C
ONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
Current assets
|
|
|
Cash
and cash equivalents
|
$
1,382
|
$
441,189
|
Inventory
|
-
|
80,142
|
Prepaid
expenses and other current assets
|
1,118
|
6,643
|
Total
current assets
|
2,500
|
527,974
|
|
|
|
Property
and equipment, net
|
9,297
|
14,210
|
Security
deposit
|
6,560
|
6,560
|
|
|
|
Total
assets
|
$
18,357
|
$
548,744
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
Current liabilities
|
|
|
Accounts
payable
|
$
276,316
|
$
300,237
|
Accrued
expenses and taxes
|
735,920
|
362,353
|
Secured convertible notes
payable
(net of $42,014 and
$756,837 discounts and debt issuance costs)
|
965,486
|
513,163
|
Derivative
liability
|
47,406
|
2,232,586
|
Due
to officers/stockholders
|
187,360
|
289,075
|
Total
current liabilities
|
2,212,488
|
3,697,414
|
|
|
|
Deferred
rent
|
3,264
|
6,729
|
|
|
|
Total
liabilities
|
2,215,752
|
3,704,143
|
|
|
|
Stockholders' deficit
|
|
|
Preferred
stock, par value $0.0001 per share, 150,000,000 shares
|
|
|
authorized. Issued and outstanding as of September 30, 2016 and
December 31, 2015 as follows:
|
|
|
Series
A Convertible Preferred stock, 40,000,000 shares
designated;
|
|
|
11,664
shares issued and outstanding at September 30, 2016 and December
31, 2015
|
2
|
2
|
Series
C Convertible Preferred stock, 26,666,667 shares
designated;
|
|
|
20,000
shares issued and outstanding at September 30, 2016 and December
31, 2015
|
2
|
2
|
Series
D Convertible Preferred stock, 3,000,000 shares designated; 3,000
issued and
|
|
|
outstanding
at September 30, 2016 and December 31, 2015
|
-
|
-
|
Common
stock, par value $0.0001, per share, 3,000,000,000
shares
|
|
|
authorized; 3,383,680 and 1,740,247 shares issued at September 30,
2016 and December 31, 2015
|
339
|
174
|
Additional
paid-in capital
|
16,369,933
|
16,163,348
|
Accumulated
deficit
|
(18,567,671
)
|
(19,318,925
)
|
Treasury
stock at cost; 4 shares
|
-
|
-
|
Total
stockholders' deficit
|
(2,197,395
)
|
(3,155,399
)
|
Total
liabilities and stockholders' deficit
|
$
18,357
|
$
548,744
|
BE ACTIVE HOLDINGS, INC.
C
ONSOLIDATED STATEMENTS OF
OPERATIONS
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
$
1,365
|
$
102,296
|
$
1,365
|
$
149,605
*
|
|
|
|
|
|
Cost of Goods
|
75,124
|
90,172
|
80,142
|
170,670
|
Gross
Profit (Loss)
|
(73,759
)
|
12,124
|
(78,777
)
|
(21,065
)
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
Selling
expenses
|
2,579
|
56,453
|
28,507
|
155,651
|
General
and administrative
|
193,796
|
214,225
|
630,786
|
729,708
|
(Decrease)
increase in fair value of derivative liability
|
(492,938
)
|
110,879
|
(2,062,198
)
|
(641,181
)
|
Gain
on settlement of secured convertible notes payable
|
(118,569
)
|
-
|
(208,732
)
|
-
|
Depreciation
and amortization expense
|
1,638
|
1,672
|
4,913
|
5,014
|
Total
operating expenses
|
(413,494
)
|
383,229
|
(1,606,724
)
|
249,192
|
|
|
|
|
|
Loss
from operations before other income (expenses)
|
339,735
|
(371,105
)
|
1,527,947
|
(270,257
)
|
|
|
|
|
|
Other Income (Expenses)
|
|
|
|
|
Forgiveness
of debt income
|
-
|
-
|
-
|
25,555
|
Amortization
of deferred financing costs and debt discount
|
(97,793
)
|
(289,507
)
|
(714,823
)
|
(961,903
)
|
Interest
(expense) income, net
|
(20,625
)
|
(686
)
|
(61,870
)
|
(22,929
)
|
Total
other income (expenses)
|
(118,418
)
|
(290,193
)
|
(776,693
)
|
(959,277
)
|
|
|
|
|
|
Net Income
(loss)
|
$
221,317
|
$
(661,298
)
|
$
751,254
|
$
(1,229,534
)
|
|
|
|
|
|
Gain
on extinguishment of Series B preferred stock
|
-
|
-
|
-
|
3,420,804
|
|
|
|
|
|
Net
(loss) income attributable to common stockholders
|
221,317
|
(661,298
)
|
751,254
|
2,191,270
|
|
|
|
|
|
Net
(loss) income per common share:
|
|
|
|
|
Basic
|
$
0.07
|
$
(1.35
)
|
$
0.27
|
$
4.76
|
Diluted
|
$
0.04
|
$
(1.35
)
|
$
0.19
|
$
1.61
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
|
|
Basic
|
3,174,437
|
491,604
|
2,781,313
|
460,179
|
Diluted
|
8,257,102
|
2,005,260
|
7,863,978
|
1,973,835
|
|
|
|
|
|
|
|
|
|
|
*
Inclusive of charges for slotting fees (Note 12)
|
|
|
|
|
**
Not applicable
|
|
|
|
|
BE ACTIVE HOLDINGS, INC.
C
ONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
1,740,247
|
$
174
|
11,664
|
$
2
|
20,000
|
$
2
|
3,000
|
$
-
|
16,163,348
|
$
(19,318,925
)
|
(4
)
|
$
-
|
$
(3,155,399
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for anti-dilution protection
|
668,433
|
67
|
|
|
|
|
|
|
(67
)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued on converted notes
|
875,000
|
88
|
|
|
|
|
|
|
176,662
|
|
|
|
176,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for consulting services
|
100,000
|
10
|
-
|
-
|
-
|
-
|
-
|
-
|
29,990
|
-
|
-
|
-
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
751,254
|
-
|
-
|
751,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2016
|
3,383,680
|
$
339
|
11,664
|
$
2
|
20,000
|
$
2
|
3,000
|
$
-
|
16,369,933
|
$
(18,567,671
)
|
(4
)
|
$
-
|
$
(2,197,395
)
|
BE ACTIVE HOLDINGS, INC.
