UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended: September 30, 2009

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____ to ____

                                                 Commission File No. 000-53383

COMPOUND NATURAL FOODS, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)

 

 

Registrant's Telephone Number, including area code: (303) 662-8118

Securities Registered Under Section 12(b) of the Exchange Act:

None

Securities Registered Under Section 12(g) of the Exchange Act:

Common Stock, $.001 par value
--------------------------
(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all 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 [ ] No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or

 

---

information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

 

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

As of March 30, 2009, 66,386,000 shares of common stock were outstanding, and the aggregate market value of the common stock of the Registrant held by non-affiliates could not be determined since there was no trading market for the common stock.

Documents Incorporated By Reference: None.

 

2

---

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

HISTORY

     The Company was formed under the laws of the state of Nevada on August 12, 1999, under the name Zurich American Financial, S. A., Inc. The Company had no operations from date of incorporation until September 29, 2004. On that date the Company acquired all of the issued and outstanding shares of common stock and warrants to purchase common stock of Compound Healthcare, Inc., a California corporation in a tax free reorganization under §368(a)(1)(B) of the Internal Revenue Code of 1986. The two principal shareholders of Compound Healthcare, Inc. were issued 60,000,000 shares of the Company (12,000,000 to Clayton Duxburg and 48,000,000 shares to Gerald Newman, respectively) and 6,085,000 shares were issued to other shareholders. Compound Healthcare, Inc. had no assets or significant operations prior thereto. The name of the corporation was changed by amendment to the Company's Articles of Incorporation to Compound Natural Foods, Inc. on October 20, 2004.

     In October 2004, the Company acquired all of the outstanding units of Pure Natural, LLC, a Colorado limited liability company in the development stages, in the business of manufacturing and marketing naturally formulated nutritional beverages and supplements. The Company's president, Joey Canyon, was a manager of Pure Nature along with Ron Noland and Gerald R. Newman. Mr. Newman was also manager of Compound Management LLC, a California limited liability company which owned a 51% interest in Pure Nature, LLC and voted in favor of the sale of that entity to the Company. Thus, Pure Nature became wholly-owned by the Company in October 2004. The unit holders of Pure Nature received 2,000,000 shares of the Company's common stock in the transaction and the right to receive up to 8,000,000 additional shares of the Company common stock if Pure Nature had $2,000,000 in net profits within 24 months of October 8, 2004, with Compound Management, LLC to receive the 8,000,000 shares of common stock of the Company if the profit contingency was not met. As a result of the transactions in April 2005 described below, the only issuance of shares from this transaction was the 2,000,000 shares issued to Pure Nature. As a consequence of the transactions in April 2005,the contingent stock issuances based upon the profits of Pure Nature were cancelled, and neither Compound Management, LLC nor the holders of Pure Nature were entitled to any additional shares.

     In April 2005, Michael Naughton of Aurora, Colorado, a former unit holder in Pure Nature and shareholder of the Company by reason of the acquisition by the Company of Pure Nature, paid $400,000 in a transaction whereby 12,000,000 shares of the Company held by Clayton Duxburg and 48,000,000 shares of the Company held by Gerald R. Newman were placed in an escrow to be distributed to Mr. Naughton and Joey Canyon, the Company's president, in amounts to be determined by them. Mr. Naughton also received a convertible promissory note of the Company's President, Joey Canyon, payable to Mr. Naughton in the amount of $400,000 with stated interest of 5.5% per annum. The note was convertible for two years from April 18, 2005, into 17,000,000 shares of restricted common stock of the Company. The note is secured by a pledge and security agreement between Mr. Naughton and Joey Canyon whereby the 60 million shares held in escrow are assigned to secure the repayment of the $400,000 promissory note held by Mr. Naughton. The note

 

3

---

is in default, and Mr. Naughton is the beneficial owner of the 60 million shares. Pursuant to the stock purchase agreement, the $400,000 paid by Mr. Naughton was distributed as follows:

 

     Mr. Naughton also received 1,000,000 shares of common stock of the Company from Brad Stewart in the transaction.

