4
| | | | |
ForeverGreen Worldwide Corporation and Subsidiaries |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
| | March 31, 2015 | | March 31, 2014 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net income | $ | 335,378 | $ | 181,052 |
Adjustments to reconcile net income to net | | | | |
cash provided by (used in) operating activities: | | | | |
Depreciation and amortization | | 161,821 | | 69,918 |
Changes in operating assets and liabilities: | | | | |
Restricted cash | | 102,699 | | -- |
Accounts receivable | | (422,947) | | (702,631) |
Prepaid expenses | | (150,312) | | (403,088) |
Member advance | | (158,107) | | -- |
Deposits and other assets | | 727 | | (93,309) |
Inventory | | 46,499 | | 146,697 |
Accounts payable | | 1,180,034 | | 141,768 |
Deferred revenue | | 217,787 | | (214,571) |
Accrued expenses | | (1,127,223) | | 681,148 |
Net Cash Provided by (Used in) Operating Activities | | 186,356 | | (193,016) |
| | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
Cash paid for intangibles | | -- | | (325) |
Purchases of property and equipment | | (397,765) | | (305,898) |
Net Cash Used in Investing Activities | | (397,765) | | (306,223) |
| | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Proceeds from bank overdraft | | 86,353 | | 3,870 |
Payments on notes payable | | -- | | (92,886) |
Proceeds from common stock issuance | | -- | | 1,700,000 |
Net Cash Provided by Financing Activities | �� | 86,353 | | 1,610,984 |
Effect of Foreign Currency on Cash | | 19,381 | | 15,759 |
| | | | |
NET INCREASE (DECREASE) IN CASH | | (105,675) | | 1,127,504 |
| | | | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | | 580,522 | | 284,741 |
| | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 474,847 | $ | 1,412,245 |
| | | | |
SUPPLEMENTAL CASH FLOW INFORMATION | | | | |
Cash paid for interest | $ | 57,319 | $ | 74,858 |
Cash paid for income taxes | | | | |
| | | | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | |
Common stock issued for subscription receivable | $ | -- | $ | 300,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements |
5
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of and for the period ended March 31, 2015 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2014 audited financial statements as reported in its Form 10-K. The results of operations for the three-month period ended March 31, 2015 are not necessarily indicative of the operating results for the full year ended December 31, 2014.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared on the basis of accounting principles generally accepted in the United States of America.
Principles of Consolidation
The consolidated balance sheets and statement of operations at March 31, 2015 include the books of ForeverGreen Worldwide Corporation (Nevada) and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidation.
Foreign Currency Translation
The Company’s functional currency is recorded in various currencies, corresponding to the various foreign subsidiaries and its reporting currency is the United States dollar. Management has adopted ASC 830-20, “Foreign Currency Matters – Foreign Currency Transactions.” All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. For revenues and expenses, the weighted average exchange rate for the period is used. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in other comprehensive loss.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term nature of these financial instruments. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates which approximate current market rates.
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FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Such potentially dilutive shares are excluded when the effect would be anti-dilutive.
Revenue Recognition
Revenues and costs of revenues are recognized during the period in which the products are provided. The Company applies the provisions of FASB Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
The Company’s 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 members for a 30 day period and the consumer has the same return policy in effect against the member. All conditions of ASC 605-10 are met and the revenue is recorded upon sale, with an estimated allowance for returns where material.
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 March 31, 2015 and December 31, 2014, the reserve for obsolete inventory had balances in the amount of $40,000 and $40,000, respectively. This increase of allowance is due to receiving some defective inventory that the Company is trying to return to the vendor.
Accounts Receivable and Member Advances
Accounts receivable arise from doing business with third party distributor centers in various locations throughout South America and Korea. 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 March 31, 2015 or at December 31, 2014.
Members are required to pay for products prior to shipment. Members typically pay for products in cash, by wire transfer or by credit card. Accordingly, the Company seldom carries accounts receivable from members that are not distribution centers and any balances carried would be minimal. In order to increase business, the Company
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FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Accounts Receivable – continued
advanced $539,608 to new Members to assist them with building their businesses. No allowance has been recorded for uncollectable advances.
Valuation of Long-lived Assets
In accordance with ASC 360-10, the carrying values of the Company’s long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable. The Company records impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company’s assessment of events and circumstances indicated that an analysis for impairment of long-lived assets as of March 31, 2015 was not needed.
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 periods ended March 31, 2015 and 2014.
New Accounting Pronouncements
After evaluating the recent accounting pronouncements through the date of this filing, the Company has concluded that application of these pronouncements will have no material impact on the Company’s financial results.
