ACTIVE HEALTH FOODS, INC.
Notes to Unaudited Condensed
Financial Statements
June 30, 2014 and December 31,
2013
NOTE 1 - CONDENSED
FINANCIAL STATEMENTS
The unaudited
interim financial statements included herein have been prepared by
Active Health Foods, Inc. (the “Company”) in accordance with
accounting principles generally accepted in the United States of
America and the rules of the Securities and Exchange Commission
(the “SEC”). Certain information and footnote disclosures required
under accounting principles generally accepted in the United States
of America have been condensed or omitted from the financial
statements pursuant to the rules and regulations of the Securities
and Exchange Commission. We suggest that these interim
financial statements be read in conjunction with the audited
financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2013, as
filed with the SEC. We believe that all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim
periods presented have been reflected herein and that the
disclosures made are adequate to make the information not
misleading. The results of operations for the three and six months
ended June 30, 2014 are not necessarily indicative of the results
to be expected for the full year or for any other period. Notes to
the financial statements which would substantially duplicate the
disclosure contained in the audited financial statements for the
most recent fiscal year as reported in Form 10-K have been
omitted.
NOTE 2 -
GOING CONCERN
The Company's
financial statements are prepared using generally accepted
accounting principles in the United States of America applicable to
a going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has not yet established an ongoing source of revenues
sufficient to cover its operating costs and allow it to continue as
a going concern. The ability of the Company to continue as a going
concern is dependent on the Company obtaining adequate capital to
fund operating losses until it becomes profitable. If the Company
is unable to obtain adequate capital, it could be forced to cease
operations.
In order to
continue as a going concern, the Company will need, among other
things, additional capital resources. Management's plan is to
obtain such resources for the Company by obtaining capital from
management and significant shareholders sufficient to meet its
minimal operating expenses and seeking equity and/or debt
financing. However management cannot provide any assurances that
the Company will be successful in accomplishing any of its
plans.
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 secure other sources of
financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
NOTE 3 –
RELATED PARTY TRANSACTIONS
As of June
30, 2014 and December 31, 2013, respectively, the Company had
borrowed a net total of $142,915 and $200,816 from an officer and
another related party of the Company to finance the ongoing
operations of the Company. These payables are
non-interest bearing, unsecured, and are due on demand.
NOTE 4 –
NOTES PAYABLE
On September
23, 2013 the company borrowed $8,000 in the form of a promissory
note. The note is due on October 4, 2014 along with $6,000 dollars
of interest. On June 17, 2014 the note and accrued interest
was assumed by AGS Capital pursuant to the settlement agreement
disclosed in Note 8.
During the
year ended December 31, 2013 the Company borrowed $1,500 in the
form of a promissory note. The note bears no interest and is due on
demand. On June 17, 2014 the note and accrued interest was assumed
by AGS Capital pursuant to the settlement agreement disclosed in
Note 8.
On March 4,
2014 the Company borrowed $25,000 in the form of a promissory note.
The note is due May 15, 2014 along with $15,000 of interest
and 10,000,000 restricted shares of common stock. In
anticipation of repayment, the Company issued the stock on March 6,
2014. An amount of $17,898 for the relative fair value of the
stock was recorded as debt discount and is to be amortized over the
life of the note. On March 17, 2014 the Company borrowed
another $20,000 in the form of a promissory note. The note is
due on May 15, 2014 along with $15,000 of interest and 5,000,000
restricted shares of common stock. An amount of $12,000 for the
relative fair value of the stock was record as debt discount and is
to be amortized over the life of the note. On May 27, 2014 the note
principal and accrued interest on both notes were paid through the
issuance of 120,000,000 shares of common stock. Upon conversion of
the loans the shares were recorded at fair value at the date of
conversion and the excess value of $290,511 was recorded as a loss
on extinguishment of debt.
On April 1,
2014 the Company borrowed $50,000 from an unrelated third party
entity. The note bears zero interest, and the principal was due
June 2, 2014.
On May 2,
2014, $25,000 of the note principal was assigned to a third party,
amended to include a beneficial conversion feature, and immediately
converted into 13,000,000 shares of common stock at a fixed price
of $0.00192. On May 22, 2014, the remaining $25,000 of the
note principal was assigned to a third party, amended to include a
beneficial conversion feature, and immediately converted into
30,000,000 shares of common stock at a fixed price of $0.00083.
As of June 30, 2014 the note had a principal balance of
$-0-.
During the
period ended June 30, 2014 the Company borrowed $49,500 from an
unrelated third party for legal services. The note bears no
interest and is due on demand. On June 27, 2014 $49,500 of
the note principal was assumed by AGS pursuant to the settlement
agreement disclosed in Note 8, leaving a principal balance of $00
as of June 30, 2014.
As of June
30, 2014 and December 31, 2013, the notes payable balance totaled
$0 and $9,500, respectively. The notes are due on demand.
NOTE 5 – CONVERTIBLE NOTES
PAYABLE
$25,000 Convertible
Note - On March 13, 2013 the Company borrowed
$25,000 from an unrelated third party entity in the form of a
convertible note, $23,500 of which was received in cash and $1,500
which was for legal fees. The note bears interest at a rate of
8.0 percent per annum, with principal and interest due March 15,
2014.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
(Continued)
The principal balance of the note along
with accrued interest is convertible at the option of the note
holder, into the Company's common stock at a price of 50 percent
below the current market price. The current market price
is defined as the average of the lowest three trading prices for
the Common Stock during the thirty day period on the latest
complete trading day prior to the conversion date.
On December 3, 2013 the notes principal
balance of $18,446 was purchased by and assigned to an unrelated
third party. The purchase price for the assigned portion of the
note was $20,996. Pursuant to the purchase and assignment agreement
a replacement note was issued on December 3, 2013. Pursuant to the
terms of the replacement note, the replacement note bears interest
at 6 percent per annum and is due on December 3, 2014. The
principal balance of the replacement note along with accrued
interest is convertible at the option of the note holder, into the
Company's common stock at a price of 55 percent below the current
market price. The current market price is defined as the
lowest closing bid price for the Common Stock during the five day
period on the latest complete trading day prior to the conversion
date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$25,000 on the note date. During the year ended December
31, 2013 $16,615 of the outstanding balance was converted into
1,562,833 shares of the Company’s common stock. During the six
months ended June 30, 2014, the remaining $8,385 outstanding
balance was converted into 2,345,524 shares of the Company’s common
stock. As of June 30, 2014 the Company had amortized $25,000
of the debt discount to interest expense, leaving $-0- in
unamortized debt discount. The outstanding balance of the note as
of June 30, 2014 totaled $-0-.