C
ONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
Net
income (loss)
|
$
751,254
|
$
(1,229,534
)
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
(used
in) operating activities:
|
|
|
Depreciation
and amortization
|
4,913
|
5,014
|
Amortization
of deferred financing costs and debt discount
|
714,823
|
961,903
|
Stock
granted for consulting services
|
30,000
|
492
|
Forgiveness
of debt income
|
-
|
(25,555
)
|
Loss
on inventory written off
|
69,657
|
-
|
Gain
on settlement of secured convertible notes payable
|
(208,732
)
|
-
|
(Decrease)
in fair value of derivative liability
|
(2,062,198
)
|
(641,181
)
|
Decrease
in escrow account
|
-
|
12,500
|
Decrease
in accounts receivable
|
-
|
6,619
|
Decrease
in inventory
|
10,485
|
8,519
|
(Increase)
decrease in prepaid expenses and other current assets
|
5,525
|
(7,541
)
|
(Decrease)
in deferred rent
|
(3,465
)
|
(483
)
|
Increase
in accounts payable
|
|
|
and
accrued expenses
|
349,646
|
189,102
|
Net
cash (used in) operating activities
|
(338,092
)
|
(720,145
)
|
|
|
|
Cash flows from financing activities
|
|
|
Proceeds
from private placements
|
-
|
250,000
|
Costs
of private placements
|
-
|
(12,500
)
|
Decrease
in due to officers/stockholders
|
(101,715
)
|
241
|
Net
cash (used in) provided by financing activities
|
(101,715
)
|
237,741
|
|
|
|
Net (decrease) in cash
|
|
|
and cash equivalents
|
(439,807
)
|
(482,404
)
|
|
|
|
Cash
and cash equivalents, beginning of year
|
441,189
|
504,358
|
Cash and cash equivalents, end of year
|
$
1,382
|
$
21,954
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
Interest
paid
|
$
-
|
$
-
|
State
minimum taxes and franchise fees paid
|
$
4,491
|
$
2,543
|
Note
payable issued as deferred costs
|
$
|
$
25,000
|
Conversion
of notes payable
|
$
262,500
|
$
-
|
BE ACTIVE HOLDINGS, INC.
N
OTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1.
ORGANIZATION AND OPERATIONS
Business
Operations
The
Company sells frozen yogurt and fudge bars to retailers with stores
in New York, New Jersey, Connecticut, Massachusetts, Rhode Island
and Vermont. The Company intends to expand its regional growth to a
national level and global presence in sales of premium quality
low-fat, low calorie, low-carbohydrate, vitamin and probiotic
enriched frozen yogurt and products under the brand name
“Jala”.
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 revenues sufficient
to cover its operating costs and allow it to continue as a going
concern. The Company has incurred significant net losses since
inception and at September 30, 2016, has an accumulated deficit of
($18,567,671) and stockholders’ deficit of ($2,197,395). The
ability of the Company to continue as a going concern is dependent
on the Company obtaining adequate capital to fund operating
expenses 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 through sales of its
products in combination with equity and/or debt financing. As
indicated in Note 8, the Company obtained approximately $425,000,
$250,000 and $500,000 of gross proceeds from the debt offerings on
December 31, 2014, September 21, 2015 and December 31, 2015,
respectively, and currently has limited working capital necessary
for sales and production, accordingly there can be no assurance
that the Company can continue as a going concern.
The
accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a
going concern.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
accompanying unaudited financial statements and related notes have
been prepared in accordance with United States generally accepted
accounting principles (“GAAP”) and with the applicable
rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by GAAP for
complete financial statements presentation. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary to present fairly the financial
position, results of operations and cash flows for interim
financial statements have been included. This Form 10-Q should be
read in conjunction with the Company’s Annual Report on Form
10-K for the year ended December 31, 2015. Interim results are not
necessarily indicative of the results for the fiscal year ending
December 31, 2016.
The
financial statements reflect a 1 per 1,000 reverse stock split of
all outstanding common and preferred stock, which was effective
immediately prior to the completion of the December 2015 Securities
Purchase Agreement (see Note 8). All share and per share data
reported and disclosed in the accompanying financial statements
have been retroactively adjusted to give effect to the reverse
stock split.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. Some
of the more significant estimates required to be made by management
include the fair value of derivatives and other stockholders'
equity based transactions.
Reclassification
Certain
items in the 2015 financials have been reclassified to conform to
the 2016 presentation.
Financial Instruments
The
Company considers the carrying amounts of financial instruments,
including cash, accounts receivable, accounts payable, and accrued
expenses to approximate their fair values because of their
relatively short maturities. The fair value of convertible notes
payable approximate their face value.
Fair
value is defined as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value
must maximize the use of observable inputs and minimize the use of
unobservable inputs. The Company uses a fair value hierarchy based
on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure
fair value which are the following:
Level 1
– Unadjusted quoted prices in active markets that are
accessible at measurement date for identical assets or
liabilities.
Level 2
- Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level 3
- Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities and less observable from objective
sources.
The
Company’s derivative liabilities (see Note 9) are valued at
each reporting period using level 3 inputs.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
The Company maintains cash balances at one financial institution.
The Company has not experienced any losses in such accounts.
Federal legislation provides for FDIC insurance of up to
$250,000.
Accounts
Receivable
Accounts receivable
consist of amounts due from customers. The Company records an
allowance for doubtful receivables, if necessary, to allow for any
amounts which may be unrecoverable. The allowance is based upon an
analysis of the Company’s prior collection experience,
customer creditworthiness and current economic trends. Account
balances are written off against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. As of September 30, 2016 and December 31, 2015,
no allowance for doubtful accounts was required.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Inventory
Inventory consists
primarily of packaging, raw materials and finished goods held for
distribution. Inventory is stated at the lower of cost (first-in,
first-out) or market. In evaluating whether inventory is stated at
the lower of cost or market, management considers such factors as
the amount of inventory on hand and the distribution channel, the
estimated time to sell such inventory, remaining shelf life and the
current expected market conditions. Adjustments to reduce inventory
to its net realizable value are charged to cost of goods
sold.
Shipping
and Handling Costs
The
Company classifies shipping and handling costs as part of selling
expense. Shipping and handling costs were $1,019 and $1,019 and
$5,810 and $14,816 for the three months and nine months ended
September 30, 2016 and 2015, respectively.
Debt
Issue Cost
Debt
issue costs related to costs incurred in connection with the
issuance of convertible notes, and are being amortized on the
straight-line method (which approximates the effective interest
method) over the term of the respective notes payable. At September
30, 2016 and December 31, 2015, debt issuance costs, net of
accumulated amortization of $51,000 and $9,375 amounted to $17,000
and $96,125, respectively. Debt issuance costs are now shown on the
accompanying balance sheet as a direct deduction from the carrying
amount of the secured converible notes payable (see Note
8).
Property
and Equipment
Property and
equipment are recorded at cost and depreciated over their estimated
useful lives using the straight-line method.
Maintenance and
repairs are charged to operating expenses as they are incurred.
Improvements and betterments, which extend the lives of the assets,
are capitalized. The cost and accumulated depreciation of assets
retired or otherwise disposed of are removed from the appropriate
accounts and any profit or loss on the sale or disposition of such
assets is credited or charged to income.
Derivative
Liabilities
The
Company’s derivative liabilities are related to the ratchet
reset provisions of the Company’s warrants and convertible
debt. Such ratchet reset provisions prohibit the Company from
concluding that the warrants are indexed to their own stock, and
thus derivative accounting is appropriate. For derivative
instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair market value and is
then re-valued at each reporting date, with changes in fair value
recognized in operations for each reporting period. The Company
uses the Black-Scholes Option-Pricing Model to value the derivative
instruments of its’ outstanding stock warrants at inception
and subsequent valuation dates and in accordance with Accounting
Standards Codification (“ASC”) 815, and a binomial
valuation model in connection with its’ convertible
debt.
