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, 2017

[  ]

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)

(801) 655-5500

(Registrant’s 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 [X]    No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[   ]

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 registrant’s common stock as of November 14, 2017 was 26,692,285.

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TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

PART II – OTHER INFORMATION

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 2017 and 2016 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 three and nine-month periods ended September 2017 are not necessarily indicative of results to be expected for any subsequent period.  

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3

(Unaudited)

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FOREVERGREEN WORLDWIDE CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of and for the period ended September 30, 2017 and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2016 audited financial statements as reported in its Form 10-K. The results of operations for the three and nine-month period ended September 30, 2017 are not necessarily indicative of the operating results for the full year ended December 31, 2017.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are prepared on the basis of accounting principles generally accepted in the United States of America.

Principles of Consolidation

The consolidated balance sheets and statement of operations at September 30, 2017 include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.

Foreign Currency Translation

The 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 or settlement of foreign currency denominated transactions or balances are included in other comprehensive loss.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheets for accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.

Reclassification

Certain balances in previously issued financial statements have been reclassified to be consistent with the current period presentation.

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FOREVERGREEN WORLDWIDE CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Basic and Diluted Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. As of September 30, 2017, there were 34,405,714 common stock equivalents from convertible notes that were excluded from the diluted EPS (earnings per share) calculation as their effect is anti-dilutive.

New Accounting Pronouncements

After evaluating the recent accounting pronouncements through the date of this filing, the Company has concluded that application of these pronouncements will have no material impact on the Company’s financial results.

NOTE 3 – DEBT

Convertible notes payable and notes payable as of September 30, 2017 and December 31, 2016

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FOREVERGREEN WORLDWIDE CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 3 – DEBT – continued

Convertible Notes Related Parties

On April 5, 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 $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 September 30, 2017 interest expense of $92,639 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 September 30, 2017 interest expense of $37,253 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 entered 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 entered 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 September 30, 2017 interest expense of $15,067 was recorded as part of the amortization of the beneficial conversion feature of this note.

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FOREVERGREEN WORLDWIDE CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 3 – DEBT – continued

Convertible Notes Unrelated Parties – continued

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 entered 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 for $100,000. 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.  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 September 30, 2017 interest expense of $2,136 was recorded as part of the amortization of the beneficial conversion feature of this note.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

The Company has evaluated commitments and contingencies from the balance sheet date through the date the financial statements were issued and has determined that there are no such commitments and contingencies that would be a material impact on the financial statements.

NOTE 5 – INVENTORY

 NOTE 6 – GOING CONCERN

As reported in the accompanying consolidated financial statements the Company has a working capital deficit of $4,961,406 and accumulated deficit of $44,205,193 at September 30, 2017, 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.  Management’s plans to address and alleviate these concerns are as follows:  The Company has reviewed its cost structure and is taking steps to implement cost saving measures deemed to be effective.  This includes a reduction in labor force, restructuring of lease agreements, revised pricing of certain products to enhance sales incentives, and a marketing plan which involves more interaction with a broad scope of customers and Members.

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FOREVERGREEN WORLDWIDE CORPORATION

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 6 – GOING CONCERN -- continued

Additionally, we expect we will take advantage of limited international expansion opportunities.  These expansion opportunities will continue to be evaluated and those which provide the best opportunity for success will be pursued on a priority basis.  New products have been and will continue to be introduced to bolster Member recruiting and sales.  Management is reviewing improvements to the marketing plan which will enhance the opportunities for continued growth.  The Company intends to seek debt and equity financing as necessary.

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

NOTE 7 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and has determined that there are no such events that would have a material impact on the financial statements.

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

NOTE REGARDING FORWARD LOOKING STATEMENTS

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

ITEM 2.  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, Forevergreen (Aust & NZ) Pty, Ltd, ForeverGreen Singapore Pte Ltd, ForeverGreen Taiwan, ForeverGreen Japan (KK), ForeverGreen Peru SAC, ForeverGreen (HK) Limited (Hong Kong), ForeverGreen Marketing Corporation (Philippines), FG International LLP (India), Forevergreen Puerto Rico LLC, Forevergreen Dominicana S.R.L. (Dominican Republic), Forevergreen Peru, SAC, ForeverGreen SP z.o.o , (Poland), FGXpress do Brasil Comercio de Alimentos LTDA (Brazil), and ForeverGreen Team B.V. (Netherlands).