$32,500 Convertible
Note - On March 18, 2013 the Company borrowed
$32,500 from an unrelated third party entity in the form of a
convertible note, all of which was received in cash. The
note bears interest at a rate of 8.0 percent per annum, with
principal and interest due in full on December 12, 2013.
The principal balance of the note along
with accrued interest is convertible beginning 180 days from the
issuance date, at the option of the note holder, into the Company's
common stock at a price of 42 percent below the current market
price. The current market price is defined as the
average of the lowest three trading prices for the Common Stock
during the ten day period on the latest complete trading day prior
to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$32,500 on the date the note became convertible. During
the year ended December 31, 2013 $24,400 of the principal was
converted into 3,696,970 shares of the Company’s common stock.
During the six months ended June 30, 2014 the remaining $8,100 of
the principal as well as $1,300 of accrued interest was converted
into 1,740,741 shares of the Company’s common stock. As of
June 30, 2014 the Company had amortized $32,500 ($27,517 during the
six months ended June 30, 2014) of the debt discount to
interest expense, leaving $-0- in unamortized debt discount. The
outstanding balance of the note as of June 30, 2014 totaled
$-0-.
$37,500 Convertible
Note - On June 19, 2013 the Company borrowed
$37,500 from an unrelated third party entity in the form of a
convertible note, all of which was received in cash. The
note bears interest at a rate of 8.0 percent per annum, with
principal and interest due in full on March 21, 2014.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
(Continued)
The principal balance of the note along
with accrued interest is convertible beginning 180 days from the
issuance date, at the option of the note holder, into the Company's
common stock at a price of 42 percent below the current market
price. The current market price is defined as the
average of the lowest three trading prices for the Common Stock
during the ten day period on the latest complete trading day prior
to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$34,106 on the date the note became convertible. During
the six months ended June 30, 2014 the outstanding balance of the
note and $1,500 in interest was converted into 9,132,150 shares of
the Company’s common stock. As of June 30, 2014 the Company
had amortized $34,106 ($26,659 during the six months ended June 30,
2014) of the debt discount to interest expense, leaving $-0- in
unamortized debt discount at June 30, 2014. The outstanding balance
of the note as of June 30, 2014 totaled $-0-.
$25,000 Convertible
Note – On July 16, 2013 the Company borrowed
$25,000 from an unrelated third party entity in the form of a
convertible note. The note matures one year after date of issue.
The note bears no interest and is convertible into shares of the
Company’s common stock when it reaches maturity.
On December 30, 2013 the notes principal
balance of $25,000 was purchased by and assigned to an unrelated
third party. The purchase price for the assigned portion of the
note was $25,000 and a replacement note was issued on December 30,
2013. Pursuant to the terms of the replacement note, the
replacement note bears interest at 8 percent per annum and is due
on December 30, 2014. The principal balance of the
replacement note along with accrued interest is convertible at the
option of the note holder, into the Company's common stock at a
price of 50 percent of the lowest daily VWAP of the common stock
for the twenty prior trading days including the day upon which a
notice of conversion is received by the Company (provided such
notice of conversion is delivered by fax or other electronic method
of communication to the Company after 4 P.M. Eastern Standard or
Daylight Savings Time if the Holder wishes to include the same day
closing price).
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$25,000 on the date the note became convertible. During
the six months ended June 30, 2014 the outstanding balance of the
note was fully converted into 7,772,557 shares of the Company’s
common stock. As of June 30, 2014 the Company had completely
amortized $25,000 of the debt discount to interest expense, leaving
$-0- in unamortized debt discount at June 30, 2014. The outstanding
balance of the note as of June 30, 2014 totaled $-0-.
$25,000 Convertible
Note - On December 3, 2013 the Company borrowed
$25,000 from an unrelated third party entity in the form of a
convertible note, $25,000 of which was for professional fees. The
note bears interest at a rate of 6.0 percent per annum, with
principal and interest due December 3, 2014.
The principal balance of the note along
with accrued interest is convertible after 180 days, at the option
of the note holder, into the Company's common stock at a price of
65 percent below the current market price. The current
market price is defined as the lowest closing bid price for the
Common Stock during the five day period on the latest complete
trading day prior to the conversion date.
During the six months ended June 30,
2014 $17,250 of the outstanding balance of the note was converted
into 6,272,727 shares of the Company’s common stock. The
Company allowed a onetime conversion prior to the 180 days;
therefore, the conversion was fair valued on the date of
conversion. The excess expense was recorded as a loss on
extinguishment in the amount of $105,695.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
(Continued)
$25,000 Convertible
Note - On December 3, 2013 the Company
borrowed $25,000 from an unrelated third party entity in the form
of a convertible note, $25,000 of which was for professional fees.
The note bears interest at a rate of 6.0 percent per annum, with
principal and interest due December 3, 2014.
The principal balance of the note along
with accrued interest is convertible after 180 days, at the option
of the note holder, into the Company's common stock at a price of
65 percent below the current market price. The current
market price is defined as the lowest closing bid price for the
Common Stock during the five day period on the latest complete
trading day prior to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$25,000 on the date the note became convertible. During
the six months ended June 30, 2014 $5,500 of the outstanding
balance of the note was converted into 24,326,926 shares of the
Company’s common stock. As of June 30, 2014 the Company has
amortized $23,326 of the debt discount to interest expense, leaving
$1,674 in unamortized debt discount at June 30, 2014. As of June
30, 2014 the outstanding balance of the note totaled
$19,500.
$147,500 Convertible
Note – On January 1, 2014 the Company
borrowed $147,500 from an unrelated third party entity in the form
of a convertible note. The note matures one year after date of
issue. The note bears no interest and is convertible into shares of
the Company’s common stock when it reaches maturity.
The note bears interest at a
rate of 8.0 percent per annum, with principal and interest due in
full on January 1, 2015.
The principal balance of the note along
with accrued interest is convertible beginning from the issuance
date, at the option of the note holder, into the Company's common
stock at a price of 50 percent below the current market
price. The current market price is defined as the
average of the lowest trading price for the Common Stock during the
twenty day period on the latest complete trading day prior to the
conversion date.
During the period ended June 30, 2014
the note principal and accrued interest were assigned to three
unrelated third parties. The first party assumed $65,000 of
the note principal the second party assumed $32,500 of the
principal and $5,043 of accrued interest and the third party
assumed $50,000 of the principle. During the six months ended June
30, 2014, $1,000 of the $50,000 loan balance was converted into
25,000,000 shares of the Company’s common stock.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$147,500 on the date the note became convertible. As of
June 30, 2014 the Company has amortized $11,315 of the debt
discount to interest expense, leaving $136,185 in unamortized debt
discount at June 30, 2014. As of June 30, 2014 the outstanding
balance of the notes totaled $151,543.