Revenue
Recognition
Revenue
is recognized, net of discounts, rebates, promotional adjustments,
price adjustments, slotting fees and estimated returns, upon
transfer of title and risk to the customer which occurs at shipping
(F.O.B. terms). Upon shipment, the Company has no further
performance obligations.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Share-Based
Compensation
The
Company recognizes compensation expense for all share-based payment
awards made to employees, directors and others based on the
estimated fair values on the date of the grant, as subsequently
adjusted for certain contingently issuable shares. Common stock
equivalents are valued using the Black-Scholes Option-Pricing Model
using the known or equivalent market value of common stock on the
date of valuation, an expected dividend yield of zero, the
remaining period or maturity date of the common stock equivalent
and the expected volatility of common stock.
Income
Taxes
The
Company provides for income taxes under ASC 740 –
Income Taxes
, which
requires the use of an assets and liabilities approach in
accounting for income taxes. Deferred tax assets and liabilities
are recorded based on the differences between the financial
statement and tax bases of assets and liabilities and the tax rates
in effect when these differences are expected to reverse. A
valuation allowance is provided when realization of deferred tax
assets is not considered more likely than not.
The
Company’s policy is to classify income tax assessments, if
any, for interest in interest expense and for penalties in general
and administrative expenses.
As of
September 30, 2016, management has evaluated and concluded that
there are no significant uncertain tax positions requiring
recognition in the Company's consolidated financial
statements.
The
Company’s income tax returns since 2012 are subject to
examination by the tax authorities.
Advertising
Costs
Advertising costs
are expensed as incurred. Total advertising was $0 and $853 and
$2,835 and $2,835 for the three months and nine months ended
September 30, 2016 and 2015, respectively.
Recent
Accounting Pronouncements
In
February 2016, a pronouncement was issued that creates new
accounting and reporting guidelines for leasing arrangements. The
new guidance requires organizations that lease assets to recognize
assets and liabilities on the balance sheet related to the rights
and obligations created by those leases, regardless of whether they
are classified as finance or operating leases. The new standard is
effective for annual reporting periods beginning after December 15,
2018, including interim periods within that reporting period, with
early application permitted. The new standard is to be applied
using a modified retrospective approach. The Company is in the
process of evaluating the impact of the new pronouncement on its
consolidated financial statements.
In May
2014, the Financial Accounting Standards Board ("FASB") issued
accounting guidance, "Revenue from Contracts with Customers." The
core principle of the new standard is for companies to recognize
revenue to depict the transfer of goods or services to customers in
amounts that reflect the consideration (that is, payment) to which
the company expects to be entitled in exchange for those goods or
services. The standard will be effective for fiscal years and
interim periods within those years beginning after December 15,
2017. Accordingly, the Company will adopt this standard in the
first quarter of fiscal year 2018. The Company is currently
evaluating the impact this guidance will have on the consolidated
financial statements.
In
August 2014, the FASB issued ASU 2014-15, "Presentation of
Financial Statements-Going Concern". This ASU is intended to define
management's responsibility to evaluate whether there is
substantial doubt about an organization's ability to continue as a
going concern and to provide related footnote disclosures. It is
effective for annual periods beginning after December 15, 2016,
with early adoption permitted. The Company does not expect it to
have a material effect on the Company's consolidated financial
condition, results of operations, and cash flows.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
In
April 2015, the FASB issued ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance
Costs
, which requires debt issuance costs to be presented in
the balance sheet as a direct deduction from the carrying amount of
the associated debt liability. Also in August 2015, the FASB issued
ASU 2015-15,
Presentation and
Subsequent Measurement of Debt Issuance Costs Associated with
Line-of-Credit Arrangements
, to clarify that the Securities
and Exchange Commission staff would not object to deferring and
presenting debt issuance costs as an asset and subsequently
amortizing deferred debt issuance costs ratably over the term of
the line-of-credit arrangement. This guidance is effective for
interim and annual periods beginning after December 15, 2015. The
guidance is required to be retrospectively applied to all prior
periods. The Company adopted these ASUs in the first quarter of
2016. As a result, the Company presents debt issuance costs as a
reduction of secured convertible notes payable.
All
other accounting standards that have been issued or proposed by the
FASB that do not require adoption until a future date are not
expected to have a material impact on the consolidated financial
statements upon adoption.
4.
INVENTORY
Inventory consists
of the following:
|
|
|
|
|
|
Materials
|
$
20,253
|
$
20,253
|
|
$
49,404
|
59,889
|
Less amount written
off
|
$
69,657
|
-
|
|
|
|
Total
|
$
-
|
$
80,142
|
5. PROPERTY
AND EQUIPMENT
Property and
equipment consists of the following:
|
|
|
Furniture and
Fixtures
|
$
6,138
|
$
6,138
|
Website
|
18,000
|
18,000
|
Less: Accumulated
depreciation
|
(14,841
)
|
(9,928
)
|
Balance
|
$
9,297
|
$
14,210
|
Depreciation and
amortization expense for the three and nine months ended September
30, 2016 and 2015 were $1,638 and $4,913 and $1,672 and $5,014,
respectively.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
6.
INCOME (LOSS) PER COMMON SHARE
Basic
income (loss) per share is computed by dividing the net income or
loss attributable to the common stockholders by the weighted
average number of shares of common stock outstanding during the
period. Fully diluted income (loss) per share is computed similar
to basic income (loss) per share except that the denominator for
fully diluted income per share is increased to include the number
of additional common shares that would have been outstanding if the
potential common shares had been issued in order to present their
dilutive effect unless the effect of such potential shares would be
antidilutive. Potential common shares consist of incremental common
shares issuable upon the exercise of warrants, convertible
preferred shares and convertible notes payable. In addition, in
computing net income (loss) per share on a fully diluted basis, the
Company adjusts for the interest expense on convertible debt as if
the debt had been converted for all periods presented.
As at
September 30, 2016 and 2015, the number of potential dilutive
common shares is comprised of the following:
|
|
|
Common share
equivalents of Series A Convertible Preferred Stock
|
11,664
|
11,664
|
Common share
equivalents of Series C Convertible Preferred Stock
|
2,000,000
|
86,667
|
Common share
equivalents of Series D Convertible Preferred Stock
|
3,000
|
2,324
|
Convertible
Promissory Notes Payable
|
2,375,000
|
720,000
|
Shares issuable
under ratchet provisions
|
693,001
|
693,001
|
|
|
|
Total
|
5,082,665
|
1,513,656
|
7.
DUE TO OFFICERS/STOCKHOLDERS
On
February 25, 2015, one stockholder agreed to release the Company
from its $25,555 loan obligation to him which was recorded as
forgiveness of debt income for the nine months ended September 30,
2015. During the nine months ended September 30, 2016, the Company
repaid approximately $110,000 of advances received in 2015. In
August 2016, two of the executive officers advanced the Company a
total of $8,285 to fund expenses due.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
8.
