UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For transition period ___ 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) |
Registrants telephone number: (801) 655-5500
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) 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 if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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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 filed [ ] 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 aggregate market value of the 5,043,588 shares of the registrants voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold ($0.25) on the last business day of its most recently completed second fiscal quarter (June 30, 2011) was approximately $1,260,897.
The number of shares outstanding of the registrants common stock as of May 15, 2012 was 14,892,141.
Documents incorporated by reference: None
TABLE OF CONTENTS
PART I
Item 1. Business
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Item 1A. Risk Factors
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Item 2. Properties
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Item 3. Legal Proceedings
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Item 4. Mine Safety Disclosure
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PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Item 6. Selected Financial Data
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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data
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Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A. Controls and Procedures
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Item 9B. Other Information
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
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Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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Item 14. Principal Accounting Fees and Services
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PART IV
Item 15. Exhibits, Financial Statement Schedules
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Signatures
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In this annual report references to ForeverGreen, the Company, we, us, and our refer to ForeverGreen Worldwide Corp. and its subsidiaries.
EXPLANATORY NOTE
This report on Form 10-K has been delayed because the Companys financial information for the year ended December 31, 2011 was unavailable as of March 30, 2012. Despite the Companys reliance on changes to disclosure in our Form 10-K for the year ended December 31, 2009 in response to SEC staff comments, the Company has been required to restate the financial information for a second time for the years ended December 31, 2009 and 2010. Another restatement is necessary due to an inspection by the Public Company Accounting Oversight Board (PCAOB) of the audit performed by our independent registered public accounting firm for the year ended December 31, 2010. Please see Part II, Item 7, Executive Overview, below, for more details.
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.
PART I
ITEM 1. BUSINESS
Historical Development
ForeverGreen Worldwide Corporation, formerly Whole Living, Inc. (ForeverGreen Worldwide), was incorporated in the state of Nevada on March 18, 1999 as Whole Living, Inc. In May of 1999, Whole Living merged with Whole Living Inc., a Utah corporation, which owned the trademark Brain Garden and some of the products and formulas presently being marketed by ForeverGreen Worldwide.
On January 13, 2006, Whole Living acquired a 23% interest in ForeverGreen International, LLC (ForeverGreen International). ForeverGreen International is a network marketing company that focuses on whole foods and natural products.
Whole Living, Inc. changed the name of the corporation to ForeverGreen Worldwide Corporation on December 14, 2006 and acquired the remaining 77% interest of ForeverGreen International. ForeverGreen International became a wholly-owned subsidiary of ForeverGreen Worldwide. The Brain Garden subsidiary was dissolved after this acquisition.
Our Business
ForeverGreen Worldwide is a holding company that operates through its wholly owned subsidiary, ForeverGreen International, LLC. Our product philosophy is to develop, manufacture and market the best of science and nature through innovative formulations as we produce and manufacture a wide array of whole foods, nutritional supplements, personal care products and essential oils.
We believe that consuming healthy and natural whole foods and beverages is the basis of health and longevity. We
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provide health answers, not only through exclusive nutritional whole food beverages, but also by providing a broad product line of delicious whole foods that can be eaten for every meal, instead of the processed, fatty and preservative-laden synthetic meals prevalent in society today. Many competing companies provide capsules, powders, pills or tablets as nutritional supplements, but we believe these generally fail to provide an every-meal alternative to the processed and nutrient depleted foods found in the three main daily meals of most common consumers. We provide the every-meal answer with a variety of appetizing healthy food products that allow our Members and customers to eat healthy for every meal and snack throughout the day. In addition, we provide healthy personal care products as an alternative to the chemical-laden and synthetic products in the marketplace that may potentially negatively impact our health.
We remain committed to developing and providing high quality products that are innovative, healthy, efficacious, easy to use and easy to sell. Our unique products, along with a distinct and fresh corporate philosophy and message of physical, mental, emotional and spiritual health through service to community and others, attract consumers as well as Members who wish to own a home-based business selling our products and spreading our health message.
ForeverGreen Takes a Stand for Kindness
One of ForeverGreens key missions is Kindness. ForeverGreen believes health is the doorway to kindness, and kindness is health. ForeverGreen corporate, along with ForeverGreen employees, distributor Members, and officers create a higher standard of focus, serving humanity one person at a time by doing individual and hands-on acts of kindness each day. We believe you can transform the world by transforming people. We call it Standing in the Drift. Standing in the Drift means doing everything a person can outside of themselves to help lessen the impact of the adversities our world faces. Each ForeverGreen Member is encouraged to take a stand in their own community to make a difference. ForeverGreen has corporately created and/or supported a national school nutrition program called The Power Lunch Program, the worldwide poverty relief organization called Kiva
Principal Products
We intend to continue our emphasis as a total lifestyle company focused on bringing to our domestic and international Members and customers our exclusive products. In February of 2011 we began our pre-launch phase of a new brand called VERSATIVA. The pre-launch phase introduces two unique products. The first new product in the new VERSATIVA line is called Hemp Pulse, which has 27 organic and/or clean whole foods, with hemp as the major ingredient. Hemp Pulse has three different fruit base choices: cherry, raspberry and blueberry. Hemp Pulse is manufactured in ForeverGreens own manufacturing facility. Hemp Pulse is also available in bars. The second new product in the VERSATIVA line is called Hemphoria, which is a 24 times liquid concentrate. Hemphoria is a whole seed concentrate with our complimentary proprietary blend of peace and happiness. In August 2011 we introduced another VERSATIVA line product called Inspirin, inspired wellness. Inspirin is based on natural ingredients with marine phytoplankton designed to ease discomfort or pain.
In an effort to simplify the products available by ForeverGreen the products are all now branded under the philosophy of Restoration Biology, branded as RESTORATION90. We define RESTORATION90 as the simple concept that the body doesnt know its chronological age, but knows its biological age. If the body is given the proper raw materials the body can work miracles and the body can restore itself to a more youthful biological age. ForeverGreen International specializes in providing excellent raw materials.
ForeverGreens many products that provide excellent raw materials inlcude:
The new eco friendly VERSATIVA products including Inspirin, Hemp Pulse and Hemphoria.
FrequenSea, A.I.M. Transfer Factor, Pulse-8, a heart healthy product that features L-arginine, ZMP 400, SecreSea, Azul. All of these products contain marine phytoplankton as a key ingredient.
The TRUessence Apothecary and Essential Oils includes all of our essential oils, personal care and household products.
ElectriFire, a natural energy drink, Thunder, a chocolate meal replacement shake, SmartSaltz, and many
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other healthy chocolate or whole-food based products.
The raw promise healthy weight management products soon to feature Powercode ETL May of 2012.
Our best-selling product is FrequenSea, a whole-food beverage consisting of a proprietary blend of marine phytoplankton, ionic sea minerals, frankincense, rose, ginger and aloe vera in a base of blueberry, cranberry and lime juice concentrate. Many of FrequenSeas ingredients are processed through a patent-pending process known as Aqueous Molecular Partitioning (AMP), which, without the use of chemicals or heat, renders the ingredients water-soluble. FrequenSea is sold as a single bottle, in individual single-serving packets or even in four-bottle packs. The marine phytoplankton in FrequenSea contains more than 200 different sea algae that are all processed through proprietary and patent-pending harvesting processes at a unique $30 million sea farm in the Pacific Northwest. A daily recommended amount of FrequenSea provides more than 66 vitamins and minerals and includes amino acids in a convenient bio-available form for easy ingestion and quick absorption. FrequenSea sales represent approximately 60 percent of our total product sales.
Azul is a high-antioxidant, delicious powdered blend of 24 raw whole food and super fruit ingredients and probiotics that are naturally dried and blended to preserve their natural integrity. A.I.M. Transfer Factor capsules contain a proprietary blend of raw materials that we believe optimize immune, metabolic, and antioxidant support. ZMP 400 features zeolite, a volcanic mineral known for attracting and removing harmful metals, chemicals and toxins from the body, naturally activated in 400 milligrams of our exclusive, mineral-rich, marine phytoplankton.
ForeverGreen offers our Members and customers a variety of pure, therapeutic-grade wild crafted essential oil singles and blends, sourced from all around the world. We believe there are many preventative and pleasurable ways to use essential oils topically, aromatically, as well as therapeutically in personal care products.
We believe the plant kingdom offers an abundance of our best medicines. Utilizing the patent-pending and, exclusive to ForeverGreen, Aqueous Molecular Partitioning (AMP) process, HYDRessence Plant Life Concentrates contain the nutrients of the entire plant in three effective, delicious, and highly concentrated liquid products that can be added to water or juice for an enhanced nutritious and pH-balancing experience.
We believe that everything you put on your skin will be absorbed into the bloodstream. With the potentially-harmful and cheap synthetic ingredients in many personal care products today, ForeverGreens Members and customers have access to healthy, natural personal care alternatives. Our personal care products include a variety of products to suit your personal care needs, from tooth powder to shaving cream, to chemical-free house cleaners, to luxurious bath salts. Some highlighted products from this line include Juice shampoo and conditioner, a lavender-based all-purpose body wash called Silk, Quench, a natural moisturizer, Touch antibacterial foaming hand soap, Protect hand sanitizer, and the facial skincare line, SecreSea. SecreSea is a marine phytoplankton-based skin care program of five products for healthy, beautiful skin.
Pulse-8 is a product that was introduced in 2009 that contains a specific ratio of L-Arginine with marine phytoplankton that is designed to support heart health.
Our whole food offerings consist of a variety of healthy, natural food products that are made onsite in our whole-food manufacturing facility. Pulse consists of 17 different nuts, seeds, fruits, grains and other whole foods. Pulse is offered in various flavors, either loose in canisters or in snack bars, and may be used as a snack or a meal replacement. Pulse has natural unprocessed proteins, fibers, carbohydrates and other AMPed nutrients required for a healthy diet. Our other whole food meal and snack products include several soups that also double as nutritious additives to every casserole or meal, and also include Finally Fruit, a natural dried fruit medley, Great Start oatmeal breakfast cereals, Harvest Mix trail mix blends, and Parched Pulse, a natural dried vegetable mix. We believe the Smart Food line offers a variety of products that satisfy the need for nutritious and natural food choices as opposed to processed, synthetic and preservative-laden foods.
Our natural energy drink, ElectriFire is designed to aid in maintaining or boosting ones weight management
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programs and was launched in 2008 to offer a safe alternative to the highly-caffeinated and sugared synthetic energy drinks commonly available today. ElectriFire comes in two flavors, a full, fruity smooth blend, or a spiced blend that offers a kick of AMPed chili for added blood circulation for those on the go, ElectriFire is convenient and natural, which offers the desired lasting energy, without the crash.
ForeverGreen Members and customers are among the first to finally enjoy guilt-free organic chocolate that is high in antioxidants and is processed without the fats, hormone filled dairy milk and waxes common in many chocolate products. This naturally dark chocolate comes in individually wrapped Teasers, as well as in fondue chips with a chocolate melter for use at chocolate fondue parties. The 24 Karat Chocolate® is also used as an ingredient in the weight management meal replacement products Thunder and FIXX, as well as in many of the whole-food bars offered by the Smart Food line. Thunder is a meal replacement drink powder formulated to provide 28% of the protein your body needs in an apple fiber base with natural sweeteners and antioxidants for a healthy, yet delicious experience.
Product Guarantees
Our 100% customer satisfaction policy allows product returns for all our products that are resalable, subject to a ten percent restocking fee. This policy improves our customer and Member satisfaction and brings us in line with Direct Selling Association recommendations. Actual product returns have been less than two percent of sales for the past two fiscal years. We also maintain an insurance policy for product liability claims of $1,000,000 USD per claim and $2,000,000.00 USD annual aggregate limit.
Product Development
We continue our commitment to providing innovative, natural, and cutting edge products to retain exclusivity for our Members and customers. Our products take advantage of the latest in nutritional research and science. Our products are easy to use and easy to sell. The effectiveness of our products is measurable in their nutrition and health benefits.
In March 2009 we announced the completion of our in-house information system, known as CASS (Commissioning and Sales System) which allows us to gather information on sales trends and field demographics in real time without reliance on a third party vendor.
Raw Materials and Suppliers
Throughout 2010 and 2011, we had the freedom to use any supplier to purchase raw materials. We used several different vendor sources since most of the raw materials were readily available in the marketplace. We maintain good relationships with our key vendors to ensure a continuous supply of our key products. During 2010 and 2011, we relied on two principal suppliers for our FrequenSea product. Marine Life Sciences provided the marine phytoplankton, and Primal Essence supplied the AMP technology used to process additional ingredients that accompany the marine phytoplankton in FrequenSea. Although there are other providers in the world who claim to produce marine phytoplankton, we consider Marine Life Sciences, product to be the very best quality, from the most ideal geographical location, with the very best harvesting and extraction methods, which makes for the best nutritionally superior and unique marine phytoplankton offering.
During 2007, Marine Life Sciences, LLC, a Nevada limited liability company (MLS), acquired the worldwide rights to the exclusive blend of marine phytoplankton produced by Unique Sea Farms, Ltd. On March 28, 2008 ForeverGreen International entered into an exclusive worldwide marketing agreement with MLS. Under the agreement, ForeverGreen International agreed to purchase an annual quota of marine phytoplankton.
Due to economic conditions in 2008, ForeverGreen International was unable to meet the annual quota requirements for the exclusive rights of the agreement with MLS. Therefore, an ongoing review of the quotas and market conditions is being reviewed with MLS to ensure a long-term unique vendor relationship. MLS continues to share
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research results and other data related to the product with ForeverGreen International and both parties agreed to protect any proprietary information related to the product. Both parties agreed to indemnify the other for any claims arising out of any action taken or omission by the other.
During 2007 and 2008, we relied primarily on one essential oil vendor. However, as of January 2009, our essential oil products are formulated, processed and sourced with other key vendors directly by ForeverGreen. ForeverGreen ended its relationship with its prior oil vendor to have full control over the manufacturing, control, quality, sourcing, and label and marketing claims of its oils. Management believes our oil quality and customer satisfaction is greatly improved with the new ForeverGreen education system and delivery of quality essential oils. However, some of our essential oil raw materials may be limited due to high demand and potential environmental or geographical raw material shortages that occur around the world periodically.
We maintain our in-house manufacturing capabilities for our whole foods and VERSATIVA products. We retain our freedom to use any competitive suppliers to garner control over our product costs, quality and the lead times for manufacturing and delivery. We may purchase our raw materials from several different sources and most of the raw materials we use are readily available in the marketplace. We maintain our product inventory using a system in which we ensure an appropriate inventory based on a products anticipated movement.
Markets
We provide exclusive, innovative nutritional and whole-food products that are eaten or consumed to achieve healthy results within the body. While the nutritional supplement industry, consisting of individually standardized supplements, herbs and the like, has been flat in recent years, the exclusive and proprietary products protected through trade secrets, proprietary processes and ingredients have experienced great growth. In addition, the functional foods and products we offer are experiencing favorable growth.
We offer our products online and each Member Kit purchased also includes a virtual online website, known as a Web Office, designed for Members, where they can manage, monitor, and operate their businesses successfully, anytime. This site is password protected and exclusive to Members with access to company news, product tracking, product information, and a library of company documents geared to help them with their business, such as frequently asked questions and various forms and references. In addition, we offer a replicated website model to our Members allowing them to obtain an immediate online presence and personal URL for their business, which they can use as a place to direct potential new Members to learn about the company and sign up as Members. Features on this website include company information, video and flash presentations, prospect management and follow-up, online registration of new Members, online product ordering, online customer service and a contact me function that allows anyone visiting the site to contact, via email, the Member directly
Distribution Network
Our main distribution center is located in Orem, Utah near the main corporate office. We also have a fulfillment center in Auckland, New Zealand that improves our product delivery with cost savings and efficiencies for our Australian and New Zealand markets. In addition, we have ForeverGreen offices in Costa Rica, Colombia and Chile, Singapore, Japan and Mexico, but are using a third party in the Netherlands to service our Members in the European Union, and a third-party provider to distribute our products throughout Mexico. We buy raw materials from third-party suppliers, manufacture our whole-food products in-house and warehouse the bulk food product at our facilities. We service individual product orders and ship to individual customers and Members in the United States, Australia, Canada, Japan, Mexico, New Zealand, Singapore, the United Kingdom, Spain, the Netherlands, Germany, Argentina, Ecuador, Bolivia, Peru, Dominican Republic and other South American countries.
Members and their customers pay for products prior to shipment, incurring minimal accounts receivable for us. Members and customers have access to place orders online through their ForeverGreen websites, by phone through a growing call center, or even by facsimile. Typically, Members and customers pay for their product orders by
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credit card. Less than 10% of our sales are paid for with cash. Typically, we experience back orders with less than .05% of our orders.
Enrollment and Sponsorship
Enrollment and sponsorship activities are encouraged, but not required of our Members. Successful Members will both enroll and sponsor new Members. The sponsoring of new distributors creates multiple levels in a network marketing structure. Individuals that a distributor sponsors are referred to as downline, or sponsored distributors. If downline distributors also sponsor new distributors, they create additional levels in the structure, but their downline distributors remain in the same downline network as their original sponsoring distributor.
Enrollment and sponsorship activities are encouraged, but not required of our Members. Successful Members will both enroll and sponsor new Members, who are known as downline members of that Member. Members assist their downline Members to successfully do the same. While we provide product and company brochures, magazines, websites, DVDs and other sales and marketing materials, our greatest success and retention comes from Members who are accountable and responsible for educating and training new Members with respect to our products, the ForeverGreen Money Tree Compensation Plan, and how to build and maintain a successful business.
Generally, Members who are new to network marketing invite friends, family members, and acquaintances to attend conference calls, review websites and marketing materials, or attend personal or company-sponsored meetings. Members with a history of network marketing are quick to invite their contacts within the industry to experience the difference that our company brings to the industry. Some people are attracted to become Members after experiencing our products and desiring to enjoy the wholesale pricing offered to our Members. The new Member is also entitled to enroll and sponsor other Members in order to build a network of Members and customers that provide commissions and further financial incentives as well as recognition from the company.
Turnover is a typical aspect of the direct selling or network marketing industry. Our Members understand that to prevent a possible decline in their organization and sales volume, the enrollment, sponsoring and training of new Members is necessary to increase the overall Member force and motivate new and existing Members. We may experience seasonal decreases in Member sponsoring and product sales because of holidays and customary vacation periods. We cannot predict the timing or degree of fluctuations because of the number of factors that impact the sponsoring of new Members. We cannot assure that the number, growth or productivity of our Members will be sustained at current levels or increase in the future.
Weekly conference calls, the materials included in the Member Kit, training events, corporate events and online support offerings help to provide a duplicable business model that help new Members successfully begin their independent contractor business.
Member Contract
A potential Member must enter into a standard Member Agreement which governs the relationship between the company and the Member in accord with our policies and procedures. Any person may join the company as a Member to purchase products for personal use or to build a downline sales organization. In order to become a Member, a person may purchase a non-commissionable Member Kit that currently sells for $25. The Member Kit includes a number of Member materials, such as the Policies and Procedures, step-by-step instructions on how to build and maintain a business, information about how to access the Members personal websites, company and product information, videos, brochures and other printed materials, basic forms and applications, and a special Meeting in a Box presentation that allows a Member, anywhere at any time, to conduct the perfect ForeverGreen meeting to invite new prospects to become ForeverGreen Members. This Member Kit accounts for about 1% of our total revenues. No product purchases are required to become a Member, and large inventory product purchases are discouraged. However, in order to receive compensation as a Member, personal or customer monthly purchases and/or personal customer sales of a certain amount of volume are required.
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Our Member Agreement and Policies and Procedures, which outline the scope of permissible marketing activities, and information on the ForeverGreen compensation plan are posted on our website. Our Member rules and guidelines are designed to provide Members with maximum flexibility and opportunity within the bounds of governmental regulations regarding product claims, network marketing and prudent business policies and procedures. Members are independent contractors and are thus prohibited from representing themselves as our agents or as employees of the company. Members are obligated to present our products and business opportunity ethically and professionally. Members contractually agree to abide by all local, state and federal laws and regulations pertaining to the advertising, sale and distribution of our products. All advertising must be factual and not misleading and a Member may be terminated for making false claims about the income potential, the compensation plan, or product efficacy.
