UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended December 31, 2014

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

Commission file number: 000-52904

 

ATTITUDE DRINKS INCORPORATED

(Exact name of registrant as specified on its charter)

 

Delaware   65-0109088
(State or other jurisdiction of incorporation or
organization)		   (IRS Employer
Identification No.)

 

712 U.S. Highway 1, Suite #200, North Palm Beach, Florida 33408 USA

(Address of principal executive offices)

 

(561) 227-2727

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the issuer (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 Web site, 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 x

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date: 2,309,624,423 shares issued and outstanding as of June 29, 2015.

 

 
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

 

INDEX

 

    PAGE #
     
PART I FINANCIAL INFORMATION  
     
Item 1 . Condensed Consolidated Financial Statements:  
     
  Condensed Consolidated Balance Sheets – December 31, 2014 (unaudited) and March 31, 2014 3
     
  Condensed Consolidated Statements of Operations – Three  Months  and Nine Months Ended December 31, 2014 and 2013 (unaudited) 4
     
  Condensed Consolidated Statements of Cash Flows – Nine Months Ended December 31, 2014 and 2013 (unaudited) 5
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 46
     
Item 4. Controls and Procedures 46
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 48
     
Item 2. Unregistered Sales of Equity and Use of Proceeds 49
     
Item 3. Defaults upon Senior Securities 50
     
Item 4. Mine Safety Disclosures 50
     
Item 5. Other Information 50
.    
Item 6. Exhibits 50
     
SIGNATURES 54
     
EXHIBITS  
     
DOCUMENTS INCORPORATED BY REFERENCE: See Exhibits  

 

2
 

 

PART I – FINANCIAL INFORMATION

ITEM 1. – CONDENSED FINANCIAL STATEMENTS

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEET

 

   December 31, 2014   March 31, 2014 
   (unaudited)     
           
ASSETS          
           
CURRENT ASSETS:          
Cash and cash equivalents  $29,689   $20,615 
Accounts receivable   7,488    1,422 
Inventories less reserve for abandoned property of $2,339 at December 31, 2015 and allowance for obsolescence of $44,107 at March 31, 2014   124,674    30,090 
Prepaid expenses   1,275    2,873 
TOTAL CURRENT ASSETS   163,126    55,000 
           
FIXED ASSETS, NET   657,229    25,491 
           
OTHER ASSETS:          
Capitalized pre-opening costs - World of Beer   106,398    - 
Trademarks, net   4,611    4,834 
Deposits and other   -    896 
TOTAL OTHER ASSETS   111,009    5,730 
           
TOTAL ASSETS  $931,364   $86,221 
           
LIABILITIES AND STOCKHOLDERS' (DEFICIT)          
           
CURRENT LIABILITIES:          
Accounts payable  $1,853,330   $1,667,615 
Accrued liabilities   6,391,111    5,733,308 
Derivative liabilities   1,530,249    1,993,393 
Short-term bridge loans payable   115,000    115,000 
Convertible notes payable   6,287,342    5,891,182 
Less: Discount on convertible notes payable   (924,903)   (3,511,738)
Non-convertible notes payable   615,016    411,517 
Loans payable -World of Beer Minority Owners   425,044    - 
Loans payable to related parties   21,463    21,463 
TOTAL CURRENT LIABILITIES   16,313,652    12,321,740 
           
LONG TERM LIABILITIES:          
Convertible notes payable   220,000    100,000 
Minority interest   (4,638)   - 
TOTAL LONG TERM LIABILITES   215,362    100,000 
           
STOCKHOLDERS' (DEFICIT):          
Series A  and A-1 convertible preferred stock par value $0.00001 per share, 20,000,000 shares authorized, 9,000,051 shares issued and outstanding at September 30, 2014 and March 31, 2014, respectively   90    90 
Common stock, par value $0.00001, 20,000,000,000 shares authorized and 690,277,229 and 181,714,134 shares issued and outstanding at December 31, 2014 and March 31, 2014, respectively   6,903    1,817 
Additional paid-in capital   19,706,934    19,416,418 
Deficit accumulated   (35,311,577)   (31,753,844)
TOTAL STOCKHOLDERS' (DEFICIT)   (15,597,650)   (12,335,519)
           
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)  $931,364   $86,221 

 

See accompanying notes to condensed consolidated financial statements

 

3
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

 

   Three   Three   Nine   Nine 
   Months Ended   Months Ended   Months Ended   Months Ended 
   December 31,   December 31,   December 31,   December 31, 
   2014   2013   2014   2013 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
REVENUES:                    
Net revenues  $10,982   $18,357   $44,798   $163,548 
Product and shipping costs   (12,458)   (26,787)   (56,314)   (145,591)
GROSS PROFIT   (1,476)   (8,430)   (11,516)   17,957 
                     
OPERATING EXPENSES:                    
Salaries, taxes and employee benefits   169,749    265,989    521,607    787,211 
Marketing and promotion   3,750    22,419    17,691    44,976 
Consulting fees   95,280    77,500    247,462    237,000 
Professional and legal fees   (18,285)   40,827    26,730    144,361 
Travel and entertainment   5,007    17,064    9,358    30,196 
Product development costs   -    1,425    400    5,205 
Stock compensation expense   84    -    84    26,997 
Other operating expenses   40,384    53,239    129,402    167,924 
Total Operating Expenses   295,969    478,463    952,734    1,443,870 
                     
LOSS FROM OPERATIONS   (297,445)   (486,893)   (964,250)   (1,425,913)
                     
OTHER INCOME (EXPENSE):                    
Interest and other financing costs   (1,373,866)   (604,283)   (2,592,005)   2,255,728 
Reserve for assets abandonment   (5,629)   -    (5,629)   - 
Total Other Income (Expense)   (1,379,495)   (604,283)   (2,597,634)   2,255,728 
                     
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   (1,676,940)   (1,091,176)   (3,561,884)   829,815 
Minority interest   4,151    -    4,151    - 
Provision for income taxes   -    -    -    - 
                     
NET INCOME (LOSS)  $(1,672,789)  $(1,091,176)  $(3,557,733)  $829,815 
                     
Basic income (loss) per common share  $-   $(0.01)  $(0.01)  $0.01 
                     
Diluted income (loss) per common share  $-   $(0.01)  $(0.01)  $- 
                     
Weighted average common shares outstanding - basic   690,277,229    159,597,453    542,825,040    77,010,663 
                     
Weighted average common shares outstanding - diluted   690,277,229    159,597,453    542,825,040    9,807,938,996 

 

See accompanying notes to consolidated financial statements

 

4
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Nine Months   Nine Months 
   Ended   Ended 
   December 31,   December 31, 
   2014   2013 
   (Unaudited)   (Unaudited) 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net (loss)/income  $(3,557,733)  $829,815 
Adjustment to reconcile net (loss)/income to net cash used in operating activities:          
Depreciation and amortization   5,651    5,862 
Compensatory stock and warrants   84    26,997 
Issuance of convertible notes for past due services   245,000    262,000 
Bad debt expense   -    2,229 
Fair value adjustment of convertible notes   (441,835)   (3,532,703)
Amortization of debt discount   2,703,347    990,842 
Minority interest   (4,151)   - 
Reserve for abandoned assets   5,629    - 
Changes in operating assets and liabilities:          
Accounts receivable   (6,066)   23,756 
Prepaid expenses and other assets   2,494    22,621 
Inventories   (96,923)   10,305 
Accounts payable and accrued liabilities   1,221,687    730,221 
Net cash provided/ (used) in operating activities   77,184    (628,055)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of equipment   (640,456)   (3,910)
Capitalized pre-opening expenses - World of Beer   (106,398)   - 
Trademarks   -    (455)
Net cash (used) in investing activities   (746,854)   (4,365)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Loans payable from World of Beer minority owners   425,044    - 
Proceeds from convertible notes payable   87,700    660,000 
Proceeds from short-term bridge loans payable   -    45,505 
Proceeds from promissory notes   168,500    - 
Other costs of financing   (2,500)   (60,000)
Net cash provided by financing activities   678,744    645,505 
           
NET (DECREASE) IN CASH  AND CASH EQUIVALENTS   9,074    13,085 
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   20,615    7,415 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $29,689   $20,500 

 

See accompanying notes to condensed consolidated financial statements

 

5
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(Unaudited)

 

Note 1. Organization, Basis of Presentation and Significant Accounting Policies

 

(a)        Organization:

 

Attitude Drinks Incorporated, a Delaware corporation, (“the Company”) is engaged in the development and sale of functional beverages, primarily in the United States. Attitude Drinks Incorporated was formed in Delaware on May 10, 1988 under the name of International Sportfest, Inc which later became Mason Hill Holdings, Inc.

 

On September 19, 2007, the Company acquired Attitude Drink Company, Inc., a Delaware corporation (“ADCI”), under an Agreement and Plan of Merger (“Merger Agreement”) among Mason Hill Holdings, Inc. (“MHHI”) and ADCI. Pursuant to the Merger Agreement, each share of ADCI common stock was converted into 40 shares of Company common stock resulting in the issuance of 4,000,000 shares of Company common stock. The acquisition was accounted for as a reverse merger (recapitalization) with ADCI deemed to be the accounting acquirer, and the Company deemed to be the legal acquirer. On September 30, 2007, the Company changed its name to Attitude Drinks Incorporated. Its wholly owned subsidiary, ADCI, was incorporated in Delaware on June 18, 2007. The Company’s principal executive offices are located at 712 U. S. Highway 1, Suite #200, North Palm Beach, Florida 33408. The telephone number is 561-227-2727. The Company’s common stock shares (PINK:ATTD) began trading June 2008. The Company's fiscal year end is March 31. Its plan of operation during the next twelve months is to focus on the non-alcoholic single serving beverage business, developing and marketing products in two fast growing segments: sports recovery and functional dairy.

 

On December 1, 2014, the Company formed Attitude Beer Holding Co. (“ABH”) in the state of Delaware. ABA is authorized to issue up to 50,000,000 shares of common stock with a par value of $.00001. A total of 1,000,000 shares were issued to the following owners of ABH:

 

Attitude Drinks Incorporated  875,000    87.5%
Alpha Capital Anstalt  99,000    9.9 
Tarpon Bay Partners LLC  26,000    2.6 
          
Total  1,000,000    100.0%

 

Since the Company was the majority owner and active manager of ABH during the quarter ended December 31, 2014, the financial results of ABH during the quarter ended December 31, 2014 will be consolidated into the overall results of the Company with the recording of any minority interest related activities.

 

6
 

 

Note 1.  Organization, Basis of Presentation and Significant Accounting Policies (continued)

 

(a)        Organization (continued):

 

On December 24, 2014, New England WOB, LLC (“NEWOB”), Attitude Beer Holding Co.(”ABH”), Attitude Drinks Incorporated (“Attitude”), Glenn E. Straub (“Straub”) and James D. Cecil (“Cecil”) entered into a joint venture agreement. NEWOB entered into an Area Development Agreement with World of Beer Franchising, Inc which is in the business of entering into franchise agreements with third parties to own and operate World of Beer themed bar/restaurants. NEWOB developed a World of Beer franchise in Stamford, Connecticut as well as West Hartford, Connecticut. ABH was granted the right to participate in any World of Beer franchise that NEWOB proposes to develop. ABH has the option to become a 51% of any new World of Beer franchise for the contribution of 100% of the budgeted development costs of developing such new World of Beer franchise locations. NEWOB will manage the operations of each World of Beer franchise location. The financial results of each World of Beer franchise location will be consolidated into the overall results of ABH which in turn will be consolidated into the overall results of Attitude while Attitude owns the majority ownership of ABH. All applicable minority interest related items will be recorded for proper consolidations and reported results for Attitude’s consolidated financial statements.