$32,500
Convertible Note - On April 10, 2014 the Company
borrowed $32,500 from an unrelated third party entity in the form
of a convertible note, $2,500 of which was paid for legal fees. The
note bears interest at a rate of 8.0 percent per annum, with
principal and interest due January 14, 2015.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
(Continued)
The principal
balance of the note along with accrued interest is convertible
after 180 days, at the option of the note holder, into the
Company's common stock at a price of 58 percent of the current
market price. The current market price is defined as the
average of the three lowest closing bid prices for the Common Stock
during the ten day period ending on the latest complete trading day
prior to the conversion date.
$17,800 Convertible
Note - On May 2, 2014 the Company
borrowed $17,800 from an unrelated third party entity in the form
of a convertible note, $15,000 of which was received in cash, and
$2,800 of which was paid for legal fees. The note bears interest at
a rate of 8.0 percent per annum, with principal and interest due
October 30, 2015.
The principal balance of the note along
with accrued interest is convertible at the option of the note
holder, into the Company's common stock at a price of 50 percent of
the current market price. The current market price is
defined as the lowest closing bid price for the Common Stock during
the fifteen day period ending on the latest complete trading day
prior to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$17,800 on the date the note became convertible. As of
June 30, 2014 the Company had amortized $9,172 of the debt discount
to interest expense, leaving $8,628 in unamortized debt discount.
The outstanding balance of the note as of June 30, 2014 totaled
$17,800.
$32,500 Convertible
Note - On May 28, 2014 the Company
borrowed $32,500 from an unrelated third party entity in the form
of a convertible note, $30,000 of which was received in cash, and
$2,500 of which was paid for legal fees. The note bears interest at
a rate of 8.0 percent per annum, with principal and interest due
March 2, 2015.
The principal balance of the note along
with accrued interest is convertible after 180 days, at the option
of the note holder, into the Company's common stock at a price of
58 percent of the current market price. The current
market price is defined as the average of the three lowest closing
bid prices for the Common Stock during the ten day period ending on
the latest complete trading day prior to the conversion
date.
$25,000 Convertible
Note - On June 2, 2014 the Company
borrowed $25,000 from an unrelated third party entity in the form
of a convertible note, $20,000 of which was received in cash,
$2,500 of which was paid for legal fees, and $2,500 of which was
paid for miscellaneous expenses. The note bears interest at a rate
of 8.0 percent per annum, with principal and interest due June 2,
2015.
The principal balance of the note along
with accrued interest is convertible at the option of the note
holder, into the Company's common stock at a price of 50 percent of
the current market price. The current market price is
defined as the lowest closing bid price for the Common Stock during
the twenty day period ending on the latest complete trading day
prior to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$25,000 on the date the note became convertible. As of
June 30, 2014 the Company had amortized $1,918 of the debt discount
to interest expense, leaving $23,082 in unamortized debt discount.
The outstanding balance of the note as of June 30, 2014 totaled
$25,000.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
(Continued)
$27,000 Convertible
Note - On June 2, 2014 the Company
borrowed $27,000 from an unrelated third party entity in the form
of a convertible note, $22,500 of which was received in cash,
$2,000 of which was paid for legal fees, and $2,500 of which was
paid for miscellaneous expenses. The note bears interest at a rate
of 8.0 percent per annum, with principal and interest due June 2,
2015.
The principal balance of the note along
with accrued interest is convertible at the option of the note
holder, into the Company's common stock at a price of 50 percent of
the current market price. The current market price is
defined as the lowest closing bid price for the Common Stock during
the twenty day period ending on the latest complete trading day
prior to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$27,000 on the date the note became convertible. As of
June 30, 2014 the Company had amortized $2,071 of the debt discount
to interest expense, leaving $24,929 in unamortized debt discount.
The outstanding balance of the note as of June 30, 2014 totaled
$27,000.
$25,000 Convertible
Note - On June 6, 2014 the Company
borrowed $25,000 from an unrelated third party entity in the form
of a convertible note, $20,500 of which was received in cash,
$2,000 of which was paid for legal fees, and $2,500 of which was
paid for miscellaneous expenses. The note bears interest at a rate
of 8.0 percent per annum, with principal and interest due June 6,
2015.
The principal balance of the note along
with accrued interest is convertible at the option of the note
holder, into the Company's common stock at a price of 50 percent of
the current market price. The current market price is
defined as the lowest closing bid price for the Common Stock during
the twenty day period ending on the latest complete trading day
prior to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$25,000 on the date the note became convertible. As of
June 30, 2014 the Company had amortized $1,644 of the debt discount
to interest expense, leaving $23,356 in unamortized debt discount.
The outstanding balance of the note as of June 30, 2014 totaled
$25,000.
$53,000 Convertible
Note - On June 13, 2014 the Company
borrowed $53,000 from an unrelated third party entity in the form
of a convertible note, $50,000 of which was received in cash, and
$3,000 of which was paid for legal fees. The note bears interest at
a rate of 8.0 percent per annum, with principal and interest due
March 17, 2015.
The principal balance of the note along
with accrued interest is convertible after 180 days, at the option
of the note holder, into the Company's common stock at a price of
58 percent of the current market price. The current
market price is defined as the average of the three lowest closing
bid prices for the Common Stock during the ten day period ending on
the latest complete trading day prior to the conversion
date.
$25,000 Convertible
Note - On June 18, 2014 the Company
borrowed $25,000 from an unrelated third party entity in the form
of a convertible note, $21,000 of which was received in cash,
$1,500 of which was paid for legal fees, and $2,500 of which was
paid for miscellaneous expenses. The note bears interest at a rate
of 8.0 percent per annum, with principal and interest due June 18,
2015.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
(Continued)
The principal balance of the note along
with accrued interest is convertible at the option of the note
holder, into the Company's common stock at a price of 50 percent of
the current market price. The current market price is
defined as the lowest closing bid price for the Common Stock during
the twenty day period ending on the latest complete trading day
prior to the conversion date.
Pursuant to this conversion feature, the
Company recognized a discount on convertible debt in the amount of
$25,000 on the date the note became convertible. As of
June 30, 2014 the Company had amortized $822 of the debt discount
to interest expense, leaving $24,178 in unamortized debt discount.
The outstanding balance of the note as of June 30, 2014 totaled
$25,000.
