Active Health Foods, Inc. - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_______

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2014

 

OR

 

For the transition period from ___________________________ to ___________________________

Commission file number: 333-164788

ACTIVE HEALTH FOODS, INC.

(Exact Name of Registrant as Specified in Its Charter)

(951) 360-9970

(Registrant’s Telephone Number, Including Area Code)

TABLE OF CONTENTS

CERTIFICATIONS

         

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PART I

FINANCIAL INFORMATION

 

Item 1:  Financial Statements.

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.  It is suggested that the following financial statements be read in conjunction with the year-end financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results for the entire fiscal year or any other period.

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 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 nine months ended September 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 sufficient to meet its minimal operating expenses, seeking equity and/or debt financing and expanding into new business operations. 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 through acquisitions. 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 September 30, 2014 and December 31, 2013, respectively, the Company had borrowed a net total of $142,915 and $200,816 from a related party of the Company to finance the ongoing operations of the Company.  These amounts are non-interest bearing, unsecured, and are due on demand.

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

NOTE 4 – NOTES PAYABLE

$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, $2,500 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 nine months ended September 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 in a prior quarter.

The principal balance due on the note at September 30, 2014 was $7,750.

$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 nine months ended September 30, 2014 $5,000 of the outstanding balance of the note was converted into 24,326,926 shares of the Company’s common stock. As of September 30, 2014 the Company has amortized $23,326 of the debt discount to interest expense, leaving $1,674 in unamortized debt discount at September 30, 2014. As of September 30, 2014 the outstanding balance of the note totaled $20,000.

$147,500 Convertible Note – On April 1, 2014 the Company entered into a Letter of Engagement with Anubis Capital Partners under which Anubis agreed to provide business consulting services to the Company, including equity and debt financing advice and consulting, for compensation equal to $12,500 per month plus a one time payment of $147,400, payable in the form of a convertible promissory note. $147,500.  The note matures one year after date of issue on April 1, 2014. The note bears interest at a rate of 10 percent per annum, with principal and interest due in full on April 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 of the lowest closing bid price for the Company common stock for the prior 20 consecutive trading days.  

 

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

NOTE 4 – NOTES PAYABLE (continued)

During the period ended September 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 nine months ended September 30, 2014, $52,000 of the total loan balance was converted into 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 September 30, 2014 the Company has amortized $11,315 of the debt discount to interest expense, leaving $136,185 in unamortized debt discount at September 30, 2014. As of September 30, 2014 the outstanding balance of the notes totaled $95,500.

$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.

 

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.  As of September 30, 2014 the outstanding balance of the notes totaled $32,500.

$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 September 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 September 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.

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

NOTE 4 – 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.  As of September 30, 2014 the outstanding balance of the notes totaled $32,500.

$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 September 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 September 30, 2014 totaled $25,000.

$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 September 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 September 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.

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

NOTE 4 – 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 September 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 September 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.  As of September 30, 2014 the outstanding balance of the notes totaled $53,000.

$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.

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 September 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 September 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 with an original principal amount due of $75,000, reflecting an original issue discount of $25,000. The note bears zero interest, with principal 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.

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

NOTE 4 – NOTES PAYABLE (continued)

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.  

$92,434 Convertible Note - On July 1, 2014, the Company issued a convertible note with an original principal amount due of $92,434, to convert an outstanding account payable balance due to a third party.. The note bears interest at 8 percent per annum,, with principal and interest due June 30, 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 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 at any time commencing 180 days after the date of issue. .  The current market price is defined as the lowest closing bid price for the Common Stock during the ten day period ending on the latest complete trading day prior to the conversion date.  

NOTE 5 – 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.

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

NOTE 5 – 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 September 30, 2014.

Recurring Fair Value Measures	Level 1				Level 2								Level 3						Total
LIABILITIES:
Derivative liabilities, September 30, 2014		$	--						$		--			$		589,721			$		589,721

The following table summarizes the changes in the derivative liabilities during the nine months ended September 30, 2014:

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

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		414,043
Ending balance as of September 30, 2014	$	589,721

The Company uses the Black-Scholes option pricing model to value the derivative liability and subsequent re-measurements.  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 6 – EQUITY TRANSACTIONS

During the three months ended September 30, 2014, the Company issued 668,745,056 shares of common stock as compensation for services rendered.  

During the three months ended September 30, 2014 the Company issued 1,199,215,388 shares of common stock for conversion of debt.

During the three months ended September 30, 2014 the Company issued 1,624,926,385 shares of common stock in partial satisfaction of the settlement agreement, as amended, with AGS Capital.

In September, 2014, the Company issued 1,000 shares of Series A Convertible Preferred stock in exchange for cancellation of $86,450 in accrued accounts payable. The Series A Convertible Preferred stock carries no preference as to dividends or liquidation distributions, carries a total vote as a class equal to 51 percent of the total vote of all classes of stock entitled to vote, and is redeemable after 3 years from the date of issue at $1.00 per share with the approval of a majority of the Series A shareholders.

As a result of these issuances, the Company had 4,881,571,233 common shares and 1,000 Series A Preferred shares outstanding at September 30, 2014.

