September 30, 2013 and December 31, 2012, respectively.

NOTE 8 – FIXED ASSETS

On August 1, 2013 the Company began the Application Development Stage of a new POS software system. Through the third quarter of 2013 the Company has capitalized $184,867 of the software project.

NOTE 9 – ISSUANCE OF COMMON STOCK

On August 30, 2013 the Company agreed to issue 600,000 shares of common stock at .50 per share in exchange for $300,000 cash with an unrelated third party.

On May 26, 2011, the Company entered into a convertible promissory note for $281,758 with a conversion price of $.20 per share.  On September 9, 2013 the creditor converted the principle note of $281,758 and accrued interest of $52,472 totaling $334,230 for 540,000 shares of common stock at a share price of $.62 per share.

NOTE 10 – SUBSEQUENT EVENTS

On October 4, 2013 the Company entered into a convertible promissory note agreement of $50,000, under the terms of the $200,000 line of credit in exchange for expenses of $6,189 paid on behalf of the Company and cash of $43,811. The Company will record a beneficial conversion feature discount of $25,000, which will be amortized over the life of the note.

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In this report references to “ForeverGreen,” “we,” “us,” “our,” and “the Company” refer to ForeverGreen Worldwide Corp. and its subsidiary.

NOTE REGARDING FORWARD LOOKING STATEMENTS

The U.S. Securities and Exchange Commission (“SEC”) encourages reporting companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions.  This report contains these types of statements.  Words such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements.  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.  All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

ITEM 2.  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 subsidiary, ForeverGreen International, LLC. 

We intend to continue our emphasis as a total lifestyle company focused on bringing our domestic and international Members and customer’s life-enhancing products.  With our new FGXpress brand test launched in November 2012, we were able to reach out to Members around the world through our e-commerce business model.  Since the pre-launch in January 2013, we have exceeded our original FGXpress growth goal by 27%, and are projected to continue to be on track to exceed $16 million in total revenues by December 2013.  We anticipate that we will reach this sales goal if we maintain current sales numbers.

Through our exclusive FrequenSea™ product and ForeverGreen Compensation Plan earnings and commissions, our focus is to assist prospective Members in creating a home-based business with home business training, mentorship and accountability to promote our residual income opportunities.  We also intend to provide weight management products, convenient whole foods for meals and snacks, personal care products and essential oils to our domestic Members and customers.  As our international markets mature, additional ForeverGreen products may also be introduced in each international market.  We will seek relations with key vendors to continue developing cutting edge products that are exclusive to our Members.

The Company has simplified its message and products under the philosophy of Restoration Biology, branded as “RESTORATION90.” Management believes this will allow the consumer to find the product that will be best suited for their individual needs and promote customer loyalty.

Our major challenge for the next twelve months will be to respond to the economic conditions and properly manage our systems and logistics centers around the world to support the demand for our products and the business opportunity.  Included in this challenge is the need to continue to create a high quality customer service experience and increase Member satisfaction.  Overcoming economic down turns will require skilled personnel, and manufacturing and shipping facilities.  Management intends to modify our operating activities, especially production and order fulfillment, for the current economic environment as well as prepare the Company for the upturn of demand as people continue to look for other income opportunities and choose ForeverGreen as the Company they can align with for their future.

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We are expanding our markets and exclusive products and we anticipate the need to expand our international logistics centers.  To set up more international logistics centers will require us to have more inventory and also the additional funds to operate.  The rewards from this expansion include increased sales and diversified market incomes. 

With our strong second quarter and continued increasing sales in July, which traditionally is one of our slower sales months of the year, we feel confident that we are still on track to reach our sales goal for 2013 of $16,000,000 to $18,000,000 in revenues.

Liquidity and Capital Resources

At September 30, 2013 we had cash and cash equivalents of $200,075 compared to $89,253 at December 31, 2012, with a working capital deficit of $4,457,576 and $4,948,132, respectively.  We recognized revenues of $11,495,871 for the nine month period ended September 30, 2013 (“2013 nine month period”) and recorded net operating income of $298,580 compared to $9,781,990 in revenues and a net loss of $77,765 for the nine month period ended September 30, 2012 (“2012 nine month period”).  

For the nine month period ending September 30, 2013 cash used in operations of $44,640 resulted primarily from the increase in accounts receivable with our third party distribution center in Korea, a net decrease in inventory due to only keeping our better selling products in stock and an increase in our prepaid expenses. Cash used in investing of $208,524 resulted from the investment in a new POS software and other fixed assets to more efficiently assist our distributors. Cash provided by financing activities of $356,806 was the result of a gain on the conversion of a promissory note to common stock, paying off the banking line of credit, and payments on a note payable to a related party.

