This report contains forward-looking statements. These forward-looking statements, without limitation, contain words that include “believes,” “anticipates,” “expects,” “intends,” “projects,” “will,” and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report reflect our intentions, beliefs, projections, outlook, analysis or current expectations concerning, among other things, expectations of future levels of research and development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us. Forward-looking statements subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to those described in “Risk Factors” contained in the Company’s reports filed with the Securities and Exchange Commission.
CORPORATE OVERVIEW
Be Active Holdings, Inc. f/k/a Superlight, Inc. (“we”, “Be Active” or the “Company”) was incorporated as a Delaware corporation on December 27, 2007. On December 28, 2012, the Company amended and restated its Certificate of Incorporation to change its name from “Super Light Inc.” to “Be Active Holdings, Inc.”
Since inception and until our merger with Be Active Brands, Inc. (“Be Active Brands”) on January 9, 2013, as further described herein, we conducted market analysis on diaper usage in our target market, researched governmental regulations for the importing of such products, and negotiated pricing with possible suppliers.
Prior to the merger, the business we currently operate was conducted through our wholly owned subsidiary Be Active Brands. The discussion of our business both before and after the merger in this Form 10-Q is that of our current business which was and continues to be conducted through Be Active Brands.
Be Active Brands was organized under the laws of the State of Delaware on March 10, 2009. The Company manufactures and sells low fat, low calorie, all natural probiotic enriched frozen yogurt and ice cream under the trade name "Jala" and has trademarked its Jala cow logo. Its frozen yogurt is packaged as low fat sandwiches and bars which are designed to appeal to the health conscious or weight conscious consumer.
Recent Developments
On January 9, 2013, we entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Be Active Brands and Be Active Acquisition Corp., our newly formed, wholly-owned Delaware subsidiary (“Acquisition Sub”). Upon closing of the transaction contemplated under the Merger Agreement (the “Merger”), Acquisition Sub merged with and into Be Active, and Be Active, as the surviving corporation, became our wholly-owned subsidiary.
Pursuant to the terms and conditions of the Merger Agreement:
All issued and outstanding shares of Be Active’s Class A and Class B common stock were converted into the right to receive an aggregate of 29,502,750 shares of the Company’s common stock, $0.0001 par value per share (“Common Stock”). Under the terms of the Merger Agreement, holders of Be Active’s Class A and Class B common stock were treated equally as it relates to consideration paid in connection with the Merger.
Following the closing of the Merger, the Company sold an aggregate of 3,902,993 units (“January Units”) in a private placement (the “January Private Placement”). $419,999.88 of the January Units were sold at a per unit price of $0.23. Additionally, and included in the foregoing January Unit total, an aggregate of $385,000 of bridge notes of Be Active, plus accrued interest of $9,612 converted into the January Private Placement at per January Unit price of $0.19. Each January Unit consisted of (i) one share of the Company’s common stock, and (ii) a three year warrant to purchase shares of common stock equal to 100% of the number of shares of common stock sold in the January Private Placement at an exercise price of $0.30 per share. In connection with the January Private Placement, the Company and the investors entered into a Registration Rights Agreement whereby the Company agreed to register the shares underlying the units and issuable upon exercise of warrants for resale on a Registration Statement, to be filed with the SEC within 60 days of the final closing of the January Private Placement and to cause such Registration Statement to be declared effective within 120 days of the filing date.
In May 2013 the Registration Rights Agreement was amended to extend the filing to 180 days from the filing date. On July 2, 2013 the Registrations Rights Agreement was further amended to extend the filing date from 180 days to 240 days after the closing date. On September 25, 2013, the Company filed a Registration Statement on Form S-1 to register an aggregate of 158,652,485 shares of the Company’s common stock, however, the Registration Statement never went effective and the shares were not registered.
Immediately following the closing of the Merger and the Private Placement, under the terms of an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations, the Company transferred all of its pre-Merger assets and liabilities to its wholly owned subsidiary, Superlight Holdings, Inc., a Delaware corporation (“SplitCo”). Thereafter, pursuant to a Stock Purchase Agreement, the Company transferred all of the outstanding capital stock of SplitCo to a former officer and director of the Company in exchange for cancellation of an aggregate of 90,304,397 shares of the Company’s common stock held by such person.
On April 25, 2013, the Company entered into subscription agreements (the “April Agreements”) with certain accredited investors (the “April Investors”) whereby it sold an aggregate of 28,333,334 units (the “April Units”) with gross proceeds to the Company of $850,000 (the “April Private Placement”), less $150,000 of offering costs. The offering costs include 2,083,334 Units valued at $62,500 for legal fees. Each April Unit was sold for a purchase price of $0.03 per unit and consisted of: (i) one share of the Company’s Common Stock (or at the election of the April Investor who would, as a result of the purchase of the April Units, hold in excess of 5% of the Company’s issued and outstanding Common Stock, one share of the Company’s newly designated Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), which is convertible into shares of the Company’s Common Stock on a one for one basis) and (ii) a five-year warrant (the “April Warrants”) to purchase an additional share of Common Stock at an exercise price of $0.05 per share, subject to adjustment upon the occurrence of certain events such as lower priced issuances, stock splits and dividends.. In connection with the April Private Placement, the Company granted the April Investors demand registration rights, commencing 30 days after the closing of the April Private Placement and ending one year after the closing of the April Private Placement, pursuant to which April Investors holding at least 50% of the outstanding securities sold in the April Private Placement may request, on 60 days’ notice, the filing of a registration statement with the Securities and Exchange Commission, covering the resale of securities underlying the April Units. Additionally, the Company granted the April Investors “piggy-back” registration rights for a period of 180 days beginning on the closing date of the April Private Placement.