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

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opportunity. Included in this challenge is the need to continue to meet a high standard of quality and customer service and maintain the highest levels of Member satisfaction.

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.  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.

During the nine-month period of 2017 the Company continued to execute on its plans to realign expenses to a significantly lower level.  Reductions have been made in international offices as well as the corporate office.  In April 2017 Patrick (“Rick”) Redford assumed the responsibilities of Chief Executive Office with the intent to resume the Company’s growth and profitability.  He is working very closely with the Board to support and enhance the cost restructuring plans which have been implemented.  As previously communicated, he has coordinated with two of the Company’s founding investors to bring additional capital to the Company and such capital has been used to support the Company’s supply chain.

We will continue to look for opportunities to improve upon or expand the restructuring and cost cutting initiatives implemented last year and the beginning of this year. The Company continues reviewing its entire line of products to determine which products may be phased out or reworked to fit into the exciting global Xpress model.  PowerStrips continue to be the Company’s top selling product, exceeding 40% of the Company’s sales.  This effective product offers an advantage because it is easy to deliver to our global members.  

We continually manage our systems and logistics centers around the world to support the demand for our products and business opportunity. We continually challenge ourselves to continue to meet a high standard of quality and customer service and maintain the highest levels of Member satisfaction.

Overcoming periodic economic downturns and managing profitability will continue to require skilled personnel and responsive manufacturing and shipping facilities. Management intends to continue ongoing process improvement initiatives, especially in the areas of production and order fulfillment. These new operating efficiencies are targeted to address the current economic environment as well as prepare the Company for the upturn in demand as new and existing products ship and as people continue to look for alternative income opportunities. We continue to actively position ForeverGreen to be the Company that people may participate in for other income in addition to traditional employment options.

Results of Operations

The following chart summarizes the consolidated statements of operations of ForeverGreen Worldwide and subsidiaries for the three and nine-month periods ending September 30, 2017 and 2016.

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Our source of revenue is from the sale of various foods, other natural products and kits, plus freight and handling charges to deliver products to our Members and customers. We recognize revenue upon shipment of a sales order. The Company recognized product revenues of $13,996,213 and shipping and other revenues of $917,934 for the nine-month period of 2017 compared to product revenues of $29,327,397 and shipping and other revenues of $1,652,716 for the comparable period in 2016.  The Company recognized product revenues of $3,785,496 and shipping and other revenues of $248,270 for the third quarter of 2017 compared to product revenues of $7,785,215 and shipping and other revenues of $452,866 for the comparable period in 2016.

The Company experienced a 51.9% decrease in revenues totaling $16,065,966 for the 2017 nine-month period compared to the 2016 nine-month period. The Company experienced a 51.0% decrease in revenues totaling $4,204,315 for the 2017 third quarter compared to the 2016 third quarter. The decrease in revenues relates to a decline in the number of Members placing monthly orders due to the consolidation of our international markets and a decrease in new enrolled Members.

Cost of sales consists primarily of the cost of procuring and packaging products, the cost of shipping product to our international subsidiaries, warehouses and to our Members, plus credit card processing fees.  Cost of sales was approximately 24.8% of revenues totaling $3,689,684 for the 2017 nine-month period compared to 29.7% of revenues totaling $9,186,327 for 2016 nine-month period. This percentage decrease is primarily attributable to a continued increase in Xpress envelope products compared with Farmers Market products.  Cost of sales was approximately 21.8% of revenues totaling $877,390 for the third quarter of 2017 compared to 27.7% of revenues totaling $2,278,106 for third quarter of 2016.  This percentage decrease is primarily attributable to a change in the sales mix between Xpress envelope products compared with the Farmers Market products.  Reduced sales of the Ketopia product, which has a higher product cost and is more expensive to deliver to our members contributed to the reduced cost of sales.

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 Member leadership incentives and 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.

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Sales and marketing expenses were 42.3% of revenues totaling $6,301,496 for the 2017 nine-month period compared to 40.0% of revenues totaling $12,376,749 for 2016 nine-month period.  Sales and marketing expenses were 43.4% of revenues totaling $1,750,898 for the 2017 third quarter compared to 42.5% of revenues totaling $3,502,298 for 2016 third quarter.  This percentage increase is due to Xpress model products being a larger percentage of product sales, which have a slightly higher commission rate than other products in our line.