Members must represent to potential Members that the receipt of commissions is based on sales volumes and substantial efforts. Products may be promoted by personal contact or by literature produced or approved by the company. Products generally may not be sold, and the business opportunity may not be promoted, in traditional retail environments.
We are not in a position to provide the same level of direction, motivation, and oversight to our Members as we would our own employees because the Members are independent contractors residing across the United States and in many other countries. We review alleged reports of Member misconduct or breach of contract to enforce contract compliance. If we determine that a Member has violated any of the Member Policies or Procedures, we may elect to educate the Member regarding the contract terms or impose sanctions such as warnings, probation, suspension of privileges of Membership, withholding commissions until specified conditions are satisfied, terminate the distributors rights completely or other appropriate injunctive relief. A Member may voluntarily terminate their Membership at any time.
Compensation Plan
We rely on a network marketing system for the distribution of our products through our Members and customers. Our revenue depends directly upon the sales efforts of our Members around the world. We distribute our products exclusively through independent contractor Members who have contracted directly with us. Members are entitled to purchase products from us for personal use or for resale, depending on their market, and the sales by our Members have the potential to earn the Member commissions. Individuals who join as Members may enroll and sponsor other Members, and may further earn commissions from the resale of products. The ForeverGreen Compensation Plan provides many different ways to earn income for our Members, from FastStart earnings, to personal rebates on Member purchases, to downline commissions and leadership pools.
During the first and second quarters of 2011 we relied on the ForeverGreen Money Tree Commission Plan for payment of commissions to members. A Member could earn retail profits and extra bonuses for a new enrollees first purchase and on a Members small leg organizations purchases. Bonuses were also paid from pools to Members based upon their rank in our plan. Commissions were paid out weekly under the ForeverGreen Money Tree Commission Plan.
In response to ForeverGreens distributor leadership and the current economic conditions, ForeverGreen introduced a new compensation plan: The Peoples Plan which started on July 27, 2011. The Peoples Plan is very simple to learn, which in turn means it is simple to teach and duplicate with our current Members and new Members. Part of the simplicity of the new Peoples Plan is it incorporates the Peoples Pack. The purchase of this pack by our Members allows each Member to maximize earnings via retail market up, commissions and bonuses available as they and their downline organization also purchase and resale the Peoples Pack or any other ForeverGreen product.
Each company product carries a specified number of commissionable volume, or points. Commissions or bonuses are based on a Members personal qualification, organizational, and leg commission volumes. A Member
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receives commissions based on a percentage of the sales volume of their downline each week. Commission qualification volume points are essentially based upon a percentage of the products wholesale cost, net of any point-of-sale taxes. As a Members retail business expands, and as they successfully sponsor other Members into the business, both of which expand their businesses, the Member receives more commissions from the expanded sales volume of the downline. A Member receives monthly commission bonuses by remaining in good standing with the Company and by generating a minimum of 50 points of Personal Volume (PV).
We believe the ForeverGreen Peoples Plan Compensation Plan reaches out to every segment of our society. An individual may join as a Member for the exclusive products offered by our company or for the wholesale prices that are available to Members purchasing product. An individual may join ForeverGreen and begin earning commissions rapidly with minimal investment. A Member receives a discount on their personal purchases or the purchases of their customers if they follow the value based purchase of FrequenSea or Azul with a product categorized as A, B or C, or other value package product combinations. This provides incentive to discuss successful products and programs with others. As a Member assists other individuals join the Members organization, the new Members generate commission payments to the upline Member through their product purchases.
A Member can earn retail profits for the difference between sales price and the wholesale price of the product. Beginning April 2011 a Member can earn a 20% Fast Start Bonus on a new enrollees first purchase. This new feature still works with the current month end and can earn 5%, 10% or 20% on that purchase and other first level or generational volume. Members earn first level 5% payout at the rank of Apprentice or earn 10% or 20% at the rank of Learning or higher on first generation monthly personal volume purchases via their distributorship. At MVP rank there is a 2% Bonus pool and at higher ranks there is an 8% leadership pools.
Our Members progress though the Peoples Plan compensation plan with recognition and ranks that show their standing and leadership within the company. A Member must generate Personal Volume (PV) with individual purchases or customer purchases. A Members rank may vary from month to month based upon the increase and decrease in their monthly sales volume. The new weekly Fast Start Bonus feature allows for even the lowest member status, requiring minimal volume qualifications, to earn compensation as they grow their businesses on a weekly basis. The rank of Apprentice is indicative of the status of the new Members first rank in the ForeverGreen business, which is achieved by creating a total of 100 points of Personal Enrolled Member Volume (PEMV) and 50 points PV. PEMV is volume points purchased by those member personal introduced on the Members first level. The progressive ranks include: Apprentice, Learning, Determined, Successful, Leader, Team Leader, MVP, Hall of Fame, Free and Rainmaker. Each rank qualifies for varying percentages paid monthly upon volume purchases per downline generations. The rank of MVP also earns a 2% pool shares with all MVPs. The ranks of Hall of Fame, Free and Rainmaker also share a 6% pool with all Members in those ranks.
There are many competitor companies that offer unilevel plans, FastStart bonuses, and leadership pools. However, we believe that our approach and percentage of commission payout, combined with our unique and specific product focus and company culture and growth, presents a far superior opportunity that that offered by competitor plans. This represents a unique, competitive advantage for our Members. The personal rewards for our Members generate incentive to attract additional network marketing professionals and newcomers alike. As our Members are rewarded financially, they are motivated to continue developing an organization to help others receive financial and recognition rewards and, as a result, the company continues to grow. We continue to look at ways to improve our compensation plan in the future, as we recognize the importance of staying in touch with economic changes within the marketplace. In March of 2012 we updated our compensation plan to pay 9 generation along with a 5 level fast start payout.
Competition
The market for products designed to enhance mental and physical performance is large and intensely competitive. Our primary competition includes other network marketing companies that manufacture and market herbal
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remedies, personal care, and nutritional products. We also compete with major retail businesses that provide the same categories of products that we offer. To gain market and industry attention and advantage, we emphasize our company culture, the exclusive access we have to certain unique products, the effectiveness and quality of our products, and the convenience of our distribution system. We emphasize products that improve health through a diet of whole-food beverages and real, natural products rather than pills and supplements. We take pride in our commitment to offering all natural, clean, and/or organic products.
We believe our health beverage, FrequenSea, is the first beverage or juice product to provide the benefits of marine phytoplankton in a proprietary whole-food tonic blend with ionic sea minerals, rose, ginger, aloe vera, frankincense, and other quality ingredients in a delicious base of cranberry, blueberry, and a twist of lime. Other network marketing beverages compete with FrequenSea in the category of health beverages consisting of a variety of fruit juices from around the world such as mangosteen, noni, acai and other fruit or plant products.
Many of our Smart Food products compete with health bars and nutritional supplements offered by many competitor companies as meal replacement products. Our essential oils and personal care products compete with companies that offer similar products, such as NuSkin, Neways and Young Living Essential Oils.
Many of our competitors have much greater name recognition and financial resources. In addition, herbal remedies, personal care, and nutritional products can be purchased in a wide variety of channels of distribution. While we believe that consumers appreciate the convenience of ordering products from home through a sales person or through a catalog, the buying habits of many consumers indicate they may not wish to change their habits of purchasing products through traditional retail channels.
We also compete for distributor Members with other direct selling organizations, many of which have a longer operating history and higher visibility, name recognition, and financial resources. Some of the dominant network marketing companies in our existing markets are Amway Corporation, Herbalife and NuSkin Enterprises, to name a few. We also compete with many smaller network marketing companies that also offer personal care products, health and nutrition products. We compete for new distributors on the strength of our product line, leadership training, compensation plan, marketing focus, direction, and management leadership strengths.
Trademarks, Patents and Intellectual Property
We have secured, or are in the process of securing, trademark protection for our important trademarks in the United States and around the world where we are conducting business. Trademark protection is important to brand name recognition and Member and consumer loyalty as we expand internationally. We intend to register our important trademarks in the United States and other countries where we are experiencing growth. A number of our products utilize proprietary formulations and processes.
We do not own any patents, but use trade secrets, confidentiality and non-disclosure agreements, and proprietary processes to protect our intellectual property. Some of our venders have secured patents or are seeking patents to continue the exclusivity for the products they supply to us.
Government Regulations
Direct Selling Activities
Direct selling activities are regulated by various federal, state and local governmental agencies in the United States and foreign countries. We believe that our method of distribution is in compliance in all material respects with the laws and regulations relating to not-for-resale and direct selling activities in the United States, Mexico, Japan, Canada, Singapore, New Zealand, Australia, Germany, the Netherlands, the United Kingdom, and other markets. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as pyramid, money games, business opportunity, or chain sales schemes that promise quick rewards for little
11
or no effort, require high entry costs, use high pressure recruiting methods, and/or do not involve legitimate products. The laws and regulations in our current markets often impose certain cancellation/product return, inventory buy-backs and cooling-off rights for consumers and Members, require us or our Members to register with the governmental agency, impose certain requirements on us, and/or impose various requirements.
The purpose of these laws and regulations is to ensure that Members are being compensated for sales of products and not for recruitment of new Members. The extent and provisions of these laws vary from state to state and internationally. International laws may impose significant restrictions and limitations on our business operations. For example, in international countries where we have not yet established a local office, our Members and customers purchase product through a not-for-resale program enabling them to receive product for personal consumption, but not retail the product to customers.
Any assertion or determination that we are not in compliance with existing laws or regulations could potentially have a material adverse effect on our business and results of operations. We cannot assure that regulatory authorities in our existing markets will not impose new legislation or change existing legislation that might adversely affect our business in those markets. Also, we cannot assure that new judicial interpretations of existing law will not be issued that adversely affect our business. Regulatory action, whether or not it results in a final determination adverse to us, has the potential to create negative publicity, with detrimental effects on the motivation and recruitment of our Members and, consequently, on our revenue and net income.
Regulation of Personal Care and Nutritional Food Products
Our products and related marketing and advertising are subject to governmental regulation by various domestic agencies and authorities, including the Food and Drug Administration, which regulates food, medical products and cosmetics. The advertising and marketing of our products are regulated by the Federal Trade Commission, which enforces consumer protection laws in regard to truth in advertising. The Consumer Product Safety Commission protects the public from unreasonable risk of injuries and death associated with consumer products, and the United States Department of Agriculture regulates food safety and quality. Similar types of agencies exist in our foreign markets. To date, we have not experienced any governmental actions related to health or safety and food and drug regulations for our products.
Our markets have regulations concerning product formulation, labeling and packaging. These laws and regulations often require us to, among other things, conform product labeling to the language and regulations, and register or qualify products with the applicable government authority or obtain necessary approvals or file necessary notifications for the marketing of such products. Many of our existing markets also regulate product claims and advertising. These laws regulate the types of claims and representations that can be made regarding the capabilities of products. For example, in the United States we are unable to make any claim that our nutritional products will diagnose, cure, mitigate, treat, or prevent disease.
Employees
As of the date of this filing we have 38 fulltime employees with some services, employee and management functions being performed by ForeverGreen employees. Many of these employees directly support the Member network. Our employees are not presently covered by any collective bargaining agreement. We believe our relationships with our employees are good, and we have not experienced any work stoppages.
ITEM 1A. RISK FACTORS
Factors Affecting Future Performance
You should carefully review and consider the risks described below, as well as the other information in this report
12
and in other reports and documents we file with the SEC when evaluating our business and future prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, not presently known to us, or that we currently see as immaterial, may also occur. If any of the following risks or any additional risks and uncertainties actually occur, then our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline and you could lose all or a portion of the value of your investment in our common stock. You should not draw any inference as to the magnitude of any particular risk from its position in the following discussion.
We have a history of losses and may never become profitable.
We have recorded net losses for the past two fiscal years. Our revenues from sales may not be sufficient to meet our working capital needs and/or to implement our business strategies. We may be required to rely on debt financing, further loans from related parties, and private placements of our common stock for our additional cash needs. Such funding sources may not be available or the terms of such funding sources may not be acceptable to the Company. If the Company is unable to find such funding it could have a material adverse effect on our ability to continue as a going concern.
Recent economic conditions have made it more difficult for companies to raise capital and obtain financing. Our inability to raise additional capital or to obtain additional financing, if needed, would negatively affect our ability to implement our business strategies and meet our goals. This, in turn, would adversely affect our financial condition and results of operations
Because our direct-to-consumer sales rely on the marketability of key personalities, the inability of a key personality to perform his or her role or the existence of negative publicity surrounding a key personality may adversely affect our revenues.
Direct-to-consumer products may be marketed with a key personality through our independent distributor channels. The inability or failure of a key personality to fulfill his or her role, or the ineffectiveness of a key personality as a spokesperson for a product, a reduction in the exposure of a key personality due to the discontinuance of a marketing program, or otherwise, or negative publicity about a key personality may adversely affect the sales of our product associated with that personality and could affect the sale of other products. A decline in sales would negatively affect our results of operations and financial condition.
The failure of our suppliers to supply quality materials in sufficient quantities, at a favorable price, and in a timely fashion could adversely affect the results of our operations.
We buy our raw materials from a variety of suppliers. The loss of any of our principal suppliers or of a supplier that provides any hard to obtain materials could adversely affect our business operations. Although we believe that we could establish alternate sources for most of our raw materials, any delay in locating and establishing relationships with other sources could result in product shortages, with a resulting loss of sales and customers. In certain situations we may be required to alter our products or to substitute different materials from alternative sources.
We rely solely on one supplier for our phytoplankton products and the loss of, or unexpected interruption in this service would materially adversely affect our results of operations and financial condition.
A shortage of raw materials or an unexpected interruption of supply could also result in higher prices for those materials. During 2011, the U.S. experienced increases in various product raw material costs, transportation costs and the cost of petroleum based raw materials and packaging supplies used in our business, which were associated with higher oil and fuel costs. Although we may be able to raise our prices in response to significant increases in the cost of raw materials, we may not be able to raise prices sufficiently or quickly enough to offset the negative effects of the cost increases on our results of operations or financial condition.
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There can be no assurance that suppliers will provide the quality raw materials needed by us in the quantities requested or at a price we are willing to pay. Because we do not control the actual production of these raw materials, we are also subject to delays caused by interruption in production of materials based on conditions outside of our control, including weather, transportation interruptions, strikes and natural disasters or other catastrophic events.
Product liability claims could harm our business.
We may be required to pay for losses or injuries purportedly or actually caused by our products. Although historically we have had no claims and relatively low financial exposure from product claims, we have experienced difficulty in finding insurers that are willing to provide product liability coverage at reasonable rates due to insurance industry trends and the rising cost of insurance generally. As a result, we have elected to self-insure our product liability risks for our product lines. Until we elect and are able at reasonable rates to obtain product liability insurance, if any of our products are found to cause any injury or damage, we will be subject to the full amount of liability associated with any injuries or damages. This liability could be substantial and may exceed our reserves. We cannot predict if and when product liability insurance will be available to us on reasonable terms.
Collectively, our officers and directors own a significant amount of our common stock, giving them influence over corporate transactions and other matters and potentially limiting the influence of other stockholders on important policy and management issues.
Our officers and directors, together with their families and affiliates, beneficially owned approximately 72% of our outstanding shares of common stock as of May 15, 2012. As a result, our officers and directors could influence such business matters as the election of directors and approval of significant corporate transactions. Various transactions could be delayed, deferred or prevented without the approval of stockholders, including:
transactions resulting in a change in control;
mergers and acquisitions;
tender offers;
election of directors; and
proxy contests.
There can be no assurance that conflicts of interest will not arise with respect to the officers and directors who own shares of our common stock or that conflicts will be resolved in a manner favorable to us or our other stockholders.
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. PROPERTIES
ForeverGreen has two building leases for office and production warehouse space in Orem, Utah. The Company signed a new 3 year lease in 2011, with monthly rent of $9,750 for the office space. The production warehouse lease for $10,061 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. The Company has an office in Mexico with a one year lease paying $2,000 per month and an
14
office in Colombia with a one year least paying $840 per month. The Company added offices in Chile and Costa Rica in 2011. The Chile office has a one year lease and is paying $1,390 per month, and the Costa Rica office has a 3 year lease and is paying $1,500 per month. All lease amounts above are in USD.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various disputes and legal claims arising in the normal course of our business. In the opinion of management any resulting litigation will not have a material effect on our financial position and results of operations.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable to our operations.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the OTC Bulletin Board under the symbol FVRG. The following table represents the range of the high and low bids for our common stock for each quarter of the 2011 and 2010 years as reported by the OTC Bulletin Board. The following quotations represent prices between dealers and may not include retail markups, markdowns, or commissions and may not necessarily represent actual transactions.
| 2011 |
| 2010 | ||
Fiscal Quarter Ended | High | Low |
| High | Low |
March 31 June 30 September 30 December 31 | 0.34 0.38 0.29 0.16 | 0.10 0.15 0.14 0.05 |
| 0.48 0.39 0.20 0.20 | 0.15 0.10 0.01 0.01 |
Our shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act, commonly referred to as the penny stock rule. The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Trading in the penny stocks is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include certain institutional investors and individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of our securities and must have received the purchasers written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent to the purchaser disclosing recent price information for the penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of shareholders to sell their shares.
15
Holders
As of May 15, 2012, we had 150 shareholders of record, which does not include shareholders who hold shares in street accounts of securities brokers.
Dividends
We have not paid cash or stock dividends and have no present plan to pay any dividends, intending instead to reinvest our earnings, if any. For the foreseeable future, we expect to retain any earnings to finance the operation and expansion of our business and the payment of any cash dividends on our common stock is unlikely.
Recent Sales of Unregistered Securities
None.
Issuer Purchase of Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
ITEM 7. MANAGEMENTS 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.
During the years ended December 31, 2010 and 2011 ForeverGreen Worldwide has been subject to two regulatory reviews that have required restatements of our financial statements for the years ended December 31, 2008, 2009 and 2010. The first regulatory review began in December 2010 when the SEC conducted a limited review of the ForeverGreen Form 10-K for the year ended December 31, 2009. The SEC staff comments requested information on the policies and methods we rely upon for testing goodwill. We evaluated our policies and methods and, in consultation with the SEC staff, we determined that an adjustment to the value of goodwill in that report was required. The analysis resulted in an implied fair market value of $7,021,454 which was less than the $12,799,081 goodwill recorded. $3,725,006 of this impairment was attributed to the year ended December 31, 2008 and $2,052,621 was attributed to the year ended December 31, 2009. As a result of this regulatory review, we filed an Amendment No. 2 to the Form 10-K for the year ended December 31, 2009 on June 7, 2011 in which we recognized an impairment of $3,725,006 and $2,052,621 to goodwill for the years ended December 31, 2008 and 2009, respectively, reducing goodwill to $9,074,075 and $7,021,454, respectively.
Management acknowledges that the Company is responsible for the adequacy and accuracy of the disclosure in our filings and that SEC staff comments or changes to disclosure in response to SEC staff comments do not foreclose the SEC from taking any action with respect to a filing. However, despite our reliance upon the SEC staffs recommendations, we have had a subsequent regulatory review by the PCAOB that requires additional restatements.
The second regulatory review began in December 2011, when the PCAOB inspected the audit performed by our former independent registered public accounting firm, Morrill & Associates LLC, for the year ended December 31,
16
2010. The PCAOB also reviewed the correspondence between ForeverGreen Worldwide and the SEC staff related to the impairment of goodwill during the SEC staffs review conducted in early 2011. Based upon this inspection, the PCAOB determined that our calculations were not performed in accordance with Generally Accepted Accounting Principles (GAAP) despite the SEC staffs acceptance of the analysis performed in April 2011. To satisfy GAAP, we have re-performed the goodwill analysis in accordance with ASC 350-20-35. This revised goodwill analysis uses the original inputs but corrects calculations and comparisons that existed in the original analysis. In this re-performance of the goodwill analysis we have determined that goodwill must be impaired to $0 for the year ended December 31, 2009 and this adjustment will roll through retained earnings into 2010.
