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