Be Active Holdings, Inc. - FORM 10-Q

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EX-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 - Be Active Holdings, Inc.	ex32-2.htm
EX-32.1 - CERTIFICATION OF THE PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Be Active Holdings, Inc.	ex32-1.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Be Active Holdings, Inc.	ex31-2.htm
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Be Active Holdings, Inc.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2016 or
[ ]	Transition Report under Section 13 or 15(d) of the Exchange Act

For the transition period from __________ to __________

Commission file number: 000-55185

Be Active Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		68-0678429
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1010 Northern Blvd., Great Neck, NY		11021
(Address of principal executive offices)		(Zip Code)

(212) 736-2310

(Registrant’s telephone number, including area code)


	(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]	Accelerated filer	[ ]

Non-accelerated filer	[ ]	Smaller reporting company	[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of August 10, 2016 there were 3,383,680 shares of common stock issued and outstanding.

FORM 10-Q

Be Active Holdings, Inc.

INDEX

		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
	Consolidated Balance Sheets – June 30, 2016 (unaudited) and December 31, 2015	1
	Unaudited Consolidated Statements of Operations	2
	Unaudited Consolidated Statements of Changes in Stockholders' Deficit	3
	Unaudited Consolidated Statements of Cash Flows	4
	Notes to the Consolidated Financial Statements (Unaudited)	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		25

Item 4. Controls and Procedures		25

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		27

Item 1A. Risk Factors		27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27

Item 3. Defaults Upon Senior Securities		27

Item 4. Mine Safety Disclosures		27

Item 5. Other Information		27

Item 6. Exhibits		27

Signatures		28

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PART I - FINANCIAL INFORMATION

BE ACTIVE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
		2016			2015
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	19		$	441,189
Inventory		75,124			80,142
Prepaid expenses and other current assets		31,994			6,643
Total current assets		107,137			527,974

Property and equipment, net		10,935			14,210
Security deposit		6,560			6,560

Total assets	$	124,632		$	548,744

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	238,985		$	300,237
Accrued expenses and taxes		594,259			362,353
Secured convertible notes payable (net of $139,806 and $756,837 discounts and debt issuance costs)		1,032,694			513,163
Due to officers/stockholders		179,075			289,075
Total current liabilities		2,045,013			1,464,828

Deferred rent		4,419			6,729
Derivative liability		568,163			2,232,586

Total liabilities		2,617,595			3,704,143

Stockholders' deficit
Preferred stock, par value $0.0001 per share, 150,000,000 shares authorized. Issued and outstanding as of June 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 June 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 June 30, 2016 and December 31, 2015		2			2
Series D Convertible Preferred stock, 3,000,000 shares designated; 3,000 issued and outstanding at June 30, 2016 and December 31, 2015		-			-
Common stock, par value $0.0001, per share, 3,000,000,000 shares authorized; 2,833,680 and 1,740,247 shares issued at June 30, 2016 and December 31, 2015		284			174
Additional paid-in capital		16,295,738			16,163,348
Accumulated deficit		(18,788,989	)		(19,318,925	)
Treasury stock at cost; 4 shares		-			-
Total stockholders' deficit		(2,492,963	)		(3,155,399	)
Total liabilities and stockholders' deficit	$	124,632		$	548,744

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BE ACTIVE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
		2016			2015			2016			2015

Net Sales	$	-		$	69,343		$	-		$	47,309	*

Cost of Goods		-			46,884			5,018			80,498
Gross Profit (Loss)		-			22,459			(5,018	)		(33,189	)

Operating Expenses
Selling expenses		17,510			55,623			25,928			99,198
General and administrative		220,574			222,853			436,980			514,830
(Decrease) in fair value of derivative liability		(1,038,561	)		(234,475	)		(1,569,255	)		(752,060	)
Gain on settlement of secured convertible notes payable		(51,361	)		-			(90,163	)		-
Depreciation and amortization expense		1,637			1,671			3,275			3,342
Total operating expenses		(850,201	)		45,672			(1,193,235	)		(134,690	)

Loss from operations before other income (expenses)		850,201			(23,213	)		1,188,217			101,501