Management continues to negotiate better costs and terms with our key vendors to lower our cost of goods sold.   New products have been and will continue to be introduced to bolster Member recruiting and product sales.  In addition, management intends to improve our marketing plan to enhance overall profitability.  Our management will continue to scrutinize expenses related to our operating activities and order fulfillment to determine appropriate actions to take to reduce these costs; however, we cannot guarantee that we will be able to return to profitability in the short term.  

Management anticipates that any future additional capital needed for cash shortfalls will be provided by debt financing.  We may pay these loans with cash, if available, or convert these loans into common stock.  We may also issue private placements of stock to raise additional funding.  Any private placement likely will rely upon exemptions from registration provided by federal and state securities laws.  The purchasers and manner of issuance will be determined according to our financial needs and the available exemptions.  We also note that if we issue more shares of our common stock, then our shareholders may experience dilution in the value per share of their common stock.  

Commitments and Contingent Liabilities

Our total liabilities at September 30, 2013 were $6,543,866 compared to $5,908,282 at December 31, 2012.  The increase is due to an increase in accrued expenses, primarily commissions payable with an increase of $596,000. This large increase is due to a sales promotion ran during the third quarter ended September 30, 2013 (“2013 third quarter”) where if a distributor bought extra product their commission for that product would be paid over a 5 month period instead of the normal following month. The increase in total liabilities is also due to an increase in sales, VAT, and GST tax payable of $62,000 due to increase revenues, a decrease in the banking line of credit of $97,000 due to paying off the line, an increase in deferred revenue of $94,000 due to increased revenues, a decrease in accounts payable of $52,000 due to paying our vendors in a timely manner, an increase in bank overdraft of $42,000 due to revenue increase.

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On December 3, 2012 the Company secured a $200,000 line of credit from Capital Communications, Inc., a third party. Under the terms and conditions of the line of credit the Company can draw against the line as needed to fund operations. The line has a fixed interest rate of 10% per annum.  The note has a conversion feature that provides the creditor with the option to convert any outstanding balance of the note to the Company's restricted common shares at $0.08 per share. The line of credit is secured by the Company's assets including, but not limited to, business furniture, fixtures equipment and up to 2,500,000 restricted shares held in escrow. During the nine month period ending September 30, 2013 the Company drew funds from this LOC totaling $125,000 under the terms of the line of credit to fund operations. In connection with these promissory notes, the Company received cash of $111,760 and expenses paid for on the Company’s behalf of $13,240.

At March 31, 2013 the Company was in default for an aggregate of $1,253,476 in notes payable and convertible notes payable.  At June 30, 2013 the Company has renegotiated the notes and they are no longer in default.

The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the nine month period ended September 30, 2013 and the year ended December 31, 2012.  The consolidated balance sheets include ForeverGreen Worldwide and its wholly-owned subsidiaries ForeverGreen International, LLC, Productos Naturales Forevergreen Internacional en Mexico S.A. de C.V., FVGR Colombia S.A.S., 3-101-607360 S.A. (a Costa Rican corporation), ForeverGreen Chile SpA, Forevergreen (Aust & NZ) Pty, Ltd, and ForeverGreen Singapore.  The following chart is a summary of our financial statements for those periods and should be read in conjunction with the financial statements, and notes thereto, included with this report at Part I, Item 1, above.

Results of Operations

The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the nine month periods ended September 30, 2013 and 2012.  The following chart is a summary of our financial statements for those periods and should be read in conjunction with the financial statements, and notes thereto, included with this report at Part I, Item 1, above.

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Our source of revenue is from the sale of various foods, other natural products, distributor sign up kits and freight

and handling.  Sales are net of returns, which have historically averaged 1.6% of sales; however, for the 2013 nine month period returns were .41%, down from .52% in the 2012 comparable period. Revenues for the 2013 nine month period increased by 17.52% ($1,713,881) compared to the same period in 2012. This was largely due to the introduction of FG Xpress.  During the 2013 third quarter revenues increased by 56.62% ($1,733,046) compared to the quarter ended September 30, 2012 (“2012 third quarter”).  This is due to the increased sales of FG Xpress product.

Cost of sales consists primarily of sales commissions paid to our distributors, the cost of procuring and packaging products, and the cost of shipping product to Members, plus credit card sales processing fees.  Cost of sales was approximately 68.04 % of revenues for the 2013 nine month period.  This is an improvement compared to cost of sales of 69.35 % of revenues for the 2012 nine month period, which is an increase of $1,037,890 for the nine month period over the same time period in 2012.  The percentage decrease in the 2013 nine month period was mostly attributable to decreasing our product costs and shipping costs.  During the 2013 third quarter cost of sales was approximately 68.14 % of revenues compared to 68.16 % the same quarter in 2012. This slight percentage decrease is again attributable to decreased product and shipping costs. The increase of expense of the cost of sales of $1,180,449 over the same period in 2012 is in line with the increase in sales for the same period.

