Notes to Financial Statements
December 31, 2013 and 2012
NOTE 1
–
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
Active Health Foods, Inc. (
“
the Company
”
) was incorporated on January 9, 2008, as a California corporation to develop and market health foods and nutritional supplements.
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.
Reclassification
Certain balances in previously issued financial statements have been reclassified to be consistent with the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of financial statement presentation, the Company considers all highly liquid investments with a maturity of three months or less, from the date of purchase, to be cash equivalents.
Concentrations of Risk
The Company
’
s bank accounts are held in insured institutions. The funds are insured up to $250,000 USD. AtDecember 31, 2013 and 2012, the Company
’
s bank deposits did not exceed the insured amounts.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Specific reserves are estimated by management based on certain assumptions and variables, including the customer
’
s financial condition, age of the customer
’
s receivables, and changes in payment histories. As ofDecember 31, 2013 and 2012, an allowance for doubtful receivables $-0- and $-0-, respectively, was considered necessary. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.
Inventory
In accordance with ASC 330, the Company
’
s inventories are recorded at the lower of cost or market. The Company had inventory totaling $41,555 and $20,546 as ofDecember 31, 2013 and 2012. As of December 31, 2013 the Company
’
s inventory consisted of raw materials, packaging materials, and finished goods. During the year ended December 31, 2013 and 2012 the Company wrote off $-0- and $101,344 of inventory which was recorded as other expense.
24
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 1
–
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2013
|
|
2012
|
Raw materials
|
$
|
11,901
|
$
|
$
|
10,949
|
Finished goods
|
|
29,654
|
|
|
9,597
|
Allowance for obsolete inventory
|
|
-
|
|
|
-
|
Total
|
$
|
41,555
|
$
|
$
|
20,546
|
Cost of Sales
The Company
’
s Cost of sales includes product costs and shipping and handling costs.
Impairment of Long-Lived Assets
Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses an estimate of undiscounted future net cash flows of the assets over the remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the expected future cash flows of the assets, the Company recognizes an impairment loss equal to the difference between the carrying values of the assets and their estimated fair values. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets. The evaluation of long-lived assets requires the Company to use estimates of future cash flows. However, actual cash flows may differ from the estimated future cash flows used in these impairment tests. During the years ended December 31, 2013 and 2012, the Company recorded no impairment of its assets.
Revenue Recognition
The Company
’
s revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company recognizes revenue net of an allowance for estimated returns, at the time the merchandise is sold or services performed. The allowance for sales returns is estimated based on the Company
’
s historical experience. Sales taxes are presented on a net basis (excluded from revenues and costs). Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. The Company incurred advertising costs of $12,522 and $28,399 during the years ended December 31, 2013 and 2012, respectively.
Provision for Taxes
The Company applies ASC 740, which requires the asset and liability method of accounting for income taxes. The asset and liability method requires that the current or deferred tax consequences of all events recognized in the financial statements are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered.
25
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 1
–
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company adopted ASC 740, at the beginning of fiscal year 2008. This interpretation requires recognition and measurement of uncertain tax positions using a
“
more-likely-than-not
”
approach, requiring the recognition and measurement of uncertain tax positions. The adoption of ASC 740 had no material impact on the Company
’
s financial statements.
Stock-Based Compensation
The Company follows the provisions of ASC 718 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock-based compensation.
Equity instruments issued to non-employees for goods or services are accounted at fair value when the service is complete or a performance commitment date is reached, whichever is earlier.
Basic Loss Per Share
The computations of basic loss per share of common stock are based on the weighted average number of shares outstanding at the date of the financial statements. The Company computes net income (loss) per share in accordance with ASC 260. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The Company had no common stock equivalents outstanding as of December 31, 2013 and 2012.
Recently Issued Accounting Pronouncements
Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company
’
s management believes that these recent pronouncements will not have a material effect on the Company
’
s financial statements.
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.
26
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 1
–
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
During 2013, 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 2013, 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.