Other Income (Expenses)
Forgiveness of debt income					-						25,555
Amortization of deferred financing costs and debt discount		(194,565	)		(321,603	)		(617,031	)		(672,396	)
Interest (expense) income, net		(20,625	)		(11,124	)		(41,250	)		(22,896	)
Total other income (expenses)		(215,190	)		(332,727	)		(658,281	)		(669,737	)

Net Income (loss)	$	635,011		$	(355,940	)	$	529,936		$	(568,236	)

Gain on extinguishment of Series B preferred stock		-			-			-			3,420,804

Net (loss) income attributable to common stockholders		635,011			(355,940	)		529,936			2,852,568

Net (loss) income per common share:
Basic	$	0.24		$	(0.76	)	$	0.21		$	6.38
Diluted	$	0.09			-	**	$	0.13		$	6.38

Weighted Average Shares Outstanding
Basic		2,684,775			471,427			2,582,591			446,947
Diluted		9,300,773			579,247			9,198,589			554,767

* Inclusive of charges for slotting fees (Note 12)
** Not applicable

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BE ACTIVE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2016

	Common Stock				Preferred Series A Stock				Preferred Series C Stock				Preferred Series D Stock				Additional Paid-In			Accumulated			Treasury Stock
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Shares			Amount		Total
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		325,000		33														102,467											102,500

Shares issued for consulting services		100,000		10		-		-		-		-		-		-		29,990			-			-			-		30,000

Net (loss)		-		-		-		-		-		-		-		-		-			529,936			-			-		529,936

Balance, June 30, 2016		2,833,680	$	284		11,664	$	2		20,000	$	2		3,000	$	-		16,295,738		$	(18,788,989	)		(4	)	$	-	$	(2,492,963	)

(1) All periods presented have been retroactively adjusted to reflect the reverse stock split authorized December 24, 2015.

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BE ACTIVE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities
Net income (loss)	$	529,936		$	(568,236	)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization		3,275			3,342
Amortization of deferred financing costs and debt discount		617,031			672,396
Stock granted for consulting services		30,000			456
Forgiveness of debt income		-			(25,555	)
Gain on settlement of secured convertible notes payable		(90,163	)		-
(Decrease) in fair value of derivative liability		(1,569,255	)		(752,060	)
Decrease in escrow account		-			12,500
Decrease in accounts receivable		-			23,576
Decrease in inventory		5,018			31,495
(Increase) decrease in prepaid expenses and other current assets		(25,351	)		4,898
(Decrease) in deferred rent		(2,310	)		(322	)
Increase in accounts payable and accrued expenses		170,649			94,411
Net cash (used in) operating activities		(331,170	)		(503,099	)

Cash flows from financing activities
(Decrease) increase in due to officers/stockholders		(110,000	)		241
Net cash (used in) provided by financing activities		(110,000	)		241

Net (decrease) in cash and cash equivalents		(441,170	)		(502,858	)

Cash and cash equivalents, beginning of year		441,189			504,358
Cash and cash equivalents, end of year	$	19		$	1,500

Supplemental cash flow disclosures:
Interest paid	$	-		$	-
State minimum taxes and franchise fees paid	$	4,491		$	2,534
Conversion of notes payable	$	97,500		$	-

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BE ACTIVE HOLDINGS, INC.

NOTES 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 June 30, 2016, has an accumulated deficit of ($18,788,989) and stockholders’ deficit of ($2,492,963). 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.

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.

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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 June 30, 2016 and December 31, 2015, no allowance for doubtful accounts was required.

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 $0 and $0 and $5,776 and $9,006 for the three months and sixth months ended June 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 June 30, 2016 and December 31, 2015, debt issuance costs, net of accumulated amortization of $62,125 and $9,375 amounted to $43,375 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 convertible notes payable (see Note 8).

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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.

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 June 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 six months ended June 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.

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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.

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, at June 30, 2016 and December 31, 2015 the Company presents $43,375 and $96,125 of debt issuance costs as a reduction of secured convertible notes payable, respectively.