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ACTIVE HEALTH FOODS, INC.

Notes to Unaudited Condensed Financial Statements

September 30, 2014 and, 2013

NOTE 7 – SIGNIFICANT EVENTS

On March 26, 2014, the Circuit Court in the Second Judicial District for Leon County, Florida entered an order approving a 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 at March 31, 2014.  The liabilities related to various legal, accounting, marketing, and other professional contracts for which services had been provided to the Company as of September 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.

On August 28, 2014 the Company amended the settlement agreement with the agreement of AGS Capital.  Pursuant to the amended agreement, both parties agree that all outstanding debts and claims have been fully paid under the Settlement Agreement, and that the Company will allow 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 is to be reserved for AGS.  Accordingly, the liability to AGS reflected on the financial records of the Company has been reduced to $614,000 as of that date and the reduction in liability in the amount of $316,376 is reported as a gain from disposition of debt . A total of 5,000,000,000 common shares have been reserved for future issuance under this Agreement.

During the quarter ended September 30, 2014 the Company issued an aggregate 1,624,926,385 shares of common stock in partial settlement of the outstanding debt, of which 232,455,772 shares were issued after September 3, 2014.  The shares of stock issued after September 3. 2014  had a conversion value of $11,623.  As of September 30, 2014, the remaining balance of the legal liability is $602,377

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 8 – 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.                                                               

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Item #2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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. Our principal business objective from inception has been providing competitively priced, premium quality, organic energy bars. We developed the brand name “Active X™” for our energy bars. The term “Active X™” was trademarked on May 6, 2008.  Our energy bars are made from a proprietary formula which uses natural and organic ingredients. Active X™ energy bars come in four flavors:

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►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 X™ energy bars and it is beleived they lack the nutritional value of an Active X™ 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 X™.

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.

Due to the competitive nature of the organic health food market generally and out limited success to date, we began exploring acquisition opportunities to acquire other operating businesses, and have agreed in principal to a merger with an operating company in the health and wellness market.  Details of the proposed merger and the operating results of the proposed merger partner will be reported as soon as a merger agreement has been negostiated and signed.

Employees

The Company does not presently have any full or part-time employees. The sole officer and director of the Company is providing time and services as necessary for the development of the Company.  The former CEO and founder continues to provide services on a consulting basis.

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

Three Months Ended September 30, 2014

Revenues for the three months ended September 30, 2014 were $22,589, compared to $13,454 for the three months ended September 30, 2013.  Gross profit was $(5,874) for the three months ended September 30, 2014, compared to $5,447 for the three months ended September 30, 2013.  

Operating expenses were $340,093 for the nine months ended September 30, 2014, as compared to $134,642 for the three months ended September 30, 2013.  

The Company has a net loss for the three month period ended September 30, 2014 of $79,923 as compared to $124,498 for the three month period ended September 30, 2013.

Nine Months Ended September 30, 2014

Revenues for the nine months ended September 30, 2014 were $29,273, compared to $38,611 for the nine months ended September 30, 2013.  Gross profit was $(5,892) for the nine months ended September 30, 2014, compared to $9,860 for the nine months ended September 30, 2013.  

Operating expenses were $3,726,518 for the nine months ended September 30, 2014, as compared to $589,338 for the nine months ended September 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.   

The Company has a net loss for the nine month period ended September 30, 2014 of $4,280,344as compared to $1,231,496 for the nine month period ended September 30, 2013.

Liquidity and Capital Resources

Liquidity

For the nine months ended September 30, 2014, we experienced a net loss of approximately $4,280,344.  On September 30, 2014, we had approximately $214 in cash compared to approximately $138 in cash at December 31, 2013.  Accounts receivable, net of allowances for doubtful accounts, totaled $21,889 at September 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 nine months ended September 30, 2014, we had negative cash flow from operations of $513,978.  For the nine months ended September 30, 2013, we had negative cash flow from operations of approximately $150,794. 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 nine month periods ending September 30, 2014 or September 30, 2013.

For the nine months ended September 30, 2014, we had positive cash flow from financing activities of $514,055.  For the nine months ended September 30, 2013, we had positive cash flow from financing activities of $146,440.  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 currently in place.  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.

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 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.

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.   Through August 31, 2014, the Company has issued 1,870,536,605 Settlement Shares to AGS, which settled approximately $499,329 in outstanding debt.  

On August 28, 2014 the Company amended the settlement agreement with the agreement of AGS Capital.  Pursuant to the amended agreement, both parties agree that all outstanding debts and claims have been fully paid under the Settlement Agreement described in Note 7, 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.

As of September 30, 2014, an additional 232,455,772 shares were issued to AGS which settled an additional $11,623 in debt, leaving a balance at September 30, 2014 of $602,377..

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 Form 10-K report for the y ear ended December 31, 2013, which are incorporated by reference..  However, all risk factors should be considered and consultation with appropriate legal and financial advisors is recommended.

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:  November 19, 2014	By:	/s/ E. Robert Gates
		E. Robert Gates
		Chief Executive Officer