NOTE 3 – DEBT
Notes payable as of March 31, 2015
| | | | | |
AMOUNT |
TYPE | CONVERSION RATE PER SHARE |
ORIGINATION DATE | INTEREST RATE |
DUE DATE |
$ 485,000 |
Related party |
NA |
12/9/2008 |
10% |
Due on demand |
$ 437,478 | Related party | NA | 7/31/2009 | 10% | 12/31/2015 |
$ 45,000 | Convertible, Related party | .15 | 10/7/2010 | 14% | 12/31/2015 |
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FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3 – DEBT - continued
Notes payable as of March 31, 2015 - continued
| | | | | | |
AMOUNT |
TYPE | CONVERSION RATE PER SHARE |
ORIGINATION DATE | INTEREST RATE |
DUE DATE |
$ 200,000 | Convertible, Related party | .20 | 1/19/2011 | 14% | 12/31/2015 |
$ 100,000 | Convertible, Non-related | .20 | 3/14/2011 | 14% | 12/31/2015 |
$ 231,756 | Convertible, Non-related | .20 | 3/9/2010 | 15% | 12/31/2015 |
$ 1,499,234 | Total | | | | |
On February 25, 2015, the Company signed a $1,000,000 line of credit promissory note with a non-related party with an 8% interest rate and a repayment date of December 31, 2015. The note holder has the option to convert the note into common stock at a conversion rate of $.70 per share. The draws on the line of credit as of March 31, 2015 totaled $0.
NOTE 4 - MEMBER ADVANCES
The Company has advanced amounts to three Members in the amount of $539,608. The first Member’s advance amount of $365,000 is due on demand and bears a 10% compound annual interest rate. The second Member’s advance amount of $168,608 bears an 8% compound annual interest rate is to be repaid in future commissions owing to the Member up through December 31, 2015 and starting in 2016 is to be repaid in $8,000 monthly payments or 9% of future commissions, whichever is greater. The remaining $6,000 represents amounts advanced to another member and is due on demand and bears no interest.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has evaluated commitments and contingencies from the balance sheet date through the date the financial statements were issued and has determined that there are no such commitments and contingencies that would have a material impact on the financial statements.
9
FOREVERGREEN WORLDWIDE CORPORATION
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 6 – INVENTORY
Inventories for March 31, 2015 and December 31, 2014 were classified as follows:
| | | | |
| | March 31, 2015 | | December 31, 2014 |
Raw Materials | $ | 1,188,062 | $ | 1,271,915 |
Finished Goods | | 764,927 | | 785,348 |
Total Inventory | | 1,952,989 | | 2,057,263 |
Less Reserve for Obsolete Inventory | | (40,000) | | (40,000) |
Total Inventory (net of reserve) | $ | 1,912,989 | $ | 2,017,263 |
NOTE 7 – NEW SUBSIDIARIES
During the three month period ended March 31, 2015, the Company has formed the following wholly-owned subsidiaries, Forevergreen Puerto Rico LLC, Forevergreen Dominicana S.R.L. These subsidiaries are wholly-owned by the Company.
NOTE 8 – SUBSEQUENT EVENTS
On February 25, 2015, the Company signed a $1,000,000 line of credit promissory note with a non-related party with an 8% interest rate and a repayment date of December 31, 2015. The note holder has the option to convert the note into common stock at a conversion rate of $.70 per share. The draws on the line of credit between April 22, 2015 and the date of this filing total $990,000.
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In this report references to “ForeverGreen,” “the Company,” “we,” “us,” and “our” refer to ForeverGreen Worldwide Corp. and its subsidiaries.
NOTE REGARDING FORWARD LOOKING STATEMENTS
The U.S. Securities and Exchange Commission (“SEC”) encourages reporting companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
ForeverGreen Worldwide is a holding company which operates through its wholly-owned subsidiaries ForeverGreen International, LLC, Productos Naturales Forevergreen Internacional en Mexico S.A. de C.V., FVGR Colombia S.A.S., 3-101-607360 S.A. (a Costa Rican corporation), ForeverGreen Chile SpA, Forevergreen (Aust & NZ) Pty, Ltd, ForeverGreen Singapore Pte Ltd, ForeverGreen Taiwan, ForeverGreen Japan (KK), ForeverGreen Peru SAC, ForeverGreen (HK) Limited (Hong Kong), ForeverGreen Marketing Corporation (Philippines), FG International LLP (India), Forevergreen Puerto Rico LLC and Forevergreen Dominicana S.R.L. (Dominican Republic).
We intend to continue our emphasis as a total lifestyle company focused on bringing our domestic and international Members and customers our exclusive FGXpress products, PowerStrips™ SolarStrips™ and BeautyStrips™ products. In addition through the Farmer’s Market we will continue to share our FrequenSea™, organic chocolates, weight management products, convenient whole foods, personal care products and essential oils to our Members and customers. In addition, our focus is to assist prospective Members in creating a home-based business with home business training, mentorship and accountability so that they can benefit from the residual income stream opportunities we offer. 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 innovative new products that are exclusive to our Members.