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 December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring Fair Value Measures
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
Derivative liabilities, December 31, 2013
|
|
$
|
-
|
|
$
|
--
|
$
|
109,996
|
$
|
109,996
|
|
27
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 1
–
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2013:
|
|
|
Ending balance as of December 31, 2012
|
$
|
34,106
|
Reclassification of derivative liabilities to additional paid-in capital due to conversion of related notes payable
|
|
(482,284)
|
Additions due to new convertible debt and warrants issued
|
|
444,966
|
Change in fair value
|
|
113,208
|
Ending balance as of December 31, 2013
|
$
|
109,996
|
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 $0.0006 - $0.03, exercise price of $0.0003 - $0.0151, dividend yield of zero, years to maturity of 0.00001
–
1, risk free rate of 0.04
–
0.13 percent, and annualized volatility of 269.137
–
898.42 percent.
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. These factors raise substantial doubt about the Company's ability to continue as a going concern.
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 PAYABLES
As of December 31, 2013 and 2012, respectively, the Company had borrowed a net total of $200,816 and $241,817 from an officer of the Company to finance the ongoing operations of the Company. These payables are non-interest bearing, unsecured, and are due on demand.
28
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 4- NOTES PAYABLE
On January 17, 2008 the Company entered into an asset purchase agreement to acquire certain trade secrets and trademarks. The Company paid $5,000 cash; issued 100,000 shares of common stock valued at $100 and assumed $59,492 of net liabilities in exchange for formulas and trade secrets.
The $59,492 of net liabilities are comprised of a $10,000 note, which was repaid shortly after the acquisition, and two $45,000 notes that are payable in equal monthly installments in the amount of five hundred dollars ($500) for ninety (90) months continuing through September, 2015. In the event the Company were to become delinquent on payments, the notes would become payable on demand. The notes do not accrue interest and have no prepayment penalty. Since the notes do not accrue interest, the Company has computed an imputed interest on the notes and recorded a corresponding discount. The interest rate used to calculate the imputed interest is eight percent (8%).
During 2008, the Company was delinquent in its payments of these two notes, which accelerated the recognition of the discount into interest expense. During the year ended December 31, 2013 the entire remaining outstanding balance of the notes of $77,000 was transferred to convertible 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 $2,000 dollars of interest.
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.
As of December 31, 2013 and, 2012, the notes payable balance totaled $9,500 and $77,000, respectively.
NOTE 5
–
CONVERTIBLE NOTES PAYABLE
$37,500 Convertible Note
- On June 26, 2012 the Company borrowed $37,500 from an unrelated third party entity in the form of a convertible note, $35,000 of which was received in cash and $2,500 of which was for legal fees. The note bears interest at a rate of 8.0 percent per annum, with principal and interest due in full on March 27, 2013.
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 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 $37,500 on the date the note became convertible. As of December 31, 2013 the Company had amortized $37,500 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 the entire remaining balance of the note totaling $25,500 plus accrued interest of $1,500 was converted into 53,472 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and 2012 totaled $-0- and $25,500 respectively.
29
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 5
–
CONVERTIBLE NOTES PAYABLE
(Continued)
$53,000 Convertible Note
- On August 7, 2012 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 for lawyer fees. The note bears interest at a rate of 8 percent per annum, with principal and interest due in full on May 9, 2013.
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 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 $53,000 on the date the note became convertible. As of December 31, 2013 the Company had amortized $53,000 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 the entire outstanding balance of the note totaling $53,000 plus accrued interest of $2,120 was converted into 87,788 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and 2012 totaled $-0- and $53,000 respectively.
$50,000 Convertible Note
- On August 10, 2012 the Company borrowed $50,000 from an unrelated third party entity in the form of a convertible note, $48,500 of which was received in cash and $1,500 of which was for lawyer fees. The note bears interest at a rate of 8 percent per annum, with principal and interest due in full on May 1, 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 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.
Pursuant to this conversion feature, the Company recognized a discount on convertible debt in the amount of $50,000 on the date the note became convertible. As of December 31, 2013 the Company had amortized $50,000 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 the entire outstanding balance of the note totaling $50,000 plus accrued interest of $2,129 was converted into 140,901 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and December 31, 2012 totaled $-0- and $50,000 respectively.
$37,500 Convertible Note
- On October 3, 2012 the Company borrowed $37,500 from an unrelated third party entity in the form of a convertible note, $35,000 of which was received in cash and $2,500 of which was for legal fees. The note bears interest at a rate of 8.0 percent per annum, with principal and interest due in full on July 5, 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.
30
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 5
–
CONVERTIBLE NOTES PAYABLE
(Continued)
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. As of December 31, 2013 the Company had amortized $34,106 of the debt discount to interest expense, leaving $0 in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 $37,500 of principal and $1,500 in interest was converted into 1,082,500 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and 2012 totaled $-0- and $37,500, respectively.