SECURED CONVERTIBLE NOTES PAYABLE
On
December 31, 2014, the Company entered into a Securities Purchase
Agreement (“2014 Agreement”) with certain accredited
investors to sell to the Purchasers an aggregate of up to $500,000
of principal amount of notes due December 31, 2015 representing the
Purchasers’ subscription amount. The 2014 Agreement defines
certain covenants and provides for a purchase price reset for a
period of three years, unless the securities have been assigned,
whereby should the Company issue or sell any shares of common stock
or any common stock equivalents at a price less than the
Purchasers’ conversion price per share, the Company will be
required to issue additional shares of common stock to the
Purchasers for no additional consideration resulting in a share
dilution adjustment, as defined. The 2014 Agreement also provides a
Most Favored Nations Provision whereby if the Company issues or
sells any common stock at terms more favorable within three years,
then the Company will be required to amend the 2014 Agreement to
provide such favorable terms to the Purchasers. The Company paid
$33,000 in legal and escrow agent fees, a placement agency fee of
$20,000 in the form of a note payable, substantially similar to the
Purchasers’ notes and issued 64,000 shares of its common
stock valued at $640,000 and $20,000 as due diligence fees, all of
which have been recorded as debt issuance costs on the accompanying
consolidated financial statements and was charged to operations
over the twelve months ended December 31, 2015. The Company
recorded amortization expense of $0 and $0 and $178,250 and
$534,750 on the debt issuance costs during the three and nine
months ended September 30, 2016 and 2015, respectively. At December
31, 2015 the maturity date of the notes were extended to December
31, 2016.
Under
the 2014 Agreement, the Company sold an aggregate of $425,000 in
Secured Convertible Notes (“Notes”) and issued an
additional $20,000 Note for placement fees. The Company fulfilled
its obligations as defined by certain equity requirements;
therefore, the Notes will be convertible into shares of the
Company’s common stock. Under certain conditions defined in
the agreement, the Company has the option to convert the Notes into
shares of the Company's common stock. Since the equity obligations
were met during 2015 the Notes accrued interest at 10% per annum
through June 30, 2015. The original conversion price on the Note
was $6.00, and has subsequently reduced to $0.30 at December 31,
2015.
During
the first nine months of 2016, the Company issued 875,000 shares of
its common stock in connection with the conversion of $265,500 of
Notes. In accordance with the accounting for debt extinguishment,
the difference between the $262,500 carrying value of the Notes,
plus the associated embedded derivative liability of $122,982 and
the $176,750 fair value of 875,000 shares of common stock issued,
resulted in a net gain of $208,732.
Each
Holder of the Notes has been granted a security interest in assets
of the Company in accordance with a Security Agreement. The
Security Agreement provides the Collateral Agent a security
interest in all goods, machinery, equipment, contract rights and
intangibles in the event of a default under the
Agreement.
In
connection with this 2014 Agreement, and under the anti-dilution
provisions of the February 2014 private placement, on December 31,
2014, the Company issued an aggregate of 160,093 shares of common
stock and 13,333 warrants to purchase common shares at $6.00 per
share to existing stockholders holding securities purchased in that
offering. This reflects the post-split adjustment to shares issued
and price per share. The fair value of the 13,333 warrants issued
in 2014 were valued at $122,807 using the Black-Scholes Pricing
model and was reflected as a change in the derivative liability in
the 2014 statement of operations.
In
addition, the pricing of this 2014 Agreement triggered the pricing
reset provision in the 3,333 warrants issued in the February 14,
2014 private placement. Such triggering resulted in the exercise
price of the previously issued warrants resetting to $6.00 from
$30.00 at December 31, 2014. The exercise price was further reduced
to $0.30 as a result of additional financing in 2015. At September
30, 2016, using the Black-Scholes Pricing Model, the Company
re-valued the remaining February 2014 warrants at $276 a decrease
in fair value of $1,315 from December 31, 2015 and a decrease in
fair value of $570,723 since inception.
At
September 30, 2016, the 13,333 ratchet warrants granted at December
31, 2014 were re-valued using the Black-Scholes Pricing Model at
$1,290, a decrease in fair value of $5,343 from December 31,
2015.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The
significant assumptions utilized by the Company in the valuation of
these warrants at September 30, 2016 and December 31, 2015 were as
follows:
|
|
|
Market
Price:
|
$
0.135
|
$
0.55
|
Exercise
Price:
|
$
0.30
|
$
0.30
|
Volatility:
|
142.59
%
|
149
%
|
Dividend
Yield:
|
|
|
Term in
years:
|
|
|
Risk Free Rate of
Return:
|
1.14
%
|
1.76
%
|
The
outstanding warrants for 26,884 common shares at December 31, 2015,
held by the January and April 2013 private placement investors do
not have a cashless exercise and were not affected by the reset
provision. During January 2016, 3,903 warrants expired and during
April 2016, 22,981 warrants expired.
The
significant assumptions utilized by the Company in the valuation of
these warrants at December 31, 2015 were as follows:
|
|
Market
Price:
|
$
0.55
|
Exercise
Price:
|
$
30.00
|
Volatility:
|
149
%
|
Dividend
Yield:
|
|
Term in
years:
|
|
Risk Free Rate of
Return:
|
1.31
%
|
On
September 21, 2015, the Company entered into a Securities Purchase
Agreement (“Sept 2015 Agreement”) with certain
accredited investors to sell to the Purchasers an aggregate of up
to $250,000 of principal amount of notes due September 30, 2016,
representing the Purchasers’ subscription amount. The new
offering is substantially the same terms and conditions as the
December 2014 Notes. In connection with the new offering, the
Company issued allonges to the December 2014 Notes increasing the
principal amount of the Notes ("Allonges") pursuant to the terms of
the new offering with such Allonges having a maturity date of
September 30, 2016 and a conversion price equal to $1.00 per share
(subject to further reduction), at September 21, 2015. The
conversion price was reduced to $0.30 at December 31, 2015 as a
result of a subsequent financing.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The
Sept 2015 Agreement defines certain covenants and provides for a
purchase price reset for a period of three years, unless the
securities have been assigned, whereby should the Company issue or
sell any shares of common stock or any common stock equivalents at
a price less than the Purchasers’ conversion price per share,
the Company will be required to issue additional shares of common
stock to the Purchasers for no additional consideration resulting
in a share dilution adjustment, as defined. The Sept 2015 Agreement
also provides a Most Favored Nations Provision whereby if the
Company issues or sells any common stock at terms more
favorable
within three
years, then the Company will be required to amend the Sept 2015
Agreement to provide such favorable terms to the Purchasers. The
Company paid $12,500 in legal fees, a placement agency fee of
$25,000 in the form of a note payable, substantially similar to the
Purchasers’ notes, all of which was recorded as debt issuance
costs on the accompanying consolidated financial statements and
will be charged to operations over the twelve months ended
September 30, 2016 or to the date of conversion, if earlier. The
Company recorded amortization expense of $9,375 and $28,125 on the
debt issuance costs during the three and nine months ended
September 30, 2016.
Under
the Sept 2015 Agreement, the Company sold an aggregate of $250,000
in Secured Convertible Notes and issued an additional $25,000 Note
for placement fees. Once the Company has fulfilled its obligations
as defined by certain equity requirements, the Notes will be
convertible into shares of the Company’s common stock at the
option of the Company. Until the equity obligations are met, the
Notes bear interest at 10%, per annum. Interest will be earned at a
rate of 10% for the twelve months ending September 30, 2016 or to
the date of conversion, whichever is earlier. The conversion price
for the Note and accrued interest was equal to $1.00 per share at
September 21, 2015 subject to adjustments as stock dividends and
stock splits, as defined. At December 31, 2015, the conversion
price was reduced to $0.30.