 

On the same December 24, 2014 date, ABH purchased 51% of the West Hartford, Connecticut World of Beer franchise location and obtained an option for two years to purchase 51% of the Stamford, Connecticut World of Beer franchise location that was opened earlier in 2014. That option has not been exercised.

 

Change in Business Model

 

On April 21, 2015, ABH and ABH’s other owners, Alpha Capital Anstalt, a company organized under the laws of Liechtenstein (“Alpha”) and Tarpon Bay Partners LLC, a Florida limited liability company (“Tarpon Bay”), (collectively all three companies as shareholders of ABH), entered into a Purchase Agreement with Harrison, Vickers and Waterman Inc. (HVCW) pursuant to which the shareholders of ABH sold to HVCW all of the outstanding shares of stock of ABH, and ABH thereupon became a wholly owned subsidiary of HVCW. In consideration for the purchase of the shares of common stock of ABH, HVCW issued: (i) to the Company 51 shares of a newly created HVCW Series B Preferred Stock (the “Series B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of HVCW’s common stock, par value $.0001 per share (the “HVCW’s Common Stock”), at an exercise price of $0.075 per share (subject to customary anti-dilution adjustments); (ii) to Alpha, a secured convertible note due April 20, 2017 (the “Secured Convertible Note”) in the principal amount of $1,619,375, a seven year warrant (the “Alpha Warrant”), to purchase 1,295,500,000 shares of HVCW’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an additional investment right (“AIR”) to purchase up to $3,750,000 in additional notes (the “AIR Note”) and corresponding warrants (“the “AIR Warrant”); and (iii) to Tarpon, a Secured Convertible Note in the principal amount of $554,791.67, a seven year warrant (the “Tarpon Warrant”) to purchase 443,833,333 shares of HVCW’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an AIR to purchase up to $1,250,000 in additional notes and corresponding AIR Warrants.  In addition, Alpha acquired 32,300 shares of the HVCW’s Series A Preferred Stock (convertible into 32,300,000 shares of HVCW’s Common Stock) from HVW Holdings LLC (an entity of which Mr. James Giordano, HVCW’s prior Chief Executive Officer and Chairman of the Board, is the managing member), subject to the terms of a Purchase Agreement (the “Series A Purchase Agreement”). The Company purchased 87,990,000 shares of HVCW’s Common Stock from HVW Holdings LLC at a price of $65,000, subject to the terms of a Purchase Agreement (the “Common Stock Purchase Agreement”) thereby making the Company the majority owner of HVCW.

 

In December 2014, ABH entered into a joint venture with New England World of Beer and together opened a 4,000 sq. foot tavern in West Hartford, Connecticut that sells a selection of over 500 craft and imported beers along with tavern food and other spirits and cocktails. New England World of Beer holds franchise rights for all of Connecticut and Massachusetts. Similar taverns are currently open in 20 states, namely AL, AZ, CO, CT, FL, GA, IL, LA, MD, MI, NC, NJ, NY, OH, SC, TN, TX, VA, WA and WI.

 

7
 

 

Note 1. Organization, Basis of Presentation and Significant Accounting Policies (continued):

 

(b)        Basis of Presentation/Going Concern:

 

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements of the Company contain all adjustments necessary to present fairly the Company’s financial position as of December 31, 2014 and 2013 and the results of its operations and cash flows for the nine month periods ended December 31, 2014 and 2013. The significant accounting policies followed by the Company are set forth in Note 3 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended March 31, 2014. The accompanying unaudited interim financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the United States of America ("U.S. GAAP").

 

The results of operations for the nine month period ended December 31, 2014 are not necessarily indicative of the results to be expected for the full year.

 

The Company’s consolidated financial statements include the accounts of Attitude Drinks Incorporated and its wholly-owned subsidiary, Attitude Drink Company, Inc. In addition, the Company consolidates 100% of the financial results of its other majority owned corporation, Attitude Beer Holding Co., which is the majority owner of West Hartford WOB, LLC that owns the West Hartford, Connecticut World of Beer franchise location. All material intercompany balances and transactions have been eliminated as well as all related minority interest transactions have been recorded for proper consolidations and reporting.

 

The accompanying financial statements have been prepared on a going concern basis, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company had insignificant revenues for the nine months period ended December 31, 2014, a working capital deficit of ($16,150,526) as of December 31, 2014 and has incurred losses to date resulting in an accumulated deficit of ($35,311,577), including derivative income and expense. These factors create substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and pay its liabilities when they come due. Management’s plan includes obtaining additional funds by debt and/or equity financings; however, there is no assurance of additional funding being available.

 

(c)        Inventories:

 

Inventories, as estimated by management, currently consist of finished goods for Phase III products as well as start-up inventory for the World of Beer franchise location in West Hartford, Connecticut and are stated at the lower of cost on the first in, first-out method or market. The inventory is comprised of the following:

 

   December 31, 2014   March 31, 2014 
   (unaudited)     
         
Finished goods Phase III  $125,899   $74,197 
World of Beer inventory   1,114    - 
Less: Reserve for abandonment   (2,339)   - 
Less: Reserve for obsolescence   -    (44,107)
Total inventories  $124,674   $30,090 

 

8
 

 

Note 1. Organization, Basis of Presentation and Significant Accounting Policies (continued):

 

(d)        Fixed Assets:

 

Fixed assets are stated at cost. Depreciation is computed using the straight-line method over a period of seven years for furniture and five years for equipment. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Additions and betterments to property and equipment are capitalized. Leasehold and tenant improvements are depreciated over the life of the lease. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts, and any resulting gain or loss is included in the statement of operations. Fixed assets include both the fixed assets of the corporate office and the West Hartford, Connecticut World of Beer location which are as follows:

 

   December 31, 2014   March 31, 2014 
   (unaudited)     
         
Attitude Drink Company  $58,336   $61,625 
World of Beer:          
Audio Visual   45,592    - 
Bar furniture and equipment   51,471    - 
Computer equipment   45,801    - 
Leasehold improvements   306,411    - 
Coolers   59,271    - 
Other   131,910    - 
           
Total gross fixed assets   698,792    61,625 
Less accumulated depreciation   (41,563)   (36,134)
           
Net fixed assets  $657,229   $25,491 

 

(e)        Prepaid expenses:

 

Prepaid expenses of $1,275 consist mainly of travel advances for $900.

 

(f)        Trademarks and Other Long-Term Assets:

 

Trademarks consist of costs associated with the acquisition and development of certain trademarks. Trademarks, when acquired, will be amortized using the straight-line method over 15 years. Amortization of trademarks for the nine months ended December 31, 2014 was $223. Other long-term assets for $106,398 represent capitalized pre-opening expenses for the development of the West Hartford, Connecticut World of Beer location. These amounts will be amortized to expense when the World of Beer location opens for operations in 2015.

 

9
 

 

Note 1. Organization, Basis of Presentation and Significant Accounting Policies (continued)

 

(g)        Financial Instruments:

 

Financial instruments, as defined in the FASB Accounting Standards Codification, consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, notes payable, derivative financial instruments, convertible debt and redeemable preferred stock that we have concluded that some of these items are more akin to debt than equity. We carry cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities at historical costs; their respective estimated fair values approximate carrying values due to their current nature.

 

Derivative financial instruments, as defined in the FASB Accounting Standards Codification, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, prior to February 21, 2013, derivative financial instruments were measured at fair value and recorded as liabilities or, in rare instances, assets. Fair value represents the price at which the property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.

 

We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have entered into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by the FASB Accounting Standards Codification, these instruments, prior to February 21, 2013, were required to be carried as derivative liabilities, at fair value, in our financial statements as we were allowed to elect fair value measurement of the hybrid financial instruments, on a case-by-case basis,

 

10
 

 

Note 1. Organization, Basis of Presentation and Significant Accounting Policies (continued):

 

(g)        Financial Instruments (continued):

 

rather than bifurcate the derivative. We believed that fair value measurement of the various hybrid convertible promissory notes financing arrangements prior to February 21, 2013, provided a more meaningful presentation of that financial instrument.

 

At February 21, 2013, the Company consolidated all previous outstanding notes into a new consolidated note per debt holder as well as exchanged all applicable warrants through the issuance of new convertible notes. The language of the new convertible notes payable was changed which, based on input from an outside new valuation firm, required a new accounting treatment in which the embedded derivatives are separated from the debt host and recorded as derivative liabilities at fair value. These derivative liabilities will need to be marked-to market each quarter with the change in fair value recorded in the profit/loss statement. We used a lattice model that values the convertible notes based on a probability weighted scenario model and future projections of the various potential outcomes. In sum, all embedded derivatives were bundled and valued as a single, compound embedded derivative, bifurcated from the debt host and treated as a liability.

 

Fair Value of Financial Instruments - Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. We believe that the carrying amounts of the financial instruments approximate their respective current fair values due to their relatively short maturities. 

 

Measurements and Disclosures Topic of the FASB Codification, the Company’s financial assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:

 

Level 1: Financial instruments with unadjusted quoted prices listed on active market exchanges. 

 

Level 2: Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over the counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3: Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.

 

All cash and cash equivalents are considered Level 1 measurements for all periods presented. We do not have any financial instruments classified as Level 2. We have recorded a conversion feature liability in regards to previous issued convertible notes which is Level 3 and further described below in note 4.

 

(h)        (Loss)/Income Per Common Share:

 

The basic (loss)/income per common share is computed by dividing the (loss)/income applicable to common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted (loss) per common share is computed similar to basic (loss) per common share, but diluted income per common share includes dilutive common stock equivalents, using the treasury stock method, and assumes that the convertible debt instruments were converted into common stock upon issuance, if dilutive. For the nine months ended December 31, 2014, potential common shares arising from the Company’s stock warrants, stock options and convertible debt including accrued interest and preferred stock amounting to 14,542,141,612 shares were included in the computation of diluted income per share.

 

11
 

 

Note 1. Organization, Basis of Presentation and Significant Accounting Policies (continued):

 

(i)        Recent Accounting Pronouncements Applicable to the Company:

 

In August, 2014, the Financial Accounting Standard Board issued an ASU that contained guidance for the disclosure of uncertainties about an entity’s ability to continue as a going concern. There is no impact on the Company through the adoption of this update as the Company has always provided such required disclosures on doubt about the entity’s ability to continue as a going concern with one year.

 

In November, 2014, the Financial Accounting Standard Board issued an ASU that contained guidance about derivatives and hedging and determining whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. There are predominantly two methods used in current practice by issuers and investors in evaluating whether the nature of the host contract within a hybrid instrument issued in the form of a share is more akin to debt or to equity. This ASU is to eliminate the use of different methods in practice. As the Company utilizes the services of an outside professional specialty firm for such valuations, the Company believes there is no change needed for this update.