Total operating expenses increased in the 2013 nine month period by $299,647 compared to the 2012 nine month period.  Salaries and wages have increased by $418,295 for the 2013 nine month period over the 2012 nine month period. Professional fees increased by $125,740.  These increases are a direct cause of management investing in our IT and sales departments to better serve our distributors and increase sales. General and administrative expenses decreased by $244,389 for the 2013 nine month period as compared to the 2012 nine month period.  The decrease is due to management working to keep expenses in line with revenues.  For the 2013 third quarter operating expenses increased by $213,737 over the 2012 same period.  Salaries and wages increased by $199,315 over the same period in 2012.  Professional fees increased by $71,505 for the 2013 third quarter compared to the 2012 third quarter.  All of increases are a direct result of management investing in our IT and sales departments to better serve our distributors and sales.

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Off-balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

Critical Accounting Estimates

The excess of the consideration paid for subsidiaries over the fair value of acquired tangible assets less the fair value of acquired liabilities is assigned to intangible assets.  We rely on an independent third party valuation to ascertain the amount to allocate to identifiable intangible assets, and the useful lives of those assets.  We amortize identifiable intangible assets over their useful life unless that life is determined to be indefinite.  The useful life of an intangible asset that is being amortized is evaluated each reporting period as to whether events and circumstances warrant a revision to the remaining period of amortization.  

We calculated ForeverGreen International’s customer base intangible using a percentage of the gross margin of ForeverGreen International.  We will amortize the customer base over a period of ten years.  

We record impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company did an annual analysis for the period ended December 31, 2012 and determined no adjustment to long-lived assets was needed. No impairment was recorded during the nine month period ended September 30, 2013.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC.  This information is accumulated to allow timely decisions regarding required disclosure.  On September 16, 2013 the Company hired a new Chief Financial Officer.  Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and concluded that our disclosure controls and procedures were not effective.  In May 2013 the Company determined that we needed to restate our audited financial statements for the year ended December 31, 2012 because we had understated revenue for the fiscal year 2012.  In July 2013 we filed an amended Form 10-K for the year ended December 31, 2012.  Management has instigated new internal controls to improve our timely disclosures.

Changes to Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has determined that there were no changes made in the implementation of our internal controls over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.  

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PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On June 13, 2012, Environmental Research Center, a non-profit corporation, filed a complaint in the Superior Court of California, County of Orange, against ForeverGreen Worldwide Corporation and ForeverGreen International, LLC. ForeverGreen Worldwide received service of the complaint on July 29, 2012. The complaint alleges that the Company failed to provide health hazard warnings related to lead to consumers of its products in California. Environmental Research Center is seeking injunctive relief, an order compelling the Company to provide the health hazard warnings to past consumers and unspecified civil penalties. The Complaint contains two alleged causes of action. Both allege violations of Health and Safety Code §25249.5 and seek injunctive relief as well as damages of $2,500 per day for each violation alleged. The Company has engaged legal counsel to vigorously defend against these allegations. The parties have reached a tentative settlement.  A settlement conference is scheduled for November 2013, at which time the Judge will either accept or reject the settlement offer.

ITEM 1A.  RISK FACTORS

Factors Affecting Future Performance

Actual costs and revenues could vary from the amounts we expect or budget, possibly materially, and those variations are likely to affect how much additional financing we will need for our operations.  

Management plans to increase sales and decrease expenses where appropriate to improve profitability.  Our future internal cash flows will be dependent on a number of factors, including:

•

The growth of the United States and the global economy;

•

Our ability to encourage our Members to sponsor new Members and increase their own personal sales;

•

Our ability to promote our product lines with our Members and customers;

•

Our ability to develop successful new exclusive product lines;

•

Our ability to obtain essential oil raw materials for some of our products;

•

Effects of future regulatory changes in the area of direct marketing, if any;

•

Our ability to remain competitive in our domestic and international markets; and

•

Our ability to decrease shipping time and expense.

Our expansion into foreign markets exposes our business to risks related to those economies which may result in loss of revenues.

We have entered into agreements with Members and suppliers in foreign countries and we may establish similar arrangements in other countries in the future.  As a result, our future revenues may be affected by the economies of these countries.  Our international operations are subject to a number of risks, such as, longer payment cycles, unexpected changes in regulatory environments, import and export restrictions and tariffs, difficulties in staffing and managing international operations, potentially adverse recessionary environments and economies outside the United States, and possible political and economic instability.  

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On August 30, 2013 the Company issued 60,000 shares to Empire Fund Managers in consideration for $300,000.  On September 9, 2013 the Company issued 540,000 to Liberty Partners in consideration for conversion of a convertible promissory note and accrued interest totaling $334,230. All shares were privately issued with a restrictive legend, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933.

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ITEM 6.  EXHIBITS

Part I Exhibits

Part II Exhibits