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, any new products and ForeverGreen Compensation Plan earnings and commissions. In addition, 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 stream opportunities. We also intend to provide organic chocolates, 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.
Starting in the fourth quarter of 2010 we experienced a sales growth trend that is continuing into the first quarter of 2011. We have experienced a significant increase in sales in March 2011 as compared to February 2011 primarily as the result of the introduction of our new products VERSATIVA which is designed to improve our business opportunity for our independent distributors. We continue to experience sales growth trends in 2011 that have again continued into the first quarter of 2012, we anticipate that the increase in sales will continue in the short term. The company has simplified is message and products under the philosophy of Restoration Biology, branded as RESTORATION90. Manage believes this will allow a great ease of entry to our many products and there uses to support the bodys needs.
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 customer service and Member satisfaction level at the highest quality. 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.
We are expanding our markets and exclusive products and we anticipate the need to expand our international logistics centers. The rewards include increased sales and diversified market incomes. International expansion is very expensive and key Members are required to experience rapid growth to be profitable in a foreign country.
Liquidity and Capital Resources
At December 31, 2011 we had cash and cash equivalents of $223,099, with a working capital deficit of $4,298,664. We recorded revenues of $13,701,802 for 2011, and recorded a net loss of $1,459,268. During 2011 we financed our operations with revenues and net proceeds from loans from related and third parties of $807,532. These notes are broken down with $200,000 from convertible notes from related parties, $100,420 from net draws on our revolving line of credit, $776,720 from issuance of convertible notes payable to third parties, and payments on existing long term notes payable of $2,108 and to existing related parties notes of $267,500. Based on these factors, our independent accounting firm has expressed an opinion that there is substantial doubt as to our ability to continue as a going concern.
17
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 December 31, 2011 were $5,950,954 compared to $4,303,693 at December 31, 2010. The increase reflects notes payable increasing by $807,532 (see Liquidity and Capital Resources, above for details), accounts payable by $507,160 and accrued expenses increasing by $220,146. ForeverGreen International borrowed these funds from these parties during 2011 to support the introduction of new product launches and cover operating expenses through the worldwide economic downturn.
Accounts payable also include monetary settlements agreed to in two legal actions which will require the Company to make payments to third parties. We were obligated to pay $120,000; twentyfour $5,000 monthly payments to resolve litigation, our final payment was made in January 2012.
Results of Operations
The following chart summarizes the consolidated financial statements of ForeverGreen Worldwide for the years ended December 31, 2011 and 2010. The consolidated balance sheets and statements of operations include the books of 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 II, Item 8, below.
18
| Year ended December 31 | ||
| 2011 |
| 2010 |
SUMMARY OF BALANCE SHEET |
|
|
|
Cash and cash equivalents | $ 223,099
|
| $ 178,124 |
Total current assets | 1,631,143 |
| 974,475 |
Total assets | 2,326,010 |
| 1,884,756 |
Total current liabilities | 5,929,807 |
| 4,282,620 |
Long-term debt | 21,147 |
| 21,073 |
Total liabilities | 5,950,954 |
| 4,303,693 |
Accumulated deficit | (34,573,495) |
| (33,114,227) |
Total stockholders deficit | $ (3,624,944) |
| $ (2,418,937) |
Cash and cash equivalents increased at December 31, 2011 compared to 2010 due to proceeds from loans. Our total assets increased to $2,326,010 at December 31, 2011 compared to $1,884,756 at December 31, 2010. The increase is primarily due to the increase in inventory. Total liabilities increased primarily due to increases in notes payable, discussed above.
| Year ended December 31 | ||
| 2011 |
| 2010 |
SUMMARY OF OPERATING RESULTS |
|
|
|
Revenues, net | $ 13,701,802 |
| $ 10,620,700 |
Cost of sales | 11,319,292 |
| 7,491,429 |
Gross profit | 2,382,510 |
| 3,129,271 |
Total operating expenses | 3,611,207 |
| 3,596,879 |
Net operating loss | (1,228,697) |
| (467,608) |
Total other expense | (230,571) |
| (122,127) |
Income tax provision | |
| |
Net loss | (1,459,268) |
| $ (589,735) |
Net loss per share (basic and diluted) | $ (0.10) |
| $ (0.04) |
We experienced a 29% increase in revenues in 2011 over 2010 resulting from the addition of new leaders and product introductions in 2011. Our source of revenue is from the sale of various foods, other natural products, distributor sign ups and kits and freight and handling to delivery products to the distributor and customer. We recognize revenue upon shipment of a sales order. Sales are net of returns; returns in 2011 returns decreased to approximately .973% of revenues from 1.41% in 2010.
19
Cost of sales consists primarily of sales commissions paid to our Members, the cost of procuring and packaging products, and the cost of shipping product to our international subsidiaries and warehouses and to our Members, plus credit card sales processing fees. Cost of sales was approximately 82.6% of revenues for 2011 compared to 70.54% of revenues for 2010. The 2011 increase is primarily due to the additional commissions paid to new key leaders, increases in product costs directly related to shipping product to international markets and to our members. The majority additional commissions payments ended in 2011 and in May of 2012 product price and shipping increases have been implemented. These corrections will bring our cost of sales of sales percentages closer to 70% for 2012.
Total operating expenses increased for 2011 compared to 2010 by $14,328 or 0.4%. General and administrative expenses decreased by $14,941 as management decreased its marketing expenses. Professional fees increased for 2011 compared to 2010 by $5,245, or 1%, due to expansion in the South American markets and the legal costs to register the Companys products in those markets. Depreciation and amortization decreased in 2011 compared to 2010 by $111,445 due to limited additional assets being purchased and full depreciation of assets already purchased in 2011. Total other expense for 2011 and 2010 was related to interest expense on loans.
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 Internationals 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. The amortization for 2011 and 2010 was $85,590.
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, 2011 and determined no adjustment to long-lived assets was needed.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FOREVERGREEN WORLDWIDE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
INDEX
Reports of Independent Registered Public Accounting Firms
22
Consolidated Balance Sheets
24
Consolidated Statements of Operations and Comprehensive Income
25
Consolidated Statements of Stockholders Equity
26
Consolidated Statements of Cash Flows
27
Notes to the Consolidated Financial Statements
28
21
SADLER, GIBB & ASSOCIATES, LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
ForeverGreen Worldwide Corporation
We have audited the accompanying consolidated balance sheets of ForeverGreen Worldwide Corporation and subsidiaries (the Company) as of December 31, 2011 and the related consolidated statements of operations, stockholders equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of ForeverGreen Worldwide Corporation and subsidiaries as of December 31, 2010 were audited by other auditors whose report dated June 3, 2011, expressed an unqualified opinion on those statements. Our opinion, in so far as it relates to the year ended December 31, 2010, is based solely on the report of the other auditors.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial stat0ements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ForeverGreen Worldwide Corporation and subsidiaries as of December 31, 2011 and the results of their operations and cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 9 to the consolidated financial statements, the Company has suffered accumulated net losses of $34,573,495 and has had negative cash flows from operating activities during the year ended December 31, 2011 of $909,844. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
/s/ Sadler, Gibb & Associates, LLC
Sadler, Gibb & Associates, LLC
Salt Lake City, UT
May 16, 2012
22
Morrill Report
23
ForeverGreen Worldwide Corporation | |||||||
Consolidated Balance Sheets | |||||||
|
|
|
|
| December 31, |
| December 31, |
ASSETS |
|
| 2011 |
| 2010 | ||
|
|
|
|
| (Restated) | ||
CURRENT ASSETS |
|
|
|
|
| ||
| Cash and cash equivalents |
|
| $ 223,099 |
| $ 178,124 | |
| Accounts receivable, net |
|
| 103,770 |
| 78,831 | |
| Prepaid expenses and other |
|
| 158,714 |
| 14,324 | |
| Inventory |
|
| 1,145,560 |
| 703,196 | |
|
| Total Current Assets |
|
| 1,631,143 |
| 974,475 |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net |
|
| 151,144 |
| 264,887 | ||
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
| ||
| Deposits and other assets |
|
| 64,454 |
| 82,909 | |
| Trademarks, net of amortization |
|
| 51,319 |
| 48,945 | |
| Customer base - net of amortization |
| 427,950 |
| 513,540 | ||
| Goodwill |
| - |
| - | ||
|
| Total Other Assets |
|
| 543,723 |
| 645,394 |
|
| TOTAL ASSETS |
|
| $ 2,326,010 |
| $ 1,884,756 |
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
| ||
| Bank overdraft |
|
| $ 179,586 |
| $ 34,388 | |
| Accounts payable |
|
| 1,183,101 |
| 854,068 | |
| Accrued expenses |
|
| 2,110,674 |
| 1,789,206 | |
| Due to related parties |
|
| 178,127 |
| 83,718 | |
| Banking line of credit |
|
| 100,420 |
| 50,379 | |
| Current portion of long-term debt |
|
| 1,945 |
| 4,127 | |
| Notes payable, related parties |
|
| 922,478 |
| 1,189,978 | |
| Convertible notes payable, related parties |
|
| 245,000 |
| 45,000 | |
|
| Notes payable, unrelated parties |
|
| 1,008,476 |
| 231,756 |
Total Current Liabilities |
|
| 5,929,807 |
| 4,282,620 | ||
LONG-TERM DEBT |
|
|
|
|
| ||
| Notes payable |
|
| 21,147 |
| 21,073 | |
|
| Total Long-Term Debt |
|
| 21,147 |
| 21,073 |
|
| TOTAL LIABILITIES |
|
| 5,950,954 |
| 4,303,693 |
|
|
|
|
|
| ||
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; 14,892,141 and 14,342,141 |
|
|
|
| |
|
| shares respectively issued and outstanding |
| 14,892 |
| 14,892 | |
| Additional paid-in capital |
|
| 30,934,109 |
| 30,862,628 | |
| Prepaid equity expense |
|
| -- |
| (39,550) | |
| Other comprehensive loss |
|
| (450) |
| (142,680) | |
| Accumulated deficit |
|
| (34,573,495) |
| (33,114,227) | |
|
| Total Stockholders' Equity |
|
| (3,624,944) |
| (2,418,937) |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ 2,326,010 |
| $ 1,884,756 |
The accompanying notes are an integral part of these financial statements
24
ForeverGreen Worldwide Corporation | ||||||
Consolidated Statements of Operations and Comprehensive Loss | ||||||
| ||||||
|
|
|
| For the Year Ended | ||
|
|
|
| December 31, | ||
|
|
|
| 2011 |
| 2010 |
|
|
|
|
|
| (Restated) |
|
|
|
|
|
|
|
REVENUES, net |
| $ 13,701,802 |
| $ 10,620,700 | ||
COST OF SALES, net |
| 11,319,292 |
| 7,491,429 | ||
|
|
|
|
|
|
|
GROSS PROFIT |
| 2,382,510 |
| 3,129,271 | ||
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
| ||
| Salaries and wages |
| 2,035,647 |
| 2,011,623 | |
| Professional fees |
| 409,775 |
| 401,530 | |
| General and administrative |
| 1,168,785 |
| 1,183,726 | |
|
| Total Operating Expenses |
| 3,611,207 |
| 3,596,879 |
|
|
|
|
|
|
|
NET OPERATING LOSS |
| (1,228,697) |
| (467,608) | ||
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
| ||
| Gain on settlement |
| - |
| 70,953 | |
| Gain on sale of assets |
| 410 |
| - | |
| Interest expense |
| (230,981) |
| (193,080) | |
|
|
|
|
|
|
|
|
| Total Other Expense |
| (230,571) |
| (122,127) |
|
|
|
|
|
|
|
Loss from continuing operations before income tax provision |
| (1,459,268) |
| (589,735) | ||
Income Tax Provision (Benefit) |
| - |
| - | ||
|
|
|
|
|
|
|
NET LOSS |
| $ (1,459,268) |
| $ (589,735) | ||
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS |
|
|
|
| ||
PER COMMON SHARE |
| $ (0.10) |
| $ (0.04) | ||
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF |
|
|
|
| ||
COMMON SHARES OUTSTANDING |
| 14,892,141 |
| 14,346,674 | ||
|
|
|
|
|
|
|
COMPREHENSIVE LOSS |
|
|
|
| ||
A summary of the components of other comprehensive (loss) for the fiscal years ended December 31, 2011 and 2010 is as follows: |
|
|
| |||
|
|
|
|
|
|
|
Net Loss |
| $ (1,459,268) |
| $ (589,735) | ||
|
|
|
|
|
|
|
Other Comprehensive Income Loss |
| 142,230 |
| (30,818) | ||
|
|
|
|
|
|
|
| Comprehensive Loss |
| $ (1,317,038) |
| $ (620,553) |
The accompanying notes are an integral part of these financial statements
25
ForeverGreen Worldwide Corporation | ||||||||||||||||
Consolidated Statements of Stockholders' Equity | ||||||||||||||||
For the years ended December 31, 2011 and 2010 (restated) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Additional |
|
|
| Other |
|
| |
| Preferred Stock |
| Common Stock |
| Paid-in |
| Accumulated |
| Comprehensive |
| Prepaid | |||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Income |
| Expenses | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2009 (restated) | -- |
| $ -- |
| 14,342,141 |
| $ 14,342 |
| $ 30,806,346 |
| $ (32,524,492) |
| $ (111,862) |
| $ (45,807) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares issued for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
$.1034 per share | -- |
| -- |
| 550,000 |
| 550 |
| 56,282 |
| -- |
| -- |
| (56,832) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortization of prepaid expenses | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| 63,089 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Foreign currency translation | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| (30,818) |
| -- | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss for the period ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2010 | -- |
| -- |
| -- |
| -- |
| -- |
| (589,735) |
| -- |
| -- | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance, December 31, 2010 (restated) | -- |
| $ -- |
| 14,892,141 |
| $ 14,892 |
| $ 30,862,628 |
| $ (33,114,227) |
| $ (142,680) |
| $ (39,550) |
Shares issued for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.1034 per share | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prepaid expenses | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| 39,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital | -- |
| -- |
| -- |
| -- |
| 71,481 |
| -- |
| -- |
| -- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation | -- |
| -- |
| -- |
| -- |
| -- |
| -- |
| 142,230 |
| -- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 | -- |
| -- |
| -- |
| -- |
| -- |
| (1,459,268) |
| -- |
| -- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011 | -- |
| $ -- |
| 14,892,141 |
| $ 14,892 |
| $ 30,934,109 |
| $ (34,573,495) |
| $ (450) |
| $ -- |
The accompanying notes are an integral part of these financial statements
26
ForeverGreen Worldwide Corporation | |||||||||||
Consolidated Statements of Cash Flows | |||||||||||
|
|
|
|
| For the Year Ended | ||||||
|
|
|
|
| December 31, | ||||||
|
|
|
|
| 2011 |
| 2010 | ||||
|
|
|
| (Restated) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| |||||||
Net Loss |
|
| $ (1,459,268) |
| $ (589,735) | ||||||
Adjustments to reconcile net loss to net cash |
|
|
|
| |||||||
provided by (used in) operating activities: |
|
|
|
| |||||||
| Depreciation and amortization |
|
| 213,948 |
| 325,393 | |||||
| Common stock issued for services rendered |
| - |
| 56,832 | ||||||
| Gain on settlement |
| - |
| (70,953) | ||||||
Changes in operating assets and liabilities: |
|
|
|
| |||||||
| Accounts receivable |
|
| (738,086) |
| (65,383) | |||||
| Prepaid expenses |
|
| (126,744) |
| 52,390 | |||||
| Inventory |
|
| (296,198) |
| 97,698 | |||||
| Deposits and other assets |
|
| 489,111 |
| 15,989 | |||||
| Accounts payable |
|
| 502,130 |
| - | |||||
| Accrued expenses |
|
| 505,263 |
| (137,780) | |||||
|
| Net Cash Used in Operating Activities |
| (909,844) |
| (317,549) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| |||||||
| Cash paid for trademarks |
|
| - |
| (435) | |||||
| Purchases of property and equipment |
| (732) |
| (16,920) | ||||||
|
| Net Cash Used in Investing Activities |
| (732) |
| (17,355) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| |||||||
| Proceeds from bank overdraft |
|
| 145,198 |
| 34,388 | |||||
| Net proceeds from banking line of credit |
| 100,420 |
| (49,990) | ||||||
| Payments on notes payable |
|
| (2,108) |
| (1,753) | |||||
| Payments on notes payable - related parties |
| (267,500) |
| 205,000 | ||||||
| Proceeds from convertible notes payable related party |
| 200,000 |
| - | ||||||
| Proceeds from convertible note payable |
| 776,720 |
| 100,000 | ||||||
|
| Net Cash Provided by Financing Activities |
| 952,730 |
| 287,645 | |||||
|
|
|
|
|
|
| |||||
|
| Effect of Foreign Currency on Cash |
| 2,821 |
| (30,817) | |||||
|
|
|
|
|
|
|
| ||||
NET INCREASE IN CASH |
| 44,975 |
| (78,076) | |||||||
|
|
|
|
| |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 178,124 |
| 256,200 | |||||||
|
|
|
|
| |||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ 223,099 |
| $ 178,124 | |||||||
|
|
|
|
| |||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
| |||||||
Interest |
| $ 18,691 |
| $ 7,210 | |||||||
Income taxes |
| $ - |
| $ - | |||||||
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
27
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was incorporated on November 25, 1998 in the state of Utah. On November 30, 1998, Whole Living, Inc. acquired the assets, leases, product line and name of Brain Garden, L.L.C., a Utah limited liability company engaged in the marketing and distribution of various natural food products, oils and bath salts. The Company did business under the name of Brain Garden, and maintained its headquarters in Provo, Utah.
On November 30, 1998, the Company acquired many of the assets, lease obligations and much of the product line of Brain Garden. The acquisition was recorded using the purchase method of a business combination. Intangible assets such as distributor down lines, customer lists and product name identifications were recorded in the acquisition in the amount of $43,294 and were amortized over 60 months. The Company paid $283,800 for the purchase of Brain Garden assets, and assumed leases in the amount of $14,500. The Company also assumed an operating lease for office space which expired during 1999.
On May 24, 1999 the Company entered into an agreement to merge with Whole Living, Inc. a Nevada Corporation (WLN) which was a non-operating public company with cash of $150,000 and a note receivable of $650,000 from Whole Living, Inc. (Utah) for funds advanced in contemplation of the merger. Pursuant to the merger, WLN issued 6,000,000 shares of common stock to the shareholders of the Company for all outstanding stock of the Company. The merger was recorded as a reverse merger, with Whole Living, Inc. (Utah) being the accounting survivor. A reverse merger adjustment was made to the books of the Company to reflect the change in capital to that of WLN. No goodwill or intangible assets were recorded in the reverse acquisition.
In March 2002, the Company incorporated Brain Garden, Inc. as a wholly owned subsidiary. The assets of the Company were subsequently transferred to Brain Garden.
On January 13, 2006 the Company entered into an agreement whereby it exchanged 1,266,667 shares of its post-reverse split common stock for a 23% interest in ForeverGreen International, LLC. a privately held company. This acquisition is accounted for on the equity method of accounting. As part of this reorganization the officers and directors of the Company resigned and officers of ForeverGreen International, LLC were appointed as officers of the Company.
ForeverGreen International, LLC was organized on February 19, 2003 in the state of Utah. The Company engages in the marketing and distribution of chocolate and various natural food products, oils and bath salts. In August 2005 the Company introduced FrequenSea, a nutritional beverage which includes marine phytoplankton, which helped the Company to increase sales dramatically. ForeverGreen International, LLC does business under the name of ForeverGreen International, and maintains its headquarters in Orem, Utah.
In conjunction with the January 13, 2006 acquisition the Board of Directors of the Company approved a 15:1 reverse split of its common shares, which was subsequently completed in February, 2006.
The companies operated under common management to distribute the products of both companies jointly as though one company. The combined operation subsequently combined their product lines and created a new unified catalog.