 

Note 2.  Accrued Liabilities:

 

Accrued liabilities consist of the following for all companies:

 

   December 31, 2014   March 31, 2014 
   (unaudited)     
Accrued payroll and related taxes  $3,586,102   $3,261,045 
Accrued marketing program costs   580,000    580,000 
Accrued professional fees   141,000    98,000 
Accrued interest   1,725,837    1,456,904 
Accrued board of directors' fees   233,792    206,792 
Other expenses   124,380    130,567 
           
Total  $6,391,111   $5,733,308 

 

Note 3.  Short-term Bridge Loans:

 

Summary of short-term bridge loan balances is as follows:

 

   December 31, 2014   March 31, 2014 
   (Unaudited)     
         
April 14, 2008 (a)  $60,000   $60,000 
August 5, 2008  (b)   55,000    55,000 
           
Total  $115,000   $115,000 

 

April 14, 2008 financing:

 

(a) On April 14, 2008, the Company entered into a financing arrangement that provided for the issuance of a $60,000 face value short-term bridge loan note payable due July 15, 2008. There are no outstanding warrants associated with this financing as the expiration dates have expired.

 

12
 

 

Note 3.  Short-term Bridge Loans (continued):

 

April 14, 2008 financing (continued):

 

The Company entered into the following Modification and Waiver Agreements related to the April 14, 2008 financing:

 

Date   Terms   Consideration
June 2008   Extend maturity to July 19, 2008   Warrants indexed to 5 shares of common stock (warrants have expired)
September 2008   Extend maturity to December 15, 2008   12 shares of restricted stock
January 2009   Extend maturity date to April 30, 2009  

1) Warrants indexed to 12 shares of common stock (warrants have expired)

2) 12 shares of restricted stock

 

The modifications resulted in a loss on extinguishment of $171,622 in accordance with the Financial Accounting Standards Codification. On December 15, 2008, the Company was in default on the notes for non-payment of the required principal payment.  The remedy for event of default was acceleration of principal and interest so they were recorded at face value. As of March 31, 2013, this April 14, 2008 note was considered in default for non-payment. The Company is trying to find the debt holder to extend the due date of the note as the previous address is no longer valid.

 

August 5, 2008 financing:

 

(b) On August 5, 2008, the Company entered into a financing arrangement that provided for the issuance of a $55,000 face value short term bridge loan, due September 5, 2008. There are no outstanding warrants associated with this financing as the expiration dates have expired.  The due date of the loan was extended to December 15, 2008 with 11 restricted shares of common stock issued as consideration. On December 15, 2008, the Company was in default on the notes for non-payment of the required principal payment. Remedies for an event of default are acceleration of principal and interest. There were no incremental penalties for the event of default; however the notes were recorded at face value. Remedies for an event of default are acceleration of principal and interest. 

 

On January 15, 2009, the Company extended the term on the note from December 15, 2008 to April 30, 2009. As of December 31, 2012, this note was considered in default for non-payment. The debt holder is a board director and will extend the note once we locate the debt holder of the above April 14, 2008 debt.

 

Note 4, Loans payable (West Hartford WOB LLC):

 

A total of $425,044 is owed to the 49% owners of the West Hartford, Connecticut World of Beer location. These loans are due on demand and have a 5% interest rate. As Attitude Beer Holding Co. purchased 51% of this store on December 24, 2014, ABH will be making the purchase via monthly installments from December, 2014 through March, 2015. Some of these payments will be used to pay some or all of the above $425,044 amounts.

 

13
 

 

Note 5  Convertible Notes Payable:

 

All convertible notes payable are recorded at fair value as prescribed by the FASB Accounting Standards Codification as see Note 7 for more details. Convertible debt carrying values consist of the following:

 

Original Face      Fair Value Amounts 
Value      December 31,   March 31, 
       2014   2014 
$6,279,771   Convertible Note Financing due February 21, 2015 (a), (1)  $5,452,892   $5,554,182 
 625,000   Convertible Note Financing due December 31, 2014 (b), (2)   625,000    400,000 
 37,000   Convertible Note Financing due June 7, 2014 (c), (3)   37,000    37,000 
 35,200   Convertible Note Financing due May 13,2015 (d), (4)   35,200    - 
 20,000   Convertible Note Financing due December 22, 2016 (e), (5)   20,000    - 
 337,250   Two Convertible Notes Financing due December 24, 2015 (f), (6)   337,250    - 
     Less discount on convertible notes (7)   (924,903)   (3,511,738)
$7,334,221   Total convertible notes payable  $5,582,439   $2,479,444 

 

(1) All previous convertible notes prior to February 21, 2013 were surrendered to the Company through a February 21, 2013 exchange agreement whereas the Company issued new face value consolidated notes per debt holder for a total amount of $5,020,944, $350,000 face value in new notes for the surrender of 425,003 Class A warrants plus $121,327 in a new note for work rendered for this consolidated financing for a grand total of $5,492,271. Remaining balance of $767,500 represents issued allonges that are attached to the February 21, 2013 consolidated convertible notes

(2) Monthly retainer fee of $25,000 face value for December, 2012 through December, 2014 (total of $625,000)

(3) Retainer fee of $37,000 face value issued June 7, 2014

(4) Issued convertible promissory note for $35,300 on May 13, 2014

(5) Issued convertible promissory note for $20,000 on December 19, 2014

(6) Attitude Beer Holding Co. issued two convertible promissory notes for $246,187 and $91,063 for a total of $337,250 on December 24, 2014

(7) The consolidated notes required a new lattice valuation model that required the recording of a discount that will be amortized (accretion) over the life of the convertible notes payable.

 

Since these new consolidated notes contained new language as compared to the previous notes, the Company needed to use a different valuation model for applicable valuations, derivatives and fair market value. In order to determine the fair market value, the Company analyzed the various securities agreements and exchange agreements, compared the Company to comparable companies to determine industry factors for volatility, growth and future financing, developed a lattice model that valued the convertible notes on a probability weighted scenario model as well as future projections of the various potential outcomes and valued the convertible notes at issuance and at the end of the reporting period to account for the derivative liability. Based on the Company’s analysis in determining the proper accounting treatment and valuation as set forth in the Statement of Financial Accounting Standard ASC 820-10-35-37 (Fair Value in Financial Instruments), Statement of Financial Accounting Standard ASC 815 (Accounting for Derivative Instruments and Hedging Activities), Emerging Issues Task (“EITF”) For Issue No. 00-10 and EITF 07-05, the embedded derivatives will be bundled and valued as a single, compound embedded derivative, bifurcated from the debt host and treated as a liability. The single compound embedded derivative features valued include the variable conversion feature, and the value of these embedded derivatives for the convertible notes will be treated as a liability. These derivative liabilities will be marked-to-market each quarter with the change in fair value to be recorded in the Statement of Operations.

 

14
 

 

Note 5  Convertible Notes Payable (continued):

 

(a)        February 21, 2013 Consolidated Convertible Notes

 

On February 21, 2013, all previous convertible notes payable with outstanding balances totaling $5,020,944 were surrendered by the debt holders to the Company through exchange agreements whereas the Company issued one consolidated note to each debt holder for the total outstanding convertible note amounts. In addition and on the same date, all outstanding Class A warrants associated with these convertible note payables totaling 425,003 Class A warrants were surrendered by the debt holders to the Company in which the Company issued additional convertible notes payable for the total amount of $350,000. All applicable 364 Class B warrants were cancelled as well. Both the surrendered convertible notes payable for $5,020,944 and warrants for $350,000 were combined into one new convertible note payable per debt holder for a grand total of $5,370,944. All of these individual consolidated notes contain the same terms, maturity dates and conversion criteria and replace all terms, conditions and conversion criteria contained in the surrendered notes. These notes have a maturity date of February 21, 2015 and an interest rate of 4%. The conversion price per share is equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02. Each conversion submitted by a holder must be at least the lesser of (i) $10,000 of principal and interest or (ii) the balance due on the note. In addition, another new convertible note was issued for $121,327 to one of the accredited debt holders for their efforts in assisting the Company with these consolidated notes, warrants and modifications. The amount was determined at 5% of the then outstanding balance of all the convertible notes payable held by the debt holder. This note is identical to the above notes for the terms, conversion criteria and maturity date. No accrued interest payable amounts were added to these new notes. A total of $806,396 in principal and $193,214 in accrued interest were converted into shares of common stock from February 21, 2013 through December 31, 2014. In addition, additional allonge financings were added as follows:

 

TABLE FOR ADDED ALLONGES
        
   ALLONGE  $ 
DATE  #  AMOUNT 
        
4/11/2013  8  $71,500 
6/5/2013  9   88,000 
6/21/2013  10   88,000 
7/23/2013  11   82,500 
8/8/2013  12   110,000 
9/18/2013  13   110,000 
10/28/2013  14   55,000 
11/15/2013  15   55,000 
2/11/2014  16   55,000 
5/2/2014  17   27,500 
7/11/2014  18   25,000 
         
   TOTAL  $767,500 

 

Southridge Partners II LP purchased from another debt- holder $100,000 on June 5, 2013 from these February 21, 2013 notes. This new replacement note contains the same terms as in the February 21, 2013 consolidated convertible notes. A conversion of $2,960 was made on September 9, 2014 resulting in a balance of $97,040 to be converted.

 

15
 

 

Note 5  Convertible Notes Payable (continued):

 

(b)  Monthly $25,000 Retainer Fee Convertible Notes

 

We issue each month a convertible note for $25,000 to SC Advisors/Southridge Partners II LP as part of their consulting fees. Previously issued convertible notes from August, 2012 through November, 2012 were consolidated in the above February 21, 2013 convertible note (Note 4 (a)). From December, 2012 through December, 2014, we issued $25,000 monthly convertible notes for a total of $625,000 as all of these notes have maturity dates of December 31, 2014 to April 30, 2016. The notes can be converted into shares of Common Stock after six months of holding at a conversion price to equal the current market price multiplied by eighty percent (80%). Current market price means the average of the closing bid prices for the common stock for the five (5) trading days ending on the trading day immediately before the relevant conversion date. No conversions have been made on these notes.

 

(c) June 7, 2013 Convertible Note

 

We issued a $37,000 convertible note on June 7, 2013 for past due services. The maturity date of this note is June 7, 2014. We are working with the debt holder to extend the maturity date. The note maybe converted into shares of common stock after a six month holding period at a conversion price to equal the current market price multiplied by eighty percent (80%). Current market price means the average of the closing bid prices for the common stock for the five (5) trading days ending on the trading day immediately before the relevant conversion date. No conversions have been made on these notes.

 

(d) May 13, 2014 Convertible Note

 

We issued a convertible promissory note to a new accredited investor for $35,200 with a maturity date of May 13, 2015 at an interest rate of 4%. The conversion price per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02. Each conversion submitted by the holder must be at least the lesser of (i) $1,000 of principal and interest or (ii) the balance due on the note. Conversion will be calculated to the hundredth of a penny (e.g. $0.0001).

 

(e) December 19, 2014 Convertible Note

 

We issued a convertible promissory note for past due services to an accredited investor for $20,000 with a maturity date of December 22, 2016 at an interest rate of 10%. The conversion price per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the ten trading days preceding a conversion date but in no event greater than $.02. Debt holder is limited to conversions up to 4.99% of the outstanding shares of the Common Stock.

 

(f) December 24, 2014 Convertible Note

 

Attitude Beer Holding Co. issued convertible promissory notes to two different accredited investors for a total amount of $337,250 with a maturity date of December 24, 2015 at an interest rate of 10%. The conversion price for the principal and interest shall be either: (i) if ABH’s common stock is traded on a trading market, the conversion price shall be 50% of the lowest bid price for the previous 50 trading days; (ii) if ABH’s common stock is traded on a trading market, and there is a DTC chill on ABH’s common stock, the conversion price shall be 60% of the lowest bid price for the previous 50 trading days; or (iii) if ABH’s common stock is not traded on a trading market, it shall be $0.40. Debt holder is limited to conversions up to 4.99% of the outstanding shares of the Common Stock.