     As part of the Stock Purchase Agreement, Gerald R. Newman resigned as sole director and president of the Company and Joey Canyon became the sole director and president of the Company.

PURE NATURE, LLC

     Since its acquisition by the Company in October 2004, the Company's sole operations have been through this wholly-owned subsidiary. Pure Nature was formed in 1997, for the purpose of formulating, developing and marketing high-quality naturally formulated nutritional beverages and supplements. Its emphasis was on creating beverages and supplements (i. e., powders and dry crystals) that have optimal health and nutritional values, but also good taste. Its initial product was a dry powder which is mixed with water or other liquids marketed under the general name Hydro Charge. It was on sale at the King Soopers supermarkets in the Denver Metro area. Sales efforts were discontinued in October 2006.

The Company has no current operations.

     The Company had a manufacturing agreement with Chemins, Inc., Colorado Springs, Colorado, for the formulation, mixing and packaging of its Hydro Charge product and stored its inventories at Chemins, and at a warehouse operated by Get-A- Grip & Stuff, Inc. located at 13450 Smith Road, Aurora, Colorado.

     The Company had marketing agreements for Hydro Charge through distributors. It is the Company's position these agreements are no longer in effect. The Company was not able to pay minimum monthly commissions. The financial statements reflect a contingent liability of an unspecified amount relating to such agreements.

     Shelf space at supermarkets, health stores, convenience stores and other retail outlets is generally difficult to obtain for new products by small unknown manufacturers. Typically, agreements for shelf space are not obtainable except for large, international-type beverage companies. Further, large chain stores do not pay for products they sell for vendors for 60 to 90 days after the product is placed on the shelves and then only to the extent such product is sold. Slow selling products are removed from the shelf for immediate pickup by vendors and/or manufacturers since chain stores, convenience stores, health stores and the like usually have limited storage facilities on site.

 

4

---

COMPETITION - PURE NATURAL

     Competition for all types of beverage drinks and supplements is extremely fierce in the United States and most foreign markets. There are numerous types of health drinks that are very well known such as Gatorade and the large international companies such as Coke and Pepsi market health-type beverages. These companies and other smaller beverage companies have multimillion dollar advertising budgets, name recognition and marketing clout with retailers which makes it extremely difficult for small newcomers with limited resources to compete. The Company had distribution agreements for its product and had been attempting to distribute its products to retailers itself. Marketing had been concentrated in the Denver Metro Area and along the Colorado Front Range - Fort Collins, Colorado to Pueblo, Colorado.

     In view of the foregoing, it is obvious that the Company was in a very difficult competitive environment as it attempted to develop a niche market for its product. As a result, operations ceased.

PRODUCT LIABILITY INSURANCE

     The Company has had no product liability insurance for several years, which adversely affected the Company's ability to place its product with retail outlets.

GOVERNMENT REGULATION - PURE NATURE

     The manufacturing facilities which formulated, mixed and packaged the Company's product, Hydro Charge, were subject to the regulations of the U.S. Food and Drug Administration (FDA) relating thereto and the Company is subject to such regulations of the FDA for labeling and claims made with respect to the product for health, curative effects and so forth. Such regulations may be difficult and/or expensive with which to comply. The Company is not aware of any complaints by the FDA or any other Federal or State regulatory agency with respect to its product.

POSSIBLE SALE OF PURE NATURE LLC

     The Company is considering selling its subsidiary, Pure Nature, to Joey Canyon, its president, or to a group to be organized by Mr. Canyon and/or one or more of his associates, yet to be determined. The definitive plans, arrangements or agreements have not yet been made. Further, such sale is in all likelihood contingent on a change in control of the Company in which the current majority stockholder, Michael Naughton sells or transfers his shareholdings.

ITEM 1A. RISK FACTORS.

OPERATING LOSSES

     For the years ended September 30, 2009 and September 30, 2008 the Company had net losses of $ 15,934 and $28,670, respectively. There were no sales of product for the year ended September 30, 2009.