On October 15, 2006, Whole Living, Inc. entered into an agreement to purchase the remaining 77% interest of ForeverGreen International, LLC and to formally merge with Brain Garden Inc., a wholly owned subsidiary of Whole Living, Inc., to become effective December 31, 2006. They announced they would change the combined company name to ForeverGreen Worldwide Corporation. The combined company sells products
28
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
a. Organization - continued
in the United States, Canada, Australia, New Zealand, Singapore, Japan, United Kingdom, the Netherlands, and Germany and currently has plans to expand into other areas of the world. Whole Living, Inc. changed its name to ForeverGreen Worldwide Corporation in December 2006.
During the last quarter of 2007, the Company began operations in Mexico. In 2009 the Company introduced a program to make its products available to many more international countries. This program is called the NFR program NFR means not for resale and supports consumer in many countries to enjoy limited ForeverGreen products for personal use in these countries include Argentina, Austria, Barbados, Bolivia, Chile, China, Curacao Island, Colombia, Ecuador, Dominican Republic, Ghana, Greece, Guam, Hungry, Indonesia, Ireland, Israel, Ivory Coast, Italy, Kenya, Korea, Malaysia, Morocco, Pakistan, Peru, Philippines, Poland, Portugal, Puerto Rico, South Africa, Spain, Sweden, Switzerland, Taiwan, and Trinidad.
b. Recognition of Revenue
Revenues and costs of revenues from services are recognized during the period in which the services are provided. The Company applies the provisions of FASB Accounting Standards Codification (ASC) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to monthly contracted amounts for services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
The Companys source of revenue is from the sale of various food and other natural products. The Company recognizes the sale upon shipment of such goods. The Company offers a 100% satisfaction guarantee against defects for 30 days after the sale of their product except for a few circumstances. The Company extends this return policy to its distributors for a 30 day period and the consumer has the same return policy in effect against the distributor. Returns are less than 2.5% of sales for both years presented. Revenues are reported net of returns. All conditions of ASC 605-10 are met and the revenue is recorded upon sale, with an estimated accrual for returns where material.
c. Accounts Receivable
Accounts receivable arise from doing business with third party distributor centers in various locations throughout South America. The accounts receivable are made up of fees owed by the distribution centers to the Company for the right to do business in our name. The Company evaluates the need for an allowance for doubtful accounts when it is determined that collection amounts owed is unlikely. No allowance has been recorded at December 31, 2011 and 2010, accordingly.
Distributors are required to pay for products prior to shipment. Distributors typically pay for products in cash, by wire transfer or by credit card. Accordingly, the Company seldom carries accounts receivable from distributors that are not distribution centers and any balances carried would be minimal.
d. Principles of Consolidation
The consolidated balance sheets and statement of operations for the periods ended December 31, 2010 and 2011 include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.
29
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
e. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements. Basic and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Our potentially dilutive shares, which include outstanding common stock options, common stock warrants and convertible debentures, have not been included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the results would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 4,132,324 and 1,102,475 such potentially dilutive shares excluded as of December 31, 2011 and 2010.
| December 31, | ||
| 2011 |
| 2010 |
Income (Loss) Numerator | $ (1,459,268) |
| $ (589,735) |
Shares (Denominator) | 14,892,141 |
| 14,346,674 |
|
|
|
|
Per Share Amount | $ (0.10) |
| $ (0.04) |
f. Provision for Income Taxes
The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Companys predecessor operated as entity exempt from Federal and State income taxes.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 34% to the net loss before provision for income taxes for the following reasons:
| For the Years Ended | ||
| December 31, | ||
| 2011 |
| 2010 |
Book income (loss) from operations | $ (496,151) |
| $ (200,510) |
Inventory reserve | 9,207 |
| 17,848 |
State tax benefit | (43,778) |
| (19,461) |
Other | 1,891 |
| - |
Employee expenses | (278) |
| 20,232 |
Change in valuation allowance | 529,109 |
| 181,891 |
Total provision for income taxes | $ - |
| $ - |
30
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
f. Provision for Income Taxes - continued
Net deferred tax assets consist of the following components as of:
| December 31, | ||
| 2011 |
| 2010 |
Net operating loss carry forwards | $ 10,175,796 |
| $ 9,672,574 |
Meals | (628) |
| (628) |
Inventory reserve | 18,696 |
| 9,489 |
Employee accruals | 19,954 |
| 20,323 |
Depreciation and amortization | 35,434 |
| 18,476 |
Valuation allowance | (10,249,252) |
| (9,720,143) |
Net deferred taxes | $ - |
| $ - |
The Company assesses the need for a valuation allowance against its deferred income tax assets at December 31, 2011. Factors considered in this assessment include recent and expected future earnings and the Companys liquidity and equity positions. As of December 31, 2011 and 2010, the Company has determined that a valuation allowance is necessary against the entire amount of its net deferred income tax asset.
As of December 31, 2011, the Company has net operating loss carry forwards of approximately $26,760,701. These carry forwards are available to offset future taxable income, if any, and begin to expire in 2019. The utilization of the net operating loss carry forwards is dependent upon the tax laws in effect at the time the net operating loss carry forwards can be utilized and may be significantly limited based on ownership changes as set forth in the Internal Revenue Code.
g. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.
h. Property and Equipment
Expenditures for property and equipment and for renewals and betterments, which extend the originally estimated economic life of assets or convert the assets to a new use, are capitalized at cost. Expenditures for maintenance, repairs and other renewals of items are charged to expense. When items are disposed of, the cost and accumulated depreciation are eliminated from the accounts, and any gain or loss is included in the results of operations.
The provision for depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Depreciable asset lives range from 3 to 7 years with leasehold improvements being depreciated over the lesser of the term of the lease or the life of the improvements. Depreciation expense for the period ended December 31, 2011 and 2010 is $121,459, and $233,499, respectively.
In accordance with ASC 360-10, the Company records impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. At December 31, 2006, the Company did an analysis of the combined assets and made an adjustment to the property and equipment for assets that no-longer had value to the corporation and which were fully depreciated. The aggregate amount of this adjustment is $963,097 for both the fixed assets and accumulated depreciation to remove those assets and the applicable accumulated depreciation associated with them. There was no effect on the income
31
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
h. Property and Equipment - continued
statement or the net value of the fixed assets or total assets as a result of this adjustment. The Company did continuing analysis for the period ended December 31, 2011 and determined no adjustment to long term assets was needed.
i. Inventory
Inventory is recorded at the lower of cost or market and valued on a first-in, first-out basis. Inventory consists primarily of consumable food products and ingredients. Food products are discarded as they reach the expiration dates, because the food products are made with natural foods containing a minimum of preservatives. Non-food products are reviewed periodically to determine any obsolescence and a reserve is booked when appropriate. The products have expiration dates that range from 3 months on some of the food products to 2 years for non-food products. On December 31, 2011 and 2010 there was an allowance for obsolete inventory in the amount of $27,079 and $27,079, respectively.
j. Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of convertible notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of December 31, 2011 and 2010.
k. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions that affect the amounts reported in the financial statements and accompanying notes. In these financial statements, assets, liabilities and earnings involve extensive reliance on managements estimates. Actual results could differ from those estimates.
l. Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risks consist of cash and cash equivalents. The Company places its cash and cash equivalents at well-known, quality financial institutions. At times, such cash and investments may be in excess of the FDIC insurance limit. The accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 each. The amounts held for the Company regularly exceed that amount.
The Company has an agreement with one vendor that supplies 100% of a significant ingredient that is included in several top selling products. It could decrease sales significantly if that vendor were to discontinue the supply of this ingredient. There are other providers of that ingredient in the world, however, the Company considers this provider to have the very best quality, which is nutritionally superior to other sources of this ingredient, and has no intention of obtaining it from any other provider.
m. Equity Instruments
The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the
32
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
m. Equity Instruments - continued
consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with ASC 505-50, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes. The Company recognized $0 and $56,832 in expense for equity issued to consultants for the years ended December 31, 2011 and 2010, respectively.
n. Intangible Assets
Intangible assets consist of patent costs, trademark costs and the customer base. Patent costs are costs incurred to develop and file patent applications. Trademark costs are costs incurred to develop and file trademark applications. If the patents or trademarks are approved, the costs are amortized using the straight-line method over the estimated lives of 7 years for patents and 10 years for trademarks. Unsuccessful patent and trademark application costs are expensed at the time the application is denied. Management assesses the carrying values of long-lived assets for impairment when circumstances warrant such a review. In performing this assessment, management considers current market analysis of the technology and future cash flows. The Company recognizes impairment losses when undiscounted cash flows estimated to be generated from long-lived assets are less than the net carrying amount of intangible assets. No impairment was recognized accordingly, during the years ended December 31, 2011 and 2010.
The Company capitalizes legal fees incurred to register trademarks for its products. Trademarks consist of the following for the period ended December 31, 2010 and 2009:
| 2011 |
| 2010 |
Trademarks | $ 78,787 |
| $ 69,204 |
Less accumulated amortization | (27,157) |
| (20,259) |
Net trademarks | $ 51,630 |
| $ 48,945 |
The Customer Base intangible was calculated using a percentage of the gross margin of ForeverGreen International LLC (see Note 7 below). The Company amortizes the customer base over a period of ten years. The customer base consists of the following for the period ended December 31, 2011:
| 2011 |
|
|
Customer Base | $ 855,900 |
|
|
Less accumulated amortization | (427,950) |
|
|
Net Customer Base | $ 427,950 |
|
|
Trademark, patent and customer based amortization expense for the years ended December 31, 2011 and 2010 were $92,489 and $91,894, respectively.
o. Advertising
Advertising expense for the years ended December 31, 2011 and 2010 were $186,349 and $61,290, respectively.
p. Business Acquisitions
Business acquisitions are accounted for under the purchase method of accounting. Under that method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible
33
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
p. Business Acquisitions continued
and intangible assets acquired recorded as goodwill. We make significant judgments and assumptions in determining the fair value of acquired assets and assumed liabilities, especially with respect to acquired intangibles. Using different assumptions in determining fair value could materially impact the purchase price allocation and our financial position and results of operations. Results of operations for acquired businesses are included in the consolidated financial statements from the date of acquisition.
q. Accumulated Other Comprehensive Income
Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net loss, but rather are reported as a separate component of stockholders equity (deficit).
r. Recent accounting pronouncements
Recent Accounting Pronouncements - In December 2010, the FASB issued ASU 2010-28, Intangibles Goodwill and Other (ASC Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of this guidance did not have a material impact on the Companys results of operations or financial condition.
In May 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-04, guidance to improve consistency in application of existing fair value measurement and disclosure requirements. The standard is intended to clarify the application of the requirements, not to establish valuation standards or affect valuation practices outside of financial reporting. The guidance is effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. We do not expect adoption of this guidance to have an impact on our financial statements.
In June 2011, the FASB issued ASU 2011-05, guidance to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The standard eliminates the current option to present components of other comprehensive income as part of the statement of changes in stockholders equity. The amendment requires that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment does not affect how earnings per share is calculated or presented. The guidance is effective for interim and annual periods beginning after December 15, 2011. Early adoption is permitted. We do not expect adoption of this guidance to have an impact on our financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles Goodwill and Other (Topic 350). The objective of this Update is to simplify how entities test goodwill for impairment. This Update permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Update is effective for annual and interim goodwill
34
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
r. Recent accounting pronouncements - continued
impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011. The adoption of this guidance did not have a material impact on the Companys results of operations or financial condition.
NOTE 2 - PROPERTY AND EQUIPMENT
The Company capitalizes the purchase of equipment and fixtures for major purchases in excess of $1,000 per item. Property and equipment consists of the following at December 31, 2011 and 2010:
| 2011 |
| 2010 |
Leasehold improvements | $ 85,838 |
| $ 86,113 |
Office furniture & fixtures | 187,548 |
| 177,355 |
Equipment | 458,414 |
| 458,414 |
Vehicles | 56,548 |
| 56,548 |
Computer equipment | 515.170 |
| 516,546 |
Computer software | 635,446 |
| 635,445 |
|
|
|
|
Total Fixed Assets | 1,938,764 |
| 1,930,031 |
Accumulated depreciation | (1,787,620) |
| (1,665,144) |
Total Property & Equipment | $151,144 |
| $ 264,887 |
Depreciation expense for the years ended December 31, 2011 and 2010 were $121,459 and $233,499 respectively.
NOTE 3 ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2011 and 2010:
| 2011 |
| 2010 |
Distributor liabilities | $ 440,361 |
| $ 421,933 |
Accrued employee benefits | 58,689 |
| 59,506 |
Accrued accounting fees | - |
| 64,832 |
Accrued taxes | 1,032,382 |
| 858,699 |
Other accrued liabilities | 579,196 |
| 384,236 |
Total | $ 2,110,674 |
| $ 1,789,206 |
NOTE 4 NOTES PAYABLE
Long term liabilities are detailed in the following schedules as of December 31, 2011 and 2010:
| 2011 |
| 2010 |
Note payable to Wells Fargo Bank bearing interest |
|
|
|
At 7%, principle and interest due monthly, matures |
|
|
|
August, 2019, secured by equipment | $ 23,092 |
| $ 25,200 |
Less current portion of Notes payable | (1,945) |
| (4,127) |
Net Long-Term Liabilities | $ 21,147 |
| $ 21,073 |
35
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 4 NOTES PAYABLE - continued
Future minimum principal payments on notes payable and notes payable-related party are as follows at December 31, 2011:
2012 | 1,945 |
2013 | 2,097 |
2014 | 2,259 |
2015 | 2,435 |
Thereafter | 12,402 |
Total | $ 21,138 |
2011 NOTES PAYABLE | ||||
AMOUNT | TYPE | ORIGINATION DATE | INTEREST RATE | DUE DATE |
$ 485,000 | Not convertible related | 12/9/2008 | 10% | Due on demand |
$ 437,478 | Not convertible related | 7/31/2009 | 10% | 7/31/2012 |
$ 45,000 | Convertible related | 10/7/2010 | 10% | 9/30/2012 |
$ 200,000 | Convertible related | 1/19/2011 | 10% | 7/31/2012 |
$ 394,962 | Convertible unrelated | 1/19/2011 | 10% | 7/31/2012 |
$ 100,000 | Convertible unrelated | 3/14/2011 | 10% | 7/31/2012 |
$ 281,758 | Convertible unrelated | 5/26/2011 | 10% | 12/31/2012 |
$ 231,756 | Convertible unrelated | 3/9/2010 | 10% | 1/31/2012 |
|
|
|
|
|
2010 NOTES PAYABLE | ||||
AMOUNT | TYPE | ORIGINATION DATE | INTEREST RATE | DUE DATE |
$ 485,000 | Not convertible related | 12/9/2008 | 10% | Due on demand |
$ 45,000 | Not convertible related | 7/23/2009 | 10% | 11/30/2009 |
$ 437,478 | Not convertible related | 7/31/2009 | 10% | 7/31/2012 |
$ 45,000 | Not convertible related | 8/21/2009 | 10% | 11/30/2009 |
$ 17,500 | Not convertible related | 8/21/2009 | 10% | 12/28/2009 |
$ 40,000 | Not convertible related | 1/7/2010 | 10% | 2/20/2010 |
$ 40,000 | Not convertible related | 1/29/2010 | 10% | 3/15/2010 |
36
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 4 NOTES PAYABLE - continued
2010 NOTES PAYABLE - continued | ||||
AMOUNT | TYPE | ORIGINATION DATE | INTEREST RATE | DUE DATE |
$ 50,000 | Not convertible related | 3/4/2010 | 10% | 4/30/2010 |
$ 30,000 | Not convertible related | 10/7/2010 | 10% | 9/30/2012 |
$ 45,000 | Convertible related | 10/7/2010 | 10% | 9/30/2012 |
$ 231,756 | Convertible unrelated | 3/9/2010 | 10% | 1/31/2012 |
The Company has a revolving line of credit bearing 6.75% interest per annum with balances of $100,420 and $50,379 at December 31, 2011 and 2010, respectively.
Accrued interest for the periods ended December 31, 2011 and 2010 was $391,719 and $195,615, respectively.
NOTE 5 OPERATING LEASES
The Company has two building leases for office, production warehouse space in Orem, Utah. The Company signed a new lease in 2011 for the office space at a monthly rent of $9,750. The production warehouse lease for $10,061 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 Company has an office in Mexico with a one year lease paying $2,000 per month and an office in Colombia with a one year lease paying $840 per month. The company added offices in Chile and Costa Rica in 2011. The Chile office has a one year lease and is paying $1,390 per month, and the Costa Rica office has a 3 year lease and is paying $1,500. All rent amounts above are in USD.
Total Lease Commitments:
2012 | 192,370 |
2013 | 428,453 |
2014 | 263,295 |
2015 | 309,399 |
Thereafter | 195,576 |
Total | $ 1,289,093 |
Rent expense for operating leases for December 31, 2011 and 2010 was $249,117, and $286,908, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
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 $31,172 for shipping and freight services provided to ForeverGreen International and is seeking that amount, plus interest and costs of the action. The Company is aggressively defending its position and feels strongly that this claim will not result in a liability.
37
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 7 ALLOCATION OF PURCHASE CONSIDERATION IN BUSINESS COMBINATIONS
The Company accounts for its investments in its subsidiaries using the equity method of accounting. 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 and goodwill. On January 15, 2006 the Company purchased a 23% share of ForeverGreen International LLC, by issuing 1,266,667 post split shares of common stock at $1.80 per share for a value of $2,280,000. On December 31, 2007 the Company purchased the remaining 77% of ForeverGreen International LLC, by issuing 5,240,549 post split shares at $1.75 per share for a value of $9,170,961.
The Customer base intangible was calculated using a percentage of the gross margin of ForeverGreen International LLC. The Company will amortize the customer base over a period of ten years. The 23% ownership in ForeverGreen International LLC, for the year resulted in an entry to other expense in the amount of $53,933. The Company obtained an independent third party valuation to ascertain the amount to allocate to identifiable intangible assets, and the useful lives of those assets. 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. In accordance with FASB ASC 350-10, goodwill is not amortized and 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. See Note 1 (n) above for gross book value, accumulated amortization and net book value of the customer base intangible asset.
NOTE 8 INVENTORY
Inventories for December 31, 2011 and 2010 were classified as follows:
| 2011 |
| 2010 |
Raw Materials | $ 442,147 |
| $ 356,133 |
Finished Goods | 730,491 |
| 374,142 |
Total Inventory | 1,172,638 |
| 730,275 |
Less Reserve for Obsolete Inventory | (27,079) |
| (27,079) |
Total Inventory (net of reserve) | $1,145,559 |
| $ 703,196 |
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As reported in the accompanying consolidated financial statements the Company has a working capital deficit of $4,298,664 a net operating loss of $1,459,268, and accumulated deficit of $34,573,495 at December 31, 2011, negative cash flows from operations, and has experienced periodic cash flow difficulties. These factors combined, raise substantial doubt about the Companys ability to continue as a going concern. Managements plans to address and alleviate these concerns are as follows:
The Company is reviewing the cost structure and has implemented cost saving measures that have begun to reduce overhead which have included staff reductions and salary adjustments. The Company is negotiating with its key vendors and is gaining cooperation and concessions. The Company has introduced our own in house logistic, sales and distributor software system that will reduce computer costs going forward. New products have been and will continue to be introduced to bolster Distributor recruiting and sales, and 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.
38
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 9 - GOING CONCERN - continued
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 10 SUBSEQUENT EVENTS
We have evaluated events occurring after the date of our accompanying balance sheets through the date the financial statements were available to be issued. Other than the events described below, we did not identify any material subsequent events requiring adjustment to our accompanying condensed financial statements.
On January 13, 2012 the Company borrowed $40,000 at an interest rate of 10%from a related party which was paid back in full by March 1, 2012.
On March 16, 2012 the Company borrowed $30,000 at an interest rate of 10% from a related party which was paid back in full on May 1, 2012.