 

16
 

 

Note 6. Non-convertible Notes payable:

 

For the period ended March 31, 2011, we paid $23,750 as part of a promissory note in the total principal amount of $34,000 as a final settlement amount for a previous license agreement. The remaining amount due of $10,250 was required to be settled through monthly payments of $4,250 through December, 2010. Although we did not make all payments at June 30, 2013, we anticipate making those payments in 2013 when additional capital is available.

 

On January 26, 2011, we entered into a promissory note with our previous landlord in the principal amount of $75,762. This amount was due June 30, 2011 together with interest of 10% computed on the basis of the actual number of days elapsed over a 360-day year on the unpaid balance. The default rate shall be a per annum interest rate equal to the maximum amount permitted by applicable law as we currently use 15%. Although we have not paid this note yet, we anticipate making a payment pending a future financing. On October 12, 2012, the previous landlord sold $20,000 of the promissory note to another accredited investor resulting in an outstanding amount of $55,762. The sold $20,000 note has since been fully converted into shares of common stock.

 

On June 14, 2012, we entered into two promissory notes for $100,000 and $40,000, respectively, with two current accredited investors. These notes are subject to an interest rate of ten percent (10%) and are due the sooner of (i) October 14, 2012 or (ii) from the proceeds of the next funding. We received the $100,000 payment on June 27, 2012 and the $40,000 payment on July 9, 2012. The amounts are still outstanding, and we accrue interest at the default interest rate of 18%. We expect to convert these notes into convertible notes payable later in 2015.

 

On June 26, 2012, we entered into a promissory note of $110,000 with a current accredited investor. We agreed to pay a finder’s fee of $10,000, and we received the net payment of $100,000 on June 28, 2012. The note is subject to an interest rate of ten percent (10%) and is due the sooner of (i) October 14, 2012 or (ii) from the proceeds of the next funding. The amount is still outstanding, and we accrue interest at the default interest rate of 18%. We expect to convert these notes into convertible notes payable later in 2015.

 

On December 23, 2013, we entered into promissory notes with four current investors in the total principal amount of $45,505. These amounts are due December 31, 2014 and are not subject to any interest rates. These notes are exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

On March 24, 2014, we entered into promissory notes with three current investors in the total principal amount of $50,000. These amounts are due February 28, 2015 and are not subject to any interest rates. These notes are exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

On April 30, 2014, we entered into a promissory note with one current investor in the total principal amount of $12,000. This amount is due March 31, 2015 and is not subject to any interest rates. This note is exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

On June 11, 2014, we entered into promissory notes with four current investors in the total principal amount of $40,000. These amounts are due February 28, 2015 and are not subject to any interest rates. These notes are exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

On July 31, 2014, we entered into a promissory note with a current investor in the total principal amount of $15,000. This amount is due May 31, 2015 and is not subject to any interest rates. This note is exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

17
 

 

Note 6. Non-convertible Notes payable (continued):

 

On August 21, 2014, we entered into a promissory note with a current investor in the total principal amount of $10,000. This amount is due August 21, 2015 and is not subject to any interest rates. This note is exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

On August 29, 2014, we entered into a promissory note with a current investor in the total principal amount of $10,000. This amount is due August 31, 2015 and is not subject to any interest rates. This note is exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

On September 17 and 30, 2014, we entered into promissory notes with two current investors in the total principal amount of $40,000. These amounts are due as follows: $10,000 due September 30, 2015, $15,000 due August 31, 2015 and $15,000 due September 30, 2015 and are not subject to any interest rates. These notes are exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange.

 

On November 19, 2014, we entered into a promissory note with a current investor in the total principal amount of $10,000 with a maturity date of November 30, 2015 at no interest. This note is exchangeable for an equal aggregate amount of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange

 

On November 19, 2014, we entered into a promissory note with a current investor in the total principal amount of $31,500 with a maturity date of December 19, 2015 at no interest. This note is exchangeable for an equal aggregate amount of notes of different authorized denominations, as requested by the holder surrendering the same. No service charge will be made for such registration or transfer or exchange

 

Note 7. Derivative Liabilities:

 

Fair Value Measurement

 

Valuation Hierarchy

 

ASC 820, “Fair Value Measurements and Disclosures,” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, 2014:

 

18
 

 

Note 7. Derivative Liabilities (continued):

 

    Fair Value Measurement at December 31, 2014 
           Significant      
 Total    Quoted    Other    Significant 
 Carrying    Prices in    Observable    Unobservable 
 Value at    Active Markets    Inputs    Inputs 
 December 31, 2014    (Level 1)    (Level 2)    (Level 3) 
                  
$1,530,249   $-   $-   $1,530,249 

 

The carrying amounts of cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities approximate their fair value due to their short maturities. The Company measures the fair value of financial assets and liabilities based on 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. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

 

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting department, who reports to the Principal Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting department and are approved by the Principal Financial Officer.

 

Level 3 Valuation Techniques

 

Level 3 financial liabilities consist of the conversion feature liability for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement.

 

As of December 31, 2014, there were no transfers in or out of level 3 from other levels in the fair value hierarchy. Starting with the new consolidated convertible notes payable as of February 21, 2013, we used a new lattice valuation model which required the embedded derivatives to be bundled and valued as a single compound embedded derivative, bifurcated from the debt host and treated as a liability at fair value.

 

Note 8. Minority Interest

 

Attitude Drinks Incorporated owns 87.5% of Attitude Beer Holding Co., resulting in the recording of 12.5% minority interest transactions for proper consolidations and reporting. Attitude Beer Holding Co. owns 51% of West Hartford WOB LLC which owns the World of Beer franchise store in West Hartford, Connecticut. We record 49% minority interest transactions.

 

19
 

 

Note 9. Transactions with Related Parties:

 

In connection with the reverse merger (see Note 1), we assumed $47,963 in advances payable to the officers of MHHI in which we paid $1,500 in January, 2009 and issued 50 shares of common at $500 per share or $25,000, resulting in an outstanding balance of $21,463 that is due.   These advances are non-interest bearing and payable upon demand.

 

During the quarter ended September 30, 2009, 9,000,000 shares of Series A Preferred, convertible into 54,000,000 shares of common stock at the option of the holder, were granted to Roy Warren (see Note 7). During the quarter ended March, 31, 2013, 51 shares of Series A-1 Preferred, convertible into 306 shares of common stock at the option of the holder, were granted to Roy Warren for services rendered.

 

H. John Buckman is a board director of the Company and is a debt holder of the Company whereas the Company issued him a note payable at the face value of $55,000.  He also received 22 shares of restricted stock that related to this note payable, 3 shares of restricted stock for being a Director and 300 shares of restricted stock for his services related to a November, 2009 financing (total of 325 shares of restricted stock).

 

Note 10. Stockholders’ Deficit:

 

(a) Series A and A-1 Preferred Stock:

 

The Company’s articles of incorporation authorize the issuance of 20,000,000 shares of preferred stock which the Company has designated as Series A and A-1 Preferred (“Series A” and “Series A-1”), $.00001 par value.  Each share of Series A and A-1 is convertible into six shares of the Company’s common stock for a period of five years from the date of issue.  The conversion basis is not adjusted for any stock split or combination of the common stock.  The Company must at all times have sufficient common shares reserved to effect the conversion of all outstanding Series A and A-1 Preferred. The holders of the Series A and A-1 Preferred are entitled to receive common stock dividends when, as, if and in the amount declared by the directors of the Company to be in cash or in market value of the Company’s common stock.  The Company is restricted from paying dividends or making distributions on its common stock without the approval of a majority of the Series A and A-1 holders. The Series A and A-1 are senior to the Common Stock and any other series or class of the Company’s Preferred Stock in the event of liquidations. In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A and A-1 then outstanding are entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment or declaration and setting apart for payment of any amount is to be made in respect of any outstanding capital stock of the Company, an amount equal to $.00001 per share, The Company, at the option of its directors, may at any time or from time to time redeem the whole or any part of the outstanding Series A. Upon redemption, the Company shall pay for each share redeemed the amount of $2.00 per share, payable in cash, plus a premium to compensate the original purchaser(s) for the investment risk and cost of capital equal to the greater of (a) $2.00 per share, or (b) an amount per share equal to fifty percent (50%) of the market capitalization of the Company on the date of notice of such redemption divided by 2,000,000. We have evaluated our Series A and A-1 Preferred Stock and determined these shares required equity classification because the number of shares convertible into common stock is fixed and reserved. Redemption of these preferred shares cannot be affected because of the Company’s stockholders’ deficit.

 

During the quarter ended September 30, 2009, 9,000,000 shares of Series A Preferred were granted to Roy Warren. A non-cash expense for $1,620,000 was recorded based on the then market price of $0.03 per common share times the convertible stock equivalents (9,000,000 preferred shares x 6 = 54,000,000 common stock equivalents). These shares have specific voting power in that Roy Warren has voting rights for 54,000,000 common stock equivalents. The Board of Directors on September 4, 2009 approved an amendment to the certificate of designations whereas Section 2(A) of the Certificate of Designation is hereby declared in its entirety, and the following shall be substituted in lieu thereof- Rights, Powers and Preferences: The Series A shall have the voting powers, preferences and relative, participating, optional and other special rights, qualifications, limitations and restrictions as follows: Designation and Amount – Out of the Twenty Million (20,000,000) shares of the $0.00001 par value authorized preferred stock, all Twenty Million (20,000,000) shares shall be designated as shares of “Series A.”

 

20
 

 

Note 10. Stockholders’ Deficit (continued):

 

(a) Series A and A-1 Preferred Stock (continued):

 

During the quarter ended March, 31, 2013, 51 shares of Series A-1 Preferred, convertible into 306 shares of common stock at the option of the holder, were granted to Roy Warren for services rendered. We recorded a non-cash expense for $0.09 which is based on the then market price of $0.0003 per common share times the convertible stock equivalents (51 preferred shares x 6 = 306 common stock equivalents).

 

(b) Common Stock Issued During the Nine Months Ended December 31, 2014:

 

At December 31, 2014, we had issued and outstanding 690,277,229 shares of common stock of which 30,570 shares are owned by our officers and independent board directors.  Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the shareholders.  Holders of common stock have no cumulative voting rights.  In the event of liquidation, dissolution or winding down of the Company, the holders of shares of common stock are entitled to share, pro rata, all assets remaining after payment in full of all liabilities.  Holders of common stock have no preemptive rights to purchase our common stock.  There are no conversion rights or redemption or sinking fund provisions with respect to the common stock.  All of the outstanding shares of common stock are validly issued, fully paid and non-assessable.