During the first quarter of 2015 the Company experienced exciting updates and international expansion that included:
Trackable shipping in North America. FGXpress orders were announced to be delivered in three to five days, including in Canada. With the ability to monitor FGXpress orders online in real time, Members will be able to operate their business with greater efficiency and communicate product arrivals to consumers. This will add to the bottom line by decreasing the number of lost and replacement shipments.
Rapid growth in Australia, New Zealand and Oceania. Triple-digit growth margins were announced with January sales exceeding the previous year by 240%. With advanced regional logistics and strong international leadership from the U.S. and Europe. Australia, New Zealand and Oceana are poised to become the Company’s strongest growth regions in 2015.
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New growth and leadership development in the Middle East and Africa. Company growth in these regions was up 280% in year-over-year sales. ForeverGreen is taking advantage of unprecedented opportunities in these markets. With improved logistical support and better access to leaders in management, we anticipate the region will have great growth margins in 2015.
Opening of our new European warehouse in Poland. The new warehouse is drastically improving the speed of shipments to countries throughout Europe, with deliveries within five days. With steady support from this regional warehouse and online tracking, ForeverGreen anticipates sales in Europe will continue to rise.
Expanded international U of YOU meetings in 5 different countries. The third pillar of ForeverGreen’s success is the personal development program authored by C.E.O. Ron Williams and represents the core business training to both staff and members throughout the world. ForeverGreen believes its Members are the best products and is emphasizing this message throughout the world with Ron Williams personally delivering the message through the inspirational and empowering U of YOU one-day experience.
Acquisition of strategic resources and relationships in Brazil. ForeverGreen can now with these new connections, utilize existing infrastructure and registrations for expanding its business throughout this market. Brazil has broken into the top five direct selling markets in the world and is now a $14 billion a year industry.
Hitting a key milestone of selling our 20 millionth PowerStrip. ForeverGreen’s is thrilled with the acceptance around the world of its top-selling product, PowerStrips. The recent certification in Europe (CE), along with upgrades the company has made in other markets bode well for the future.
The Company is currently negotiating a business relationship with a California based company specializing in a variety of innovative holistic and health products. These negotiations include developing a relationship which will create specialized products for the Company’s Versativa brand of products, and a strategic investment in the Company through a significant purchase of the Company’s restricted common stock. Our management believes that this relationship and the creation of these products will align the Company with the future of this industry and improve the Company’s worldwide sales.
Our major challenges for the next twelve months will be to respond to current economic conditions and to properly manage our systems and logistics centers around the world to support the demand for our products and business opportunity. Included in this challenge is the need to continue to meet a high standard of quality and customer service and maintain the highest levels of Member satisfaction.
Overcoming periodic economic downturns will require skilled personnel and responsive manufacturing and shipping facilities. Management intends to continue ongoing process improvement initiatives, especially in the areas of production and order fulfillment. These new operating efficiencies are targeted to address the current economic environment as well as prepare the Company for the upturn in demand as people continue to look for alternative income opportunities. We are actively positioning ForeverGreen to be the company that people can align with for the future as traditional employment options.
To keep pace with our market and product growth, we anticipate the need to expand our international logistics centers. The rewards of this strategy include increased sales performance and diversified market incomes. International expansion is very expensive and profitability in a given foreign country depends on key Members who can rapidly ramp up their business growth and volume in the target region.
Results of Operations
The following chart summarizes the consolidated statements of operations of ForeverGreen Worldwide and Subsidiaries for the quarter ending March 31, 2015 and 2014.
12
| | | | | |
| Three month period ended March 31, (Unaudited) |
SUMMARY OF OPERATING RESULTS | 2015 | % of Revenues | 2014 | % of Revenues |
Revenues, net | $ 17,198,940 | | $ 10,536,402 | |
Cost of sales | 4,193,201 | 24.3% | 2,559,005 | 24.2% |
Gross profit | 13,005,739 | 75.6% | 7,977,397 | 75.7% |
Selling and marketing expenses | 8,188,261 | 47.6% | 5,020,046 | 47.6% |
General and administrative expenses | 4,405,665 | 25.6% | 2,690,349 | 25.5% |
Total operating expenses | 12,593,926 | 73.2% | 7,710,395 | 73.1% |
Net operating income | 411,813 | 2.3% | 267,002 | 2.5% |
Total other expense | (76,435) | -0.4% | (85,950) | -0.8% |
Income tax provision | -- | 0.0% | -- | 0.0% |
Net income | 335,378 | 1.9% | 181,052 | 1.7% |
Net income per share (basic and diluted) | $ 0.01 | | $ 0.01 | |
The Company recognized product revenues of $16,115,618, and shipping and other revenues of $1,083,322, for the first quarter of 2015 compared to product revenues of $10,082,455, and shipping and other revenues of $453,947, for the same period of 2014.