 

5

---

DEVELOPMENTAL STAGE

     Based on the Company's business plan, it is a development stage company since principal operations have ceased, and now planned principle operations have not yet commenced. Accordingly, the Company presents its financial statements in conformity with the accounting principles generally accepted in the United States of America that apply to developing enterprises. As a development stage company, the Company discloses its retained earnings (or accumulated deficit) during the development stage and the cumulative statements of operations and cash flows from commencement of development stage to the current balance sheet date. The development stage began on October 1, 2006, when the Company commenced its efforts to become a publicly reporting company, ultimately to seek a business combination.

INSOLVENT

     The Company is currently insolvent in the equity and bankruptcy senses. Stockholders’ deficit is $516,749 at September 30, 2009.

INEFFECTIVE INTERNAL CONTROLS

     Our management, with the participation of the President, evaluated the effectiveness of the Company's internal control over financial reporting as of September 30, 2009.

     Based on this evaluation, our management, with the participation of the President, concluded that, as of September 30, 2009, our internal control over financial reporting was not effective due to material weaknesses in the system of internal control.

     Specifically, management identified the following control deficiencies. (1) The Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Company has implemented a series of manual checks and balances to verify that previous reporting periods have not been improperly modified and that no unauthorized entries have been made in the current reporting period.

     Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.

     Further, since the Company currently has no operations and its expenses are limited primarily to payment for professional services, and since the

 

6

---

Company has no current funding other than loans from its major shareholder to pay current expenses, the Company plans to delay implementing more extensive internal accounting controls, including the employment of accounting personnel. If and when the Company is reorganized or becomes involved in business activities and/or operations, of which there is no assurance, appropriate internal controls to insure proper financial reporting will be implemented.

LIMITED MANAGEMENT

     Neither Joey Canyon nor Michael Naughton are actively engaged in management of the Company. Further, it is not expected that they will be in the future. Rather, it is expected that new management, yet to be determined, will be found to manage the future affairs of the Company. There is no assurance that such persons will be found, engaged or will be effective managers.

PLANNED SALE OF CONTROL

     The majority shareholder, Michael Naughton, plans, with the assistance of securities industry professionals, to seek to sell his controlling interest through an outright sale, a merger, consolidation or purchase of assets of another business entity. It is expected that efforts in that respect may commence now that the Company has an effective registration statement on Form 10 with the Securities and Exchange Commission. Mr. Naughton, however, has made no efforts to date in respect to the foregoing. Further, there is no assurance that he will be successful in obtaining a sale of his shares of common stock of the Company or to effect a change of control of the Company by way of some form of business combination such as a merger. Mr. Naughton is interested in taking this course of action in an attempt to recoup the approximately $400,000 he has invested in shares of the Company and $143,614 he has loaned to the Company to date and to relieve himself from further duties and obligations concerning the affairs of the Company.

ITEM 2. PROPERTIES

     The Company maintains its offices at the personal residence of its President, Joey Canyon, 9312 Meredith Court, Lone Tree, Colorado 80124; telephone number (303) 662- 8118. The Company does not pay rent for use of these facilities nor does it reimburse Mr. Canyon for any expenses other than telephone long-distance charges.

     The Company holds no patents or copyrights. Its Hydro Charge product was produced pursuant to a formula kept secret except with its manufacturer, with whom the Company had a proprietary information agreement as to the formulation.

ITEM 3. LEGAL PROCEEDINGS

     There are currently no legal proceedings pending against the Company and management is not aware of any claims being asserted against the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

 

7

---

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market Information

     Prior to November 2008, the Company's common stock did not trade on any securities industry market. We are informed that during 2004 the Company's common stock was quoted sporadically in the Pink Sheets, but that few, if any, trades were affected. The Company’s common stock has only recently been quoted in the Over -The-Counter “Pink” Sheets, since November 19, 2008, under the symbol “CFDJ.PK.” The Company’s common stock has had limited trading, with all trades occurring at a price of $.0001 per share. No trades occurred in the Company’s common stock during the fiscal year ending September 30, 2009.