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:

	June 30, December 31,
		2016		2015

Materials	$	20,253	$	20,253
Finished product		54,871		59,889

Total	$	75,124	$	80,142

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	June 30, 2016			December 31, 2015

Furniture and Fixtures	$	6,138		$	6,138
Website		18,000			18,000

Less: Accumulated depreciation		(13,203	)		(9,928	)

Balance	$	10,935		$	14,210

Depreciation and amortization expense for the six months ended June 30, 2016 and 2015 were $3,275 and $3,342, respectively.

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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 June 30, 2016 and 2015, the number of potential dilutive common shares is comprised of the following:

	2016		2015
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		20,000
Common share equivalents of Series D Convertible Preferred Stock		3,000		1,989
Convertible Promissory Notes Payable		3,908,333		74,167

Shares issuable under ratchet provisions		693,001		0

Total		6,615,998		107,820

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 six months ended June 30, 2015. During the six months ended June 30, 2016, the Company repaid approximately $110,000 of advances received in 2015.

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 $356,500 on the debt issuance costs during the three and six months ended June 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 six months of 2016, the Company issued 325,000 shares of its common stock in connection with the conversion of $97,500 of Notes. In accordance with the accounting for debt extinguishment, the difference between the $97,500 carrying value of the Notes, plus the associated embedded derivative liability of $95,168 and the $102,500 fair value of 325,000 shares of common stock issued, resulting in a net gain of approximately $90,200.

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.

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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 June 30, 2016, using the Black-Scholes Pricing Model, the Company re-valued the remaining February 2014 warrants at $348 a decrease in fair value of $1,243 from December 31, 2015 and a decrease in fair value of $570,651 since inception.

At June 30, 2016, the 13,333 ratchet warrants granted at December 31, 2014 were re-valued using the Black-Scholes Pricing Model at $1,593, a decrease in fair value of $5,040 from December 31, 2015.

The significant assumptions utilized by the Company in the valuation of these warrants at June 30, 2016 and December 31, 2015 were as follows:

	2016			2015
Market Price:	$	0.17		$	0.55
Exercise Price:	$	0.30		$	0.30
Volatility:		128	%		149	%
Dividend Yield:	zero			zero
Term in years:	2.63 and 3.50			3.1 and 4.0
Risk Free Rate of Return:		1.01	%		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:

	2015
Market Price:	$	0.55
Exercise Price:	$	30.00
Volatility:		149	%
Dividend Yield:	zero
Term in years:	<1
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.

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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 $18,750 on the debt issuance costs during the three and six months ended June 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.

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 $34,000 on the debt issuance costs during the three and six months ended June 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.

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A summary of the convertible notes at June 30, 2016 are as follows:

	Face Amount			Unamortized Discount			Debt Issuance Cost			Carrying Value

December 31, 2015	$	1,270,000		$	(660,712	)		(96,125	)		513,163

2016 Amortization					564,281			52,750			617,031
Conversions		(97,500	)								(97,500	)

June 30, 2016	$	1,172,500		$	(96,431	)		(43,375	)	$	1,032,694

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 June 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.

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 June 30, 2016, the embedded conversion derivative for all three debt financings was revalued to $566,222. The assumptions considered in the valuation model for the December 31, 2014 Notes at June 30, 2016 and December 31, 2015 were:

	June 30,			December 31,
	2016				2015

Trading price of common stock on measurement date	$	0.17			$	0.550
Conversion price	$	0.30			$	0.300
Risk free interest rate (1)		0.36	%			0.15	%
Conversion notes lives in years	<1 year			< 1 year
Expected volatility (2)		265	%			208	%
Expected dividend yield (3)		-				-

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The assumptions considered in the valuation model for the Sept 2015 and Dec 2015 Notes at June 30, 2016 and December 31, 2015 were:


	June 30,			December 31,
	2016				2015

Trading price of common stock on measurement date	$	0.17			$	0.55
Conversion price	$	0.30			$	0.30
Risk free interest rate (1)		0.26% -0.36	%			0.57%-0.65	%
Conversion notes lives in years	<1 year			<1 year to 1 year
Expected volatility (2)		248% - 265	%			208% - 224	%
Expected dividend yield (3)		-				-

(1)	The risk-free interest rate was determined by management using the 3 and 6 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.