$75,000 Convertible
Note - On June 18, 2014 the Company
borrowed $50,000 from an unrelated third party entity in the form
of a convertible note. The note bears zero interest, with principal
and interest due June 18, 2015. The face value of the note is
$75,000 and can be prepaid for that amount at any time prior to
September 25, 2014. After this date, the holder may refuse
any further payments and choose to convert the note when it matures
on December 25, 2014.
The principal balance of the note is
convertible after the maturity date at the option of the note
holder, into the Company's common stock at a price of 50 percent of
the current market price. The current market price is
defined as the lowest closing bid price for the Common Stock during
the twenty day period ending on the latest complete trading day
prior to the conversion date.
NOTE 6 – FAIR VALUE MEASUREMENTS AND
DERIVATIVE LIABILITY
The Company evaluates all of it
financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported as charges
or credits to income. For option-based derivative financial
instruments, the Company uses the Black-Scholes option-pricing
model to value the derivative instruments at inception and
subsequent valuation dates. The classification of derivative
instruments, including whether such instruments should be recorded
as liabilities or as equity, is re-assessed at the end of each
reporting period. Derivative instrument liabilities are classified
in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date.
Under ASC-815 the conversion options
embedded in the notes payable described in Note 6 require liability
classification because they do not contain an explicit limit to the
number of shares that could be issued upon settlement.
During 2014, certain notes payable were
converted resulting in settlement of the related derivative
liabilities. The Company re-measured the embedded conversion
options at fair value on the date of settlement and recorded these
amounts to additional paid-in capital.
During 2014, the Company issued
additional convertible notes. The conversion options and
warrants were classified as derivative liabilities at their fair
value on the date of issuance.
NOTE 6 – FAIR VALUE MEASUREMENTS AND
DERIVATIVE LIABILITY (Continued)
As defined in FASB ASC 820, fair value
is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company
utilized the market data of similar entities in its industry or
assumptions that market participants would use in pricing the asset
or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can
be readily observable, market corroborated, or generally
unobservable. The Company classifies fair value balances based on
the observability of those inputs. FASB ASC 820 establishes a fair
value hierarchy that prioritizes the inputs used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(level 1 measurement) and the lowest priority to unobservable
inputs (level 3 measurement).
The three levels of the fair value
hierarchy are as follows:
|
| |
|
Level 1 –
|
Quoted prices are available in active markets for
identical assets or liabilities as of the reporting date. Active
markets are those in which transactions for the asset or liability
occur in sufficient frequency and volume to provide pricing
information on an ongoing basis. Level 1 primarily consists of
financial instruments such as exchange-traded derivatives,
marketable securities and listed equities.
|
|
Level 2 -
|
Pricing inputs are other than quoted prices in
active markets included in level 1, which are either directly or
indirectly observable as of the reported date.
|
|
Level 3 –
|
Pricing inputs include significant inputs that are
generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in
management’s best estimate of fair value.
|
The
following table sets forth by level within the fair value hierarchy
the Company’s financial assets and liabilities that were accounted
for at fair value as of June 30, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Recurring Fair Value Measures
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
LIABILITIES:
|
|
|
|
|
|
Derivative liabilities, June 30,
2014
|
|
$
|
--
|
|
$
|
--
|
$
|
585,526
|
$
|
585,526
|
NOTE 6 – FAIR VALUE MEASUREMENTS AND
DERIVATIVE LIABILITY (Continued)
The following table
summarizes the changes in the derivative liabilities during the six
months ended June 30, 2014:
|
|
| |
|
|
|
|
|
Ending balance as of December 31, 2013
|
$
|
109,996
|
|
Reclassification of derivative liabilities to additional paid-in
capital due to conversion of notes payable
|
|
(305,818)
|
|
Additions due to new convertible debt and warrants issued
|
|
371,500
|
|
Change in fair value
|
|
409,848
|
|
Ending balance as of June 30, 2014
|
$
|
585,526
|
The Company uses the Black-Scholes
option pricing model to value the derivative liability and
subsequent remeasurements. Included in the model are the
following assumptions: stock price at valuation date of $0.006 -
$0.027, exercise price of $0.006 - $0.027, dividend yield of zero,
years to maturity of 0.15 – 0.98, risk free rate of
0.01 – 0.13 percent, and annualized volatility of 604 –
613 percent.
NOTE 7 –
EQUITY TRANSACTIONS
During the
six months ended June 30, 2014, the Company issued 517,188,630
shares of common stock as compensation for services rendered by
related parties. The services had a fair market value of
$1,263,779.
During the
six months ended June 30, 2014 the Company issued 717,656,072
shares of common stock for conversion of debt of $593,941.
During the
six months ended June 30, 2014 the Company issued 280,000,000
shares of common stock for $64,500, $50,000 of which was received
in cash, and $14,500 of which was recorded as stock subscription
receivable.
On March 6,
2014 the Company issued 15,000,000 shares of common stock in
connection with the issuance of $75,000 in loans due on May 15,
2014. The shares had a fair market value of $29,898.
NOTE 8 –
SIGNIFICANT EVENTS
On March 26,
2014, the Circuit Court in the Second Judicial District for Leon
County, Florida entered an order approving the Settlement Agreement
and Stipulation, and Request for Fairness Hearing of the parties
(the "Stipulation") in the matter of AGS Capital Group, LLC ("AGS")
v. Active Health Foods, Inc. (the "Company"). Under the terms of
the Stipulation, the Company agreed to issue to AGS, as settlement
of certain liabilities owed by the Company in the aggregate amount
of $1,429,705.70 (the "Claim Amount") and shares of common stock
(the "Settlement Shares"). AGS had purchased the liabilities
from the Company’s creditors (both affiliated and non-affiliated)
with a face amount of $1,429,705.70. The total amount of
liabilities, at March 31, 2014, is $1,429,705.70. The
liabilities relate to various legal, accounting, marketing, and
other professional contracts for which services had been provided
to the Company as of June 30, 2014.
Pursuant to
the Stipulation entered into by the parties, the Company agreed to
issue to ASC, in one or more tranches as necessary, that number of
shares of common stock sufficient to generate net proceeds equal to
the Claim Amount, as defined in the Stipulation. The parties
reasonably estimated that, should the Company issue Settlement
Shares sufficient to satisfy the entire Claim Amount, the fair
market value of such Settlement Shares and all other amounts to be
received by AGS would equal approximately $3,200,000.
Notwithstanding anything to the contrary in the Stipulation,
the number of shares beneficially owned by AGS shall not exceed
4.99% of the Company's outstanding common stock at any one
time.