NOTE 11 RESTATED FINANCIAL STATEMENTS
During the year ended December 31, 2011, the Company discovered goodwill impairment related to the year ended 2009, unrecorded liabilities and related expenses in 2010, unrecorded costs in 2010. The Company has restated its financial statements for the year ended December 31, 2010 to reflect the goodwill impairment, unrecorded liabilities and related expenses and unrecorded costs. Summarized financial statements reflecting the restatements are as follows:
[Restatements follow]
39
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 11 RESTATED FINANCIAL STATEMENTS continued
CONSOLIDATED BALANCE SHEETS Year Ended December 31, 2010
|
| As Originally Reported |
| As Restated |
| Change |
| |
ASSETS |
|
|
|
|
|
|
| |
CURRENT ASSETS |
|
|
|
|
|
|
| |
| Cash and cash equivalents | $ | 178,124 | $ | 178,124 | $ | - |
|
| Accounts receivable, net |
| 78,831 |
| 78,831 |
| - |
|
| Prepaid expenses and other |
| 14,324 |
| 14,324 |
| - |
|
| Inventory |
| 835,804 |
| 703,196 |
| (132,608) |
|
| Total current assets |
| 1,107,083 |
| 974.475 |
| (132,608) |
|
PROPERTY AND EQUIPMENT, net |
| 264,887 |
| 264,887 |
| - |
| |
OTHER ASSETS |
|
|
|
|
|
|
| |
Deposits and other assets |
| 82,909 |
| 82,909 |
| - |
| |
Trademarks, net of amortization |
| 48,945 |
| 48,945 |
| - |
| |
Customer base - net of amortization |
| 513,540 |
| 513,540 |
| - |
| |
Goodwill |
| 7,021,454 |
| - |
| (7,021,454) |
| |
Total other assets |
| 7,666,848 |
| 645,394 |
| (7,021,454) |
| |
TOTAL ASSETS | $ | 9,038,818 | $ | 1,884,756 | $ | (7,154,062) |
| |
|
|
|
|
|
|
|
| |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
| |
CURRENT LIABILITIES |
|
|
|
|
|
|
| |
Bank overdraft |
| 34,388 |
| 34,388 |
| - |
| |
Accounts payable |
| 762,715 |
| 854,068 |
| 91,353 |
| |
Accrued expenses |
| 1,789,206 |
| 1,789,206 |
| - |
| |
Due to related parties |
| 83,718 |
| 83,718 |
| - |
| |
Banking line of credit |
| 50,379 |
| 50,379 |
| - |
| |
Current portion of long-term debt |
| 4,127 |
| 4,127 |
| - |
| |
Notes payable, related parties |
| 1,189,978 |
| 1,189,978 |
| - |
| |
Convertible notes payable, related parties |
| 45,000 |
| 45,000 |
| - |
| |
Notes payable, unrelated parties |
| 231,756 |
| 231,756 |
| - |
| |
Total Current Liabilities |
| 4,191,267 |
| 4,282,620 |
| 91,353 |
| |
LONG-TERM DEBT |
|
|
|
|
|
|
| |
Notes payable |
| 21,073 |
| 21,073 |
| - |
| |
Total Long-Term Debt |
| 21,073 |
| 21,073 |
| - |
| |
Total liabilities |
| 4,212,340 |
| 4,303,693 |
| 91,353 |
| |
COMMITMENTS |
|
|
|
|
|
|
|
continued
40
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 11 RESTATED FINANCIAL STATEMENTS continued
CONSOLIDATED BALANCE SHEETS Year Ended December 31, 2010 continued
|
| As Originally Reported |
| As Restated |
| Change |
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
Preferred stock, no stated par value; authorized 10,000,000; no shares outstanding |
| - |
| - |
| - |
|
Common stock; par value $0.001 per share; authorized 100,000,000 shares; 14,882,141 and 14, 342, 141 shares, respectively issued and outstanding |
| 14,892 |
| 14,892 |
| - |
|
Additional paid-in capital |
| 30,862,628 |
| 30,862,628 |
| - |
|
Prepaid equity expense |
| (39,550) |
| (39,550) |
| - |
|
Other comprehensive loss |
| (142,680) |
| (142,680) |
| - |
|
Accumulated deficit |
| (25,868,812) |
| (33,114,226) |
| (7,245,415) |
|
Total Stockholders' Equity |
| 4,826,478 |
| (2,418,937) |
| (7,245,415) |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 9,038,818 | $ | 1,884,756 | $ | (7,154,062) |
|
41
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 11 RESTATED FINANCIAL STATEMENTS - continued
CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2010
|
| As Originally Reported |
| As Restated |
| Change |
| |
REVENUES, net | $ | 10,620,700 | $ | 10,620,700 | $ | - |
| |
COST OF SALES, net |
| 7,358,821 |
| 7,491,429 |
| 132,608 |
| |
GROSS PROFIT |
| 3,261,879 |
| 3,129,272 |
| (132,607) |
| |
OPERATING EXPENSES |
|
|
|
|
|
|
| |
Selling expenses |
| 2,011,623 |
| 2,011,623 |
| - |
| |
Professional fees |
| 401,530 |
| 401,530 |
| - |
| |
General and administrative |
| 1,125,705 |
| 1,183,727 |
| 58,021 |
| |
Total operating expenses |
| 3,538,858 |
| 3,596,880 |
| 58,021 |
| |
| Net income (loss) from operations |
| (276,979) |
| (467,608) |
| (190,628) |
|
Other income (expense) |
|
|
|
|
|
|
| |
| Gain on settlement |
| 70,953 |
| 70,953 |
| - |
|
| Gain on sale of assets |
| - |
| - |
| - |
|
| Interest expense |
| (193,080) |
| (193,080) |
| - |
|
| Total other Income (expense) |
| (122,127) |
| (122,127) |
| - |
|
Loss from continuing operations before income tax provision | $ | (399,106) | $ | (589,735) | $ | (190,628) |
| |
Income Tax Provision/(Benefit) |
| - |
| - |
|
|
| |
|
|
|
|
|
|
|
| |
NET LOSS | $ | (399,106) | $ | (589,735) | $ | (190,628) |
| |
EARNINGS PER SHARE |
|
|
|
|
|
|
| |
Basic and diluted loss per common share | $ | (0.03) | $ | (0.04) | $ | (0.01) |
| |
Weighted-average common shares outstanding |
| 14,346,674 |
| 14,346,674 |
| - |
| |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS |
|
|
|
|
|
|
| |
| A summary of the components of other comprehensive loss for the fiscal years ended December 31, 2010 and 2009 |
|
|
|
|
|
|
|
| Net loss | $ | (399,106) | $ | (589,735) | $ | (190,628) |
|
| Other comprehensive income loss |
| (30,818) |
| (30,818) |
| - |
|
| Comprehensive Loss | $ | (429,924) | $ | (620,553) | $ | (190,629) |
|
42
FOREVERGREEN WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 11 RESTATED FINANCIAL STATEMENTS - continued
CONSOLIDATED STATEMENTS OF CASH FLOWS - Year Ended December 31, 2010
|
| As Originally Reported |
| As Restated |
| Change |
| ||
Net loss | $ | (399,106) | $ | (589,735) | $ | (190,629) |
| ||
Adjustments to reconcile net earnings to net cash used in operating activities |
|
|
|
|
|
|
| ||
| Depreciation & amortization |
| 325,393 |
| 325,393 |
| - |
| |
| Common stock issued for services rendered |
| 56,832 |
| 56,832 |
| - |
| |
| Gain on settlement |
| (70,953) |
| (70,953) |
| - |
| |
Changes in operating assets and liabilities |
|
|
|
|
|
|
| ||
| Accounts receivable |
| (65,383) |
| (65,383) |
| - |
| |
| Prepaid expenses |
| 52,390 |
| 52,390 |
| - |
| |
| Inventory |
| (34,910) |
| 97,698 |
| 132,608 |
| |
| Deposits |
| 15,989 |
| 15,989 |
| - |
| |
Increase (decrease) in operating liabilities |
|
|
|
|
|
|
| ||
Accounts payable and accrued expenses |
| (197,801) |
| (139,780) |
| 58,021 |
| ||
| Net cash provided (used) by operating activities |
| (317,549) |
| (317,549) |
| - |
| |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
| ||
| Cash paid for trademarks |
| (435) |
| (435) |
| - |
| |
| Purchases of property and equipment |
| (16,920) |
| (16,920) |
| - |
| |
| Net cash (used) by investing activities |
| (17,355) |
| (17,355) |
| - |
| |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
| ||
| Bank overdraft |
| 34,388 |
| 34,388 |
| - |
| |
| Proceeds from revolving bank line of credit |
| 342,448 |
| 342,448 |
| - |
| |
| Payments on revolving bank line of credit |
| (392,438) |
| (392,438) |
| - |
| |
| Payments on notes payable |
| (1,753) |
| (1,753) |
| - |
| |
| Proceeds from notes payable non-related party |
| 231,756 |
| 231,756 |
| - |
| |
| Proceeds from notes payable related parties |
| 205,000 |
| 205,000 |
| - |
| |
| Payments on notes payable related parties |
| (131,756) |
| (131,756) |
| - |
| |
| Net cash provided by financing activities |
| 287,645 |
| 287,645 |
| - |
| |
Effect of foreign currency in cash |
| (30,817) |
| (30,817) |
|
|
| ||
Net increase/(decrease) in cash and cash equivalents |
| (78,076) |
| (78,076) |
| - |
| ||
Cash and cash equivalents at beginning of period |
| 256,200 |
| 256,200 |
| - |
| ||
Cash and cash equivalents at end of period | $ | 178,124 | $ | 178,124 | $ | - |
| ||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
| ||
| Cash Paid for Interest | $ | 7,210 | $ | 7,210 | $ | - |
| |
| Cash paid for income taxes | $ | - | $ | - | $ | - |
| |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
As reported in our Current Report on Form 8-K, on February 3, 2011 we dismissed our former auditing firm Chisholm, Bierwolf, Nilson & Morrill, LLC and engaged Morrill & Associates, LLC as our independent public registered accounting firm.
As reported in our Current Report on Form 8-K, on August 1, 2011, we dismissed Morrill & Associates, LLC as our independent registered public accounting firm and engaged Sadler, Gibb & Associates, LLC, Certified Public Accountants, as our independent registered public accounting firm.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have 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. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2011, these disclosure controls and procedures were ineffective to 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 Commissions rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. During the year ended December 31, 2011 we were unable to file our Form 10-K for the year ended December 31, 2010 in a timely manner due to changes to our financial statements requested by the SEC in a limited review of our reports.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on our evaluation, management concluded that our internal control over financial reporting was ineffective as of December 31, 2011 due to a significant deficiency. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
We recognized significant deficiencies in 2011 as a result of regulatory reviews by the SEC and the PCAOB. The Company was required to restate its financial statements for the year ended December 31, 2009 to account for an impairment of goodwill. In response to the SEC review the Company performed a two step analysis pursuant to FASB ASC 350-20 to determine the value of goodwill. In the past the Company had relied upon step one of the analysis, but it was determined that we are required to rely upon step two of the analysis. Step two of the analysis
44
determines the implied fair market value of the Company by subtracting the unrecognized in-house intangible asset valuation, based upon the value of customer lists and proprietary formulas, from the net book value of the Company. This analysis resulted in an impairment of goodwill for the year ended December 31, 2009. In addition to the impairment of goodwill the Company revised the financial statements to reflect a write down in inventory.
In December 2011, the PCAOB inspected the audit performed by Morrill & Associates, LLC for the year ended December 31, 2010 and the PCAOB reviewed the correspondence between the Company and the SEC related to the impairment of goodwill during the SECs review. Based upon this inspection, the PCAOB determined that the Companys calculations were not performed in accordance with generally accepted accounting principles (GAAP). We must re-perform the goodwill analysis in accordance with ASC 350-20-35. This revised goodwill analysis uses the original inputs but corrects calculations and comparisons that existed in the original analysis. In this re-performance of the goodwill analysis we determined that goodwill must be impaired to $0 for the year ended December 31, 2009.
In light of the significant deficiencies described above, we performed additional analysis to ensure our financial statements were prepared in accordance with GAAP. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
There have been no other material changes in internal control over financial reporting that occurred during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect the Companys internal control over financial reporting.
Inherent Limitations over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors and executive officers and their respective ages and positions and biographical information are presented below. Our bylaws require three directors who serve until our next annual meeting or until each is succeeded by another qualified director. Our executive officers are chosen by our board of directors and serve at its discretion. There are no existing family relationships between or among any of our executive officers or directors.
45
Name | Age | Position Held | Term of Director |
Ronald K. Williams | 50 | Chairman of the Board, President and CEO | From January 2006 until our next annual meeting |
George H. Brimhall II | 70 | Director | From April 2008 until our next annual meeting |
John S. Clayton | 47 | Director | From April 2008 until our next annual meeting |
Paul T. Frampton | 47 | CFO, Secretary and Treasurer |
|
Ronald K. Williams Mr. Williams was appointed as our President and CEO in January 2006. Mr. Williams was an original founder of Whole Living in 1998. He previously served as Director, President and CEO of Whole Living from November 1998 to October 2002. He formed and he launched ForeverGreen International, LLC operations in May 2004. He started in the network marketing industry in the 1980's as a distributor for NuSkin International and learned the trade and business with them. He then went on to Neways International and became its Vice-president of Sales and Marketing. Then he served as a Senior Executive at Young Living Essential Oils.
George H. Brimhall II Mr. Brimhall was appointed as a Director on April 25, 2008. Since 1974 he has been self-employed with GNS Development Corporation with a business plan focused on commercial recreational development.
John S. Clayton Mr. Clayton was appointed as a Director on April 24, 2008. Since 2002 he has been self-employed with First Equity Holdings Corp., an investment company.
Paul T. Frampton In July 2007, our board of directors appointed Mr. Frampton to serve as our Chief Financial Officer and Treasurer. During 2008 he was appointed as Secretary of the Company. He has over fifteen years of senior management experience, primarily focused in the accounting field for the network marketing industry. He was employed as a Certified Public Accountant for Grant Thornton for four years and has experience auditing network marketing companies. From October 2005 through June 2007 he was employed as our Vice President of International Sales. From May 1994 to September 2005 he was employed by Unicity International, Inc. and one of its predecessor companies, Enrich International, Inc. He started there as the Director of International Finance and Tax Manager and was promoted to Senior Managing Director of Malaysia/Southeast Asia in 2000, then he was appointed as General Manager of Canada, and he served as Vice President of the Americas. Mr. Frampton received a Master of Accountancy and a Bachelor of Sciences from Brigham Young University.
During the past ten years none of our executive officers have been involved in any legal proceedings that are material to an evaluation of their ability or integrity; namely: (1) filed a petition under federal bankruptcy laws or any state insolvency laws, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; (2) been convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting his/her involvement in any type of business, securities or banking activities; or (4) been found by a court of competent jurisdiction in a civil action, by the SEC or the Commodity Futures Trading Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated.
46
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons who own more than ten percent of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock. Officers, directors and ten-percent or greater beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based upon a review of those forms and representations regarding the need for filing Forms 5, we believe during the year ended December 31, 2011 Ronald K. Williams filed late three Forms 4 related to five transactions and George Brimhall II filed a Form 5 related to one late Form 4 transaction.
Code of Ethics
We have not adopted a code of ethics for our principal executive and financial officers. Until we establish a code of ethics, our management intends to continue to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations.
Committees
We do not have a standing nominating committee for directors, nor do we have an audit committee with an audit committee financial expert serving on that committee. Our entire board of directors, including Messrs. Williams, Brimhall and Clayton, act as our nominating and audit committee.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following tables show the compensation paid to our named executive officers in all capacities during the years ended December 31, 2011 and 2010.
SUMMARY COMPENSATION TABLE | ||||
Name and Principal Position | Year | Salary | All Other Compensation | Total |
Ronald K.Williams CEO | 2011 | $ 78,000 | $ 142,107 (1) | $ 220,107 |
2010 | $ 72,600 | $ 211,058 (2) | $ 283,658 | |
Paul T. Frampton CFO | 2011 | $ 109,500 | - | $ 109,500 |
2010 | $ 107,000 | | $ 107,000 | |
(1) Represent commissions earned through the ForeverGreen Compensation Plan. (2) Represent commissions earned through the ForeverGreen Compensation Plan. |
We do not have any employment contracts with the above named executive officers. We do not offer a retirement benefit plan to our executive officers, nor have we entered into any contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to a named executive officer at or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the company or a change in the named executive officers responsibilities following a change in control.
47
Outstanding Equity Awards
The named executive officers did not have any outstanding equity awards at December 31, 2011.
Compensation of Directors
We do not have any standard arrangement for compensation of our directors for any services provided as director, including services for committee participation or for special assignments.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized under Equity Compensation Plans
We did not have any equity compensation plans in effect at December 31, 2011.
Beneficial Owners
The following tables set forth the beneficial ownership of our management and any other person or group who beneficially owns more than 5% of our voting common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with respect to the shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based upon 14,892,141 shares of common stock outstanding as of May 15, 2012.
BENEFICIAL OWNERS | ||
Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
Donald R. Mayer 9980 s. 300 W #320 Sandy, UT 84070 | 1,055,627 | 7.09 |
MANAGEMENT | ||
Name of beneficial owner | Amount and nature of beneficial ownership | Percent of class |
Ronald K. Williams | 1,883,128 | 12.65 |
Paul T. Frampton | 20,000 | Less than 1% |
George H. Brimhall II | 7,312,445 (1) | 49.10 |
John S. Clayton | 1,574,648 (2) | 10.57 |
All executive officers and directors as a group | 9,804,920 | 72.32 |
(1) Represents 2,781,740 shares held by Mr. Brimhall and his spouse, 1,905,965 shares held by GBB Trust and 2,624,740 shares held in his childrens trust. | ||
(2) Represents 407,022 shares held by Mr. Clayton and 1,167,626 shares held by his company, First Equity Holdings Corp. |
48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Transactions
The following information summarizes transactions we have either engaged in for the past two fiscal years or propose to engage in, involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons. These transactions were negotiated between related parties without arms length bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons.
During 2010 the Company borrowed a total of $160,000 from a related party, First Equity Holdings Corp., a corporation owned by John Clayton, our director. The Company also borrowed $45,000 from George Brimhall, another director. As of December 31, 2010 the Company owed a total amount of $752,500 to First Equity Holdings, $45,000 to George Brimhall and $437,478 to John Clayton.
During 2011 the Company borrowed $394,962 from an unrelated party and used the funds to pay off $267,500 of the loans and accrued interest due to First Equity Holdings Corp. The Company also borrowed $200,000 from George Brimhall in 2011. As of December 31, 2011 the Company owed a total of $485,000 to First Equity Holdings Corp, $245,000 to George Brimhall, and $437,478 to John Clayton.
Director Independence
We do not have an independent director, as defined under NASDAQ Stock Market Rule 5605(a)(2), serving on our board. This rule defines persons as independent who are neither officers nor employees of the company and have no relationships that, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out their responsibilities as directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Accountant Fees
The following table presents the aggregate fees billed for each of the last two fiscal years by our accounting firms, Morrill & Associates, LLC, and Sadler, Gibb and Associates, LLC in connection with the audit of our financial statements and other professional services rendered by those accounting firms.
| 2011 |
| 2010 |
Audit fees | $ 64,832 |
| $ 68,000 |
Audit-related fees | 0 |
| 0 |
Tax fees | 0 |
| 0 |
All other fees | $ 0 |
| $ 0 |
Audit fees represent fees for professional services rendered by our principal accountants for the audit of our annual
49
financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning.
All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other three categories.
Pre-approval Policies
We do not have a standing audit committee currently serving and as a result our board of directors performs the duties of an audit committee. Our board of directors will evaluate and approve in advance, the scope and cost of the engagement of an accounting firm before the accounting firm renders audit and non-audit services. We do not rely on pre-approval policies and procedures.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements
The audited financial statements of ForeverGreen Worldwide Corp. are included in this report under Item 8 on pages 21 through 44.
(a)(2) Financial Statement Schedules
All financial statement schedules are included in the footnotes to the financial statements or are inapplicable or not required.