(b) Shareholders

     Based on information from its stock transfer agent and from CEDE and Co., as of September 30, 2009, the Company had 39 shareholders of record and an additional 55 individuals or entities were beneficial holders of shares of common stock of the Company. This does not necessarily include all beneficial owners who hold shares at broker/dealers or street name.

(c) Dividends

     The Company has not paid dividends and expects no dividends to be paid in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

     Selected financial data for the three most recent fiscal years is as follows:

 

 

8

---

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has been able to continue solely by reason of loans from its major shareholder, proceeds of which have been used primarily to pay for professional services and pay certain current liabilities. The Company has had no revenues from operations since October 1, 2006. During fiscal year 2009, the Company received loans totaling $26,100 from its major shareholder. The Company has no prospect of obtaining additional capital or other funding absent some form of reorganization or change of control.

     The Company's auditors indicated in their report on the financial statements of the Company for the fiscal year ended September 30, 2009 that there is question as to whether the Company can continue as a going concern absent additional funding. The Company has borrowed funds from its major shareholder totaling $32,839, primarily to pay for professional services, during the past two years. At September 30, 2009 the total loan from the shareholder was $143,614.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS.

     The consolidated financial statements are set forth on pages 17 through 28 hereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     On March 12, 2010, the Company retained De Joya Griffith & Company, LLC (“De Joya”) as the Company’s independent registered public accounting firm. By letter dated March 23, 2010 and delivered on April 5, 2010, the Registrant dismissed its prior independent registered accounting firm, Schumacher & Associates, Inc.

     Schumacher & Associates, Inc.’s reports on the financial statements of the Company for the fiscal years ended September 30, 2008 and 2007 contained no adverse opinion or disclaimer of opinion, but they were qualified regarding uncertainty as to whether the Company was a going concern.

     During the fiscal years ended September 30, 2008 and 2007, and through April 5, 2010, there had been no disagreements with Schumacher & Associates (as defined in Item 304(a)(1)(iv) of Regulation S-K) on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Schumacher & Associates, would have caused them to make reference thereto in their report on the financial statements for such years.

 

9

---

ITEM 9A. CONTROLS AND PROCEDURES.

Management's Report on Internal Control over Financial Reporting

     Our management, with the participation of the President, evaluated the effectiveness of the Company's internal control over financial reporting as of September 30, 2009.

     Based on this evaluation, our management, with the participation of the President, concluded that, as of September 30, 2009, our internal control over financial reporting was not effective due to material weaknesses in the system of internal control.

     Specifically, management identified the following control deficiencies. (1) The Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Company has implemented a series of manual checks and balances to verify that previous reporting periods have not been improperly modified and that no unauthorized entries have been made in the current reporting period.

     Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.

     Further, since the Company currently has no operations and its expenses are limited primarily to payment for professional services and interest expense, and since the Company has no current funding other than loans from its major shareholder to pay current expenses, the Company plans to delay implementing more extensive internal accounting controls, including the employment of accounting personnel. If and when the Company is reorganized or becomes involved in business activities and/or operations, of which there is no assurance, appropriate internal controls to insure proper financial reporting will be implemented.

Disclosure Controls and Procedures

     As of September 30, 2009, under the supervision and with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, management evaluated the effectiveness of the design and operations of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Principal Financial Officer

 

10

---

concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2009.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

     The Company has only one director and one executive officer: Joey Canyon:

     Joey Canyon is 56 years of age, resides at 9312 Meredith Court, Lone Tree, Colorado 80124. He graduated from College of the Canyons, Valencia, CA in 1973 with an associate degree. He attended Chadron State College, Chadron, Nebraska from 1973 to 1975. He has been the principal manager of Pure Nature, LLC since its formation in 1997 to the present and he has been president of the Company since 2005.