In connection
with the issuance of the Settlement Shares, the Company may rely on
the exemption from registration provided by Section 3(a)(10) under
the Securities Act. During the period ended June 30, 2014 the
Company issued an aggregate 478,065,444 shares of common stock in
partial settlement of the outstanding debt. The shares of
stock issued had a market value of $366,206. As of June 30,
2014, the remaining balance of the legal liability is
$1,000,000.
On August 28,
2014 the Company amended the settlement agreement with AGS Capital.
Pursuant to the new agreement, both parties agree that all
outstanding debts and claims have been fully paid under the
Settlement Agreement described in Note 8, and that the Company will
allow for AGS to make a net profit equal to $614,000 starting from
the date of September 3, 2014 via the sale of free trading stock
which shall be reserved for AGS. If the Company fails to take
steps to ensure that AGS is allowed to make the net profit
mentioned in this section, the Company shall be subject to a fee of
$5,000 per day until it reserves a sufficient amount of free
trading stock. The Company agrees to deliver the stock in
tranches to ensure they do not beneficially own more than 4.99% of
all outstanding common stock. AGS will agree to provide trade
confirmations to the Company to evidence their net profit pursuant
to this agreement.
NOTE 9 –
SUBSEQUENT EVENTS
On July 1,
2014 the Company issued 25,000,000 shares of common stock to
convert $1,000 at a price of $0.00004 per share of the outstanding
principal of the $25,000 convertible note issued on June 2,
2014.
On July 1,
2014 the Company issued an aggregate of 5,878,710,676 shares of
common stock to six separate parties as payment for services.
On July 18,
2014, Gregory Manos resigned from his position with Active Health
Foods, Inc. as its Director, President, Secretary, Treasurer, and
Board Member. Mr. Manos’ decision to resign from his
position was not the result of any disagreement with the Company on
any matter relating to the Company’s operations, policies or
practices.
NOTE 9 –
SUBSEQUENT EVENTS
In accordance
with ASC 855-10 Company management reviewed all material events
through the date of this report and determined that there are no
material subsequent events to report.
Item #2: Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The following
discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and the
related notes, and the other financial information included in this
report.
Forward-Looking
Statements
The following discussion
and analysis should be read in conjunction with our financial
statements and related notes thereto included elsewhere in this
filing. Portions of this document that are not statements of
historical or current fact are forward-looking statements that
involve risk and uncertainties, such as statements of our plans,
objectives, expectations and intentions. Any cautionary
statements made herein should be read as applying to all related
forward-looking statements wherever they appear. From time to
time, we may publish forward-looking statements relative to such
matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. All statements other than
statements of historical fact included in this section or elsewhere
in this report are, or may be deemed to be, forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Important factors that could cause actual results to
differ materially from those discussed in such forward-looking
statements include, but are not limited to, the following: changes
in the economy or in specific customer industry sectors; changes in
customer procurement policies and practices; changes in product
manufacturer sales policies and practices; the availability of
product and labor; changes in operating expenses; the effect of
price increases or decreases; the variability and timing of
business opportunities including acquisitions, alliances, customer
agreements and supplier authorizations; our ability to realize the
anticipated benefits of acquisitions and other business strategies;
the incurrence of debt and contingent liabilities in connection
with acquisitions; changes in accounting policies and practices;
the effect of organizational changes within the Company; the
emergence of new competitors, including firms with greater
financial resources than ours; adverse federal, state and/or local
legislation and/or regulation; and the occurrence of extraordinary
events, including natural events such as earthquakes, fires and
floods, accidents and Acts of God. We undertake no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events,
or otherwise.
Forward-looking statements
involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially
different from those expressed or implied by such forward-looking
statements. Factors and risks that could affect our results
and achievements and cause them to materially differ from those
contained in the forward-looking statements include those
previously identified in prior SEC filings, as well as other
factors that we are currently unable to identify or quantify, but
that may exist in the future.
Readers are cautioned not
to place undue reliance on any forward-looking statements contained
herein, which reflect management’s opinions only as of the date
hereof. Except as required by law, we undertake no obligation
to revise or publicly release the results of any revision to any
forward-looking statements. You are advised, however, to
consult any additional disclosures we make in our reports to the
SEC. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements
contained in this Report.
Overview
Active Health Foods, Inc.
(“AHF” or the “Company”), was incorporated in the State of
California on January 9, 2008 under the same name.
Active Health Foods, Inc. is
a California corporation with a principal business objective of
providing competitively priced, premium quality, organic energy
bars. Active Health Foods, Inc. has developed the brand name
“Active XTM” for its
energy bars. The term “Active XTM” was trademarked by the
company on May 6, 2008. Active XTM energy bars are organic, moist
and flavorful.
Our energy bars are made from
a proprietary formula developed by and exclusive to Active Health
Foods, Inc. This proprietary blend only uses natural and organic
ingredients. Active XTM energy bars come in four
flavors:
9
►
Almond
Chocolate Delight
►
Peanut
Butter Chocolate Joy
►
Cashew
Berry Dream
►
Coconut
Cocoa Passion
Each energy bar is 1.8 net
ounces and comes wrapped in a distinctive, decorated full color
wrapping. Each flavor is packaged into a full color decorated
display box, which is specifically designed to be used as a counter
display for the retailer. Each uniquely designed display box holds
16 bars. There are eight display boxes to a case, for a total of
128 bars per case.
Competition
Currently, the organic and
health food industry is growing and the Company faces considerable
competition from other companies worldwide. This business is
replete with competition at all levels of geographic settings,
expertise and ethical variances. Our ability to remain competitive
is based on our ability to provide our customers with a broad range
of quality products, competitively priced, with superior customer
service. The prospective ability to develop cost effective products
that provide superior value is an integral component of our ability
to stay competitive. We believe that the breadth and quality of our
existing product line, the infrastructure in place to effectively
source our products and the skill and dedication of our management
will allow us to successfully compete in our chosen
marketplace.
No formal study has been
commissioned or initiated to analyze the competition that the
Company will or may face. The Company’s internal management
competitor analysis reveals that the health food industry is a
competitive business with competition coming from small locally
owned companies, major big box stores labeling generic brands with
their signature label, to the more popular selling organic bars
such as “Cliff” and “Luna”. None of these produce and sell 100%
organic and 100% natural food bars like Active XTM energy bars and as such they lack the
nutritional value of an Active XTM energy bar. All competitors’ bars are
dry, bland and contain fillers and paste, resulting in more of a
rice crispy type bar than a 100% organic and 100% natural moist and
flavorful bar such as Active XTM.