 

21
 

 

COMMON STOCK ISSUED FROM APRIL 1, 2014 THROUGH DECEMBER 31, 2014
                 
   # OF   $ DEBT   $ INTEREST   $ 
DATE OF  SHARES   AMOUNT   AMOUNT   CONVERSION 
CONVERSION  ISSUED   CONVERTED   CONVERTED   PRICE 
                 
4/9/2014   15,912,500   $6,365   $-   $0.0004 
4/9/2014   8,000,000    3,200    -    0.0004 
4/9/2014   12,000,000    4,800    -    0.0004 
4/9/2014   9,067,500    -    3,627    0.0004 
5/5/2014   10,000,000    5,000    -    0.0005 
5/5/2014   10,000,000    5,000    -    0.0005 
5/6/2014   22,441,780    6,925    4,296    0.0005 
5/12/2014   11,312,000    -    5,656    0.0005 
5/15/2014   9,600,000    4,800    -    0.0005 
5/16/2014   26,628,740    13,250    64    0.0005 
5/20/2014   12,000,000    6,000    -    0.0005 
5/20/2014   12,000,000    6,000    -    0.0005 
5/22/2014   12,000,000    -    4,800    0.0004 
5/29/2014   14,000,000    5,600    -    0.0004 
5/29/2014   14,000,000    5,600    -    0.0004 
5/29/2014   14,000,000    5,600    -    0.0004 
5/29/2014   14,000,000    5,600    -    0.0004 
5/30/2014   26,644,475    11,200    70    0.0004 
6/3/2014   14,000,000    5,600    -    0.0004 
6/3/2014   15,000,000    6,000    -    0.0004 
6/4/2014   15,800,000    -    6,320    0.0004 
6/23/2014   18,136,000    -    9,068    0.0005 
6/24/2014   20,000,000    10,000    -    0.0005 
6/24/2014   26,642,000    13,300    -    0.0005 
8/6/2014   26,655,000    5,310    21    0.0002 
8/26/2014   56,546,850    11,275    341    0.0002 
9/10/2014   22,061,200    4,405    7    0.0002 
9/10/2014   40,115,050    2,960    5,063    0.0002 

 

(c) Common Stock Warrants

 

At December 24, 2014, we issued a Class A Common Stock Purchase Warrant to purchase 4,545,000 shares of Common Stock with a life of five years at a purchase price $0.0005 per share. We valued the warrants at fair value on December 31, 2014 at $1,034 as they are subject to derivative liability treatment and will need to be marked-to market each quarter with the change in fair value recorded in the income statement.

 

During December 24, 2014, ABH issued warrants to each debt holder for the first installment financing of a total of $337,250. Since there is no active trading market for ABH, the number of warrants is calculated by taking the total $337,250 debt and dividing by the exercise price of $.40 for a total number of 843,125 warrants. These warrants have a life of seven (7) years. Once there is an active trading, the number of warrants will equal the same number of shares issued for the conversions of the debt. We valued the warrants at $84 using a Black Scholes model, using volatility rates based on Attitude Drinks Incorporated at a risk free rate of 0.14%. We used a stock price of $0.0001 assuming the private company is only worth $100 and 1,000,000 outstanding shares.

 

22
 

 

Note 10. Stockholders’ Deficit (continued):

 

(d) Options Issued During the Nine Months Ended December 31, 2014:

 

None

 

Note 11.  Commitments and Contingencies:

 

Lease of office

 

We entered into a new office lease for 3,333 square feet at our new office in North Palm Beach, Florida on January 3, 2013 with a lease term of three years with two years as renewable terms. Starting February 1, 2013, the minimum starting monthly base rent without sales tax was $1,602 plus monthly operating expense for $2,670 for a monthly total of $4,272. The lease provides for annual 3% increases throughout its term.

 

Future minimum rental payments for the new office lease, based on the current adjusted minimum monthly amount of $4,320 and excluding variable common area maintenance charges, as of December 31, 2014, are as follows:

 

Years ending March 31,  Amount 
      
2015  $13,060 
2016   52,540 
2017   53,146 
2018   44,730 
      
   $163,476 

 

Rental expense, which also includes maintenance and parking fees, for the nine months period ended December 31, 2014 was $41,213. We had a disagreement with the landlord and were forced to vacate the offices including some inventory and fixed assets. Although we are still using the same address and working with the landlord to resolve these problems, we may elect to move to our office to another address. We are working in our home offices.

 

Lease of West Hartford, Connecticut World of Beer

 

Through the December 24, 2014 purchase of 51% of the West Hartford, Connecticut World of Beer property as the lease is for 4,163 square feet and was signed on May 16, 2014 for ten years with the option to extend the lease for two (2) additional periods of five (5) years each. The minimum starting monthly base rent was $10,754 with 3% increases annually.

 

Future minimum rental payments for this lease, based on the current minimum monthly amount of $10,754, as of December 31, 2014, are as follows:

 

Years ending March 31,  Amount 
     
2015  $32,262 
2016   130,016 
2017   133,916 
2018   137,934 
2019   142,072 
thereafter   946,548 
   $1,522,748 

 

23
 

 

Note 11.  Commitments and Contingencies (continued):

 

Lease of West Hartford, Connecticut World of Beer (continued)

 

As the property was not opened during December 31, 2015, no rent expense was recognized for the nine months ending December 31, 2014.

 

Production and Supply Agreements

 

On December 16, 2008, we signed a manufacturing agreement with O-AT-KA Milk Products Cooperative, Inc. for the production of our current products.  The manufacturer will manufacture, package and ship such products.  All products will be purchased freight on board (F.O.B) with the Company paying for the shipping costs.  

 

Note 12.   Subsequent Events:

 

On January 1, 2015, we issued a convertible note to Southridge Partners II LP for $25,000 for their January, 2015 consulting services.

 

On January 2, 2015, we issued 62,500,000 shares of common stock pursuant to a conversion of the December 1, 2012 convertible note payable for $25,000 at a conversion price of $.0004.

 

On January 14, 2015, we issued three convertible notes for a total of $58,500 to 3 accredited debt holders with an interest rate of 10% and a maturity date of January 15, 2017.

 

On January 22, 2015, ABH issued two convertible notes to two accredited investors for a total of $300,000 which the received funds were used to pay the second installment payments for the investment in the World of Beer franchise in West Hartford, Connecticut. In addition, these two accredited investors received Class A Common Stock Purchase Warrants of ABH with an expiration date of seven years for a number of shares equal to the number of shares the debt holder could acquire upon the complete conversion of the Notes issued to them. The purchase price shall be equal to the conversion price of the convertible note.

 

On January 23, 2015, we issued 58,680,556 shares of common stock pursuant to a conversion of the January 1, 2013 convertible note payable for $16,900 at a conversion price of $.000288.

 

On February 1, 2015, we issued a convertible note to Southridge Partners II LP for $25,000 for their February, 2015 consulting services.

 

On February 10, 2015, we issued 50,625,000 shares of common stock pursuant to a conversion of the January 1, 2013 convertible note payable for $8,100 at a conversion price of $.00016.

 

On February 10, 2015, we issued 19,687,500 shares of common stock pursuant to a conversion of the February 1, 2013 convertible note payable for $3,150 at a conversion price of $.00016.

 

On February 24, 2015, we issued 70,673,077 shares of common stock pursuant to a conversion of the February 1, 2013 convertible note payable for $14,700 at a conversion price of $.000208.

 

On February 24, 2015, our subsidiary, ABH issued two convertible notes to two accredited investors for a total of $300,000 which the received funds were used to pay the third installment payments for the investment in the World of Beer franchise in West Hartford, Connecticut. In addition, these two accredited investors received Class A Common Stock Purchase Warrants of ABH with an expiration date of seven years for a number of shares equal to the number of shares the debt holder could acquire upon the complete conversion of the Notes issued to them. The purchase price shall be equal to the conversion price of the convertible note.

 

24
 

 

Note 12.   Subsequent Events (continued):

 

On March 1, 2015, we issued a convertible note to Southridge Partners II LP for $25,000 for their March, 2015 consulting services.

 

On March 3, 2015, we issued 44,687,500 shares of common stock pursuant to a conversion of the February 1, 2013 convertible note payable for $7,150 at a conversion price of $.00016.

 

On March 3, 2015, we issued 39,062,500 shares of common stock pursuant to a conversion of the March 1, 2013 convertible note payable for $6,250 at a conversion price of $.00016.

 

On March 5, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of March 5, 2016. The note bears no interest.

 

On March 13, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of March 13, 2016. The note bears no interest.

 

On March 19, 2015, we issued 43,750,000 shares of common stock pursuant to a conversion of the March 1, 2013 convertible note payable for $,000 at a conversion price of $.00016.

 

On March 19, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of March 19, 2016. The note bears no interest.

 

On March 24, 2015, ABH issued two convertible notes to two accredited investors for a total of $267,250 which the received funds were used to pay the fourth and final installment payments for the investment in the World of Beer franchise in West Hartford, Connecticut. In addition, these two accredited investors received Class A Common Stock Purchase Warrants with an expiration date of seven years for a number of shares equal to the number of shares the debt holder could acquire upon the complete conversion of the Notes issued to them. The purchase price shall be equal to the conversion price of the convertible note.

The remaining amount of $32,750 was paid to complete the full purchase of the West Hartford World of Beer from funds from Attitude Beer Holding Co.

 

On March 30, 2015, we issued 81,250,000 shares of common stock pursuant to a conversion of the March 1, 2013 convertible note payable for $6,500 at a conversion price of $.00008.

 

On April 1, 2015, we issued a convertible note to Southridge Partners II LP for $25,000 for their April, 2015 consulting services.

 

On April 3, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of April 3, 2016. The note bears no interest.

 

On April 9, 2015, we issued 65,625,000 shares of common stock pursuant to a conversion of the March 1, 2013 convertible note payable for $5,250 at a conversion price of $.00008.

 

From April 16, 2015 through April 20, 2015, we issued 688,552,180 restricted shares of common stock as payments to previous employees and certain vendors for past due services.

 

On April 17, 2015, we issued 121,562,500 shares of common stock pursuant to a conversion of the April 1, 2013 convertible note payable for $9,725 at a conversion price of $.00008.

 

On April 17, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of April 17, 2016. The note bears no interest.

 

25
 

 

Note 12.   Subsequent Events (continued):

 

On April 21, 2015, Alpha Capital Anstalt, Tarpon Bay Partners LLC and we (all “shareholders” of ABH) entered into the Purchase Agreement with Harrison, Vickers and Waterman. Inc. (HVCW) pursuant to which the shareholders sold to HVCW all of the outstanding shares of stock of ABH, and ABH thereupon became a wholly owned subsidiary of HVCW. In consideration for the purchase of the shares of common stock of ABH, HVCW issued: (i) to us 51 shares of Series B Preferred Stock and the B Warrant to purchase 5,000,000 Common Stock, at an exercise price of $0.075 per share (subject to customary anti-dilution adjustments); (ii) to Alpha, the Secured Convertible Note in the principal amount of $1,619,375, the Alpha Warrant to purchase 1,295,500,000 shares of HVCW’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an AIR to purchase up to $3,750,000 in the AIR Note and the AIR Warrant; and (iii) to Tarpon, a Secured Convertible Note in the principal amount of $554,791.67, the Tarpon Warrant to purchase 443,833,333 shares of HVCW’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an AIR to purchase up to $1,250,000 in additional notes and corresponding AIR Warrants.  In addition, Alpha acquired 32,300 shares of the HVCW’s Series A Preferred Stock (convertible into 32,300,000 shares of the HVCW’s Common Stock) from HVW Holdings LLC (an entity of which Mr. James Giordano, the Company’s prior Chief Executive Officer and Chairman of the Board, is the managing member), subject to the terms of a Purchase Agreement (the “Series A Purchase Agreement”). We purchased 87,990,000 shares of Common Stock from HVW Holdings LLC at a price of $65,000, subject to the terms of a Purchase Agreement (the “Common Stock Purchase Agreement”). We are now the majority owner of HVCW.