General and administrative expenses (including depreciation and amortization) were $5,771,715 or 38.7% of revenue, for the 2017 nine-month period compared to $10,689,360, or 34.5% of revenue, for the 2016 nine-month period, representing a decrease of $4,917,645 from the comparable period.  General and administrative expenses (including depreciation and amortization) were $1,404,279 or 34.8% of revenue, for the 2017 third quarter compared to $2,970,039 or 36.1% of revenue, for the 2016 third quarter, representing a decrease of $1,565,760 from the comparable period.  These decreases are due to the implementation of cost cutting initiatives during 2017. The Company’s labor force has been reduced both domestically and internationally.  These restructuring efforts involved employee severance agreements, some of which were mandated by local employment tax laws.  Extra costs in legal fees were also incurred in the 2016 third quarter as the Company restructured a number of lease arrangements and a litigation settlement.

Total other expense was $609,976 for the 2017 nine-month period compared to other income of $307,903 for the 2016 nine-month period.  This decrease of $917,879 is primarily attributable to the legal settlement that was reported in the 2016 second quarter.  Total other expense was $255,703 for the 2017 third quarter compared to other expense of $119,258 for the 2016 third quarter, a decrease of $136,445.

The Company experienced net loss of $1,458,724 for the 2017 nine-month period compared to a net loss of $964,420 for the 2016 nine-month period. This represents an increase of $494,304 which is attributable to the Company’s decreasing revenues.  The Company also realized some one-time costs associated with reducing the overall labor force during the 2017 first quarter. The Company experienced net loss of $254,504 for the 2017 third quarter compared to a net loss of $631,620 for the 2016 third quarter. This represents a net loss decrease of $377,116 which is attributable to the Company’s continued efforts to reduce costs.

Liquidity and Capital Resources

The Company’s total assets decreased to $4,372,020 as of September 30, 2017 compared to $5,724,550 as of December 31, 2016. The 23.6% decrease of $1,352,530 is due to decreases in inventory of $368,574, other receivables of $148,952 related to the collection of a litigation settlement, and property and equipment of $652,027 due to depreciation and amortization.

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The Company’s total liabilities at September 30, 2017 were $12,747,224 compared to $13,374,162 at December 31, 2016, a decrease of $626,938.  This decrease is attributable to a $992,787 decrease in accrued expenses.

As reported in the accompanying consolidated financial statements the Company has a working capital deficit of $4,961,406 and accumulated deficit of $44,205,193 at September 30, 2017, negative cash flows from operations, and has experienced periodic cash flow difficulties.  These factors 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 has reviewed its cost structure and is taking steps to implement cost saving measures deemed to be effective.  This includes reductions in our labor force, restructuring of our lease agreements, revised pricing of certain products to enhance sales incentives, and a marketing plan which involves more interaction with a broad scope of customers and Members.  

Additionally, we expect we will take advantage of limited international expansion opportunities.  These expansion opportunities will continue to be evaluated and those which provide the best opportunity for success will be pursued on a priority basis.  New products have been and will continue to be introduced to bolster Member recruiting and sales.  Management is reviewing improvements to the marketing plan which will enhance the opportunities for continued growth.  The Company intends to seek debt and equity financing as necessary.

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

Commitments and Obligations

The Company has an agreement with a related party, Marine Life Sciences, LLC, that supplies 100% of the marine phytoplankton included in several of our products.  If that vendor were to discontinue the supply of this ingredient, our sales could decrease. 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.

As of September 30, 2017, the Company has $1,232,747 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

Long-lived assets

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

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carrying amount. The Company did an annual analysis for the period ended September 30, 2017 and determined no adjustment to long-lived assets was needed.

Inventory

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.

Accounts Receivable

In determining the allowance for doubtful accounts, the Company evaluates the collectability of its accounts receivable and member advances based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings), the Company records a specific allowance for doubtful accounts against amounts due to reduce the net recognized receivable to the amount it reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due. If circumstances change (e.g., unexpected material adverse changes in a major customer’s ability to meet its financial obligation to us or higher than expected customer defaults), the Company’s estimates of the recoverability of amounts could differ from the actual amounts recovered.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, our Chief Executive Officer, who also acts as our Principal Financial Officer, 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 September 30, 2017.

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.

Notwithstanding this finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-Q 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.