MAJORITY SHAREHOLDER

     Michael Naughton is 58 years of age, resides at Englewood, Colorado and is the president of Mike Naughton Ford, Inc., 150 S. Havana, Aurora, Colorado, a fully- franchised new car and used car dealership by the Ford Motor Company. Mr. Naughton has been so engaged for 29 years. Mr. Naughton is a graduate of the University of Notre Dame (BBA) and the University of Detroit (MBA). He acquired control of 61,000,000 shares, 90.5% of the Company's outstanding common stock in a transaction with two former control persons described under the caption "BUSINESS" sub "HISTORY" above. He also holds a $ 400,000 promissory note of Joey Canyon which is secured by 60,000,000 shares of common stock of the Company. The note is in default, and he is the beneficial owner of the 60,000,000 shares.

Family Relationships

     There are currently no family relationships among our Directors and Executive Officers.

Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Exchange Act requires our officers and directors, and stockholders owning more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. The Company is not aware of any persons who failed to timely file reports under this section.

Involvement in Certain Legal Proceedings.

     To the best of our knowledge, during the past five years, none of the following occurred with respect to Messrs. Canyon and Naughton:

(1) any bankruptcy petition filed by or against any business of which with of them was a general partner or executive officer either at the time of the bankruptcy or within two yeas prior to that time;

 

11

---

(2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses.

(3) being subject to any order, judgment or decree of any court of competent jurisdiction, permanently or temporarily inquiring, barring, suspending or otherwise limiting involvement in any type of business, securities or otherwise limiting involvement in any type of business, securities or banking activities, and

(4) being found by a court of competent jurisdiction, the SEC or the CFTC to have violated Federal or state securities or commodities laws.

Audit Committee

     The Company has no audit committee and is not now required to have one, nor an audit committee financial expert.

Code of Ethics

      The Company has not to date adopted a code of business conduct and ethics applicable to its officers, directors or accounting officer.

ITEM 11.  EXECUTIVE COMPENSATION.

     Joey Canyon is the only executive officer of the Company. He received no salary or other compensation from the Company for the years ended September 30, 2009 and 2008

Employment Agreements

       No officer or employee has an agreement to be employed by the Company.

 

12

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     At August 15, 2010, the Company had issued and outstanding 66,386,000 shares of its common stock. The following table sets forth certain information regarding beneficial ownership of common stock as of that date by: (1) each person who is known by the Company to own beneficially more than 5% of the Company's common stock; (2) each director of the Company; (3) each chief executive officer of the Company and the four highest compensated executive officers of the Company; and (4) all officers and directors as a group.

     The number and percentage of shares beneficially owned is determined in accordance with Rules 13d-3 and 13d- 5 under the Securities Exchange Act of 1934, and is not indicative of beneficial ownership for any other purpose.

(1) 60,000,000 shares attributable to Mr. Naughton are issued in the name of Joey Canyon and the subject of a security agreement pledged to secure a $400,000 note of Mr. Canyon payable to Mr. Naughton and an escrow agreement to which he and Mr. Canyon are parties and pursuant thereto they are to mutually direct the escrow agent to issue the shares to Mr. Naughton and Mr. Canyon in amounts to be agreed upon by them, however, it is expected that Mr. Naughton is to receive all or nearly all of these 60,000,000 shares. The note is in default.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

     Except as described in the subcaption HISTORY above in the caption BUSINESS in which the agreements for change of control of the Company are detailed whereby in September, 2004, Gerald Newman and Clayton Duxbury obtained control in the transaction involving Compound Healthcare, Inc. and subsequently in April 2005, Michael Naughton in effect, acquired control of the Company from Messrs. Newman and Duxbury (60,000,000 shares) by paying $400,000 in exchange for a promissory note of the Company's President, Joey Canyon, secured by the said 60,000,000 shares reissued in the name of Joey Canyon; and the acquisition by Mr. Naughton of 1,000,000 shares of common stock from Brad Stewart and the transaction whereby the Company acquired Pure Natural, LLC, there have been no material related party transactions between the Company and its officers, directors or control persons.