A summary of the derivative liability at June 30, 2016 is summarized as follows:

Balance, December 31, 2015	$	2,232,586

Conversion of notes payable		(95,168	)

Change in fair value		(1,569,255	)


Balance, June 30, 2016	$	568,163

The derivative liability at June 30, 2016 consists of debt conversion of $566,222 ($2,224,361 - 2015) and warrants of $1,941 ($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 six months ended June 30, 2016 and 2015, the Company amortized $168,190 and $564,281 and $143,353 and $315,896, respectively, of the debt discount. In addition, amortization of deferred debt issuance costs amounted to $26,375 and $52,750 and $178,250 and $356,500 for the three and six months ended June 30, 2016 and 2015, respectively.

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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.

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.

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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 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.

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.

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Warrants

As of June 30, 2016, the Company had warrants to purchase common shares outstanding as follows:

Date of Grant	Number of Warrants		Expiration Date	Exercise Price

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 June 30, 2015, the Company had warrants to purchase common shares outstanding as follows:

Date of Grant	Number of Warrants		Expiration Date	Exercise Price

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.

11. CONCENTRATIONS

Credit is granted to most customers. The Company performs periodic credit evaluations of customers’ financial condition and generally does not require collateral.

The Company had no sales or accounts receivable during the three and six months ended June 30, 2016. Sales to one customer of the Company accounted for 100% of sales for the three and six months ended June 30, 2015 and represented 100% of accounts receivable for the three and six months ended June 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 six months ended June 30:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Gross sales	$	-	$	96,120	$	-	$	150,876
Less:
Sales discounts		-		1,922		-		3,038
Trade spending		-		24,855		-		25,529
Slotting fees		-		-		-		75,000

Net sales	$	-	$	69,343	$	-	$	47,309

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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 $9,235 and $18,101 and $5,741 and $11,141 were recorded as an offset to rent expense for the three and six months ended June 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.

As of June 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 six months ended June 30, 2016 and 2015 were $33,750 and $67,500 and $33,750 and $76,981, 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 six months ended June 30, 2016 and 2015 was $33,750 and $67,500 and $14,423 and $63,846, 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 six months ended June 30, 2016 and 2015 was $33,750 and $67,500 and $33,750 and $79,481, respectively.

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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 six months ended June 30, 2016 and 2015 was $1,845 and $3,690 and $4,717 and $10,822, respectively.

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 six months ended June 30, 2016 and 2015, $36,000 and $39,500 and $4,500 and $9,000 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 six months ended June 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 six months ended June 30, 2016 and 2015, the Company incurred expense of $0 and $3,844 and $14,830 and $24,289 under the agreement.

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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 six months ended June 30, 2016 and 2015, the Company incurred expense of $0 and $0 and $10,500 and $21,000 under the agreement.

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 six months ended June 30, 2016 and 2015, the Company incurred expense of $0 and $0 and $12,000 and $24,000 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 .

16. SUBSEQUENT EVENTS

In August 2016, Sandor Capital Master Fund converted $165,000 of its secured convertible note payable from the December 2014 financing to 550,000 shares of the Company's common stock.

In August 2016, two of the executive officers advanced the Company a total of $8,000 to fund expenses due.

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

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 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 six months ended June 30, 2016, the Company issued 325,000 shares of its common stock in connection with the conversion of $97,500 of secured notes payable.

The financial statements reflect a 1 for 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. 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.

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, par value $0.0001, from 525,000,000 to 750,000,000, effective upon filing an amended Certificate of Incorporation with the State of Delaware representing the amendment.

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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, effective upon filing an amended Certificate of Incorporation with the State of Delaware representing the amendment.

On, March 2, 2015, the Board of Directors of the Company designated and authorized to issue 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 preferred stock 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 preferred stock. On March 9, 2015, the Company granted as compensation 1,000 shares of the Series D preferred stock to each of three officers of the Company to be recorded at the fair value at the date of issuance.