$32,500 Convertible Note
-
On November 1, 2012 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 for legal fees. The note bears interest at a rate of 8.0 percent per annum, with principal and interest due in full on August 5, 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. As of December 31, 2013 the Company had amortized $32,500 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 $32,500 of principal and $1,300 in interest was converted into 3,032,413 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and 2012 totaled $-0- and $32,500 respectively.
$32,500 Convertible Note
-
On January 8, 2013 the Company borrowed $32,500 from an unrelated third party entity in the form of a convertible note, $32,500 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 September 9, 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. As of December 31, 2013 the Company had amortized $32,500 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 $32,500 of principal and $2,670 in interest was converted into 3,889,631 shares of the Company
’
s
common stock. The outstanding balance of the note as of December 31, 2013 and 2012 totaled $-0- and $32,500 respectively.
$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
31
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 5
–
CONVERTIBLE NOTES PAYABLE
(Continued)
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. As of December 30, 2013 the Company had amortized $32,500 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 $24,400 of principal was converted into 3,696,970 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and 2012 totaled $8,100 and $32,500 respectively.
$37,500 Convertible Note
-
On June19, 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.
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. As of December 31, 2013 the Company had amortized $5,385 of the debt discount to interest expense, leaving $28,721 in unamortized debt discount at December 31, 2013. The outstanding balance of the note as of December 31, 2013 and 2012 totaled $37,500 and $-0- respectively.
$35,000 Convertible Note
-
On March 13, 2013 the Company borrowed $35,000 from an unrelated third party entity in the form of a convertible note, $-0- of which was received in cash and $35,000 of which was for paying off a $35,000 note payable. The note bears interest at a rate of 10.0 percent per annum, with principal and interest due on demand.
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 10 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 $35,000 on the note date. As of December 31, 2013 the Company had amortized $35,500 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 $35,000 of the outstanding balance was converted into 274,667 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and December 31, 2012 totaled $-0- and $-0- respectively.
$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.
32
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
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.
Pursuant to this conversion feature, the Company recognized a discount on convertible debt in the amount of $25,000 on the note date. As of December 31, 2013 the Company had amortized $24,096 of the debt discount to interest expense, leaving $904 in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 $
16,615
of the outstanding balance was converted into
2,562,833
shares of the Company
’
s common stock. The outstanding balance of the note as of December 3, 2013 totaled $14,930.
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.
$42,000 Convertible Note
-
On March 13, 2013 the Company borrowed $42,000 from an unrelated third party entity in the form of a convertible note, $-0- of which was received in cash and $42,000 of which was for paying off a $42,000 note payable. The note bears interest at a rate of 8.0 percent per annum, with principal and interest due March 15, 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 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.
Pursuant to this conversion feature, the Company recognized a discount on convertible debt in the amount of $42,000 on the note date. As of December 31, 2013 the Company had amortized $42,000 of the debt discount to interest expense, leaving $-0- in unamortized debt discount at December 31, 2013. During the year ended December 31, 2013 the Company converted $42,000 of the outstanding note balance into 269,656 shares of the Company
’
s common stock. The outstanding balance of the note as of December 31, 2013 and December 31, 2012 totaled $-0- and $-0- respectively.
$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. Pursuant to the purchase and assignment agreement 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
33
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 5
–
CONVERTIBLE NOTES PAYABLE
(Continued)
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).
$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.
NOTE 6- EQUITY TRANSACTIONS
The Company is authorized by its Certificate of Incorporation, as amended, to issue an aggregate of 5,000,000,000 shares of common stock, par value $0.001 per share (the
“
Common Stock
”
). As of December 31, 2013, there were 29,248,785 shares of Common Stock issued and outstanding.
The Company is authorized by its Certificate of Incorporation, as amended, to issue an aggregate of 100,000,000 shares of preferred stock, par value $0.001 per share (the
“
Preferred Stock
”
). As of December 31, 2013, there were no shares of Preferred Stock issued and outstanding.
During the year ended December 31, 2012 the Company issued 50,000,000 shares of preferred stock for services with a fair value of $50,000 which was recorded to compensation expense.
During the year ended December 31, 2012 the Company issued 5,000,000 shares of common stock for cash of $50,000.