     Mr. Naughton has advanced $143,614 to the corporation to fund the payment of current expenses including legal and accounting expenses. He holds a promissory note of the Company in the total amount of $ 37,000 at an interest rate of 6% payable 30 days after demand. The remaining advance of

 

13

---

$106,614 is not covered by a promissory note, but Mr. Naughton intends to attempt to recover the entire $143,614.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

     On March 12, 2010, the Company retained De Joya Griffith & Company, LLC (“De Joya”) as the Company’s independent registered public accounting firm. Prior to that, the Company had engaged Shumacher & Associates, Inc. as its independent registered public accounting firm. The aggregate fees billed for each of the last two fiscal years ended September 30 2009 and September 30, 2008 by De Joya and Schumacher & Associates, Inc. for professional services rendered for the audit of the Company's annual financial statements and review of financial statements included in the Company's quarterly reports on Form 10-Q were $3,000 and $35,000 respectively.

AUDIT RELATED FEES

     There were no fees billed by De Joya for consultation services in each of the last two fiscal years ended September 30, 2009 and September 30, 2008

TAX FEES

     The aggregate fees billed for tax services rendered by De Joya for tax compliance and tax advice for the two fiscal years ended September 30, 2009 and September 30, 2008 were $0 and $ 0, respectively.

ALL OTHER FEES

None.

AUDIT COMMITTEE PRE-APPROVAL POLICY

     Under provisions of the Sarbanes-Oxley Act of 2002, the Company's principal accountant may not be engaged to provide non -audit services that are prohibited by law or regulation to be provided by it, and the Board of Directors (which serves as the Company's audit committee) must pre-approve the engagement of the Company's principal accountant to provide audit and permissible non-audit services. The Company's Board has not established any policies or procedures other than those required by applicable laws and regulations.

PART IV

ITEM 15. EXHIBITS.

 

 

14

---

 

* Filed with Form 10-12G on August 21, 2008

15

---

COMPOUND NATURAL FOODS, INC.
(A Development Stage Company)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

16

---

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Stockholders
Compound Natural Foods, Inc.
Lone Tree, CO 80124

We have audited the accompanying consolidated balance sheets of Compound Natural Foods, Inc. and subsidiary (A Development Stage Company) as of September 30, 2009, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended September 30, 2009 and for the period from October 1, 2006 to September 30, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We did not audit the consolidated financial statements of Compound Natural Foods, Inc. and subsidiary for the year ended September 30, 2008 and from October 1, 2006 to September 30, 2008. Those statements were audited by other auditors whose report has been furnished to us and our opinion, in so far as it relates to the amounts included in the year ended September 30, 2008 and from October 1, 2006 to September 30, 2008, is based solely on the report of other auditors.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Compound Natural Foods, Inc. and subsidiary (A Development Stage Company) as of September 30, 2009, and the results of their operations and cash flows for the year then ended and from October 1, 2006 to September 30, 2009 in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has negative working capital, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

De Joya Griffith & Company, LLC

/s/ De Joya Griffith & Company, LLC
Henderson, Nevada
August 16, 2010

 

17

---

Report of Independent Registered Public Accounting Firm

Board of Directors
Compound Natural Foods, Inc.

We have audited the accompanying consolidated balance sheet of Compound Natural Foods, Inc., as of September 30, 2008, and the related consolidated statements of operations, stockholders’ (deficit), and cash flows for the year ended September 30, 2008, and for the development stage period from October 1, 2006 to September 30, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Compound Natural Foods, Inc. as of September 30, 2008, and the results of its operations and cash flows for the year ended September 30, 2008, and for the development stage period from October 1, 2006 to September 30, 2008, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2, the Company has accumulated operating losses since its inception and has negative working capital and stockholders deficits, which raise substantial doubt about the Company's ability to continue as a going concern. Management's plan in regard to this matter is also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/ Schumacher & Associates, Inc.
SCHUMACHER & ASSOCIATES, INC.

Denver, Colorado
February 12, 2009

 

18

---

 

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 

19

---

 

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 

20

---

 

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 

21

---

 

The accompanying Notes are an integral part of the Consolidated Financial Statements.