The Company experienced a 63.2% increase in revenues for the 2015 first quarter over the 2014 first quarter. Our source of revenue is from the sale of various foods, other natural products, Member sign up fees, kits, freight and handling to deliver products to the Members and customers. This increase in revenues is directly related to the increased number of Members and their business. We recognize revenue upon shipment of a sales order.
Cost of sales consists primarily of the cost of procuring and packaging products, the cost of shipping product to our international subsidiaries, warehouses and to our Members, plus credit card sales processing fees. Cost of sales was approximately 24.3% of revenues for the first quarter of 2015 compared to 24.2 % of revenues for 2014.
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.
General and administrative expenses for the first quarter of 2015 were 25.6% of revenues compared to 25.5% for 2014. This slight increase is due to hiring more employees to support the growth of the company.
The total other expense for the first quarter of 2015 were down slightly at 0.4% compared to 0.8% for 2014. This decrease is directly attributable to the Company having two loans being converted to equity during 2014 which lowered the interest payments.
13
Liquidity and Capital Resources
| | | | |
SUMMARY OF BALANCE SHEET | | Three months ended March 31, 2015 | |
Year ended Dec. 31, 2014 |
| | (Unaudited) | | |
Cash and cash equivalents | $ | 474,847 | $ | 580,522 |
Total current assets | | 5,147,655 | | 4,743,432 |
Total assets | | 8,369,859 | | 7,709,633 |
Total current liabilities | | 8,442,538 | | 8,086,341 |
Total liabilities | | 8,442,538 | | 8,086,341 |
Accumulated deficit | | (33,883,530) | | (34,218,908) |
Total stockholders’ deficit | $ | (72,679) | $ | (376,708) |
Our total assets increased to $8,369,859 at March 31, 2015 compared to $7,709,633 at December 31, 2014. The increase is primarily due to increased accounts receivable of $422,080 and an increase of $271,261 in property plant and equipment as management continues to invest in long term assets. The increase in accounts receivable is due to the timing of credit card deposits in transit. March 31, 2015 ended on a Tuesday, and we record over half of our weekly sales on Tuesday. All of those sales were classified as account receivable.
Our total liabilities for the first quarter of 2015 were $8,442,538 compared to $8,086,341 at year end 2014. This increase is due to a $658,905 increase in accounts payable due to purchasing inventory to support increasing sales and support a larger volume of business. A decrease in accrued expenses of $600,855 is due to lower commissions payable At December 31, 2014 we had one and a half commission periods that were payable, at March 31, 2015 we only had one period that was not paid. Deferred revenue increased by $217,787, this was due to having logistics issues at the end of the quarter that prevented the shipment of product. As a result, the revenues for those orders were deferred. Our bank overdraft increased by $80,360, this again is due to the timing of when our commission checks were mailed out.
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 Obligations
The Company has an agreement with one vendor, Marine Life Sciences, LLC, that supplies 100% of a the marine phytoplankton included in several top selling products. If that vendor were to discontinue the supply of this ingredient, our sales could decrease significantly. There are other providers of that ingredient in the world; however, the Company considers this provider to have the very best quality, which is nutritionally superior to other sources of this ingredient, and has no intention of obtaining it from any other provider.
14
As of March 31, 2015 the Company has $1.5 million in debt with a due date of December 31, 2015. Management anticipates it will satisfy these notes payable through increased revenues or negotiation of new payment due dates.
Off-balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Critical Accounting Estimates
The Company records impairment of long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company did an annual analysis for the period ended March 31, 2015 and determined no adjustment to long-lived assets was needed.
The Company adjusts its inventories to lower of cost or market. Additionally we adjust the carrying value of our inventory based on assumptions regarding future demand for our products and market conditions. If future demand and market conditions are less favorable than management’s assumptions, additional inventory write-downs could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if previously written down inventories are sold.
In determining the allowance for doubtful accounts, the Company evaluates the collectability of its accounts receivable and member advances based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings), the Company records a specific allowance for doubtful accounts against amounts due to reduce the net recognized receivable to the amount it reasonably believe will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due. If circumstances change (e.g., unexpected material adverse changes in a major customer’s ability to meet its financial obligation to us or higher than expected customer defaults), the Company’s estimates of the recoverability of amounts could differ from the actual amounts recovered
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and concluded that our disclosure controls and procedures were effective.
Changes to Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
15
(as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has determined that there were no changes made in the implementation of our internal controls over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 6. EXHIBITS
Part I Exhibits
| |
No. | Description |
31.1 | Chief Executive Officer Certification |
31.2 | Chief Financial Officer Certification |
32 | Section 1350 Certification |
Part II Exhibits