Each
Holder of the Notes has been granted a security interest in assets
of the Company in accordance with a Security Agreement. The
Security Agreement provides the Collateral Agent a security
interest in all goods, machinery, equipment, contract rights and
intangibles in the event of a default under the
Agreement.
On
December 31, 2015, the Company entered into a Securities Purchase
Agreement (“Dec 2015 Agreement”) with certain
accredited investors to sell to the Purchasers an aggregate of up
to $500,000 of principal amount of notes due December 31 2016,
representing the Purchasers’ subscription amount. The new
offering is substantially the same terms and conditions as the
December 2014 Notes.
The Dec
2015 Agreement defines certain covenants and provides for a
purchase price reset for a period of three years, unless the
securities have been assigned, whereby should the Company issue or
sell any shares of common stock or any common stock equivalents at
a price less than the Purchasers’ conversion price per share,
the Company will be required to issue additional shares of common
stock to the Purchasers for no additional consideration resulting
in a share dilution adjustment, as defined. The Dec 2015 Agreement
also provides a Most Favored Nations Provision whereby if the
Company issues or sells any common stock at terms more
favorable
within three
years, then the Company will be required to amend the Dec 2015
Agreement to provide such favorable terms to the Purchasers. The
Company paid $18,000 in legal fees and a placement agency fee of
$50,000 in the form of a note payable, with substantially similar
to the Purchasers’ notes, all of which was recorded as debt
issuance costs on the accompanying consolidated financial
statements and will be charged to operations over the twelve months
ended December 31, 2016 or to the date of conversion, if earlier.
The Company recorded amortization expense of $17,000 and $51,000 on
the debt issuance costs during the three and nine months ended
September 30, 2016.
Under
the Dec 2015 Agreement, the Company sold an aggregate of $500,000
in Secured Convertible Notes (“Notes”) and issued an
additional $50,000 Note for placement fees. Once the Company has
fulfilled its obligations as defined by certain equity
requirements, the Notes will be convertible into shares of the
Company’s common stock at the option of the Company. Until
the equity obligations are met, the Notes bear interest at 10%, per
annum. Interest will be earned at a rate of 10% for the twelve
months ending December 31, 2016 or to the date of conversion,
whichever is earlier. The conversion price for the Note and accrued
interest is equal to $0.30 per share, subject to adjustments as
stock dividends and stock splits, as defined.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Each
Holder of the Notes has been granted a security interest in assets
of the Company in accordance with a Security Agreement. The
Security Agreement provides the Collateral Agent a security
interest in all goods, machinery, equipment, contract rights and
intangibles in the event of a default under the
Agreement.
A
summary of the convertible notes at September 30, 2016 are as
follows:
|
|
|
|
|
December 31,
2015
|
$
1,270,000
|
$
(660,712
)
|
(96,125
)
|
513,163
|
2016
Amortization
|
-
|
635,698
|
79,125
|
714,823
|
Conversions
|
(262,500
)
|
|
|
(262,500
)
|
September 30,
2016
|
$
1,007,500
|
$
(25,014
)
|
(17,000
)
|
$
965,486
|
In
connection with the Sept 2015 and Dec. 2015 Agreements, and under
the anti-dilution provisions of the December 2014 private
placement, the Company is required to issue an aggregate of
2,611,003 shares of common stock to existing stockholders holding
securities purchased in that offering, of which 1,918,002 were
issued as of September 30, 2016.
9.
Derivative Liabilities
The
Company has determined that the convertible notes issued on
December 31, 2014, September 21, 2015 and December 31, 2015 contain
provisions that protect holders from future issuances of the
Company’s common stock at prices below such convertible
notes’ respective conversion price and these provisions
result in modification of the conversion price to issue additional
common shares based on a variable that is not an input to the fair
value of a “fixed-for-fixed” option as defined under
FASB ASC Topic No. 815 – 40 and the conversion feature
represents an embedded derivative that requires
bifurcation.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The
fair values of the Convertible Notes Offering were recognized as
derivative instruments at issuance and are measured at fair value
at each reporting period. The embedded derivative on the 2014
Agreement was valued at $594,963 using a binomial valuation model
at December 31, 2014. In addition during 2015 the Company
recognized derivative liabilities aggregating $1,439,432 in
connection with the Sept 2015 and Dec 2015 fund raising. At
December 31, 2015, the embedded conversion derivative for all three
debt financings was revalued to $2,224,362. At September 30, 2016,
the embedded conversion derivative for all three debt financings
was revalued to $45,840. The assumptions considered in the
valuation model for the December 31, 2014 Notes at September 30,
2016 and December 31, 2015 were:
|
|
|
|
|
|
|
|
|
Trading price of
common stock on measurement date
|
$
0.135
|
$
0.550
|
Conversion
price
|
$
0.30
|
$
0.300
|
Risk free interest
rate (1)
|
0.29
%
|
0.15
%
|
Conversion notes
lives in years
|
< 1 year
|
|
Expected volatility
(2)
|
167
%
|
208
%
|
Expected dividend
yield (3)
|
-
|
-
|
The
assumptions considered in the valuation model for the Sept 2015 and
Dec 2015 Notes at September 30, 2016 and December 31, 2015
were:
|
|
|
|
|
|
|
|
|
Trading price of
common stock on measurement date
|
$
0.135
|
$
0.55
|
Conversion
price
|
$
0.30
|
$
0.30
|
Risk free interest
rate (1)
|
0.29
%
|
0.57% - 0.65
%
|
Conversion notes
lives in years
|
<1
year
|
<1 year to 1
year
|
Expected volatility
(2)
|
167
%
|
208 - 224
%
|
Expected dividend
yield (3)
|
|
-
|
(1)
The
risk-free interest rate was determined by management using the 3
and 9 months Treasury Bill as of the respective measurement
date.
(2)
The
volatility factor was estimated by using the historical
volatilities of the Company’s trading history.
(3)
Management
determined the dividend yield to be 0% based upon its expectation
that it will not pay dividends for the foreseeable
future.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
A
summary of the derivative liability at September 30, 2016 is
summarized as follows:
Balance, December
31, 2015
|
$
2,232,586
|
|
|
Conversion of notes
payable
|
(122,982
)
|
|
|
Change in fair
value
|
(2,062,198
)
|
|
|
Balance, September
30, 2016
|
$
47,406
|
The
derivative liability at September 30, 2016 consists of debt
conversion of $45,840
($2,224,361 - 2015)
and warrants of $1,566 ($8,224 - 2015).
Accounting
for Convertible Debt
Under
the initial accounting for the December 2014 Offering, the Company
allocated the proceeds to the embedded conversion derivative
liability, which exceeded the $445,000 face amount of the
convertible debt at the issuance date. The proceeds allocated to
the embedded conversion derivative liability were recognized as a
discount to the convertible debt. As of December 31, 2014, the
Company recorded aggregate debt discounts of $445,000 related to
the conversion rights and recorded $149,963 of expense related to
the excess value of the derivative over the face amount of the
convertible debt.
Under
the September 21, 2015 offering the Company allocated the proceeds
to the embedded conversion derivative liability, which exceeded the
$275,000 face amount of the additional convertible debt at the
issuance date.