On February 18, 2014, we filed a Certificate of Designations of Preferences, Rights and Limitations of Series C Convertible Preferred Stock authorizing the issuance of up to 26,666,667 shares of Series C Convertible Preferred Stock.

Concurrently, on February 18, 2014 we sold an aggregate of 33,333 shares of common stock, 26,667 shares of Series C Convertible Preferred Stock, (the “Shares“) and five year warrants to purchase up to an aggregate of 59,999 shares of common stock at an exercise price of $30.00 per share (the “February Warrants“) with gross proceeds to the Company of $1,799,999.99 (the “February Private Placements“) to the February Investors pursuant to a subscription agreement (the “February Subscription Agreement“). Each Share was sold for a purchase price of $30.00 per Share. February Investors, who would, as a result of the purchase of shares of common stock, hold in excess of 5% of the Company’s issued and outstanding common stock, were afforded the opportunity to elect to receive shares of Series C Convertible Preferred Stock. Until the earlier of (i) three years from the closing of the February Private Placement or (ii) such time as no February Investor holds any Shares, Warrants, or shares of common stock underlying Warrants or underlying the Series C Convertible Preferred Stock, in the event we issue or sell common stock or common stock equivalents at a per share price equal to less than $30.00 share, as adjusted, we agreed to issue additional Shares such that the aggregate purchase price paid by such February Investor shall equal such lower price issuance, subject to certain customary exceptions.

Each share of Series C Convertible Preferred Stock is convertible, at the option of the holder at any time, into 100 shares of common stock and has a stated value of $0.0001 per share. The conversion ratio of the Series C Convertible Preferred Stock is subject to adjustment in the case of stock splits, stock dividends, combination of shares and similar recapitalization transactions.

The Warrants are exercisable for a period of five years from the date of issuance and have an exercise price of $0.30 share, subject to adjustment upon the occurrence of certain events such as lower priced issuances, stock splits and dividends.

In connection with the February Private Placement, we granted the February Investors “piggy-back“ registration rights. Additionally, February Investors are entitled to a right of participation in future financings conducted by the Company for a period of 24 months.

On December 31, 2014, the Company entered into a Securities Purchase Agreement (“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 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 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 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 issue costs on the accompanying consolidated financial statements and is being charged to operations over the twelve months ended December 31, 2015 or the date of conversion, if earlier. The Company recorded amortization expense of $0 and $0 and $178,250 and $356,500 on the debt issuance costs during the three and six months ended June 30, 2016 and 2015, respectively. At December 31, 2015 the maturity date of the notes were extended to December 31, 2016.

Under the Agreement, the Company sold an aggregate of $425,000 in Secured Convertible Notes (“Notes“) and 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 at the option of the Company. Since the equity obligations were met during 2015, the Notes accrued interest at 10%, per annum through June 2015. The original conversion price on the Note was $6.00 and has subsequently reduced to $0.30 at December 31, 2015.

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During the period ended June 30, 2016, the Company issued 325,000 shares of its common stock in connection with the conversion of $97,500 of Notes. In accordance with the accounting for debt extinguishment, the difference between the $97,500 carrying value of the Notes, plus the associated embedded derivative liability of $95,168 and the $68,000 fair value of 325,000 shares of common stock issued, resulting in a net gain of approximately $90,200.

In connection with the transaction, and under its anti-dilution provisions of the February 2014 private placement 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 shareholders holding securities purchased in that offering. This reflects the post-split adjustment to shares issued and the price per share. The face value 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.

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.

The September 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 September 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 September 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 condensed 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 $18,750 on the debt issuance costs during the three and six months ended June 30, 2016.

Under the September 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.

On December 31, 2015, the Company entered into a Securities Purchase Agreement (“December 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 December 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 December 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 December 2015 Agreement to provide such favorable terms to the Purchasers. The Company paid $18,000 in legal fees, 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 condensed 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 $34,000 on the debt issuance costs during the three and six months ended June 30, 2016.

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Under the December 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.

In connection with the September 2015 and December 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 June 30, 2016.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2016 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2015

Sales

Gross Sales were $0 and $96,120 for the three months ended June 30, 2016 and 2015, respectively. The decrease in gross sales of $96,120 was due to a capital constraints and production.