 

22

---

Compound Natural Foods, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements

Note 1 – Nature of Operations and Summary of Significant Accounting Policies

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements.

Organization and Description of Business

Compound Natural Foods, Inc. (formerly Zurich American Financial, S.A., Inc.) a Nevada corporation and its wholly- owned subsidiary, Pure Nature, LLC, a Colorado limited liability corporation organized August 12, 1999, (collectively, the Company) formerly provided nutritional food, beverage and supplemental products that promote a healthy and active lifestyle. The Company entered into a development stage effective October 1, 2006, when the Company commenced its efforts to become a publicly reporting company, ultimately to seek a business combination.

On September 29, 2004, the Company acquired all of the outstanding shares of Compound Healthcare, Inc. (formerly Job Tip Lotto, Inc.), a California “C” Corporation for 60,000,000 shares of the Company’s common stock in a reverse acquisition. The Company simultaneously canceled 16,000,000 shares of common stock held by one of the founders. After the reverse acquisition and certificate cancellation, the Company had 66,085,000 common shares issued and outstanding, 60,000,000 of which were held by the former shareholders of Compound Healthcare, Inc.

On October 8, 2004, the Company issued 2,000,000 shares of common stock in exchange for 1,930,940 units of Pure Nature, LLC, resulting in the LLC becoming a wholly owned subsidiary.

On April 18, 2005, the Company’s President acquired 60,000,000 shares from the other shareholders for $400,000, resulting in a change in control. The $400,000 was borrowed from another shareholder, which borrowings are collateralized by the 60,000,000 shares.

Principles of Consolidation

The consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, Pure Nature, LLC. All significant inter-company balances and transactions have been eliminated in the consolidation.

 

23

---

Development Stage Company

Based on the Company’s business plan, it is a development stage company under the provisions of Financial Accounting Standards Board “FASB” Accounting Standard Codification “ASC” 915-10-15 (formerly referred to as Statement of Financial Accounting Standards, (“SFAS”) No 7), since planned principle operations have not yet commenced. Accordingly, the Company presents its financial statements in conformity with the accounting principles generally accepted in the United States of America that apply to developing enterprises. As a development stage company, the Company discloses its retained earnings (or accumulated deficit) during the development stage and the cumulative statements of operations and cash flows from commencement of development stage to the current balance sheet date. The development stage began on October 1, 2006, when the Company ceased operations and commenced its efforts to become a publicly reporting company, ultimately to seek a business combination.

Cash and Cash Equivalents

The Company considers cash in banks, deposits in transit, and highly liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts payable, accrued liabilities, and notes payable approximates fair value because of the short maturity of these instruments.

Revenue Recognition

The Company recognized prior to discontinuance of its prior business, revenue from goods sold once all of the following criteria for revenue recognition have been met: 1) pervasive evidence of an agreement exists; 2) the goods have been delivered; 3) the price is fixed and determinable and not subject to refund or adjustment; and 4) collection of the amounts due is reasonably assured. The Company derived its revenue primarily from the wholesale of goods to retailers such as supermarkets and health food stores.

Marketing/Advertising Costs

The costs of advertising are charged to marketing/advertising expense as incurred. The Company incurred marketing/advertising expense of $0 for the fiscal year ended September 30, 2009, and $22,500 for the period ended September 30, 2008. These amounts are recorded as loss from discontinued operations as they relate to contested commitments from discontinued operations. See Note 8 for a full discussion of the contingency.

Per Share Amounts

The Company computes earnings per share under ASC 260- 10-45 (formerly referred to as SFAS No. 128, “Earnings Per Share”), provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income (or loss)

 

24

---

by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company. During the current fiscal year of September 30, 2009 and September 30, 2008, respectively, the Company has not issued any potential dilutive securities.

Income Taxes

The Company accounts for income taxes in accordance with the provisions of ASC 740-10-05 (formerly referred to as SFAS No. 109, “Accounting for Income Taxes”), which requires the use of the asset and liability method of computing deferred income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the book basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.