Under
the December 31, 2015 offering the Company allocated the proceeds
to the embedded conversion derivative liability, which exceeded the
$550,000 face amount of the additional convertible debt at the
issuance date.
As a
result, upon issuance of the two 2015 debt offerings, the Company
recorded a debt discount of $825,000 and recorded a loss of
$614,432 related to the excess value of the $1,439,432 derivative
over the $825,000 face amount of the convertible debt.
The
debt discount is accreted to interest expense over the life of the
convertible debentures using an effective interest method. For the
three and nine months ended September 30, 2016 and 2015, the
Company amortized $71,418 and $635,698 and $161,332 and $ 427,153,
respectively, of the debt discount. In addition, amortization of
deferred debt issuance costs amounted to $26,375 and $79,125 and
$178,250 and $534,750 for the three and nine months ended September
30, 2016 and 2015, respectively.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
10.
CAPITAL STOCK
2014
Financing
On
February 14, 2014, the Company sold to certain accredited investors
pursuant to a Subscription Agreement, an aggregate of 33,333 shares
of its common stock, 26,667 shares of the Series C Preferred Stock
and five year warrants to purchase up to an aggregate of 59,999
shares of the Company’s common stock at an exercise price of
$30, per share, for gross proceeds of $1,800,000. Until the earlier
of (i) three years from the closing of the Offering or (ii) such
time as no investor holds any shares of common stock underlying
warrants or underlying the Series C Preferred Stock, in the event
the Company issues or sells common stock at a per share price equal
to less than $30.00 per share, as adjusted, the Company has agreed
to issue additional securities such that the aggregate purchase
price paid by the investor shall equal the lower price issuance,
subject to certain exceptions, as defined. The Company recorded a
derivative liability related to the reset feature on the exercise
price of the warrants to purchase common stock issued by the
Company.
In
connection with the Offering, the Company granted the investors
“piggy-back” registration rights and the investors are
entitled to a right of participation in future financings conducted
by the Company for a period of twenty-four months.
In 2014
the Company paid placement agent fees of $144,000 in cash, issued
an aggregate of 600, shares of the Company’s common stock and
issued a five year warrant to purchase up to 5,399 shares of the
Company’s common stock at a price of $30 per share, as
commission in connection with the sale of the shares and warrants.
In addition, the Company permitted the conversion of an aggregate
of $13,500 of unpaid fees owed to a consultant into 450 shares and
warrants at the Offering price. In conjunction with the Offering,
$100,000 was placed in an escrow account to be used for auditing
and legal fees. As of December 31, 2015, the balance of the escrow
account was $0 and $12,500 in 2014.
On
February 14, 2014, as a component of the Subscription Agreement,
the Company issued an aggregate of 66,333 warrants with a fair
value of $11,361,278 determined using the Black-Scholes Pricing
Model.
Pursuant to the
subscription agreement in 2014, certain members of the
Company’s management agreed to invest an aggregate of
$250,000 in exchange for 8,333 shares of the Company’s common
stock within 30 days of the closing, on the same terms of the
agreement.
Series
B Convertible Preferred Stock
In
April 2013, the Company’s Board of Directors authorized four
(4) shares of preferred stock, par value $0.0001 per share as
Series B Convertible Preferred Stock (the “Series B Preferred
Stock”) and issued one share of Series B Preferred Stock to
each of the Company’s three senior members of management.
Each share of Series B Preferred Stock is entitled such number of
votes on all matters submitted to stockholders that is equal to (i)
the product of (a) the number of shares of Series B Preferred Stock
held by such holder, (b) the number of issued and outstanding
shares of the Company’s Common Stock (taking into account the
effective outstanding voting rights of the Series B Preferred
Stock), as of the record date for the vote and (c) 0.13334 less
(ii) the number of shares of Common Stock beneficially held by such
holder on such date. Additionally, on the six month anniversary
date of issuance of the Series B Preferred Stock, each outstanding
share of Series B Preferred Stock was to automatically, and without
further action on the part of the holder, convert into such number
of fully paid and non-assessable shares of Common Stock as would
cause the holder to own, along with any other securities of the
Company’s beneficially owned on the conversion date by them
13.334% of the issued and outstanding Common Stock, calculated on
the conversion date. On October 25, 2013, the Company amended and
restated the Certificate of Designation for Series B Convertible
Preferred Stock to extend the date on which the Series B Shares
would automatically convert into such number of fully paid and
non-assessable shares of common stock, from the date six months
from the date of issuance (October 26, 2013) to the twelfth month
anniversary of the date of issuance of the shares of Series B
Preferred Stock (April 26, 2014) which on April 22, 2014, was
further extended to an indefinite date. The Company previously
recorded the three shares of Series B Convertible Preferred Stock
as stock-based compensation using the then current estimate of the
number of shares that would convert to shares of common stock of
the Company based on the shares outstanding and current price per
share at each balance sheet date. As of December 31, 2014, the
Company recalculated the estimated shares issuable to be 216,670
and recorded stock-based compensation of $2,166,707 for the year
then ended. The estimate is based on the current common shares
outstanding at December 31, 2014, a stock price of $10.00 per
share, and is subject to adjustment based on any additional common
shares issued.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
On
March 2, 2015, the Series B Convertible Preferred Stock which was
then outstanding was cancelled and as a result, the Company’s
obligation to issue any common shares in connection therewith
ended. The Company has accounted for the cancellation of the Series
B and issuance of the Series D Preferred Stock as an
extinguishment. Accordingly, for the year ended December 31, 2015,
the Company recorded an aggregate gain of $3,420,804 within
stockholders’ deficit equal to the difference between the
$667,664 fair value of the Series D preferred stock and the
$4,088,468 carrying amount of the Series B preferred stock
extinguished. The gain on extinguishment is reflected in the
calculation of net income attributable to common stockholders in
2015.
Series
C Convertible Preferred Stock
On
February 12, 2014, the Company designated and authorized to issue
26,667 shares of Series C Convertible Preferred Stock
(“Series C Preferred Stock”), par value $0.0001, per
share. Each holder of Series C Preferred Stock shall be entitled to
vote all matters submitted to shareholder vote and shall be
entitled to the number of votes for each shares of Series C owned
at the designated record date. Each holder of Series C Preferred
Stock may convert any or all of such shares into fully paid and
non-assessable shares of the Company’s common stock in an
amount equal to one share of the Company’s common stock for
each one shares of Series C Preferred Stock.
On
September 21, 2015, in connection with the terms of a ratched
provision for certain warrants issued in 2014, the Company revised
the conversion right so that holders of Series C Preferred Stock
may, from time to time, convert any or all of such holder's shares
of Series C Preferred Stock into fully paid and non-assessable
shares of common stock in an amount equal 100 shares of the
Company's common stock (the "Common Stock") for each one (1) share
of Series C Preferred stock surrendered.
As a
result of this modification, the Company recorded a deemed dividend
on Series C preferred stock in the amount of $1,089,000 at December
31, 2015.