 

On April 24, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of April 24, 2016. The note bears no interest.

 

On April 30, 2015, we issued 121,250,000 shares of common stock pursuant to a conversion of the April 1, 2013 convertible note payable for $9,700 at a conversion price of $.00008.

 

On May 1, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of May 1, 2016. The note bears no interest.

 

On May 1, 2015, we issued a convertible note to Southridge Partners II LP for $25,000 for their May, 2015 consulting services.

 

On May 8, 2015, we issued a promissory note to a current accredited investor for $16,500 which has a maturity date of May 8, 2016. The note bears no interest.

 

On May 15, 2015, we issued a promissory note to a current accredited investor for $7,500 which has a maturity date of May 15, 2016. The note bears no interest.

 

On May 20, 2015, we issued 106,818,400 shares of common stock pursuant to a conversion of the April, 2014 note for $7,700 and accrued interest of $311 at a conversion price of $.000075.

 

On May 22, 2015, we received from a current accredited investor $7,500 as all parties are working to determine whether to treat this financing either as convertible debt or equity financing.

 

On May 29, 2015, we received from a current accredited investor $7,500 as all parties are working to determine whether to treat this financing either as convertible debt or equity financing.

 

On June 1, 2015, we issued a convertible note to Southridge Partners II LP for $25,000 for their June, 2015 consulting services.

 

On June 8, 2015, we issued 44,622,981 shares of restricted stock as payments to a previous employee for past due services.

 

On June 25, 2015, we filed a DEF14C filing whereas on June 10, 2015, Attitude obtained the approval by written consent of the holders of a majority of our voting power to approve an amendment to the Certificate of Incorporation of the Corporation to effectuate a reverse stock split of our outstanding shares of common stock by a ratio of not less than 1-for-50 and not greater than 1-for-100 with the Board of Directors to determine the exact ratio, adopt the 2015 Stock Incentive Plan and amend the Certificate of Designations of the Series A Preferred Stock, resulting in 5,000,000 shares of preferred stock being authorized but not designated of the decrease. The Board of Directors has unanimously approved the Amendment, Plan and Decrease with effectiveness 20 calendar days after June 25, 2015.

 

26
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected for any future periods.

 

This discussion contains forward-looking statements, based on current expectations. All statements regarding future events, our future financial performance and operating results, our business strategy and our financing plans are forward-looking statements and involve risks and uncertainties. In many cases, you can identify forward-looking statements by terminology, such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. These statements are only predictions. Known and unknown risks, uncertainties and other factors could cause our actual results and the timing of events to differ materially from those projected in any forward-looking statements. In evaluating these statements, you should specifically consider various factors, including, but not limited to, those set forth in our Annual Report on Form 10-K for the year ended March 31, 2014 and in this report.

 

Recent Developments

 

On December 1, 2014, the Company formed Attitude Beer Holding Co. (“ABH”) in the state of Delaware. Since the Company was the majority owner and active manager of ABH during the quarter ended December 31, 2014, the financial results of ABH for the quarter ended December 31, 2014 were consolidated into the overall results of the Company with the recording of any minority interest related activities.

 

On December 24, 2014, New England WOB, LLC (“NEWOB”), ABH, the Company, Glenn E. Straub (“Straub”) and James D. Cecil (“Cecil”) entered into a joint venture agreement. NEWOB entered into an Area Development Agreement with World of Beer Franchising, Inc which is in the business of entering into franchise agreements with third parties to own and operate World of Beer themed bar/restaurants. NEWOB developed a World of Beer franchise in Stamford, Connecticut as well as West Hartford, Connecticut. ABH was granted the right to participate in any World of Beer franchise that NEWOB proposes to develop. ABH has the option to become a 51% of any new World of Beer franchise for the contribution of 100% of the budgeted development costs of developing such new World of Beer franchise locations. NEWOB will manage the operations of each World of Beer franchise location. The financial results of each World of Beer franchise location will be consolidated into the overall results of ABH which in turn will be consolidated into the overall results of Attitude as Attitude owns the majority ownership of ABH. All applicable minority interest related items will be recorded for proper consolidations and reported results for Attitude’s consolidated financial statements.

 

On the same December 24, 2014 date, ABH purchased 51% of the West Hartford, Connecticut World of Beer franchise location and obtained an option for two years to purchase 51% of the Stamford, Connecticut World of Beer franchise location that was opened earlier in 2014. That option has not been exercised.

 

27
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Recent Developments (continued)

 

On April 21, 2015, ABH and the other shareholders, Alpha Capital Anstalt, a company organized under the laws of Liechtenstein (“Alpha”) and Tarpon Bay Partners LLC, a Florida limited liability company (“Tarpon Bay”), collectively all three companies as shareholders of ABH, entered into a Purchase Agreement with Harrison, Vickers and Waterman Inc. (HVCW) pursuant to which the shareholders sold to HVCW all of the outstanding shares of stock of ABH, and ABH thereupon became a wholly owned subsidiary of HVCW. In consideration for the purchase of the shares of common stock of ABH, HVCW issued: (i) to us 51 shares of a newly created Series B Preferred Stock of HVCW (the “Series B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of HVCW’s common stock, par value $.0001 per share (the “HVCW Common Stock”), at an exercise price of $0.075 per share (subject to customary anti-dilution adjustments); (ii) to Alpha, a secured convertible note due April 20, 2017 (the “Secured Convertible Note”) in the principal amount of $1,619,375, a seven year warrant (the “Alpha Warrant”), to purchase 1,295,500,000, shares of HVCW’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an additional investment right (“AIR”) to purchase up to $3,750,000 in additional notes (the “AIR Note”) and corresponding warrants (“the “AIR Warrant”); and (iii) to Tarpon, a Secured Convertible Note in the principal amount of $554,791.67, a seven year warrant (the “Tarpon Warrant”) to purchase 443,833,333 shares of HVCW’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an AIR to purchase up to $1,250,000 in additional notes and corresponding AIR Warrants.  In addition, Alpha acquired 32,300 shares of the HVCW’s Series A Preferred Stock (convertible into 32,300,000 shares of HVCW’s Common Stock) from HVW Holdings LLC (an entity of which Mr. James Giordano, HVCW’s prior Chief Executive Officer and Chairman of the Board, is the managing member), subject to the terms of a Purchase Agreement (the “Series A Purchase Agreement”). We purchased 87,990,000 shares of HVCW’s Common Stock from HVW Holdings LLC at a price of $65,000, subject to the terms of a Purchase Agreement (the “Common Stock Purchase Agreement”) thereby making us the majority owner of HVCW.

 

In December 2014, ABH entered into a joint venture with New England World of Beer and together we opened a 4,000 sq. foot tavern in West Hartford, Connecticut that sells a selection of over 500 craft and imported beers along with tavern food and other spirits and cocktails. New England World of Beer holds franchise rights for all of Connecticut and Massachusetts. Similar taverns are currently open in 20 states, namely AL, AZ, CO, CT, FL, GA, IL, LA, MD, MI, NC, NJ, NY, OH, SC, TN, TX, VA, WA and WI.

 

OVERVIEW

 

Our plan of operation during the next 12 months is to focus on the non-alcoholic single serving beverage business developing and marketing of milk based products in two fast growing segments; sports recovery and functional dairy. We do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and contract packers. In addition, our indirect subsidiary, ABH that is now owned by HVCW as of April 24, 2015, plans to build additional World of Beer franchise locations in Connecticut and the greater Boston area during the next 12 months.

 

We have no assurance that we will be able to obtain additional funding to sustain our limited operations beyond twelve months based on available cash. If we do not obtain additional funding, we may need to cease operations until we do so and, in that event, may consider a sale of the rights to our product line(s) and intangible assets such as our trademarks or a joint venture partner that will provide funding to the enterprise, if at all possible. Our future operations are totally dependent upon obtaining additional funding. Past fundings have been subject to defaults by our inability to meet due dates for certain notes payable, thereby triggering anti-dilution rights which created the need to issue additional shares of common stock and/or additional warrants to purchase additional shares of common stock in order to extend the applicable due dates for certain notes payable. There can be no assurance that these defaults will not happen again in the future, thereby creating the potential need for additional issuances of shares of common stock and/or warrants assuming that the note holders agree to such extensions.

 

The Product (Phase III®)

 

Milk, while the second highest beverage consumed in America in terms of overall volume, is still under-represented in the American single serve ready-to-drink beverage industry. While known for generations by nutritionists and more recently identified by sports, hydration, metabolism and protein professionals and scientists as “mother nature’s most perfect food,” we believe milk has yet to be successfully branded and commercialized.

 

28
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

The Product (Phase III®) (continued)

 

Our current product is a dairy based product which is called “Phase III® Recovery” and is designed for the third phase of exercise, the “after phase” of before, during and after. This product is the first milk based protein drink ever to be produced in America and is shelf-stable with a twelve (12) month long shelf life. We started to sell this new product in February 2010. Our co-pack partner, O-AT-KA Milk Products, is the largest retort milk processor in America, located in Batavia, New York and has the most advanced retort processor and know-how to produce this product with state-of-the-art milk filtration systems as well as the packaging of this product in new Ball Container aluminum eco-friendly re-sealable bottles. The primary target for Phase III Recovery ® is active sports minded males and females from ages 15 to 35, but we will target active sports and exercise consumers at all levels. Gyms, sports teams, body builders and even high-endurance athletes are all beginning to focus on sports recovery drinks which we consider the “next generation” sports drink. Depending on available capital, we anticipate the development of other dairy based drink products in late 2015.

 

We organized a Scientific Advisory Board of three well known experts that have extensive experience in sports nutrition. We expect that this board will be helpful in communicating the scientific benefits of our sports recovery drink as well as new functional milk drinks. Their contacts in the world of sports are anticipated to be very important in our sales efforts, especially in the early days.

 

We intend to focus on the largest markets in the eastern United States with further expansion in the fifteen largest markets of the country. We intend to pre-sell in four sales channels: grocery, convenience, drug and sports and gym specialty. We intend to develop key working partnerships with regional direct store delivery (DSD) beverage distributors in these markets.

 

Regional distributors have lost four major beverage lines in the last few years including Monster Energy (moved to Anheuser Busch), Fuze (purchased by Coca-Cola), Vitamin Water (purchased by Coca-Cola), and the V-8 brands (now distributed by Coca-Cola).  We expect to develop regionally exclusive DSD agreements that are desperately needed by the distributors to replace these losses as well as shipping direct to our customers via our own warehouse system.

 

Certain accounts like chained convenience stores, grocery and drug stores will require warehouse distribution. The shelf-stable and long shelf life attributes of our products will accommodate any and all distribution and warehouse systems. To accommodate this business, we intend to employ beverage brokers and work with the “tobacco & candy” and food service warehouse distributors such as McLane Company and Sysco Foods for this business.

 

The pricing and gross profit margin for the products will vary. Each product delivers different functionality and utilizes different types of packaging and package sizes.  We believe these products will command premium pricing due to the functionality and value-added formulation and will therefore be priced according to the nearest competitive brands in their respective spaces.  The functional milk drinks are also expected to command approximately the same percentage margin due to the premium pricing commanded by the experiential functionality.  Clearly singles will command higher margin than multi-packs. We expect that the average gross margin for our products will be 55%-60% depending upon the consumer response and sales channel mix.