All of our major competitors
are generally better financed, have greater name recognition, an
established customer loyalty base and a broader range of markets
than we do presently. Our core philosophy of a 100% organic and
100% natural product, reliability of not only product quality but
delivery as well, along with a fair price, we believe will
distinguish our Company from the competition. Even with the
competitive nature of the business, there is an opportunity for the
Company to position itself for success by recognizing and catering
to an increasingly demanding consumer. If the Company is unable to
compete successfully against any of these competitors, then
revenues could be negatively impacted, which would adversely affect
the business, results of operations and financial condition of the
Company.
Employees
The Company does not
presently have any full or part-time employees. The sole officer
and director of the Company are providing time and services as
necessary for the development of the Company.
Active Health Foods, Inc. is
currently in the development stage. During this development
period, we plan to rely exclusively on the services of our sole
officer and director to establish business operations and perform
or supervise the minimal services required at this time. Our
operations are currently on a small scale and, it is believed,
manageable by the present management. The responsibilities are
mainly administrative at this time, as our operations are
minimal.
Recent
Developments
None
Results of
Operations
Six Months Ended June 30,
2014
10
Revenues for the six months
ended June 30, 2014 were $6,684, compared to $25,157 for the six
months ended June 30, 2013. The lack of revenues in 2014 can
be attributed to our change in operational structure.
Gross profit was $(18) for
the six months ended June 30, 2014, compared to $4,413 for the six
months ended June 30, 2013.
Operating expenses were $3,386,425 for the
six months ended June 30, 2014, as compared to $454,696 for the six
months ended June 30, 2013. The significant increase in
operating expenses incurred during the current period relates
primarily to a court order approving a Settlement Agreement whereby
the Company agreed to issue a third-party entity 1,011,718,715
shares of common stock as consideration for the third-party
purchasing Company debts totaling $1,429,706 ($1,156,576 of which
were debts incurred during the six months ended June 30, 2014, and
related to various consulting, legal, accounting, and professional
contracts under which services had been performed in full as of
June 30, 2014).
The Company has a net loss
for the six month period ended June 30, 2014 of $4,200,421 as
compared to $1,111,098 for the six month period ended June 30,
2013.
Liquidity and Capital
Resources
Liquidity
For the six months ended June
30, 2014, we experienced a net loss of approximately $4,200,421
compared to $1,111,098 for the six months ended June 30, 2013.
On June 30, 2014, we had approximately $1,631 in cash
compared to approximately $138 in cash at December 31, 2013.
Accounts receivable, net of allowances for doubtful accounts,
totaled $462 at June 30, 2014 compared to $39 at December 31,
2013.
Our liquidity and capital
resource planning is largely dependent on the generation of
operating cash flows, which is highly sensitive to changes in
demand in the market place, the general economic downturn and
our own lack of operating funding. Our principal liquidity
requirements are to finance current operations and fund future
expansion. Currently, our primary source of liquidity to meet
these needs is the cash generated by operations and the sale of our
equity.
Cash Flow
For the six months ended June
30, 2014, we had negative cash flow from operations of $328,606.
For the six months ended June 30, 2013, we had negative cash
flow from operations of approximately $136,078. This negative cash
flow is primarily due to the start-up nature of our business, the
general economic downturn and our lack of operating capital.
There were no investment
activities for either of the six month periods ending June 30, 2014
or June 30, 2013.
For the six months ended June
30, 2014, we had positive cash flow from financing activities of
$330,099. For the six months ended June 30, 2013, we had
positive cash flow from financing activities of $133,019.
This positive cash flow is primarily due to the issuance of
notes payable and convertible debt.
Capital Resources
Line of Credit
The Company does not have any
line of credit nor does it anticipate applying for any.
However, should the current financial condition of the
Company prove to be insufficient for the Company’s future
requirements, the Company is willing to attempt entry into the
capital markets to raise the necessary capital to meet its
needs.
Long Term Notes
The Company does not have any
long term notes and does not anticipate acquiring any.
11
Critical Accounting
Estimates and Recently Issued Accounting Standards
Please refer to the Notes to
the financial statements.
Inflation
In the opinion of management,
inflation will not have any material impact on the Company’s
financial condition and results of its operations.
Off-Balance Sheet
Arrangements
We do not have any off
balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that could reasonably be foreseen
as material to any investor in our securities.
Seasonality
Our operating results are
generally not materially affected by seasonality.
Other
Considerations
There are numerous factors
that impact or that can potentially impact our business and results
of our operations. Sources of these factors include general
economic and business conditions, federal, state and local
regulation of business activities, the level of demand for product
or services, the level and intensity of competition, the ability to
develop new services and products based on new or evolving
technology and the market’s acceptance of those new services or
products, our ability to timely and effectively manage periodic
product transitions, customer and geographic sales mix of any
particular period, and our ability to continue to improve our
infrastructure including personnel and systems to keep pace with
our anticipated growth.
Additional
Information
We file reports and other
materials with the Securities and Exchange Commission. These
documents may be inspected and copied at the Commission’s Public
Reference Room located at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file
electronically with the Commission.
Item #3: Quantitative and
Qualitative Disclosures about Market Risk
We do not hold any derivative
instruments and do not engage in any hedging activities.
Item #4: Controls and
Procedures
Disclosure controls and
procedures are controls and procedures that are designed to ensure
that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the
Securities and Exchange Commission’s rules, regulations and forms.
Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our
management, including our principal executive and financial
officers, as appropriate, to allow timely decisions regarding
required disclosure.
Evaluation of Controls and
Procedures
In accordance with Securities
Exchange Act of 1934, Rules 13a-15(e) and 15d-15(e), our management
is required to perform an evaluation under the supervision and with
the participation of the Company’s management, including the
12
Company’s principal executive
officer and principal financial officer, of the effectiveness of
the design and operation of the Company’s disclosure controls and
procedures as of the end of the period. Based on that
evaluation, our management concluded that our disclosure controls
and procedures were not effective in ensuring that the information
required to be filed or submitted under the Exchange Act is
accumulated and communicated to our management, as appropriate, to
allow timely decisions regarding required disclosure, recording,
processing, summarizing and reporting as specified in the
Securities and Exchange Commission’s rules and regulations.
Changes in Internal
Controls
There were no changes in
internal controls over financial reporting that occurred during the
period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
PART II
OTHER INFORMATION
Item #1: Legal
Proceedings
On March 26, 2014, the
Circuit Court in the Second Judicial District for Leon County,
Florida entered an order approving the Settlement Agreement and
Stipulation, and Request for Fairness Hearing of the parties (the
"Stipulation") in the matter of AGS Capital Group, LLC ("AGS") v.