Series
D Convertible Preferred Stock
On,
March 2, 2015, the Board of Directors of the Company designated and
authorized to issue 3,000 shares of the Company’s authorized
Preferred Stock, par value $0.0001 per share, as Series D
Convertible Preferred Stock. Each holder of the Series D Preferred
Stock (“Series D”) shall have the number of votes on
all matters submitted to the stockholders that is equal to the
greater of one hundred votes for each one share of Series D and
such number of votes per share of Series D that when added to the
votes per shares of all other shares of Series D shall equal 50.1%
of the outstanding voting record. The Series D are convertible into
common stock in an amount equal to one share of the Company’s
common stock for each one share of Series D. On March 9, 2015, the
Company issued 1,000 shares of the Series D to each of three
officers of the Company.
Common
Stock
On
April 20, 2016, the Company issued 100,000 shares of its restricted
common stock to its investor relations company for services
rendered per the agreement at a price of $0.30 per
share
On
September 21, 2015, the holders representing a majority of the then
outstanding shares of capital stock of the Company voted and
approved and permitted the Company to increase the number of
authorized shares of the Company’s common stock from
750,000,000 to 3,000,000,000, which was effective upon filing an
amended Certificate of Incorporation with the State of Delaware
representing the amendment.
On
March 12, 2015, the holders representing a majority of the then
outstanding shares of capital stock of the Company voted and
approved and permitted the Company to increase the number of
authorized shares of the Company’s common stock from
525,000,000 to 750,000,000.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
As
discussed in Note 8, the warrants issued related to these capital
raises were deemed to be derivative liabilities and required
additional measurement at fair value. Accordingly, the proceeds
from these equity financings were first allocated to such fair
value instruments (the warrants), with the residual proceeds, if
any, being allocated to the instruments not subsequently marked to
fair value.
On
November 25, 2015 the Board and the majority stockholders
authorized a reverse split of the issued and outstanding shares of
common and preferred stock on the basis of 1 post consolidation
share for each 1,000 pre-consolidation shares (the "Reverse Split")
to be effective on December 24, 2015.
Treasury
Stock
In
March 2, 2013, concurrent with the resignation of the
Company’s then chief executive officer, the Company agreed to
purchase from the former executive 4 shares of the Company’s
common stock for $0.10 per share. These shares are reported at cost
as treasury shares.
Warrants
As
of September 30, 2016, the Company had warrants to purchase common
shares outstanding as follows:
Date of
Grant
|
|
|
|
|
|
February 14,
2014
|
3,333
|
February 14,
2019
|
$
0.30
*
|
December 31,
2014
|
13,333
|
December 31,
2019
|
$
0.30
|
|
|
|
|
Total
|
16,666
|
|
|
*Cashless
exercise permitted.
As
of September 30, 2015, the Company had warrants to purchase common
shares outstanding as follows:
Date of
Grant
|
|
|
|
January 9,
2013
|
3,903
|
January 9,
2016
|
$
30.00
|
April 26,
2013
|
22,981
|
April
26,2016
|
$
30.00
|
February 14,
2014
|
3,333
|
February 14,
2019
|
$
6.00
*
|
December 31,
2014
|
13,333
|
December 31,
2019
|
$
6.00
|
|
|
|
|
Total
|
43,550
|
|
|
*Cashless
exercise permitted.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
11.
CONCENTRATIONS
Credit
is granted to most customers. The Company performs periodic credit
evaluations of customers’ financial condition and generally
does not require collateral.
Sales
to one customer of the Company accounted for 100% of the sales
during the three and nine months ended September 30, 2016. Sales to
one customer of the Company accounted for 76% and 86% of sales for
the three and nine months ended September 30, 2015 and represented
74% of accounts receivable for the three and nine months ended
September 30, 2015.
12.
RECONCILIATION OF NET SALES
In
accordance with FASB ASC 605-50, the Company classifies the
following allowances as reductions of sales for the three and nine
months ended September 30:
|
Three Months
Ended
September
30,
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
Gross
sales
|
$
22,355
|
$
127,164
|
$
22,355
|
$
278,040
|
Less:
|
|
|
|
|
Sales
discounts
|
528
|
2,718
|
528
|
5,755
|
Trade
spending
|
20,462
|
22,150
|
20,462
|
47,680
|
Slotting
fees
|
-
|
-
|
-
|
75,000
|
|
|
|
|
|
Net
sales
|
$
1,365
|
$
102,296
|
$
1,365
|
$
149,605
|
13.
RELATED PARTY TRANSACTIONS
An
officer and Director of the Company was a partner of a public
accounting firm providing non-audit accounting services to the
Company through October 30, 2014. Subsequent to October 2014, all
non-audit accounting services were performed by the
officer/director of the Company in conjunction with an independent
consultant.
The
Company subleases a portion of its office space to an entity owned
by a Company officer. Rents received totaled approximately $10,390
and $30,800 and $5,912 and $17,053 were recorded as an offset to
rent expense for the three and nine months ended September 30, 2016
and 2015, respectively.
14.
2013 EQUITY INCENTIVE PLAN
Effective January
9, 2013, the Company adopted a Stock Option Plan
(“Plan”) to provide an incentive to attract, retain and
reward persons performing services, including employees,
consultants, directors and other persons determined by the Board,
through equity awards. The Plan shall continue in effect until its
termination by the Board provided that all awards are granted
within ten years, as defined.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
As of
September 30, 2016 and 2015, no awards have been granted under the
Plan.
15.
COMMITMENTS
Employment
Agreements
Effective January
9, 2013, extended and revised October 1, 2014, the Company entered
into an employment agreement with its chief financial officer for a
term of three years, to be automatically renewed for successive one
year periods thereafter unless either party provides written notice
of intention not to renew the agreement. The agreement provides for
a base annual salary of $135,000, paid in periodic installments in
accordance with the Company’s regular payroll practices and
includes other Company benefits. The Agreement entitles the officer
to future grants under the Company’s 2013 Equity Incentive
Plan. In addition, the Company has awarded the Officer a bonus of
6,385 shares of the Company’s common stock at December 31,
2014 which vested immediately and were purchased by the Officer at
par value. These shares were issued on January 9, 2015. Total
compensation for these shares recorded at December 31, 2014 was
$63,216 based on the traded price of the Company’s common
stock on that date. There were no bonuses awarded the officer in
2015. Costs incurred pursuant to this agreement for the three and
nine months ended September 30, 2016 and 2015 were $33,750 and
$101,250 and $34,269 and $111,250, respectively.
Effective January
9, 2013, extended and revised October 1, 2014, the Company entered
into an employment agreement with its former President for a term
of three years, to be automatically renewed for successive one year
periods thereafter unless either party provides written notice of
intention not to renew the agreement. The agreement provides for a
base annual salary of $150,000, paid in periodic installments in
accordance with the Company’s regular payroll practices and
an annual bonus, subject to clawback provisions, based on reaching
certain financial targets as defined and includes other Company
benefits. The Agreement entitles the officer to future grants under
the Company’s 2013 Equity Incentive Plan. In addition, the
Company had awarded the Officer a bonus of 5,000 shares of the
Company’s common stock at December 31, 2014 which vested
immediately and were purchased by the Officer at par value. These
shares were issued on January 9, 2015. Total compensation for these
shares recorded at December 31, 2014 was $49,500 based on the
traded price of the Company’s common stock on that date.