Concentrations

The Company is not currently a party to any financial instruments that potentially subject it to concentrations of credit risk.

Discontinued Operations

Due to general economic conditions and other factors, on October 1, 2006, the Company decided to terminate its operations. When the Company discontinued its operations, it became required under generally accepted accounting principles (“GAAP”) to reset the development stage period of the Company to a start date of October 1, 2006. The transactions related to these former operations are disclosed as discontinued operations.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those statements.

Note 2 – Going Concern

Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. However, the Company has accumulated operating losses since its inception and has negative working capital and stockholders’ deficits, which raise substantial doubt about the Company’s ability to continue as a going concern. Management plans to meet the cash requirements of the Company through the development stage by raising additional capital as needed. Failure to raise capital could result in the Company having to curtail or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of

 

25

---

liabilities that might be necessary in the event the Company cannot continue in existence.

Note 3 – Recent Accounting Pronouncements

In March 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-11, which is included in the Codification under ASC 815. This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption. This guidance became effective for the Company’s interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Company’s condensed financial statements.

In February 2010, the FASB issued ASU No. 2010-09, which is included in the Codification under ASC 855, Subsequent Events (“ASC 855”). This update removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated and became effective for interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Company’s condensed financial statements.

In January 2010, the FASB issued ASU No. 2010-06, which is included in the Codification under ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). This update requires the disclosure of transfers between the observable input categories and activity in the unobservable input category for fair value measurements. The guidance also requires disclosures about the inputs and valuation techniques used to measure fair value and became effective for interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Company’s condensed financial statements.

Note 4 – Stockholders’ Deficit

The Company has authorized 1,000,000,000 shares of $0.001 par value common stock. As of September 30, 2009 and September 30, 2008, respectively, there were 66,386,000 shares issued and outstanding.

Note 5 – Income Taxes

Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The Company’s deferred tax assets consist entirely of the benefit from net operating loss (NOL) carry forwards. The net operating loss carry forward, if not used, will expire in various years through 2029, and is subject to restrictions imposed by the Internal Revenue Code. The Company’s deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the net operating loss carry forwards. Net operating loss carry forwards may only be utilized to offset future taxable income, if any, and may be further limited by other provisions of the tax laws, including changes in control of the Company.

 

26

---

The Company’s deferred tax assets, valuation allowance, and change in valuation allowance are as follows:

 

Income taxes at the statutory rate are reconciled to the Company's actual income taxes as follows:

 

Note 6 – Related Party Transactions

A shareholder has advanced funds to the Company with balances of $143,614 and $117,514, at September 30, 2009 and September 30, 2008, respectively. Interest of $7,838 and $6,170 were accrued in the respective periods. The loans are uncollateralized, bear interest at 6% per annum, and are due on demand.

The Company uses the offices of its President for its minimal office facility needs for no consideration. No provision for these costs has been provided since it has been determined that they are immaterial.

Note 7 – Commitments and Contingencies

At various times during its former operations, the Company entered into various marketing agreements for its products. These agreements indicate perpetual monthly required payments of $3,750 for services, and are cancelable with 30 days written notice. These commitments have been included in accounts payable and recorded as loss from discontinued operations in the amount of $0 and $ 22,500 at September 30, 2009 and September 30, 2008, respectively. The Company believes that since no services are being provided, the contracts have in effect been terminated. However, termination

 

27

---

of the contracts is subject to interpretation, and therefore, the financial statements may include continuing provisions in the future for the required payments based on the contingencies involved.

Prior to September 29, 2004, the Company’s wholly-owned subsidiary, Pure Nature LLC, entered into member contribution agreements calling for repayment of up to two times the face amount of the contribution. The repayment was to be prorated among all members and was to be equivalent to 5% of gross sales. The contributions totaled $ 124,750 and 5% of sales up to the discontinuance of operations totaled $2,290. Management believes that these agreements have passed the statute of limitations and consequently no provisions have been made.

 

28

---

SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

COMPOUND NATURAL FOODS, INC.

 

29

---