Active Health Foods, Inc. (the "Company"). Under the terms of the
Stipulation, the Company agreed to issue to AGS, as settlement of
certain liabilities owed by the Company in the aggregate amount of
$1,429,705.70 (the "Claim Amount") and shares of common stock (the
"Settlement Shares"). AGS had purchased the liabilities from
the Company’s creditors (both affiliated and non-affiliated) with a
face amount of $1,429,705.70. The total amount of liabilities, at
June 30, 2014, is $1,000,000
Pursuant to the Stipulation
entered into by the parties, the Company agreed to issue to ASC, in
one or more tranches as necessary, that number of shares of common
stock sufficient to generate net proceeds equal to the Claim
Amount, as defined in the Stipulation. The parties reasonably
estimated that, should the Company issue Settlement Shares
sufficient to satisfy the entire Claim Amount, the fair market
value of such Settlement Shares and all other amounts to be
received by AGS would equal approximately $3,200,000.
Notwithstanding anything to the contrary in the Stipulation,
the number of shares beneficially owned by AGS shall not exceed
4.99% of the Company's outstanding common stock at any one
time.
In connection with the
issuance of the Settlement Shares, the Company may rely on the
exemption from registration provided by Section 3(a) (10) under the
Securities Act. To date, the Company has issued
478,065,444 Settlement Shares to AGS, which settled approximately
$429,705 in outstanding debt. As such, the aggregate total
Claim Amount of $1,000,000 remains outstanding and payable to AGS.
Based upon the reported closing trading price of the
Company’s common stock on June 30, 2014 of $0.001 per share, if all
$1,000,000 worth of liabilities were satisfied pursuant to the
Stipulation through the issuance of common stock, the Company
would issue a maximum of 1,000,000,000 shares.
On August 28,
2014 the Company amended the settlement agreement with AGS Capital.
Pursuant to the new agreement, both parties agree that all
outstanding debts and claims have been fully paid under the
Settlement Agreement described in Note 8, and that the Company will
allow for AGS to make a net profit equal to $614,000 starting from
the date of September 3, 2014 via the sale of free trading stock
which shall be reserved for AGS. If the Company fails to take
steps to ensure that AGS is allowed to make the net profit
mentioned in this section, the Company shall be subject to a fee of
$5,000 per day until it reserves a sufficient amount of free
trading stock. The Company agrees to deliver the stock in
tranches to ensure they do not beneficially own more than 4.99% of
all outstanding common stock. AGS will agree to provide trade
confirmations to the Company to evidence their net profit pursuant
to this agreement.
Aside from the case listed
above, we are not a party to any legal proceedings, there are no
known judgments against the Company, nor are there any known
actions or suits filed or threatened against us or our officers and
directors, in their capacities as such. We are not aware
of any disputes involving the Company and the Company has no known
claim, actions or inquiries from any federal, state or other
government agency. We are not aware of any claims
against the Company or any reputed claims against it at this
time.
Item #1A: Risk
Factors
Any investment in our
securities involves a high degree of risk. There have been no
material changes to the risk factors previously disclosed in our
public filings. However, all risk factors should be
considered and consultation with appropriate legal and financial
advisors is recommended.
When we become fully
reporting, these additional risk factors should be considered:
Our Common Stock Is
Subject to Penny Stock Regulation
Our shares are subject to the
provisions of Section 15(g) and Rule 15g-9 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets
forth certain requirements for transactions in penny stocks and
Rule 15g-9(d)(1) incorporates the definition of penny stock as that
used in Rule 3a51-1 of the Exchange Act. The Commission
generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to certain
exceptions. Rule 3a51-1 provides that any equity security is
considered to be penny stock unless that security is: registered
and traded on a national securities exchange meeting specified
criteria set by the Commission; authorized for quotation on the
NASDAQ Stock Market; issued by a registered investment company;
excluded from the definition on the basis of price (at least $5.00
per share) or the registrant's net tangible assets; or exempted
from the definition by the Commission. Since our shares are
deemed to be "penny stock", trading in the shares will be subject
to additional sales practice requirements on broker/dealers who
sell penny stock to persons other than established customers and
accredited investors.
FINRA Sales
Practice Requirements May Also Limit a Stockholder's Ability to Buy
and Sell Our Stock
In addition to the “penny
stock” rules described above, the Financial Industry Regulatory
Authority (FINRA) has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative low
priced securities to their non-institutional customers,
broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of
these rules, FINRA believes that there is a high probability that
speculative low priced securities will not be suitable for at least
some customers. FINRA requirements make it more difficult for
broker-dealers to
13
recommend that their
customers buy our common stock, which may limit your ability to buy
and sell our stock and have an adverse effect on the market for our
shares.
We May Not Have Access to
Sufficient Capital to Pursue Our Business and Therefore Would Be
Unable to Achieve Our Planned Future Growth
We intend to pursue a growth
strategy that includes development of the Company’s business and
technology assets. Currently we have limited capital
which is insufficient to pursue our plans for development and
growth. Our ability to implement our growth plans may
depend primarily on our ability to obtain additional private or
public equity or debt financing. We are currently
seeking additional capital. Such financing may not be
available at all, or we may be unable to locate and secure
additional capital on terms and conditions that are acceptable to
us. Our failure to obtain additional capital may have a
material adverse effect on our business.
If We Become Quoted on the
OTCBB Instead of an Exchange or National Quotation System, Our
Investors May Have a Tougher Time Selling Their Stock or Experience
Negative Volatility on the Market Price of Our Stock
We anticipate our common
stock will be traded on the OTCBB. The OTCBB is often highly
illiquid. There is a greater chance of volatility for
securities that trade on the OTCBB as compared to a national
exchange or quotation system. This volatility may be caused
by a variety of factors, including the lack of readily available
price quotations, the absence of consistent administrative
supervision of bid and ask quotations, lower trading volume, and
market conditions. Investors in our common stock may
experience high fluctuations in the market price and volume of the
trading market for our securities. These fluctuations, when
they occur, have a negative effect on the market price for our
securities. Accordingly, our stockholders may not be able to
realize a fair price from their shares when they determine to sell
them or may have to hold them for a substantial period of time
until the market for our common stock improves.
Failure to Achieve and
Maintain Effective Internal Controls in Accordance
with Section 404 of the Sarbanes-Oxley Act Could Have a
Material Adverse Effect on Our Business and Operating
Results
It may be time consuming,
difficult and costly for us to develop and implement the additional
internal controls, processes and reporting procedures required by
the Sarbanes-Oxley Act. We may need to hire additional
financial reporting, internal auditing and other finance staff in
order to develop and implement appropriate additional internal
controls, processes and reporting procedures. If we are unable to
comply with these requirements of the Sarbanes-Oxley Act, we may
not be able to obtain the independent accountant certifications
that the Sarbanes-Oxley Act requires of publicly traded
companies.