Reconciling items that included sales discounts, trade spending, and slotting fees totaled $0 and $26,777 for the three months ended June 30, 2016 and 2015, respectively. Net sales for the three months ended June 30, 2016 was $0 compared to $69,343 as compared to net sales for the three months ended June 30, 2015.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2016 was $0, as compared to $46,884 for the three months ended June 30, 2015. The decrease of $46,884 is attributable to a decrease in production and sales.

Gross Profit (Loss)

Gross Profit (loss) for the three months ended June 30, 2016 was $0, as compared to a gross profit of $22,459 for the three months ended June 30, 2015. The decrease of $22,459 in gross profit was due to production and sales.

Operating Expenses

Operating expenses, consisting of selling, general and administrative expenses, (decrease) in fair value of derivative liability, gain on settlement of secured convertible notes payable, and depreciation and amortization expense for the three months ended June 30, 2016 increased to an income of ($850,201) from a loss of $45,672 for the three months ended June 30, 2015, an increase in income of $895,873. This increase is due primarily to an increase in the decrease in the fair value of the derivative liability of $804,086, decrease in general and administrative expense of $2,279 and the gain of $51,361 recognized on the conversion of notes payable for the three months ended June 30, 2016. The decrease in fair value of derivative liability from 2015 to 2016 resulted from the input changes in the pricing models used to determine fair values, as well as the conversion of secured convertible notes payable into common stock during 2016.

Selling expenses consist primarily of advertising, promotion and marketing fees. Selling expenses for the three months ended June 30, 2016 decreased to $17,510 from $55,623 for the three months ended June 30, 2015, an decrease of ($38,113) or 69%. The decrease is primarily due to decreases in marketing expense of ($28,213) and promotion of ($780), freight out of ($5,776), storage expenses of ($370) and travel and entertainment of ($2,847).

General and administrative expenses consist primarily of office, utilities, computer, internet, and insurance expenses. General and administrative expenses for the three months ended June 30, 2016 decreased to $220,574 from $222,853 for the three months ended June 30, 2015, a decrease of $2,279 or 1%. The decrease is primarily attributable to decrease in outside services and decrease in commissions.

Other Income (Expense)

Other (expense) decreased to ($215,190) for the three months ended June 30, 2016 as compared to other (expense) of ($332,727) for the three months ended June 30, 2015. This decrease of $117,537 in expense is the result of an decrease in expense in amortization of deferred financing costs and debt discount of $127,038 and increase in interest expense $9,501 all incurred as a result of the capital raise in December 2015 and September 2015.

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Net Income (Loss)

Net income for the three months ended June 30, 2016 increased to $635,011 from a loss of ($355,940), an increase in income of $990,951. This increase is due primarily to decrease in gross income of ($22,459), a decrease in the decrease of fair value of derivative liability of $804,086, decrease in selling expenses of ($38,113), increase in gain on settlement of secured convertible notes payable of $51,361 and a decrease in other expenses of ($117,537).

Income (Loss) per Common Share

Basic income or (loss) per share for the three month periods ending June 30, 2016 and 2015 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.

SIX MONTHS ENDED JUNE 30, 2016 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2015

Sales

Gross Sales were $0 and $150,876 for the six months ended June 30, 2016 and 2015, respectively. The decrease in gross sales of $150,876 was due to a capital constraints and production.

Reconciling items that included sales discounts, trade spending, and slotting fees totaled $0 and $103,567 for the six months ended June 30, 2016 and 2015, respectively. Net sales for the six months ended June 30, 2016 was $0 compared to $47,309 as compared to net sales for the six months ended June 30, 2015.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2016 was $5,018, as compared to $80,498 for the six months ended June 30, 2015. The decrease of $75,480 is attributable to a decrease in production and sales.

Gross Loss

Gross loss for the six months ended June 30, 2016 was ($5,018), as compared to a gross loss of ($33,189) for the six months ended June 30, 2015. The decrease of $28,171 in gross loss was due to decrease in sales and related slotting fees and discounts.