 

29
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CRITICAL ACCOUNTING POLICIES

 

World of Beer Franchises

 

As already stated, our indirect subsidiary owned by HVCW, ABH and its joint venture partners of New England WOB, LLC, will be developing new World of Beer franchise locations throughout its protected territories in Connecticut and greater Boston, Massachusetts. ABH will provide the financing for construction of these stores, and New England WOB, LLC will provide the real estate location search and development as well as manage the operations of each store.

 

World of Beer is an organization of over 65 company owned and franchised craft taverns and growing in 20 states. Most World of Beer locations provide a selection of over 500 unique craft and imported beers, modern tavern fare spirits and craft cocktails and a complete entertainment experience including live music, sports viewing, seasonal and local celebrations and highly trained servers with in-depth beer knowledge. ABH’s first World of Beer location is located in West Hartford, Connecticut which opened in late January, 2015. The West Hartford location is a 4,000 square foot tavern and serves lunch and dinner daily and hosts live music performances on Friday and Saturday nights. New England World of Beer, LLC opened its first store in Stamford, Connecticut in 2014 as ABH has an option with a 2 years life to purchase 51% of this store as that option has not been exercised.

 

Celebrating the popularity of craft beer and its culture, ABH and New England WOB, LLC plan to develop and build other World of Beer franchises in key market areas in the state of Connecticut and in certain areas in Massachusetts with primary emphasis in the greater Boston areas. Depending on available financing and market conditions, we will seek other territories to expand in the future as well. New England World of Beer, LLC is an expert in commercial real estate development and restaurant/bar operations and management and has broad business experience as entrepreneurs, operators and developers, having managed numerous businesses and commercial real estate ventures. The planned stores will be built in areas where we believe these operations will command premium pricing and respectable profit margins. Clearly younger and affluent demographics will command higher margins.

 

The preparation of financial statements in conformity with GAAP 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. The most critical estimates included in our financial statements are the following:

 

Financial Instrument Valuation

 

In estimating the fair value of our derivative financial instruments that are required to be carried as liabilities at fair value pursuant to the FASB Accounting Standards Codification (ASC 820-10-35-37 Fair Value in Financial Instruments, ASC 815 Accounting for Derivative Instruments and Hedging Activities) and Emerging Issues Task Force Issue No. 00-19 and EITF 07-05 for the nine months period ended December 31, 2014, we use all available information and appropriate techniques including outside consultants to develop our estimates. However, actual results could differ from our estimates.

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CRITICAL ACCOUNTING POLICIES (continued)

 

Derivative Financial Instruments

 

We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.  However, we have and will frequently enter into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts or (iii) may be net-cash settled by the counterparty to a financing transaction.  As required by the FASB Accounting Standards Codification, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.  However, in the past, we were allowed to elect fair value measurement of the hybrid financial instruments, on a case-by-case basis, rather than bifurcate the derivative for all of our previous convertible notes up to February 21, 2013 when we issued new consolidated exchange convertible notes under different terms and language.  We believed that fair value measurement of the hybrid convertible promissory notes arising from our various financing arrangements provided a more meaningful presentation of that financial instrument; however, as just previously mentioned on February 21 2013, we consolidated all the past outstanding convertible notes into new consolidated exchange notes that contained different language and eliminated many of the toxic elements listed in the old convertible notes.

 

We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring of fair values.  In selecting the appropriate technique(s), we consider, among other factors, the nature of the instrument, the market risks that such instruments embody and the expected means of settlement.  For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes-Merton option valuation technique, since it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments.  For complex hybrid instruments, such as convertible promissory notes that include embedded conversion options, puts and redemption features embedded in them, we generally use techniques that embody all of the requisite assumptions (including credit risk, interest-rate risk, dilution   and exercise/conversion behaviors) that are necessary to fair value these more complex instruments.  For forward contracts that contingently require net-cash settlement as the principal means of settlement, we project and discount future cash flows applying probability-weightage to multiple possible outcomes. After consulting with a new outside valuation firm, we found that many companies are using other valuation models, primarily the lattice model to bifurcate the derivative and record the derivatives at fair value. We elected to use this new valuation model for the new consolidated notes because that model would value all convertible notes based on a probability weighted scenario model and future projections of the various potential outcomes on all assumptions, observable inputs and inherent valuation of risk, The embedded derivatives that were analyzed and incorporated into our model included the conversion feature with the variable market based conversion and the default provisions. This lattice model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur and the specific terms that would be in effect at the time (i.e. interest rates, stock price, conversion price, etc.). Projections were then made on these underlying factors which led to a set of potential scenarios. Probabilities were assigned to each of these scenarios based on management projections. This led to a cash flow projection and a probability associated with that cash flow. A discounted weighted average cash flow over the various scenarios was completed, and it was compared to the discounted cash flow of the 2 year 4% instrument without the embedded derivatives, thus determining a value for the compound embedded derivatives at the point of issue. These derivative liabilities need to be marked-to-market each reporting period with the change in fair value to be recorded in the profit/loss statement. Fair value is defined as the amount for which an asset (or liability) could be exchanged in a current transaction between knowledgeable, unrelated willing parties when neither party is acting under compulsion.

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Derivative Financial Instruments (continued)

 

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.  In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility.  

 

GOING CONCERN

 

Our operating losses since inception and negative working capital raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern. For the foreseeable future, we will have to fund all our operations and capital expenditures from the net proceeds of equity or debt offerings. Although we plan to pursue additional financing, there can be no assurance that we will be able to secure financing when needed or to obtain such financing on terms satisfactory to us, if at all. If we are unable to secure additional financing in the future on acceptable terms, or at all, we may be unable to complete the development of our new products. In addition, we could be forced to reduce or discontinue product development, reduce or forego sales and marketing efforts and forego attractive business opportunities in order to improve our liquidity to enable us to continue operations.

 

RESULTS OF OPERATIONS

 

Our plan during the next few months is to continue the implementation of market and sales promotion programs to gain awareness of our “Phase III® Recovery” drink in new markets and to increase customers as this is our only revenue producing product at this time.

 

For the nine months ended December 31, 2014 Compared to the nine months Ended December 31, 2013:

 

Revenue was $44,798 as compared to $163,548 for the nine months ended December 31, 2014 and 2013, respectively. The decrease in revenue was due to insufficient capital for marketing and promotional expenses to introduce our products to new markets.

 

For the nine months ended December 31, 2014, our primary expenses related to salaries and consulting fees. Total operating expenses for the nine months ended December 31, 2014 were $952,734 which were $491,136 less than last year’s similar expenses for $1,443,870. This decrease was the result of fewer employees and consultants and related reduction of expenses due to decreased revenues.

 

Interest expense was $2,592,005 which was mainly caused by the recording of the changes in the fair value measurements of our convertible notes payable. These figures are different than the results for last year’s year-to-date results due to the changes and volatility in the price of the Company’s stock price. Primarily as a result of the changes in fair value measurements, we reported a net loss for the nine months ended December 31, 2014 of $3,557,733 leading to a basic and diluted loss per share of ($.01) as compared to a net income for the nine months ended December 31, 2013 of $829,815 which includes the recognition of $2,255,728 net interest income. The weighted average number of common shares outstanding for the basic and diluted loss per share calculation for the nine months ended December 31, 2014 was 542,825,040. The basic income per share was $.01and the diluted income per share was $.00 for the nine months ended December 31, 2013 based on a weighted average number of common shares outstanding of 77,010,663 for the basic income per share and 9,807,938,996 for the diluted income per share.

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

RESULTS OF OPERATIONS (continued)

 

Three Months Ended December 31, 2014 Compared to Three Months Ended December 31, 2013:

 

Revenue was $10,982 as compared to $18,357 for the three months ended December 31, 2014 and 2013, respectively. The decrease in revenue was due to insufficient capital for marketing and promotional expenses to introduce our products to new markets.

 

For the three months ended December 31, 2014, our primary expenses related to salaries and consulting fees. Total operating expenses for the three months ended December 31, 2014 were $295,969 which were $182,494 less than last year’s similar expenses for $478,463. This decrease was the result of fewer employees and consultants and related reduction of expenses due to decreased revenues.

 

Interest expense was $1,373,866 which was mainly caused by the recording of the changes in the fair value measurements of our convertible notes payable. These figures are different than the results for last year’s quarterly results due to the changes and volatility in the price of the Company’s stock price. Primarily as a result of the changes in fair value measurements, we reported a net loss for the three months ended December 31, 2014 of $1,672,789 leading to a basic and diluted loss per share of $.00 as compared to a net loss for the three months ended December 31, 2013 of $1,091,176 which includes the recognition of $604,283 net interest expense. The weighted average number of common shares outstanding for the basic and diluted loss per share calculation for the three months ended December 31, 2014 was 690,277,229. The basic and diluted income per share was ($.01) for the three months ended December 31, 2013 based on a weighted average number of common shares outstanding of 159,597,453 for the basic and diluted loss per share.

 

LIQUIDITY AND CAPITAL RESOURCES

 

We have not yet begun to generate significant revenues, and our ability to continue as a going concern will be dependent upon receiving additional third party financings to fund our business for at least the next twelve months. We do not have any meaningful comparable financial information with prior periods. We anticipate that, depending on market conditions and our plan of operations, we may incur operating losses in the future based mainly on the fact that we may not be able to generate enough gross profits from our sales to cover our operating expenses and to increase our sales and marketing efforts. There is no assurance that further funding will be available at acceptable terms, if at all, or that we will be able to achieve profitability or receive adequate funding for new product research and development activities.

 

For the nine months ended December 31, 2014 compared to nine months ended December 31, 2013:

Net cash provided in operating activities for the nine months ended December 31, 2014 was $77,184 which was mainly the effect of changes in our operating assets. Our loss of $3,557,733 is offset by non-cash items of $(441,835) for the changes in the fair values of our convertible notes payable, $2,703,347 for the amortization (accretion) of the debt discount and $1,221,687 for changes in accounts payable and accrued expenses. Net cash used in operating activities for the nine months ended December 31, 2013 was $628,055 which was mainly the effect of changes in our operating assets. Our profit of $829,815 was offset by non-cash items of $(3,532,703) for the changes in the fair values of our convertible notes payable, $990,842 for the amortization (accretion) of the debt discount and $730,221 for changes in accounts payable and accrued expenses.

 

Net cash flows generated by operating activities for the nine months ended December 31, 2014 as well as for the nine months ended December 31, 2013 were inadequate to cover our working capital needs. We had to rely on a new convertible debt financing as well as a short term promissory notes to cover operating expenses.

 

Net cash used investing activities for the nine months ended December 31, 2014 was $746,854 which is the result of purchase of equipment of $640,456 and capitalized pre-opening expenses of $106,398 for the West Hartford World of Beer location. Net cash used in investing activities for the nine months ended December 31, 2013 was $4,365 which were used to purchase vending machines and trademarks.

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

LIQUIDITY AND CAPITAL RESOURCES (continued)

 

Net cash provided by our financing activities was $678,744 for the nine months ended December 31, 2014 as compared to $645,505 for the nine months ended December 31, 2013. The net increase of $33,239 was attributed to loan payables from minority World of Beer owners and proceeds from convertible notes and promissory notes for the nine months ended December 31, 2014.