In connection with the sale of the April Units, the Company was required to issue to the investors in the January Private Placement additional shares of Common Stock (or, at the election of such investor in the January Private Placement who would, as a result of such issuance, become the holder of in excess of 5% of the Company’s issued and outstanding Common Stock, shares of Series A Preferred Stock), in connection with certain anti-dilution protection provided to such investors under the terms of the January Private Placement. As a result of the foregoing, the Company issued an aggregate of an additional (a) 3,789,473 shares of Common Stock (b) 19,191,458 shares of Series A Preferred Stock and (c) warrants to purchase an additional 22,980,931 shares of Common Stock at an exercise price of $0.03 per share. Furthermore, the exercise price of the warrants issued in the Prior Offering was reduced to a per share exercise price of $0.03.
In connection with the April Private Placement, management determined that it was in the best interest of its shareholders to issue additional shares of Common Stock to certain of the original investors of Be Active Brands, who, as a result of the Merger, became shareholders of the Company. As a result, the Company issued an aggregate of 23,054,778 shares of Common Stock to certain of the former shareholders of Be Active as a result of the significant dilution such shareholders experienced as a result of the April Private Placement. In consideration for such issuance, the shareholders released the Company from actions relating to the Company’s reverse merger and various financings as well as from any rights under that certain Agreement of Shareholders of Be Active Brands, Inc. dated as of January 26, 2011.
Additionally, on April 26, 2013, the Company designated 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 members of management, to wit: Saverio Pugliese, David Wolfson and Joseph Rienzi. Each share of Series B Preferred Stock is entitled to such number of votes on all matters submitted to shareholders 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 the date of issuance of the Series B Preferred Stock, each outstanding share of Series B Preferred Stock shall 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 shall cause the holder to own, along with any other securities of the Company beneficially owned on the conversation date by them, 13.334% of the issued and outstanding Common Stock of the Company, calculated on the conversion date. On October 25, 2013 the Company amended and restated the Certificate of Designation for the 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). On April 22, 2014, the Board of Directors approved an amendment to the Certificate of Designation for the Series B Convertible Preferred Stock to extend the date on which the Series B would automatically convert into such number of fully paid and non-assessable shares of Common Stock as will cause the holder to own, along with any other securities of the Company beneficially owned on the conversation date by them, 13.334% of the issued and outstanding Common Stock of the Company, from the date 12 months from the date of issuance of such Series B Shares to such date as will be determined by the Board of Directors.
On, March 2, 2015, the Board of Directors of the Company designated and issued authorized 3,000,000 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 granted as compensation 1,000,000 shares of the Series D to each of three officers of the Company to be recorded at the fair value at the date of issuance.
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.
On February 4, 2014, 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 400,000,000 to 525,000,000. 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, effective upon filing an amended Certificate of Incorporation with the State of Delaware representing the amendment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2015 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2014
Sales
Gross Sales were $54,756 and $0 for the three months ended March 31, 2015 and 2014, respectively. The increase in gross sales of $54,756 was due to capital available for increased production.
Reconciling items that included sales discounts, returns and allowances, trade spending, and slotting fees totaled $76,789 and $0 for the three months ended March 31, 2015 and 2014, respectively. Net sales for the three months ended March 31, 2015 was a deficit of ($22,033) due to slotting fees expense of $75,000. There were no sales for the three months ended March 31, 2014.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2015 was $33,614, as compared to $0 for the three months ended March 31, 2014. The increase is attributable to capital available to increase production and sales.
Gross Profit (Loss)
Gross loss for the three months ended March 31, 2015 was $(55,647), as compared to a gross profit of $0 for the three months ended March 31, 2014. The gross loss was due to an increase in slotting fees of $75,000.
Operating Expenses
Operating expenses, consisting of selling, general and administrative expenses, stock-based compensation, increase (decrease) in fair value of derivative liability and depreciation and amortization expense for the three months ended March 31, 2015 decreased to ($180,361) from an expense of $21,947, 908 for the three months ended March 31, 2014, a decrease in expense of $22,128,269. This decrease is due to a decrease in stock based compensation of $10,423,447 and a decrease in the fair value of the derivative liability of $11,783,945 for the three months ended March 31, 2015. The stock based compensation in 2014 resulted from the issuance of Series B preferred shares, while in 2015 no such issuances occurred. The decrease in derivative liability from 2014 to 2015 resulted from the input changes in the pricing models used to determine fair values.