(a)(3)
Exhibits
3 (i) | Articles of incorporation, as revised (Incorporated by reference to exhibit 3.1 for Form 8-K, as amended, filed December 18, 2006) |
3(ii) | Bylaws, as revised (Incorporated by reference to exhibit 3.2 for Form 8-K, as amended, filed December 18, 2006) |
10.1 | Lease agreement between ForeverGreen International LLC and Rocky Mountain Development, dated July 1, 2011 |
10.2 | 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) |
21.1 | Subsidiaries of ForeverGreen (Incorporated by reference to exhibit 21.1 to Form 10-KSB, filed April 17, 2007) |
31.1 | Chief Executive Officer Certification |
31.2 | Chief Financial Officer Certification |
32.1 | Section 1350 Certification |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Label Linkbase Document |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
50
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized
FOREVERGREEN WORLDWIDE CORPORATION By: /s/Ronald K. Williams Ronald K. Williams, President | Date: May 17, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/Ronald K. Williams Ronald K. Williams Chairman of the Board President Chief Executive Officer | Date: May 17, 2012 |
By: /s/Paul T. Frampton Paul T. Frampton Chief Financial Officer Treasurer | Date: May 17, 2012 |
By: /s/ John S. Clayton John S. Clayton Director | Date: May 17, 2012 |
51
Exhibit 10.1
LEASE AGREEMENT
(Triple Net)
Landlord:
Rocky Mountain Development, LLC
a Utah limited liability company
Tenant:
ForeverGreen International, L.L.C.
a Utah limited liability company
Tax I.D. #: 20-0410689
Guarantor:
Ron Williams
LEASE AGREEMENT
THIS LEASE AGREEMENT (Lease) is made and entered into as of the 1st day of July, 2011, by and between the following Parties:
Landlord:
Rocky Mountain Development, LLC
a Utah limited liability company
Tenant:
ForeverGreen International, LLC
a Utah limited liability company
Guarantor:
Ron Williams
WITNESSETH:
WHEREAS, Landlord owns certain real property located in the City of Orem, Utah County, State of Utah (the Property); and
WHEREAS, the Property is part of an Office Park and there is situated on the Property a building located at 972 North 1430 West, Orem, Utah (the Building); and
WHEREAS, on or about November 22, 2004, Landlord and Tenant entered into a Lease Agreement under which Tenant leased the Building from Landlord, which Lease Agreement expired by its own terms, with Tenant continuing thereafter to lease from Landlord the Building on a month-to-month basis under the terms of such Lease Agreement.
WHEREAS, Landlord and Tenant desire to enter into this Lease Agreement under which Tenant leases from Landlord the entire Building consisting of leasable space of 8,800 square feet, together with the right to use the common facilities associated therewith, all on the terms, conditions, and provisions and for the purposes hereinafter set forth.
NOW, THEREFORE, in consideration of the promises, covenants, and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties enter into this Lease and agree as follows:
SECTION 1- PREMISES
1.1
Lease of Premises. Landlord leases to Tenant and Tenant leases from Landlord the entire Building consisting of 8,800 square feet of gross leasable area (herein referred to as the Premises), more particularly described as outlined on attached Exhibit A.
Initials: __MR_
__RW_
1
1.2
Condition of Premises. Tenant has inspected the Premises and has been given the opportunity prior to the execution of this Lease to conduct such tests, investigations, and examinations as Tenant desires or deems appropriate, and Tenant hereby accepts the Premises in its present condition, as is, without obligation of any kind or nature on the part of Landlord to repair, improve, alter, cleanup, or modify the Premises or any part thereof.
1.3
Common Areas. The Tenant shall have the right to use, subject to reasonable rules of general applicability to tenants of the Property from time to time made by the Landlord and of which the Tenant is given notice, the parking areas, courtyard, and common walkways and driveways necessary and appropriate for use of the Premises under this Lease (the Common Areas).
SECTION 2- TERM
2.1
Fixed Term. The term of this Lease shall be for a period of two (2) years and two months commencing on July 1, 2011 (the Commencement Date), and expiring on August 31, 2013 (the Initial Term).
2.2
Extension of Term. Unless either party provides the other notice of election to not extend the terms of this Lease on or before 120 days prior to the expiration of the Initial Term, the term of this Lease shall automatically be extended for one (1) additional consecutive period of two (2) years (the Extension Period), such Extension Period commencing on the expiration date of the Initial Term and expiring two years thereafter (the Extended Term and, together with the Initial Term, the Term), subject to the same terms and conditions contained in this Lease, provided that minimum monthly rent under Section 3 hereof for said Extended Term shall be increased in accordance with the provisions of Section 3.2 hereof.
2.3
Early Termination. In the event that Landlord and Tenant enter into a new lease agreement with each other involving a different building owned by Landlord to be used by Tenant for the business of Tenant as then conducted in the Premises, Tenant shall be entitled to terminate this Lease Agreement effective as of the date that the first lease payment under such new lease is paid to Landlord thereunder.
Initials: __MR_
__RW_
2
SECTION 3- RENT, MAINTENANCE CHARGES, TAXES, & EXPENSES
3.1
Base Rent. Subject to any increases under Section 3.2 hereof, Tenant shall pay to Landlord throughout the Term of this Lease minimum monthly rent, without deduction, setoff, prior notice, or demand, the amounts shown on Exhibit B attached hereto (the Base Rent). Each such installment shall be due one month in advance on the first day of each month, commencing on the Commencement Date, and continuing through the Initial Term and the Extended Term. Base Rent shall be increased during the Initial Term and any Extended Term in accordance with the provisions of Section 3.2 hereof. Any monthly installment of Base Rent for any partial month shall be prorated at the rate of 1/30th of the monthly Base Rent per day. All rent shall be paid to Landlord at the address to which notices to Landlord are given.
3.2
Increase of Base Rent. During the Term, the Base Rent shall be adjusted on each annual anniversary of the Commencement Date (the Adjustment Date), by multiplying the Base Rent for the month immediately prior to the applicable Adjustment Date by one hundred three percent (103%). A schedule of Base Rent is attached hereto as Exhibit B.
3.3
Taxes, Maintenance Fees, and Other Expenses; CAM. Tenant agrees to be responsible for, and shall directly and timely pay, all property taxes associated with the Building and the Property and the maintenance charges and other expenses described below. Such costs and expenses shall include, but shall not be limited to upkeep, painting, repairs, replacements and improvements, sweeping and cleanup, window cleaning, utilities, telephone, internet connections, heating and air conditioning, utility-related services including fire line water service charges, building security, premiums for liability, property damage and fire insurance, and all real and personal property taxes. Tenant shall pay to Landlord a maintenance fee (CAM Fee) as additional rent as set forth in Section 3.5 hereof.
3.4
Late Fee. In the event Landlord does not receive the Base Rent or CAM Fee for any given month on or before the fifth (5th) day of such month, Tenant shall pay to Landlord, together with the Base Rent and CAM Fee for such month, and Landlord shall be entitled to receive from Tenant, a late payment fee in an amount equal to five percent (5%) of Tenants late payment. Tenant acknowledges and agrees that this sum is not a penalty but is a reasonable estimate of the administrative costs and expenses which Landlord will incur as a result of Tenants late payment. Any charges imposed for late payment charges pursuant to this Section 3.4 shall be in addition to all other amounts owing pursuant to the terms and conditions of this Lease, including without limitation interest charges.
3.5
Triple Net Lease. It is the intent of the parties that the rent applicable under Sections 3.1 and 3.2 hereof shall, except as may be specifically provided to the contrary in this Lease, be absolutely net to Landlord throughout the term hereof and that Tenant shall, as is provided for and described with more specificity in the various other Sections of this Lease, pay for all building services, costs and expenses in connection with its use of the Building, including utility services and costs, costs and expenses of maintenance and repair of the Premises, landscaping maintenance, janitorial and cleaning services and expenses, real and personal property taxes and insurance relating or allocable to the Building or the activities thereon, and any other items of cost or expense in any way incurred or necessary in
Initials: __MR_
__RW_
3
connection with the use, occupancy, or operation of the Premises. The fact that Tenants use or occupancy of the Premises may be disturbed or interrupted for any reason other than the negligent acts of Landlord shall not in any way suspend, abate, reduce, or alter the obligation to pay rent hereunder, except as may be specifically provided to the contrary in this Lease.
Throughout the Term of this Lease, Tenant shall pay to Landlord, without deduction, setoff, prior notice, or demand, a monthly CAM Fee of ONE THOUSAND TWO HUNDRED FIFTY DOLLARS ($1,250.00), as may be adjusted as set forth in this Section 3.5, with each monthly payment being due one month in advance on the first day of each month, commencing on the Commencement Date, and continuing through the Initial Term and the Extended Term. All CAM Fees shall be paid to Landlord at the address to which notices to Landlord are given.
The CAM Fee is subject to adjustment as follows: within forty-five (45) days following the end of each calendar year, Landlord shall furnish Tenant a statement covering the calendar year just expired, showing the total actual costs and expenses included in the CAM Fee for such calendar year and the CAM Fee payments made by Tenant with respect to such calendar year. If said payments exceed such actual costs and expenses, Tenant shall be entitled to offset the excess against the CAM Fee payment(s) next thereafter to become due Landlord. On the other hand, if such actual costs and expenses exceed Tenants payments so made, Tenant shall pay Landlord the deficiency within ten (10) days after receipt of said statement, and at Landlords option, Landlord may, upon written notice to Tenant, increase the CAM Fee in an amount deemed reasonably necessary by Landlord to cover such expenses during the current calendar year. Tenant or its authorized representative shall have the reasonable right to inspect the books of Landlord, for the purpose of verifying the information contained in the statement. The parties shall make such appropriate payments or reimbursements (in the manner set forth above in this paragraph), as the case may be, to each other, as are determined to be owing pursuant to such investigation.
3.6
Personal Property Taxes. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges (taxes) that are levied and assessed against the trade fixtures and personal property of Tenant installed or located in or on the Premises, and that become payable during the Term. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments.
3.7
Payment. Except to the extent expressly provided for elsewhere in this Lease, there shall be no abatement or apportionment at any time of the Base Rent or CAM Fees or any other sums, amounts, payments, or impositions to be paid by Tenant under any of the terms, covenants, conditions, and provisions of this Lease during the Term. All rent and other amounts payable under the terms and provisions of this Lease shall be made in lawful money of the United States.
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SECTION 4 - USE; LIMITATIONS ON USE
4.1
Use. Tenant shall use the Premises for general office purposes, and for no other use without Landlords prior written consent.
4.2
Limitations on Use. Tenants use of the Premises as provided in this Lease shall be in accordance with the following:
Compliance with laws. Tenant shall comply with all laws concerning the Premises or Tenants use of the Premises, including, without limitation, the obligation at Tenants cost to alter, maintain, or restore the Premises in compliance and conformity with all laws relating to the condition, use, or occupancy of the Premises during the Term.
Waste; nuisance. Tenant shall not use the Premises in any manner that will constitute waste, nuisance, or unreasonable annoyance (including, without limitation, the use of loudspeakers or sound or light apparatus that can be heard or seen outside the Premises) to owners or occupants of adjacent properties. Tenant shall not use the Premises for sleeping, commercial preparation of food, washing clothes, or the preparation, manufacture, or mixing of anything that might emit any odor or objectionable noises or lights onto adjacent properties.
Hazardous Substances. Tenant shall not bring upon the Premises, or in the Premises, use on the Premises, or permit to be brought upon, stored, or used upon the Premises, any wastes, petroleum products, or hazardous substances. Tenant shall hold harmless and indemnify Landlord from any and all damage, loss, injury, or liability of any nature arising from or associated with Tenants use, storage, disposal, release or bringing upon the Premises any hazardous substances as defined by local, state or federal laws, rules, regulations or ordinances.
Insurance. Tenant shall not do or permit anything to be done in or about the Premises or bring or keep anything therein which will in any way increase the existing rate of or premium for fire or other insurance covering the Building.
Plumbing. The plumbing facilities within the Building shall not be used by Tenant for any other purpose than that for which they are designed and constructed, and no foreign substance of any kind shall be thrown therein. The expense of any breakage, stoppage or damage to such plumbing facilities resulting from a violation of this provision shall be borne by Tenant.
Locks. Tenant shall not alter any lock or install any new or additional locks or any bolts on any door of the Premises, without immediately providing keys to Landlord.
Heavy Equipment. Safes and any other heavy equipment or objects shall be located within the Premises only in those areas and on such supports as are designated by Landlord. Tenant shall
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not place any safes or heavy objects within the Premises without first obtaining appropriate direction and approval from Landlord.
Telephones/Utilities. Tenant shall not install any telephone or other special utility lines within the Premises without first obtaining Landlords consent. Landlord shall designate the areas with the Premises in which telephone and other special utility lines and related equipment may be installed and how and where such lines are to be introduced.
Security. Tenant shall securely close and lock all doors and windows in the Premises before leaving the Building each day and shall insure that all water faucets and water apparatus and other equipment within the Premises are shut off so as to prevent waste or damage. Notwithstanding anything herein contained to the contrary, Tenant shall be responsible for any damage to Landlords property or to the property of other tenants within the Building caused by Tenants failure to comply with the provisions of this subparagraph, unless such damage is covered by, and paid for by Landlords insurance.
Vending Machines. Tenant may install vending machines within the Premises for its own use only. If any such vending machines are desired by Tenant, such shall be installed by Tenant at Tenants expense following Landlords approval of such installation.
Floor Coverings. Tenant shall not lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved, in writing, by Landlord.
SECTION 5 MAINTENANCE AND ALTERATIONS
5.1
Tenants Maintenance. During the Term of this Lease, Tenant agrees to keep and maintain, in good order, condition, and repair the interior of the Premises, including, by way of example only and not by way of limitation, interior walls, wall and window coverings, light fixtures, floor coverings, plumbing fixtures, glass and partitions. Tenant shall use carpet protectors or mats under all desk chairs located on carpeted areas.
5.2
Landlords Maintenance and Repair. Landlord shall maintain in good order, condition, and repair all external parts of the Building including the roof, and shall maintain in good order, condition, and repair all plumbing and heating, air conditioning and ventilation equipment located upon the Premises, except to the extent that damage to the same is caused by Tenant or Tenants employees, agents, or invitees. Landlord shall be responsible for snow and ice removal from parking areas and walkways which serve the Premises, in a manner consistent with reasonable practices for this area, and for landscape maintenance, the costs of which shall be dealt with under the CAM Fee provision of Sections 3.3 and 3.5 hereof.
5.3
Alterations. Tenant shall not make or allow any alterations to the Premises without Landlords prior written consent. Any alterations made shall be constructed by Landlord, or by parties not
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objectionable to Landlord, and shall be paid for by Tenant and shall remain on and be surrendered with the Premises on expiration or termination of the Term and shall be the property of Landlord, except that Landlord can elect within thirty (30) days before expiration of the Term, or within thirty (30) days after termination of the Term and Tenants surrender of the Premises, to require Tenant to remove any alterations that Tenant has made to the Premises. If Landlord so elects, Tenant at its cost shall restore the Premises to their condition existing prior to Tenants alterations, before the last day of the Term, or within twenty (20) days after notice of election is given, whichever is later.
If Tenant makes any alterations to the Premises as provided in this Section, the alterations shall not be commenced until ten (10) days after Landlord has received notice from Tenant stating the date the installation of the alterations is to commence.
5.4
Mechanics Liens. Tenant shall pay all costs for construction done by it or caused to be done by it on the Premises as permitted by this Lease. Tenant shall keep the Premises free and clear of all mechanics liens resulting from construction done by or for Tenant. Tenant shall have the right to contest the correctness or the validity of any such lien if, immediately on demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in Utah in an amount equal to one and one-half (1½) times the amount of the claim of lien. The bond shall provide for the payment of any sum that the claimant may recover on the claim (together with attorneys fees and costs of suit, if it recovers in the action).
SECTION 6 - INDEMNITY AND EXCULPATION; INSURANCE
6.1
Indemnity of Landlord. Tenant shall hold Landlord harmless from any and all damages to any person or property occurring in, on, or about the Premises, except for damages caused solely by the negligence or willful acts of Landlord.
6.2
Public Liability and Property Damage Insurance. Tenant at its cost shall maintain public liability and property damage insurance and products liability insurance with a single combined liability limit of not less than $2,000,000, and property damage limits of not less than $500,000, insuring against all liability of Tenant and its authorized representatives arising out of and in connection with Tenants use or occupancy of the Premises.
All public liability insurance, products liability insurance, and property damage insurance shall insure performance by Tenant of the indemnity provisions of Section 6.1 and shall contain cross-liability endorsements.
6.3
Increase in Amount of Public Liability and Property Damage Insurance. Not more frequently than each two (2) years, if, in the opinion of Landlords lender or of the insurance broker retained by Landlord, the amount of public liability and property damage insurance coverage at that time is not adequate, Tenant shall increase the insurance coverage as required by either Landlords lender or Landlords insurance broker.
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6.4
Tenants Fire Insurance. Tenant at its cost shall maintain on all its personal property, Tenants improvements, and alterations, in, on, or about the Premises, a policy of standard fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of their full replacement value. Unless this Lease is terminated pursuant to the provisions of Sections 7 or 8 hereof, the proceeds from any such policy shall be used by Tenant for the replacement of personal property or the restoration of Tenants improvements or alterations.
6.5
Additional Requirements. All insurance policies hereunder will (i) be taken out with insurers acceptable to Landlord; (ii) be in a form reasonably satisfactory to Landlord; (iii) be non-contributing with, and will apply only as primary and not excess to any other insurance available to Landlord or Landlords; (iv) contain an undertaking and agreement by the insurers to notify Landlord and Landlords mortgagee(s) in writing not less than thirty (30) days before any material change, cancellation, or termination of any such insurance; (v) contain provisions causing insurance proceeds to be made payable to Landlord; and (vi) name Landlord as an additional insured. Tenant shall deliver certificates of insurance, reasonably acceptable to Landlord, executed by Tenants insurers evidencing that the required insurance is in force, or, if required by Landlord or Landlords mortgagee, Tenant will deliver certified copies of each insurance policy as soon as possible after the placing of the insurance. No review or approval of any insurance certificate or insurance policy by Landlord derogates from or diminishes Landlords rights under this Lease.
6.6
Waiver of Subrogation. The parties release each other, and their respective authorized representatives, from any claims for damage to any person or to the Premises and to the fixtures, personal property, Tenants improvements, and alterations of either Landlord or Tenant in or on the Premises that are caused by or result from risks insured against under any insurance policies carried by the parties in force at the time of any such damage to the extent that such policies cover the loss or damage.
6.7
Cancellation of Insurance. Tenant shall not do or permit anything to be done that results in the cancellation or threatened cancellation or the reduction of coverage, or threatened reduction of coverage, under any insurance policy on the Premises or any improvements located thereon or therein.
6.8
Tenants Failure to Pay. Tenant agrees that should Tenant fail to comply with this Section 6, Landlord shall have the right to obtain said insurance and pay the premiums therefor, and in such event the entire amount of such premiums shall be immediately paid by Tenant to Landlord, together with interest thereon at the lesser of eighteen percent (18%) per annum or the maximum rate an individual is permitted by law to charge; provided, however, Landlord shall have no obligation or duty to obtain said insurance in the event of Tenants failure to provide such insurance and Tenant shall hold Landlord harmless from any losses due to such failure.