Operating Expenses

Operating expenses, consisting of selling, general and administrative expenses, (decrease) in fair value of derivative liability, gain on settlement of secured convertible notes payable, and depreciation and amortization expense for the six months ended June 30, 2016 increased to an (income) of ($1,193,235) from an (income) of ($134,690) for the six months ended June 30, 2015, an increase in income of $1,058,545. This increase is due primarily to an increase in the decrease in the fair value of the derivative liability of $817,195, decrease in selling expenses of $73,270, decrease in general and administrative expense of $77,850 and the gain of $90,163 recognized on the conversion of notes payable for the six months ended June 30, 2016. The decrease in fair value of derivative liability from 2015 to 2016 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 six months ended June 30, 2016 decreased to $25,928 from $99,198 for the six months ended June 30, 2015, an decrease of ($73,270) or 74%. The decrease is primarily due to decreases in marketing expense of ($46,599) and promotion of ($3,319), freight out of ($9,006), storage expenses of ($4,518) and travel and entertainment of ($10,553).

General and administrative expenses consist primarily of office, utilities, computer, internet, and insurance expenses. General and administrative expenses for the six months ended June 30, 2016 decreased to $436,980 from $514,830 for the six months ended June 30, 2015, a decrease of $77,850 or 15%. The decrease is primarily attributable to decrease in outside services, decrease in commissions and decrease in payroll.

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Other Income (Expense)

Other (expense) decreased to ($658,281) for the six months ended June 30, 2016 as compared to other (expense) of ($669,737) for the six months ended June 30, 2015. This decrease of $11,456 in expense is the result of a decrease in forgiveness of debt income, a decrease in expense in amortization of deferred financing costs and debt discount of $55,365 and an increase interest expense $18,354 all incurred as a result of the capital raise in December 2015 and September 2015.

Net Income (Loss)

Net income (loss) for the six months ended June 30, 2016 increased to income of $529,936 from a net (loss) of ($568,236) for the six months ended June 30, 2015, an increase in income of 1,098,172. This increase is due primarily to an increase in the decrease in the fair value of the derivative liability of $817,195,decrease in gross loss of ($28,171) decrease in selling expenses of $73,270, a decrease in general and administrative expenses of $77,850, the gain on conversion of notes payable of $90,163, and a decrease in other expenses of $11,456.

Net Income Loss Attributable to Common Stockholders

Net income (loss) attributable to common stockholders includes a gain on extinguishment of Series B preferred stock of $3,420,804 for the six months ended June 30, 2015.

Income (Loss) per Common Share

Basic income or (loss) per share for the six month periods ending June 30, 2016 and 2015 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 June 30, 2016 were $107,137, current liabilities were $2,045,013 and the Company had negative working capital of $1,937,876. Significant losses from operations have been incurred since inception and there is an accumulated deficit of $18,788,989 and stockholders’ deficit of $2,492,963 as of June 30, 2016. 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 period ended June 30, 2016, the Company used $331,170 in cash from operations while also using $110,000 in cash to reduce the loan to officer in financing activities. During the comparative 2015 period, the Company used $503,099 in cash flow from operations, while producing $241 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4. Controls and Procedures

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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 three 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.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company's property is not subject of any pending legal proceedingsWe are not a party to, and our property is not the subject of, any material pending legal proceedings, except as stated below.

Item 1A. Risk Factors

Smaller reporting companies are not required to provide Item 1A disclosure or risk factors in their 10-K

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On On April 20, 2016, the Company issued 100,000 shares of common stock as full payment to the Company's investor relations company per the agreement at a price of $0.30 per share.

On On April 21, 2015, the Company issued 64,000 shares of common stock as full payment of the due diligence fee related to the debt offering on December 31, 2014.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits

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.

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SIGNATURES

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.

August 10, 2016	/s/ Joseph Rienzi
	By: Joseph Rienzi
	Its: President and Director (Principal Executive Officer)


August 10 , 2016	/s/ David Wolfson
	By: David Wolfson
	Its: Chief Financial Officer (Principal Financial and Accounting Officer)

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Be Active Holdings, Inc. - FORM 10-Q - August 10, 2016

Attached files

Be Active Holdings, Inc. Reports