If we fail to comply in a
timely manner with the requirements of Section 404 of the
Sarbanes-Oxley Act regarding internal control over financial
reporting or to remedy any material weaknesses in our internal
controls that we may identify, such failure could result in
material misstatements in our financial statements, cause investors
to lose confidence in our reported financial information and have a
negative effect on the trading price of our common stock.
Pursuant to Section 404
of the Sarbanes-Oxley Act and current SEC regulations, we will be
required to prepare assessments regarding internal controls over
financial reporting and furnish a report by our management on our
internal control over financial reporting. We have begun the
process of documenting and testing our internal control procedures
in order to satisfy these requirements, which is likely to result
in increased general and administrative expenses and may shift
management time and attention from revenue-generating activities to
compliance activities. While our management is expending
significant resources in an effort to complete this important
project, there can be no assurance that we will be able to achieve
our objective on a timely basis. There also can be no
assurance that our auditors will be able to issue an unqualified
opinion on management’s assessment of the effectiveness of our
internal control over financial reporting. Failure to achieve
and maintain an effective internal control environment or complete
our Section 404 certifications could have a material adverse
effect on our stock price.
In addition, in connection
with our on-going assessment of the effectiveness of our internal
control over financial reporting, we may discover “material
weaknesses” in our internal controls as defined in standards
established by the
14
Public Company Accounting
Oversight Board, or the PCAOB. A material weakness is a
significant deficiency, or combination of significant deficiencies,
that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not
be prevented or detected. The PCAOB defines “significant
deficiency” as a deficiency that results in more than a remote
likelihood that a misstatement of the financial statements that is
more than inconsequential will not be prevented or
detected.
In the event that a material
weakness is identified, we will employ qualified personnel and
adopt and implement policies and procedures to address any material
weaknesses that we identify. However, the process of
designing and implementing effective internal controls is a
continuous effort that requires us to anticipate and react to
changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a
system of internal controls that is adequate to satisfy our
reporting obligations as a public company. We cannot assure
you that the measures we will take will remediate any material
weaknesses that we may identify or that we will implement and
maintain adequate controls over our financial process and reporting
in the future.
Any failure to complete our
assessment of our internal control over financial reporting, to
remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in
their implementation, could harm our operating results, cause us to
fail to meet our reporting obligations or result in material
misstatements in our financial statements. Any such failure could
also adversely affect the results of the periodic management
evaluations of our internal controls and, in the case of a failure
to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding
the effectiveness of our internal control over financial reporting
that are required under Section 404 of the Sarbanes-Oxley Act.
Inadequate internal controls could also cause investors to
lose confidence in our reported financial information, which could
have a negative effect on the trading price of our common
stock.
Operating History and Lack
of Profits Could Lead to Wide Fluctuations in Our Share Price.
The Price at Which You Purchase Our Common Shares May Not Be
Indicative of the Price That Will Prevail in The Trading Market.
You May Be Unable to Sell Your Common Shares at or above Your
Purchase Price, Which May Result in Substantial Losses to You.
The Market Price for Our Common Shares May Be Particularly
Volatile Given Our Status as a Relatively Unknown Company.
The market for our common
shares is characterized by significant price volatility when
compared to seasoned issuers, and we expect that our share price
will continue to be more volatile than a seasoned issuer for the
indefinite future. The volatility in our share price is
attributable to a number of factors. First, as noted above,
our common shares are sporadically and thinly traded. As a
consequence of this lack of liquidity, the trading of relatively
small quantities of shares by our shareholders may
disproportionately influence the price of those shares in either
direction. The price for our shares could, for example,
decline precipitously in the event that a large number of our
common shares are sold on the market without commensurate demand,
as compared to a seasoned issuer which could better absorb those
sales without adverse impact on its share price. Secondly, we
are a speculative or “risky” investment due to our limited
operating history and lack of profits to date, and uncertainty of
future market acceptance for our potential products. As a
consequence of this enhanced risk, more risk-adverse investors may,
under the fear of losing all or most of their investment in the
event of negative news or lack of progress, be more inclined to
sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned
issuer. Many of these factors are beyond our control and may
decrease the market price of our common shares, regardless of our
operating performance. We cannot make any predictions or
projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common
shares will sustain their current market prices, or as to what
effect that the sale of shares or the availability of common shares
for sale at any time will have on the prevailing market price.
Shareholders should be aware
that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud
and abuse. Such patterns include (1) control of the
market for the security by one or a few broker-dealers that are
often related to the promoter or issuer; (2) manipulation of
prices through prearranged matching of purchases and sales and
false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (4) excessive and
undisclosed bid-ask differential and markups by selling
broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses.
Our
15
management is aware of the
abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the
market, management will strive within the confines of practical
limitations to prevent the described patterns from being
established with respect to our securities. The occurrence of
these patterns or practices could increase the volatility of our
share price.
Volatility in Our Common
Share Price May Subject Us to Securities Litigation, Thereby
Diverting Our Resources That May Have a Material Effect on Our
Profitability and Results of Operations
As discussed in the preceding
risk factors, the market for our common shares is characterized by
significant price volatility when compared to seasoned issuers, and
we expect that our share price will continue to be more volatile
than a seasoned issuer for the indefinite future. In the
past, plaintiffs have often initiated securities class action
litigation against a company following periods of volatility in the
market price of its securities.
We may in the future be the
target of similar litigation. Securities litigation could
result in substantial costs and liabilities and could divert
management’s attention and resources.
Item #2: Unregistered Sale
of Equity Securities and Use of Proceeds
The Company has not engaged
in the sale of any unregistered securities.
Item #3: Defaults upon
Senior Securities
There were no defaults upon
senior securities of during this reporting period.
Item #4: Submission of
Matters to a Vote of Security Holders
No matters have been
submitted to a vote of the security holders.
Item #5: Other
Information
None
Item #6: Exhibits
|
|
| |
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification of Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act
|
|
|
|
|
|
32.1
|
|
Certification Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
|
|
|
| |
|
|
ACTIVE HEALTH FOODS,
INC.
|
|
|
|
|
|
|
|
Dated: September 18,
2014
|
By:
|
/s/ E. Robert Gates
|
|
|
|
|
E. Robert Gates
|
|
|
|
|
Chief Executive Officer
|
|
16