There were no bonuses awarded the officer in 2015. On June 19,
2015, the Company re-appointed the former President as a member of
the Board of Directors and Vice-President. Costs incurred pursuant
to the Officer’s employment agreements for three and nine
months ended September 30, 2016 and 2015 was $33,750 and $101,250
and $35,308 and $99,154, respectively.
Effective January
9, 2013, extended and revised October 1, 2014, the Company entered
into an employment agreement with its secretary and current Interim
President for a term of three years, to be automatically renewed
for successive one year periods thereafter unless either party
provides written notice of intention not to renew the agreement.
The agreement provides for a base annual
salary of
$135,000, paid in periodic installments in accordance with the
Company’s regular payroll practices and an annual bonus,
subject to clawback provisions, based on reaching certain financial
targets as defined and include other Company benefits. The
Agreement entitles the officer to future grants under the
Company’s 2013 Equity Incentive Plan. In addition, the
Company awarded the Officer a bonus of 5,000 shares of the
Company’s common stock at December 31, 2014 which vested
immediately and were purchased by the Officer at par value. These
shares were issued on January 9, 2015. Total compensation for these
shares recorded at December 31, 2014 was $49,500 based on the
traded price of the Company’s common stock on that date.
There were no bonuses awarded the officer in 2015. Costs incurred
pursuant to the Officer’s employment agreements for three and
nine months ended September 30, 2016 and 2015 was $33,750 and
$101,250 and $34,269 and $113,750, respectively.
Lease
On
January 1, 2013, the Company entered into a five year and one month
lease for space in Great Neck, New York, effective February 17,
2013, with base rent at $39,260, per year, subject to certain
increases as defined. The lease agreement requires two months
annual rent as a security deposit and the personal guaranty of the
President of the Company. The rent is due in monthly installments
commencing April 1, 2013; rent expense is being recorded on a
straight line basis over the term of the lease. The difference
between the rent payments made and straight line basis has been
recorded as deferred rent. Rent expense, net of sublease, for the
three and nine months ended September 30, 2016 and 2015 was $1,845
and $5,535 and $5,751 and $16,573, respectively.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Investor
Relations Consulting Agreement
In
August 2013, the Company entered into an Investor Relations
Consulting Agreement (Agreement) with an investor relations firm to
provide consulting services regarding financial markets and
exchanges, competitors, business acquisitions and other aspects of
or concerning the Company’s business. The Agreement is for a
term of twelve months commencing August 16, 2013, with a one month
cancellation option for either party. The Agreement called for a
monthly consulting and services fee of $2,000. In addition, the
Company agreed to grant to the consultant an aggregate of 3,500
shares of the Company’s restricted stock, valued at $70,000,
($20.00 per share), the price of the stock, reflective of the post
split calculation, at the time of the Agreement. $52,500 of the
consulting fee was recognized in 2013, with the remaining $17,500
recognized in 2014.
On
September 1, 2014, the Agreement was renewed and amended for a term
of twelve months with the monthly service fee reduced to
$1,500.
On
April 20, 2016 the Company issued 100,000 shares of the Company's
common stock to its investor relations company for services
rendered, per the agreement at a price of $0.30 per share. During
the three and nine months ended September 30, 2016 and 2015, $0 and
$41,500 and $4,500 and $10,500 in fees were incurred under this
agreement.
Merchandising
Agreement
On May
5, 2014, the Company entered into an agreement to participate in a
merchandising relationship which can be terminated by either party
with forty-five days written notification to the other party. In
consideration of its participation, the Company agreed to pay a
monthly fee to the merchandiser of 4.0% of gross sales of the
Company’s product. In accordance with the agreement, all
slotting fees are waived on all new items and the merchandiser will
review all new items brought into the warehouse six months from the
initial distribution date to determine whether the item is selling
at an appropriate rate. The Company will provide the merchandising
group with competitive promotional allowances as
defined.
Sales
Representative Contract
Effective June 30,
2014, the Company entered into a contract with a sales
representative to increase the demand for and promote the products
of the Company and to provide marketing services as defined. In
exchange for these services, the sales representative is entitled
to a commission of 3.0% of net sales, as defined. There is no
minimum monthly commission for the initial twelve months and the
representative will also be entitled to an additional performance
bonus, as defined. The contract is on a month to month basis and
may be terminated by either party with thirty days written notice
to the other party. For the three and nine months ended September
30, 2016 and 2015, no fees were incurred under this
agreement.
Social
Media Agreement
In
August 2014, the Company entered into an agreement with a
contractor to provide social media management services. The
agreement continues through completion of the project and is
subject to early cancellation with fifteen days’ notice prior
to the date of cancellation. Fees for the services are $3,179, per
month. For the three and nine months ended September 30, 2016 and
2015, the Company incurred expense of $0 and $3,844 and $13,028 and
$37,317 under the agreement.
Food
Broker Agreement
In
September 2014, the Company entered into an agreement appointing a
food broker as its sole and exclusive representative for one year
terms to provide services related to negotiating the sale of the
Company’s products within a defined territory. The food
broker will receive a guaranteed monthly income of $3,500 for the
first seven months of the agreement and a commission of 5% on each
sale to be computed on the net invoice price as defined. Until such
time as the commissions reach $3,500 per month, the Company will
continue to pay the $3,500 monthly income. The agreement will be in
effect from year to year and may be terminated by either party with
ninety days written notice. All commissions earned will be paid
during the ninety day transition period and will continue for an
additional ninety days after the termination date. For the three
and nine months ended September 30, 2016 and 2015, the Company
incurred expense of $0 and $0 and $10,500 and $31,500 under the
agreement.
BE ACTIVE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Public
Relations Agreement
Effective September
1, 2014, the Company entered into an agreement with a consultant to
provide public relations services for a monthly retainer of $4,000
and 240 shares of the Company’s common stock to be issued
equally in installments that vest over a twelve month period. The
agreement may be terminated in writing with two months’
notice. For the three and nine months ended September 30, 2016 and
2015, the Company incurred expense of $0 and $0 and $8,000 and
$32,000 under the agreement.
Common
Stock to be Issued
Management has
estimated that an additional 693,001 shares of common stock (see
Note 8) are required to be issued under various ratchet provisions.
However, the actual amount of shares to be issued could be greater
than the amount estimated by management.
Litigation
On May
2, 2014, an action was commenced against the Company and two of its
officers in the Supreme Court of the State of New York, County of
Nassau. The action relates to restricted shares of the Company
acquired by the plaintiff which the plaintiff allegedly sought to
sell. The complaint asserts claims under various theories,
including conversion, breach of contract, breach of fiduciary duty,
fraudulent misrepresentation and unjust enrichment, and seeks
damages in excess of five million dollars.
The
Company filed its Motion to Dismiss on or about June 30, 2014,
plaintiff filed its opposition to the Company’s motion on or
about July 29, 2014. On September 2, 2014 the Motion to Dismiss was
denied. On October 6, 2014, the Company submitted a verified Answer
to the Complaint. On February 25, 2015, the Company attended a
mediation session and subsequently settled the claim. The
confidential settlement from the above action will be covered by
the Company’s director’s and officer’s insurance
policy. In connection with the settlement, a loan which was due to
the plaintiff for $25,555 was settled and recorded as forgiveness
of debt on the accompanying consolidated financial
statements.