6.9
Indemnification. Tenant hereby agrees to defend, pay, indemnify and hold harmless the Landlord from and against any and all claims, demands, fines, suits, actions, losses, damages, costs, expenses (including attorneys fees), proceedings, orders, decrees or judgments of any kind or nature by or in favor of anyone whomsoever resulting from or in connection with any loss of life, bodily or personal
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injury, or property damage arising, directly or indirectly, out of or from or on account of any occurrence in, upon, at or from the Premises occasioned wholly or in part through the use or occupancy of the Premises, or resulting from any act or omission or negligence of Tenant, or any invitee or licensee of Tenant, or any employee, agent or contractor of the same in, upon, at or from the Premises. Tenant and all those claiming by, through, or under Tenant shall store their property in and shall occupy and use the Premises and any improvements therein and appurtenance thereto solely at their own risk, and Tenant and all those claiming by, through, or under Tenant hereby release Landlord, to the full extent permitted by law, from all claims of every kind, including loss of life, personal or bodily injury, damage to merchandise, equipment, fixtures or other property, or damage to business or for business interruption, arising, directly or indirectly, out of or on account of such occupancy and use. Landlord shall not be responsible or liable for damages at any time to Tenant, or to those claiming by, through, or under Tenant, for any loss of life, bodily or personal injury, or damage to property or business, or for business interruption, that may be occasioned by or through the acts, omissions or negligence of any other persons, or any other Tenants. Landlord shall not be responsible or liable for damages at any time for loss of life, or injury or damage to any person or to any property or business of Tenant, or those claiming by, through or under Tenant, caused by or resulting from the bursting, breaking, leaking, running, seeping, over-flowing or backing up of water, steam, gas, sewage, snow or ice in or around any part of the Premises, or caused by or resulting from acts of God or the elements. Tenant expressly acknowledges that all of the foregoing provisions of this Article shall apply and become effective from and after the date Landlord shall deliver possession of the Premises to Tenant.
6.10
Assumption of Risk. Anything herein to the contrary notwithstanding, after commencement of the term of this Lease, Tenant assumes full risk of damage to its personal property, fixtures, equipment, tools, improvements, stock, goods, wares, or merchandise that it may have in or on or about the Premises, where such damage results from fire, lightning, extended coverage perils, flood, or any catastrophe, regardless of cause or origin. Landlord shall not be liable to Tenant or anyone claiming by, through or under Tenant, including Tenants insurance carrier or carriers, for any loss or damage resulting from fire, lightning or extended coverage perils, or from an act of God. Landlord shall not be liable to any insurance carrier for damages insured against, either directly or by way of subrogation.
6.11
Release of Landlord. Landlord shall not be liable to Tenant for any damage to Tenant or Tenants property from any cause. Tenant waives and releases all claims against Landlord for damage or injury to person or property arising for any reason, except for damage caused by Landlords gross negligence or intentional misconduct.
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7.1
Destruction by Fire or Other Casualty. If the Premises shall be damaged by fire, unavoidable accident, or other casualty covered by fire and extended coverage insurance and such damage is not caused by the act, or failure to act, of Tenant, its employees, agents, licensees, permittees, or invitees, Landlord shall cause such damage to be repaired. If the Premises shall be rendered wholly untenantable by reason of such occurrence, Landlord shall cause such damage to be repaired; provided, however, in the event the Premises cannot be repaired within one hundred twenty (120) days, Landlord may, at its election, made within thirty (30) days following the occurrence of such damage or destruction, elect to terminate this Lease. In the event of such termination, rent shall be abated from and after such date of the damage or destruction. In the event Landlord does not terminate this Lease following damage or destruction of the Premises, Landlord shall commence and complete a restoration of the Premises within a reasonable time after such damage or destruction. Tenant agrees to give Landlord immediate notice of any damage to the Premises by fire, the elements, or any other casualty.
7.2
Loss or Damage. Landlord shall not be liable for:
(a)
Any loss or damage to any property of Tenant or of others located on the Premises, by theft or otherwise; or
(b)
any injury or damage to persons or property resulting from fire, explosion, falling plaster, gas, electricity, water, rain or snow or leaks from any part of the Property or from the pipes, appliances, or plumbing works or from the roof, street, or subsurface or from any other place whereby dampness or by any other cause of whatsoever nature, unless such damage shall be caused by the willful acts or gross negligence of Landlord, its agents, representatives, or employees. Except for loss, damage, or injury resulting solely from the willful acts or gross negligence of Landlord, its agents, representatives, or employees, all property of Tenant kept or stored on the Premises shall be so kept at or stored at the risk of Tenant only. Tenant shall hold Landlord harmless from any claims arising out of damage to or loss of property and from any claims for personal injury, for any event occurring on the Premises, unless such damage shall be caused solely by the willful acts or negligence of Landlord, its agents, representatives, or employees.
7.3
Abatement or Reduction of Rent. In case of damage or destruction, and in the event this Lease is not terminated pursuant to Section 7.1 hereof, the rent shall be abated wholly or proportionately, as the case may be, until the damage shall be repaired and the Premises restored; provided, however, that in the event such damage or destruction is caused by Tenant, its agents, representatives, or employees there shall be no abatement of rent.
7.4
Loss During Last Part of Term. If destruction to the Premises occurs during the last year of the Term, and the cost of restoration exceeds ten percent (10%) of the then replacement value of the Premises, either Landlord or Tenant can terminate this Lease by giving notice to the other not more than fifteen (15) days after the destruction.
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8.1
Condemnation. In the event the whole or any part of the Premises shall be taken or condemned for a public or quasi-public use or purpose by any competent authority and as a result thereof the balance of said Premises cannot be used by Tenant for the same purpose as before such taking or condemnation, then and in either of such events, the Term of this Lease shall terminate when possession of the Premises shall be taken by the condemning authorities. Any award, compensation, or damages (hereinafter sometimes referred to as the award) for that portion of the Premises which does not include any personal property of Tenant shall be paid to and be the property of Landlord. It is understood that in the event of the termination of this Lease as aforesaid, neither Landlord nor Tenant shall have any claim against the other for the value of any unexpired Term of this Lease, and Tenant shall have no right or claim to any part of the award on account thereof, except as may pertain to any tangible personal property of Tenant which it would be entitled to remove upon any termination of this Lease.
8.2
Partial Condemnation. In the event only a part of the Premises shall be taken or condemned for a public or quasi-public use or purpose by any competent authority, and as a result thereof the balance of said Premises can be used for the same purpose as before such taking or condemnation, this Lease shall not terminate as a result thereof and Landlord, at its sole cost and expense, but only to the extent of the award for such taking received by Landlord, shall repair and restore the Premises and improvements thereon. The determination of whether or not the Premises can be used for the same purpose shall be made by Tenant, subject to the requirement that such determination is reasonably made by Tenant. Any award paid as a consequence of such taking or condemnation, shall be paid to Landlord and be applied to the cost of said repairing and restoration. Any sums remaining after such application shall be the property of Landlord. There shall be a reduction in the rental in direct proportion to the reduction of the Premises as a result of such taking.
9.1
Prohibition Against Assignment, Subletting, and Encumbering. Tenant shall not assign or encumber its interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity (except Tenants authorized representatives) to occupy or use all or any part of the Premises, without first obtaining Landlords written consent. Any assignment, encumbrance, or sublease without Landlords consent shall be void and, at Landlords election, shall constitute a default. No consent to any assignment, encumbrance, or sublease shall constitute a further waiver of the provisions of this Section.
Any dissolution, merger, consolidation, or other reorganization of Tenant, or the sale or other transfer of a controlling ownership interest in Tenant, or the sale of at least fifty-one percent (51%) of the value of the assets of Tenant, shall be deemed a voluntary assignment hereunder. The phrase controlling percentage means the ownership of, and the right to vote, stock or other interests possessing at least fifty-one percent (51%) of the total combined voting power of all classes of Tenants issued stock or other ownership interests.
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Tenant immediately and irrevocably assigns to Landlord, as security for Tenants obligations under this Lease, all rent from any subletting of all or a part of the Premises as permitted by this Lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlords application, may collect such rent and apply it toward Tenants obligations under this Lease; except that, until the occurrence of an act of default by Tenant, Tenant shall have the right to collect such rent.
Any assignment, subletting, or other transfer of Tenants interest hereunder, whether pursuant to written consent of Landlord or as permitted hereunder, shall not release or discharge Tenant from liability unless such release is expressly granted in writing by Landlord.
If Tenant requests Landlord to consent to a proposed assignment or subletting, Tenant shall pay to Landlord, whether or not consent is ultimately given, Landlords reasonable attorneys fees incurred in connection with each such request.
9.2
Involuntary Assignment. No interest of Tenant in this Lease shall be assignable by operation of law (including, without limitation, the transfer of this Lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment:
(a)
If Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors, or institutes a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors;
(b)
If a writ of attachment or execution is levied on this Lease;
(c)
If, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises.
An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this Lease, in which case this Lease shall not be treated as an asset of Tenant.
10.1
Tenants Default. The occurrence of any of the following shall constitute a default by Tenant:
(a)
Failure to pay rent or any other sums payable by Tenant hereunder when due, if the failure continues for five (5) days after the date when such rent or other amount was due.
(b)
Abandonment and vacation of the Premises (failure to occupy and operate the Premises for ten (10) consecutive days shall be deemed an abandonment and vacation).
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(c)
Failure to perform any other provision of this Lease if the failure to perform is not cured within fifteen (15) days after notice has been sent to Tenant and Guarantor. If the default cannot reasonably be cured within fifteen (15) days, Tenant shall not be in default of this Lease if Tenant commences to cure the default within the fifteen (15)-day period and diligently and in good faith continues to cure the default.
(d)
Any representation or warranty by Tenant was materially false or inaccurate at the time of the execution of this Lease.
Notices given under Section 10.1(3) shall specify the alleged default and the applicable lease provisions, and shall demand that Tenant perform the provisions of this Lease within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless Landlord so elects in the notice.
10.2
Landlords Remedies. Landlord shall have the following remedies if Tenant commits a default and, where applicable, fails to cure within the times set forth in Section 10.1 hereof. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law.
(a)
Tenants Right to Possession Not Terminated. Landlord can continue this Lease in full force and effect, but not longer than the Term, and the Lease will continue in effect as long as Landlord does not terminate Tenants right to possession, and Landlord shall have the right to collect rent when due. During the period Tenant is in default, Landlord can enter the Premises and relet them, or any part of them, to third parties for Tenants account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers commissions, expenses of remodeling the Premises required by the reletting, and like costs. Reletting can be for a period shorter or longer than the remaining Term of this Lease. Tenant shall pay to Landlord the rent due under this Lease on the dates the rent is due, less the rent Landlord receives from any reletting. No act by Landlord allowed by this Section shall terminate this Lease unless Landlord notifies Tenant that Landlord elects to terminate this Lease. After Tenants default and for as long as Landlord does not terminate Tenants right to possession of the Premises, if Tenant obtains Landlords consent Tenant shall have the right to assign or sublet its interest in this Lease, but Tenant shall not be released from liability.
If Landlord elects to relet the Premises as provided in this Section, rent that Landlord receives from reletting shall be applied to the payment of:
First, any indebtedness owed from Tenant to Landlord other than rent due from Tenant;
Second, all costs, including for repair, refurbishment, reconfiguration, restoration and maintenance, incurred by Landlord in reletting;
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Third, rent and any other payments, costs or fees, including late fees due and unpaid under this Lease.
After deducting the payments referred to in this Section, any sum remaining from the rent Landlord receives from reletting shall be held by Landlord and applied in payment of future rent as rent becomes due under this Lease. In no event shall Tenant be entitled to any excess rent received by Landlord. If, on the date rent is due under this Lease, the rent received from the reletting is less than the rent due on that date, Tenant shall pay to Landlord, in addition to the remaining rent due, all costs, including for maintenance, Landlord incurred in reletting that remain after applying the rent received from the reletting as provided in this Section.
(b)
Termination of Tenants Right to Possession. Landlord can terminate Tenants right to possession of the Premises at any time. No act by Landlord other than giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Landlords initiative to protect Landlords interest under this Lease shall not, by themselves, constitute a termination of Tenants right to possession or a termination of this Lease. On termination of this Lease, Landlord has the right to recover from Tenant:
(i)
The worth, at the time of the award, of the unpaid rent owed hereunder at the time of termination of this Lease;
(ii)
The worth, at the time of the award, of the amount by which the unpaid rent that would have been owed hereunder after the date of termination of this Lease until the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided;
(iii)
The worth, at the time of the award, of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and
(iv)
Any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenants default.
The worth, at the time of the award, as used in (i) and (ii) of this Section, is to be computed by allowing interest at the lesser of eighteen percent (18%) per annum or the maximum rate an individual is permitted by law to charge. The worth, at the time of the award, as referred to in (iii) of this Section, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%).
(c)
Landlords Right to Cure Tenants Default. Landlord, at any time after Tenant commits a default and has failed to perform within fifteen (15) days of notice of such default from Landlord, can cure the default at Tenants cost. If Landlord at any time, by reason of Tenants default, pays any sum or does any act that requires the payment of any sum, the sum paid by
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Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid, and if paid at a later date shall bear interest at the lesser of eighteen percent (18%) per annum or the maximum rate an individual is permitted by law to charge from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. The sum, together with interest on it, shall be additional rent.
10.3
Interest. Rent and any other amounts payable hereunder by Tenant not paid within ten (10) days of when due shall bear interest from the date due until paid at the maximum rate permitted by law or at the rate of eighteen percent (18%) per annum, whichever is less.
10.4
Tenants Right To Cure Landlords Default. Landlord shall be in default of this Lease if it fails or refuses to perform any provision of this Lease that it is obligated to perform if the failure to perform is not cured within fifteen (15) days after notice of the default has been given by Tenant to Landlord. If the default cannot reasonably be cured within fifteen (15) days, Landlord shall not be in default of this Lease if Landlord commences to cure the default within the 15-day period and diligently and in good faith continues to cure the default.
SECTION 11 - EXTERIOR FIXTURES AND FURNISHINGS; SIGNS; ADVERTISING;
USE OF ROOF
11.1
Tenants Restricted Right to Exterior Fixtures and Furnishings; Signs. Tenant shall not, without Landlords prior written consent, (i) make any changes to the exterior of the Premises, or (ii) install any exterior lighting, canopies or awnings, or any exterior decorations, or paintings, or (iii) install any drapes, blinds, shades or other coverings on exterior windows and doors (or change the type of window covering supplied with the Premises), or (iv) install any sign, window or door lettering, placards, decorations or advertisements of any type which can be viewed from the exterior of the Premises, or (v) place any object near exterior windows and doors which may appear unsightly from outside of the Premises. Tenant shall not have the right to place, construct, or maintain any other sign, advertisement, awning, banner, or other exterior decoration without Landlords prior written consent. All signs, awnings, canopies, decorations, lettering or other items approved by Landlord and installed by Tenant shall be kept in good repair and in proper operating condition at all times and any damage caused by or in connection with such items shall be repaired at Tenants expense. Any items installed or maintained in violation of this provision may be promptly removed by Landlord at Tenants expense.
11.2
Compliance With Laws. Any exterior fixtures and furnishings or signs that Tenant has the right to place, construct, and maintain shall comply with all laws, and Tenant shall obtain any approval required by such laws. Landlord makes no representation with respect to Tenants ability to obtain such approval.
11.3
Right to Use Roof. Use of the roof on the Building is reserved to Landlord and Landlord may install upon the roof such equipment, signs, and antenna and other objects as Landlord deems appropriate with Tenants written consent, such consent not to be unreasonably withheld, provided
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that any such objects which are visible to the general public are in keeping with the architectural theme of the Building and the Office Park.
11.4
Removal of Exterior Fixtures and Furnishings; Signs. At the termination of this Lease, Tenant shall, at Tenants sole cost and expense, remove all exterior fixtures and furnishings and signs installed or constructed by Tenant and shall repair and restore the Premises or the building or property of which the Premises is a part to their condition prior to installation or construction of such signs.
SECTION 12 - LANDLORDS ENTRY ON PREMISES
12.1
Landlords Entry on Premises. Landlord and its authorized representatives shall have the right to enter the Premises, upon at least four (4) hours notice to Tenant, for any of the following purposes:
(a)
To determine whether the Premises are in good condition and whether Tenant is complying with its obligations under this Lease;
(b)
To do any necessary maintenance and to make any restoration to the Premises that Landlord has the right or obligation (if any) to perform;
(c)
To serve, post, or keep posted any notices required or allowed under the provisions of this Lease;
(d)
To post for sale signs at any time during the Term, to post for rent or for lease signs during the last six (6) months of the Term, or during any period while Tenant is in default, said signs to be posted in reasonable locations approved by Tenant, such approval not to be unreasonably withheld;
(e)
To show the Premises to prospective brokers, agents, buyers, tenants, or persons interested in a purchase or an exchange, at any time during the Term;
(f)
At Landlords expense, to shore the foundations, footings, and walls of the building and other improvements that are a part of the Premises and to erect scaffolding and protective barricades around and about the Premises, but not so as to prevent entry to the Premises, and to do any other act or thing necessary for the safety or preservation of the Premises if any excavation or other construction is undertaken or is about to be undertaken on any adjacent property or nearby street. Landlords right under this provision shall not be construed to create any obligation for Landlord to maintain or repair the Premises, except as set forth in other provisions of this Lease.
Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of Landlords entry on the Premises as provided in this Section, except damage resulting from the wrongful acts or gross negligence of Landlord or its authorized representatives.
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Tenant shall not be entitled to an abatement or reduction of rent if Landlord exercises any rights reserved in this Section.
Landlord shall conduct its activities on the Premises as allowed in this Section in a manner that will minimize inconvenience, annoyance, or disturbance to Tenant, and shall be timely in the performance of its obligations hereunder.
13.1
Security Deposit. Under the prior Lease Agreement between Landlord and Tenant, Tenant deposited with Landlord the sum of $14,000.00 as a security deposit, which deposit shall constitute the security deposit under this Lease Agreement (the Lease Security Deposit). Landlord shall not be responsible for payment of any interest on said deposit and may commingle said deposit with the other funds of Landlord. If Tenant has complied with all the terms and conditions of this Lease, has promptly paid all rent and all other sums payable to Landlord hereunder, and the Premises and furnishings (if any) have been surrendered in good and clean condition (including the cleaning of carpeting as may be required by Landlord), together with all keys to the Premises, Landlord shall refund to Tenant the balance of the Lease Security Deposit within thirty (30) days after Tenants surrender of the Premises and furnishings (if any). In the event of any breach of this Lease by Tenant, Landlord shall have the right and option to retain all or any portion of the Lease Security Deposit as partial compensation of damages sustained by Landlord, without waiver of or prejudice to any other right or remedy to which Landlord may be entitled by law or this Lease. Tenant shall not have the right to apply the Lease Security Deposit to the rent payable for any period of the term, including without limitation the last month of the term or any extension thereof. In the event Landlord applies the Lease Security Deposit in payment of any obligation of Tenant hereunder during the term or any extension thereof, Tenant shall pay to Landlord the amount necessary to reestablish the Lease Security Deposit balance within seven (7) days of Landlords request for such payment.
14.1
Parking. Other than rented covered parking, handicapped designated parking, and customer-only designated parking, the Landlord shall not permit reserved parking, but Tenant and tenants employees and invitees shall have the right to use all parking provided on the Property consisting of at least 58 spaces.
14.2
Modifications. Landlord reserves the right to change the arrangement, level and location of parking areas and the direction and flow of traffic to discourage unauthorized parking, so long as such changes do not materially affect Tenants access to the Premises and to adequate parking facilities.
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SECTION 15 - REPRESENTATIONS AND WARRANTIES
15.1
Tenants Representations and Warranties. As a material inducement to Landlord to execute this Lease and in partial consideration therefor, Tenant hereby makes the following representations and warranties, each of which is being relied upon by Landlord as a material inducement to enter into this Lease, and each of which is true and correct as of the date hereof:
(a)
All financial statements and other financial information provided to Landlord by Tenant are true and correct in all material respects, and fully and accurately present the financial condition of Tenant as of the date and time of such reports, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis.
(b)
The execution and delivery of this Lease and the performance by Tenant of its obligations hereunder require no further action or approval in order to constitute this Lease as a binding and enforceable obligation of Tenant. Compliance with this Lease does not contravene any provision of law, nor of any agreement, government order or regulation, undertaking, or other restriction to which Tenant is a party or by which Tenant is bound.
(c)
This Lease has been duly executed by Tenant and constitutes a legal, valid, and binding obligation of Tenant enforceable in accordance with its terms.