Selling expenses consist primarily of advertising, promotion and marketing fees. Selling expenses for the three months ended March 31, 2015 increased to $43,576 from $8,111 for the three months ended March 31, 2014, an increase of $35,465 or 437%. The increase is primarily due to increases in marketing expense of $24,778, freight out of $3,230 and storage expenses of $6,069.
General and administrative expenses consist primarily of office, utilities, computer, internet, travel and insurance expenses. General and administrative expenses for the three months ended March 31, 2015 increased to $291,977 from $249,750 for the three months ended March 31, 2014, an increase of $42,227 or 17%. The increase is primarily attributable to increases in payroll and insurance and a decrease in outside services.
Other Income (Expense)
Other income (expense) decreased to ($337,010) for the three months ended March 31, 2015 as compared to other income of $247,044 for the three months ended March 31, 2014. This increase in expense is the result of an increase in expense in amortization of deferred financing costs and debt discount of $350,793 and interest expense $11,772 all incurred as a result of the capital raise in December 2014. There was also a decrease in forgiveness of debt income of $221,466 from $247,021 for the three months ended March 31, 2014 as compared to $25,555 for the three months ended March 31, 2015.
Net Income (Loss) per Common Share
Net income per common share for the three months ended March 31, 2015 increased to $3,208,508 from a net loss of $21,700,864 for the three months ended March 31, 2014, an increase of income of $24,909,372 . This increase is due to decreases in stock-based compensation, and a change in fair value of derivative liability as discussed above, as well as a gain on extinguishment of Series B preferred stock of $3,420,804 in 2015, which is a component of net income attributable to common stockholders.
Income (Loss) per Common Share
Basic income or (loss) per share for the three month periods ending March 31, 2015 and 2014 is calculated using the weighted-average number of common shares outstanding during each 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. Potential common shares consist of incremental common shares issuable upon the exercise of warrants and convertible preferred shares. Diluted loss per share excludes the shares issuable upon the exercise of the warrants and convertible preferred stock from the calculation of net loss per share as their effect would be anti-dilutive.
Liquidity and Capital Resources
Total current assets at March 31, 2015 were $775,488, current liabilities were $1,281,420 and we had negative working capital of $505,932. Significant losses from operations have been incurred since inception and there is an accumulated deficit of $16,314,377 and stockholders’ deficit of $791,343 as of March 31, 2015. Continuation as a going concern is dependent upon 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.
During the quarter ended March 31, 2015, the Company used $405,862 in cash from operations. During the comparative 2014 quarter, the Company used $363,380 in cash flow from operations, while raising $1,535,835 in cash from financing activities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We have certain warrants and options outstanding but we do not expect to receive sufficient proceeds from the exercise of these instruments unless and until the trading price of our common stock is significantly greater than the applicable exercise prices of the options and warrants and mainly following any necessary registering of underlying securities.
Not Applicable.
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (ii) accumulated and communicated to our management, including our President and Chief Financial Officer, or officers performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our internal control over financial reporting is not currently effective due to the following:
Currently there is a lack of proper segregation of functions, duties and responsibilities with respect to our cash and control over the related disbursements due to our limited staff and accounting personnel. Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with administrative and financial matters. In the future, management intends to continue to utilize additional staff to handle certain administrative financial duties.
In addition, the Company’s limited accounting staff may not allow for us to properly account for complex accounting transactions, which could lead to a material misstatement of our financial statements.
Finally, there has been a lack of controls over the control environment in that the Board of Directors is comprised of two members who are officers of the Company. As of yet, there is no formal audit committee and no compensation committee. As the Company matures, management will continue to expand the Board of Directors.
PART II - OTHER INFORMATION
We are not a party to, and our property is not the subject of, any material pending legal proceedings, except as stated below.
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, captioned William Haramis v. Be Active Holdings, Inc., et al. (Index No. -- 601986/2014). The action relates to restricted shares of the Company held by the plaintiff. 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.
Smaller reporting companies are not required to provide Item 1A disclosure or risk factors in their 10-Q.
On April 21, 2015, the Company issued 64,000,000 shares of common stock as full payment of the due diligence fee related to the debt offering on December 31, 2014.
None.
Not Applicable.
| Exhibit No. | | Title of Document |
| 31.1 | | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | | Certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | | Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | | Certification of the Principal Financial and Accounting Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | | XBRL Instance Document* |
| 101.SCH | | XBRL Schema Document* |
| 101.CAL | | XBRL Calculation Linkbase Document* |
| 101.LAB | | XBRL Label Linkbase Document* |
| 101.PRE | | XBRL Presentation Linkbase Document* |
| 101.DEF | | XBRL Definition Linkbase Document* |
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | Be Active Holdings, Inc. |
| | |
| May 14, 2015 | /s/ Joseph Rienzi |
| | By: Joseph Rienzi |
| | Its: President and Director (Principal Executive Officer) |
| | |
| May 14, 2015 | /s/ David Wolfson |
| | By: David Wolfson |
| | Its: Chief Financial Officer (Principal Financial and Accounting Officer) |