During the year ended December 31, 2012 the Company issued 1,021,350,000 shares of common stock for services with a fair value of $4,825,870 which was recorded to compensation expense.
During the year ended December 31, 2012 the Company issued 28,000,000 shares of common stock for conversion of debt.
During the year ended December 31, 2012 the Company issued 35,000,000 shares of the Company
’
s common stock as a philanthropic gift at $.008 per share, for an aggregate total of $28,000.
During the year ended December 31, 2012, 1,124,742,000 shares of common stock were returned to the Company by the CEO and cancelled. These shares were originally issued for compensation and were returned to ensure the Company had sufficient authorized common shares to issue for transactions approved during 2012. There was no accounting impact from the return and cancellation of these common shares.
On January 22, 2013 the Company amended its Articles of Incorporation to increase the number of authorized common shares from 2,000,000,000 to 5,000,000,000.
On July 11, 2013, the Company declared a 1:1,000 reverse stock split of common stock.
34
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 6- EQUITY TRANSACTIONS (Continued)
During the year ended December 31, 2013, 50,000,000 shares of preferred stock and 18,000 shares of common stock were returned to the Company by the CEO and cancelled.
During the year ended December 31, 2013 the Company issued 15,090,831 shares of common stock for conversion of debt of $360,417.
During the year ended December 31, 2013 the Company issued 65,000 shares of common stock for cash of $9,000.
During the year ended December 31, 2013 the Company issued 40,996 shares of common stock in relation to the merger with Manos Beverage, Inc. At the time of the merger Manos Beverage, Inc. had no operations and no assets. The shares were valued at fair market value at $0.001 per share totaling $4,100.
During the year ended December, 31, 2013 the Company issued 13,340,000 shares of common stock for services. The shares were valued at fair market value of $696,760.
NOTE 7 - INCOME TAXES
No provision has been made in the financial statements for income taxes because the Company has accumulated losses from operations since inception. Any deferred tax benefit arising from the operating loss carried forward is offset entirely by a valuation allowance since it is currently not likely that the Company will be significantly profitable in the near future to take advantage of the losses. The income tax provision differs from the amount of income tax determined by applying the combined U.S. federal and state income tax rates of 42.8% to pretax income from continuing operations for the years ended December 31, 2013 and 2012 due to the following:
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2013
|
|
2012
|
Current taxes
|
$
|
(284,214)
|
|
$
|
(150,699)
|
Valuation allowance
|
|
284,214
|
|
|
150,699
|
Total provision for income taxes
|
$
|
-
|
|
$
|
-
|
The following table shows the components of the Company
’
s deferred tax assets.
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2013
|
|
2012
|
Deferred Tax Assets
|
|
|
|
|
Loss carryforwards (expire through 2032)
|
|
$ (2,636,227)
|
|
$ (1,972,176)
|
Stock compensation expense
|
|
-
|
|
-
|
Total gross deferred tax asset
|
|
2,636,227
|
|
1,972,176
|
Valuation allowance
|
|
(2,636,227)
|
|
(1,972,176)
|
Net deferred taxes
|
|
-
|
|
-
|
Deferred tax liabilities
|
|
-
|
|
-
|
Net deferred taxes
|
|
$ -
|
|
$ -
|
35
ACTIVE HEALTH FOODS, INC.
Notes to Financial Statements
December 31, 2013 and 2012
NOTE 7 - INCOME TAXES (Continued)
The Company
’
s net operating loss carry forwards of approximately $2,636,227 expire in various years through 2033. The Company has not evaluated the impact of Section 382, if any, on its ability to utilize its net operating loss carry forwards in future years.
The Company adopted the provisions of ASC 740 at the beginning of fiscal year 2008. As a result of this adoption, the Company has not made any adjustments to deferred tax assets or liabilities. The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company has not had operations resulting in net income and is carrying a large Net Operating Loss as disclosed above. Since it is not thought that this Net Operating Loss will ever produce a tax benefit, even if examined by taxing authorities and disallowed entirely, there would be no effect on the financial statements.
NOTE 8 - SUBSEQUENT EVENTS
Subsequent to December 31, 2013 the Company issued 10,561,154 shares of common stock for conversion of $72,077 of debt.
Subsequent to December 31, 2013 the Company issued 55,909,082 shares of common stock for services valued at fair market value of $344,545.
36