SECTION 16 - ESTOPPEL; FINANCING AND SUBORDINATION
16.1
Estoppel Certificate. Tenant shall, within ten (10) days after Landlords request therefor, execute and deliver to Landlord an estoppel certificate in favor of Landlord and such other persons as Landlord shall request setting forth the following: (a) ratification of this Lease; (b) the Commencement Date and termination date hereof; (c) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended (except as such writing as shall be stated); (d) that all conditions under this Lease to be performed by Landlord have been satisfied; (e) there are no defenses or offsets against the enforcement of this Lease by Landlord, or, in the alternative, those claimed by Tenant; (f) the amount of advance rent, if any (or none if such is the case), paid by Tenant; (g) the date to which rent has been paid; (h) the amount of the security deposit, if any; and (i) such other information as Landlord may reasonably request. In the event that Tenant fails within ten (10) days after Landlord has delivered to Tenant an estoppel certificate pursuant to this Section to properly execute and deliver the same to Landlord, Tenant shall be deemed to have consented to such estoppel certificate as written; provided, however, that such non-consent shall not relieve Tenant from its responsibilities for default under this Lease by reason of its failure to return an estoppel certificate in accordance with this Section. Mortgage lenders and/or purchasers shall be entitled to rely upon any estoppel certificate executed by Tenant or which Tenant is deemed to have consented.
16.2
Financing and Subordination.
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(a)
Tenant agrees that from time to time it shall, if so requested by Landlord and if doing so will not materially and adversely affect Tenants economic interests under this Lease or its use of the Premises, join with the Landlord in amending the terms of this Lease so as to meet the reasonable needs or requirements of any lender who is considering furnishing, or who has furnished, any financing which is, or will be, secured by the Building and the land underneath such, or the Landlords Office Park.
(b)
Tenants rights under this Lease shall at all times be subordinated to the lien of any mortgage or deed of trust or lien or other security interest resulting from any method of financing or refinancing which encumbers or is intended to encumber the Building or the land underneath such, or Landlords Property, and to all advances subsequently made upon the strength of such security. So long as Tenant is not in default under the terms of this Lease, however, this Lease shall remain in full force and effect for the full term hereof and shall not be terminated as a result of any foreclosure (or transfer in lieu thereof) of such mortgage or other security instrument to which Tenant has subordinated its rights pursuant to this subparagraph.
(c)
Tenant shall, upon Landlords request, in connection with Landlords efforts to secure financing any time during the Term of this Lease, supply to Landlord all financial information required by any lender in relation to such financing.
SECTION 17- LANDLORDS LIEN
17.1
Special Remedy Upon Abandonment, Vacation, or Default. If Tenant abandons or vacates any substantial portion of the Premises or is in default of any provisions of this Lease, Landlord may enter upon the Premises, and take possession of all or any part of Tenants trade fixtures or personal property, store such property in a private or public place, and may sell all or any part of the fixtures or personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash. The proceeds of the sale shall be applied by Landlord towards the costs of removal and storage, next towards reasonable costs and expenses of the sale, including attorneys fees, and then toward the payment of all sums due by Tenant to Landlord under the terms of this Lease.
17.2
Security Agreement. This Lease is intended as and constitutes a security agreement within the meaning of the Uniform Commercial Code of the State of Utah and Landlord, in addition to the rights prescribed in this Lease, shall have all of the rights, titles, liens and interests in and to Tenants property now or hereafter located upon the Premises which are hereby granted to Landlord as secured party, as that term is defined, under the Uniform Commercial Code, to secure the performance of and the payment to Landlord of the various amounts provided in this Lease. Tenant will on request execute and deliver to Landlord all such financing statements and other documents as may be necessary to perfect Landlords security interest under this Lease, or Landlord may file this Lease or a photocopy or summary thereof as a financing statement.
SECTION 18 LEASE GUARANTY
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18.1
Consideration. Guarantor has agreed to execute this Lease as a guarantor to induce Landlord to enter into this Lease with Tenant, pursuant to which the obligations hereby guaranteed have been created. Guarantor hereby acknowledges that he has and will derive a direct financial benefit from Landlords entering into the Lease with Tenant.
18.2
Guarantee. Guarantor hereby guarantees and undertakes with Landlord that in the event Tenant defaults in the payment of any sums due and owing to Landlord from Tenant on account of the Lease or in the event that Tenant defaults in the full and faithful performance of Tenants obligations, undertakings and covenants under the Lease, then Guarantor shall be obligated to pay to Landlord, within 10 days of demand and the expiration of any applicable cure and grace periods expressly provided under the Lease, any and all sums so due Landlord and any damages incurred by Landlord on account thereof to the extent Landlord is entitled to collect the same from Tenant in connection with the Lease.
18.3
Term. Guarantors obligations and undertakings herein contained shall remain in full force and effect for the term of the Lease and shall survive termination of the Lease for so long as Tenant may be held liable for any obligations, payments or damages in connection with the Lease.
18.4
Rights of Landlord. Without diminishing, releasing or discharging Guarantors obligations hereunder, Landlord shall have the right to exercise the following powers and rights in Landlords sole discretion: Landlord may agree with Tenant to change, alter, cancel, renew, extend, decrease or increase the obligations of Tenant to Landlord; Landlord may add other guarantors or procure additional guarantees, release other guarantors or guarantees and apply monies or properties received from Tenant upon debts regardless of whether the same may be guaranteed hereby, otherwise secured, barred by statutes of limitation or discharged other than by payment; Landlord may exercise rights hereunder in the event of Tenants insolvency, bankruptcy, receivership or assignment for benefit of creditors; and Landlord may deal with Tenant, Guarantor and any other persons liable on the indebtedness, obligations or liabilities to Landlord as Landlord deems advisable.
18.5
Waivers; Default of Tenant. Guarantor waives: (a) the right to require Landlord to (i) proceed against Tenant, (ii) proceed against or exhaust any security that Landlord holds from Tenant, or (iii) pursue any other remedy against Tenant in Landlords power; (b) any defense by reason of any disability of Tenant; and (c) any other defense based on the termination of Tenants liability from any cause. Until all Tenants obligations to Landlord have been discharged in full, Guarantor has no right of subrogation against Tenant. Guarantor waives any right he may have to enforce any remedies that Landlord now has, or later may have, against Tenant. Guarantor waives any right to participate in any security now or later held by Landlord. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty, and waives all notices of existence, creation, or incurring of new or additional obligations. Upon default by Tenant on any of its obligations to Landlord and the expiration of any applicable cure and grace periods expressly provided under the Lease, then at Landlords option, without notice or demand upon Guarantor and without exercising any other right or remedy Landlord may have, Landlord may proceed directly against Guarantor or any other guarantor to enforce Landlords rights hereunder.
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18.6
Impairment of Rights. Landlords rights shall be cumulative and not exclusive. No impairment, limitation or modification of Tenants liability or obligations or of its trustee or receiver or any such impairment, limitation or modification of Landlords remedies by virtue of the operation of bankruptcy or similar laws or decision of any court or courts nor any disaffirmance of the Landlords obligations under the Lease in such proceedings shall affect Landlords rights against Guarantor hereunder.
18.7
Successors and Assigns. The obligations of Guarantor shall inure to the benefit of Landlords assigns and successors in interest in the Lease and shall be binding upon Guarantors heirs, successors and assigns. Reference to Tenant herein includes any assignee of or successor to Tenants interest under the terms of the Lease or any subtenant or any other party who is now or in the future may be a Tenant under the Lease.
18.8
Costs and Attorneys Fees. Guarantor shall pay all costs, expenses and charges, including all attorneys fees, which Landlord may incur in the enforcement of the provisions hereof.
18.9
No Lease Modification. Nothing set forth herein shall be or be deemed to be a modification, waiver or other alteration of any of Landlords or Tenants obligations, rights and/or remedies as to each other under the Lease, all of which are expressly reserved.
19.1
Notice. All notices, requests, consents, and other communications required under this Lease shall be in writing and shall be sufficient for all purposes if personally delivered, or if mailed by certified or registered U.S. mail, return receipt requested, postage prepaid, or if sent by Federal Express or other nationally recognized air courier, expenses prepaid, and addressed as follows:
If to Landlord, to:
Mark H. Robinson
Rocky Mountain Development
12659 South 125 East, Suite B
Draper, Utah 84020
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With a copy to:
Clark K. Taylor, Esq.
VAN COTT, BAGLEY, CORNWALL & McCARTHY
36 South Main Street, Suite 1900
Salt Lake City, Utah 84111
If to Tenant, to:
ForeverGreen International, LLC
Attention Ron J. Noyes, Esq.
972 North 1430 West
Orem, Utah 85047
With copies to:
Craig Smith
10305 N. Downing Drive
Cedar Hills, Utah 84062
Ron J. Noyes
ForeverGreen International, LLC
30 E. Broadway, Suite 300
Salt Lake City, Utah 84111
If to Guarantor, to:
Ron Williams
1091 North 1170 East
Orem, Utah 85047
Any party may change its address by notifying the other parties of the change of address. Notice shall be deemed communicated upon receipt or within 48 hours from the time of mailing if mailed to the address provided in this Section, whichever shall first occur.
19.2
Waiver. Any delay or omission in the exercise of any right or remedy of Landlord in relation to any default by Tenant shall not impair any such right or remedy and shall not be construed as a waiver of any kind or nature whatsoever.
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The receipt or acceptance by Landlord of delinquent rent or other amounts owed hereunder shall not constitute a waiver of any default or any of Landlords rights or remedies.
No act or conduct of Landlord, including, without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease.
Landlords consent to or approval of any act by Tenant requiring Landlords consent or approval shall not be deemed to waive or render unnecessary Landlords consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease.
19.3
Sale or Transfer of Premises. If Landlord sells or transfers all or any portion of the Premises, Landlord, on consummation of the sale or transfer, shall be released from any liability thereafter accruing under this Lease if Landlords successor has assumed in writing, for the benefit of Tenant, Landlords obligations under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord can transfer the security deposit or prepaid rent to Landlords successor and on such transfer Landlord shall be discharged from any further liability in reference to the security deposit or prepaid rent.
19.4
Enforcement. In the event of default under any provision in this Lease, the defaulting party agrees to pay the other party all costs, including reasonable attorneys fees, incurred by the other party in enforcing its rights under this Lease whether or not court action is instituted, in addition to all other amounts due hereunder and damages caused by the default.
19.5
Surrender of Premises. On expiration or termination of the Term, Tenant shall surrender to Landlord the Premises and all Tenants improvements and alterations in good condition, ordinary wear and tear excepted, Tenant shall remove all its personal property within the above stated time. Tenant shall immediately perform all restoration made necessary by the removal of any alterations or Tenants personal property.
Landlord can elect to retain or dispose of in any manner any alterations or Tenants personal property that Tenant does not remove from the Premises on expiration or termination of the Term as allowed or required by this Lease by giving at least ten (10) days notice to Tenant. Title to any such alterations or Tenants personal property that Landlord elects to retain or dispose of upon expiration of such 10-day period shall vest in Landlord. Tenant waives all claims against Landlord for any damage to Tenant resulting from Landlords retention or disposition of any such alterations or Tenants personal property. Tenant shall be liable to Landlord for Landlords costs for storing, removing, and disposing of any alterations or Tenants personal property.
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If Tenant fails to surrender the Premises to Landlord on expiration or ten (10) days after termination of the Term as required by this Section, Tenant shall hold Landlord harmless from all damages resulting from Tenants failure to surrender the Premises, including, without limitation, claims made by a succeeding tenant resulting from Tenants failure to surrender the Premises.
19.6
Holding Over. If Tenant, with Landlords consent, remains in possession of the Premises after expiration or termination of the Term, or after the date in any notice given by Landlord to Tenant terminating this Lease, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable on thirty (30) days notice given at any time by either party. All provisions of this Lease, except those pertaining to term shall apply to the month-to-month tenancy, and the monthly rent during any such holdover tenancy shall be increased to one hundred twenty percent (120%) of the Base Rent and CAM Fee owed during the month preceding commencement of the holdover tenancy.
19.7
Time of Essence. Time is of the essence of each provision of this Lease.
19.8
Consent of Parties. Whenever consent or approval of either party is required, that party shall not unreasonably withhold such consent or approval.
19.9
Corporate Authority. If either party is a corporation, that party shall deliver to the other party on execution of this Lease a certified copy of a resolution of its board of directors (or of its executive committee with appropriate resolutions from its board of directors empowering such executive committee) authorizing the execution of this Lease and naming the officers that are authorized to execute this Lease on behalf of the corporation.
19.10
Entire Agreement. This Lease, including the exhibits attached hereto, constitutes the entire agreement between the parties hereto relative to the subject matter hereof. Any prior negotiations, correspondence, or understandings relative to the subject matter hereof shall be deemed to be merged in this Lease and shall be of no further force or effect. This Lease may not be amended or modified except in writing executed by both of the parties hereto.
19.11
Successors. This Lease shall be binding on and inure to the benefit of the parties and their successors and assigns, except as provided in Section 9.1.
19.12
Rent Payable in U.S. Money. Rent and all other sums payable under this Lease must be paid in lawful money of the United States of America.
19.13
Real Estate Brokers; Finders. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder, or other person, with whom the other party has or purportedly has dealt.
19.14
Exhibits - Incorporation in Lease. All exhibits referred to are attached to this Lease and incorporated by reference.
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19.15
Controlling Law. This Lease shall be construed and interpreted in accordance with the laws of the State of Utah.
19.16
Use of Definitions. The definitions contained in this Lease shall be used to interpret this Lease.
19.17
Definitions. As used in this Lease, the following words and phrases shall have the following meanings:
Alteration - any addition or change to, or modification of, the Premises made by Tenant including, without limitation, fixtures, but excluding trade fixtures as defined here, and Tenants improvements as defined here.
Authorized representative - any officer, agent, employee, or independent contractor retained or employed by either party, acting within authority given him by that party.
Damage - injury, deterioration, or loss to a person or property caused by another persons acts or omissions. Damage includes death.
Damages - a monetary compensation or indemnity that can be recovered in the courts by any person who has suffered damage to his person, property, or rights through anothers act or omission.
Destruction - any damage, as defined here, to or disfigurement of the Premises.
Encumbrance - any deed of trust, mortgage, or other written security device or agreement affecting the Premises, and the note or other obligation secured by it, that constitutes security for the payment of a debt or performance of an obligation.
Expiration - the coming to an end of the time specified in the Lease as its duration, including any extension of the Term resulting from the exercise of an option to extend.
Good condition - the good physical condition of the Premises and each portion of the Premises, including, without limitation, signs, windows, show windows, appurtenances, and Tenants personal property as defined here. In good condition means first-class, neat, clean, and broom-clean, and is equivalent to similar phrases referring to physical adequacy in appearance and for use.
Hazardous substances - any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic chemical, hazardous or toxic material, hazardous or toxic substance, or other similar term, by any federal, state, or local
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environmental statute, regulation, or ordinance presently in effect, or in effect at any time during the Term, and, as to substances and materials which are not specifically identified in any such statute, regulation, or ordinance by name, which are known to be toxic or hazardous under presently existing and generally accepted scientific knowledge.
Hold harmless - to defend and indemnify from all liability, losses, penalties, damages as defined here, costs, expenses (including, without limitation, attorneys fees), causes of action, claims, or judgments arising out of or related to any damage, as defined here, to any person or property.
Law - any judicial decision, statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other government agency or authority having jurisdiction over the parties or the Premises, or both, in effect either at the time of execution of the Lease or at any time during the Term, including, without limitation, any regulation or order of a quasi-official entity or body (e.g., board of fire examiners or public utilities).
Lender - the beneficiary, mortgagee, secured party, or other holder of an encumbrance, as defined here.
Lien - a charge imposed on the Premises by someone other than Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this Lease are mechanics liens.
Maintenance - repairs, replacements, repainting, snow and ice removal, landscaping care and maintenance, janitorial services provided by Landlord, servicing of HVAC systems, and cleaning.
Person - one or more human beings, or legal entities or other artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations, and any combination of human beings and legal entities.
Provision - any term, agreement, covenant, condition, clause, qualification, restriction, reservation, or other stipulation in the Lease that defines or otherwise controls, establishes, or limits the performance required or permitted by either party.
Rent - monthly rent, prepaid rent, security deposit, real property taxes and assessments, insurance, and other similar charges payable by Tenant to Landlord.
Restoration - the reconstruction, rebuilding, rehabilitation, and repairs that are necessary to return destroyed portions of the Premises and other property to substantially the same physical condition as they were in immediately before the destruction.
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Successor - assignee, transferee, personal representative, heir, or other person or entity succeeding lawfully, and pursuant to the provisions of this Lease, to the rights or obligations of either party.
Tenants improvement - any addition to or modification of the Premises made by Tenant before, at, or near the commencement of the Term, and any fixtures (not including Tenants trade fixtures, as defined here).
Tenants personal property - Tenants equipment, furniture, merchandise, and moveable property placed in the Premises by Tenant, including Tenants trade fixtures, as defined here.
Tenants trade fixture - any property installed in or on the Premises by Tenant for purposes of trade, manufacture, ornament, or related use.
Term - the period of time during which Tenant has a right to occupy the Premises, including the Initial Term and any Extended Term.
Termination - the ending of the Term for any reason before expiration, as defined here.
19.18
Attorneys Fees and Costs. If any legal action or other proceeding is brought for the enforcement of this Lease, or because of an alleged dispute, breach, default or misrepresentation in connection with any provision of this Lease, the successful or prevailing party shall be entitled to recover reasonable attorneys fees, and any other fees and costs incurred in such action or proceeding, in addition to any other relief to which such party may be entitled.
19.19
Force Majeure. If either party to this Lease shall be delayed or prevented from the performance of any act required hereunder by reason of a strike, labor trouble, acts of nature or any other cause beyond the reasonable control of such party (financial inability excepted), and such party is otherwise without fault, then performance of such act (excluding payment of rent or any other charge or expense due and payable under this Lease) shall be excused for the period of delay.
19.20
Quiet Enjoyment. Landlord covenants that so long as Tenant performs all of its obligations hereunder it shall peacefully and quietly have, hold and enjoy the leased Premises for the Term of this Lease.
19.21
Captions. The captions of this Lease shall have no effect on its interpretation.
19.22
Singular and Plural. When required by the context of this Lease, the singular shall include the plural.
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19.23
Severability. The unenforceability, invalidity, or illegality of any provision shall not render the other provisions unenforceable, invalid, or illegal.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.
LANDLORD:
ROCKY MOUNTAIN DEVELOPMENT, LLC
By /s/ Mike Robinson
Mike Robinson, Member
TENANT:
FOREVERGREEN, LLC
By /s/Ronald Williams
Its
GUARANTOR:
/s/Ronald Williams
Ron Williams
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Schedule of Exhibits
EXHIBIT A - Site Plan and Outline of Premises
EXHIBIT B Base Rent & CAM Fee
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Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Ronald K. Williams, certify that:
1.
I have reviewed this annual report on Form 10-K of ForeverGreen Worldwide Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 17, 2012 | /s/ Ronald K. Williams Ronald K. Williams Chief Executive Officer |
Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Paul T. Frampton, certify that:
1.
I have reviewed this annual report on Form 10-K of ForeverGreen Worldwide Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 17, 2012 | /s/ Paul T. Frampton Paul T. Frampton Chief Financial Officer |
Exhibit 32.1
ForeverGreen Worldwide Corp.
CERTIFICATION OF PERIODIC REPORT
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
18 U.S.C. Section 1350
The undersigned executive officers of ForeverGreen Worldwide Corp. certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
•
the annual report on Form 10-K of the Company for the year ended December 31, 2011, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
•
the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 17, 2012 Date: May 17, 2012 | /s/ Ronald K. Williams Ronald K. Williams Chief Executive Officer /s/ Paul T. Frampton Paul T. Frampton Chief Financial Officer |
PROPERTY AND EQUIPMENT
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2011
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PROPERTY AND EQUIPMENT [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT |
NOTE 2 - PROPERTY AND EQUIPMENT
The Company capitalizes the purchase of equipment and fixtures for major purchases in excess of $1,000 per item. Property and equipment consists of the following at December 31, 2011 and 2010:
Depreciation expense for the years ended December 31, 2011 and 2010 were $121,459 and $233,499 respectively. |