 

Comparison of the nine months ended December 31, 2014 to the nine months ended December 31, 2013:

 

The major variances in the Condensed Consolidated Statements of Cash Flows for the nine months of December 31, 2014 as compared to the nine months of December 31, 2013 related to items that are affected by the changes in the prices of the Company’s common stock such as changes in fair value of our convertible notes payable which impact the following line items: “net income (loss), derivative expense (income) and fair value adjustment of convertible notes”. Changes in our accounts payable and accrued liabilities in the Cash Flows from Operating Activities for the nine months ended December 31, 2014 for $1,221,687 as compared to the nine months ended December 31, 2013 for $730,221 were the result of paying more accounts payable related items in 2013. Proceeds from convertible notes payable and short-term bridge loans as shown in the Cash Flows From Financing Activities section for the nine months ended December 31, 2014 were the result of two allonge convertible note financings for $52,500, one new convertible note financing for $35,200 and several promissory notes for $168,500 in 2014 for a total of $256,200 (excluding the $425,044 World of Beer loans) compared to higher new financings of $705,505 for the nine months ended December 31, 2013.

 

External Sources of Liquidity:

 

For the nine months ended December 31, 2014:

 

On April 30, 2014, we issued a promissory note with no interest to Southridge Partners II LP in which we received $12,000.

 

On May 2, 2014, we executed a $27,500 allonge #17 with Alpha Capital Anstalt to an original secured convertible note for $175,000 dated February 22, 2012 in which we received $25,000 as $2,500 was paid as a finder’s fee.

 

On May 13, 2014, we issued a convertible promissory note with an interest rate of 4% to LG Capital Funding, LLC in we received $35,200.

 

On June 11, 2014, we issued four promissory notes ($10,000 for each note) with no interest for a total receipt of $40,000 to Southridge Partners II LP, Alpha Capital Anstalt, Centaurian Fund LP and Whalehaven Capital Fund Ltd.

 

On July 11, 2014, we executed a $25,000 allonge #18 with Alpha Capital Anstalt to an original secured convertible note for $175,000 dated February 22, 2012 in which we received $25,000.

 

On July 31, 2014, we issued a promissory note with no interest to Southridge Partners II LP in which we received $15,000.

 

On August 21, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $10,000.

 

On August 29, 2014, we issued a promissory note with no interest to Tarpon Bay Partners LLC in which we received $10,000.

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

LIQUIDITY AND CAPITAL RESOURCES (continued)

 

On September 17, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $10,000.

 

On September 30, 2014, we issued a promissory note with no interest to Southridge Partners II LP in which we received $15,000.

 

On September 30, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $15,000.

 

On November 19, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $10,000.

 

On December 19, 2014, we issued a promissory note with no interest to Centaurian Fund in which we received $31,500.

 

On December 24, 2014, ABH issued two promissory notes, one for $246,188 to Alpha Capital Anstalt and the other for $91,063 to Tarpon Bay Partners LLC, for a total of $337,250. Both notes have an interest rate of 10% and a maturity date of December 24, 2015.

 

All of the net proceeds from the above financings except for the ABH’s proceeds were used for operations and working capital purposes. ABH’s proceeds were used for the first installment financing for purchasing the World of Beer franchise location in West Hartford, Connecticut.

 

The foregoing securities were issued in reliance upon an exemption from registration under Section 4(a)(2) and/or Regulation D of the Securities Act of 1933, as amended. All of the investors were accredited investors and/or had preexisting relationships with the Company, there was no general solicitation or advertising in connection with the offer or sale of securities and the securities were issued with a restrictive legend.

 

RECENT ACCOUNTING PRONOUNCEMENTS:

 

In August, 2014, the Financial Accounting Standard Board issued an ASU that contained guidance for the disclosure of uncertainties about an entity’s ability to continue as a going concern. There is no impact on the Company through the adoption of this update as the Company has always provided such required disclosures on doubt about the entity’s ability to continue as a going concern with one year.

 

In November, 2014, the Financial Accounting Standard Board issued an ASU that contained guidance about derivatives and hedging and determining whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. There are predominantly two methods used in current practice by issuers and investors in evaluating whether the nature of the host contract within a hybrid instrument issued in the form of a share is more akin to debt or to equity. This ASU is to eliminate the use of different methods in practice. As the Company utilizes the services of an outside professional specialty firm for such valuations, the Company believes there is no change needed for this update.

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CURRENT AND FUTURE FINANCING NEEDS

 

We will require additional capital to finance our future operations and develop new World of Beer franchise locations. We can provide no assurance that we will obtain additional financing sufficient to meet our future needs on commercially reasonable terms or otherwise. Currently we are in default in paying certain short-term bridge loans in the amount of $115,000 and a convertible note for $37,000, but we are working on extending the due dates. Please see a summary of all convertible notes and short-term bridge loans in the table below. We have convertible notes in the principal face amount of $6,170,092 outstanding at December 31, 2014. There is no guarantee that we will be able to pay these notes when due or secure further extensions. We are recording interest expense at the default interest rate of 15% for the short-term bridge loans. If we are unable to obtain the necessary financing, our business, operating results and financial condition will be materially and adversely affected. We anticipate a need of funding in the range of $1,500,000 to $1,750,000 for the next twelve months to meet our business plan and operating needs only for our Attitude Drinks operations. This figure does not include any new product research and development activities. There is no guarantee that we will be able to obtain these funds and continue operations.

 

We anticipate a need for funding of new World of Beer franchise locations anywhere between $1,200,000 to $2,000,000 per store. There is no guarantee we will be able to obtain those financings and build new stores.

 

The following table sets forth various details of all convertible notes and short-term bridge loans including applicable interest and default rates at December 31, 2014:

 

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RECAP ANALYSIS OF ALL CONVERTIBLE NOTES PAYABLE

AND SHORT-TERM BRIDGE NON-CONVERTIBLE LOANS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2014

 

Original                    Default   Accrued 
New Note   Issue     Default  $ Amount   Interest   Interest   Default 
Amounts   Date  Due Date  Yes/No  Past Due   Rate   Rate   Interest 
                                
$25,000   December, 2012  12/31/2014  No   -    None    None    - 
$25,000   January, 2013  12/31/2014  No   -    None    None    - 
$6,259,771(a)  February, 2013  2/21/2015  No   -    4%   20%   - 
$25,000   February, 2013  12/31/2014  No   -    None    None    - 
$25,000   March, 2013  12/31/2014  No   -    None    None    - 
$25,000   April, 2013  12/31/2014  No   -    None    None    - 
$25,000   May, 2013  12/31/2014  No   -    None    None    - 
$25,000   June, 2013  12/31/2014  No   -    None    None    - 
$37,000   June, 2013  6/7/2014  Yes (b)   37,000    None    None    - 
$25,000   July, 2013  12/31/2014  No   -    None    None    - 
$25,000   August, 2013  12/31/2014  No   -    None    None    - 
$25,000   September, 2013  1/31/2015  No   -    None    None    - 
$25,000   October, 2013  2/28/2015  No   -    None    None    - 
$25,000   November, 2013  3/31/2015  No   -    None    None    - 
$25,000   December, 2013  4/30/2015  No   -    None    None    - 
$25,000   January, 2014  5/31/2015  No   -    None    None    - 
$25,000   February, 2014  6/30/2015  No   -    None    None    - 
$25,000   March, 2014  7/31/2015  No   -    None    None    - 
$25,000   April, 2014  8/31/2015  No   -    None    None    - 
$25,000   May, 2014  9/30/2015  No   -    None    None    - 
$35,200   May, 2014  5/13/2015   No   -    4%   20%   - 
$25,000   June, 2014  10/31/2015  No   -    None    None    - 
$25,000   July, 2014  11/30/2015  No   -    None    None    - 
$25,000   August, 2014  12/31/2015  No   -    None    None    - 
$25,000   September, 2014  1/31/2016  No   -    None    None    - 
$25,000   October, 2014  2/28/2016  No   -    None    None    - 
$25,000   November, 2014  3/31/2016  No   -    None    None    - 
$25,000   December, 2014  4/30/2016  No   -    None    None    - 
$20,000   December, 2014  12/22/2016  No   -    None    None    - 
$246,187   December, 2014  12/24/2015  No   -    None    None    - 
$91,063   December, 2014  12/24/2015  No   -    None    None    - 
                                
$7,314,221                              

 

(a) Total amount includes total consolidated notes for $5,492,271 plus additional issued allonges.

(b) The Company is working with the debt holder to extend the maturity date.

 

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SHORT-TERM BRIDGE LOANS (c)

 

$60,000   April 14, 2008  Past due  Yes  $60,000    15%  $50,638 
$55,000   August 5, 2008  Past due  Yes  $55,000    15%  $63,064 
$115,000   Total amount past due        $115,000        $113,702 

 

(c)Notes indicated in default are in default because they are past due. One of the debt holders is a Board Director and will extend the maturity date as soon as we can locate the other debt holder.

 

ITEM 2. – OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements.

 

CERTAIN BUSINESS RISKS:

 

Investing in our securities involves a high degree of risk. You should carefully consider the risk factors discussed below, together with all the other information contained or incorporated by reference in this report and in our filings under the Securities Exchange Act of 1934, as amended, ( the” Exchange Act”), before deciding over whether to purchase any of our securities. Each of the risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our securities, and the occurrence of any of these risks might cause you to lose all or part of your investment.

 

Risks Relating to Our Business

 

We have a limited history of operating losses. If we continue to incur operating losses, we eventually may have insufficient working capital to maintain or expand operations according to our business plan.

 

As of December 31, 2014, we had total shareholders’ deficit of ($15,597,650) and a working capital deficit of ($16,150,526) compared to a total shareholders’ deficit of ($12,335,519) and a working capital deficit of ($12,266,740) at March 31, 2014. Cash and cash equivalents were $29,689 as of December 31, 2014 as compared to $20,615 at March 31, 2014. The main contributing factor to the working capital deficit was primarily attributable to the changes in the fair value calculations for the valuation of our convertible notes payable as well as changes in the derivative liabilities.

 

There is substantial doubt as to our ability to continue as a going concern.

 

Our auditing firm’s opinion in our Form 10-K for the fiscal year ended March 31, 2014 expressed concern about the ability of the Company to continue as a going concern. Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

For the foreseeable future, we will have to fund all of our operations and capital expenditures from the net proceeds of equity or debt offerings we may have and cash on hand.  Although we plan to pursue additional financing, there can be no assurance that we will be able to secure financing when needed or obtain such

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

financing on terms satisfactory to us, if at all, or that any additional funding we do obtain will be sufficient to meet our needs in the long term. Obtaining additional financing may be more difficult because of the uncertainty regarding our ability to continue as a going concern.  If we are unable to secure additional financing in the future on acceptable terms, or at all, we may be unable to complete planned development of certain products.

 

To date, we have generated no material product revenues. Our operating losses have negatively impacted our liquidity, and we are continuing our efforts to develop new products, while focusing on increasing net sales. However, changes may occur that would consume our existing capital at a faster rate than projected, including, among others, the progress of our research and development efforts and hiring of additional key employees. If we continue to suffer losses from operations, our working capital may be insufficient to support our ability to expand our business operations as rapidly as we would deem necessary at any time, unless we are able to obtain additional financing. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to pursue our business objectives and would be required to reduce our level of operations, including reducing infrastructure, promotions, personnel and other operating expenses. These events could adversely affect our business, results of operations and financial condition. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund the growth of our operations, take advantage of opportunities, develop products or services or otherwise respond to competitive pressures, could be curtailed or significantly limited. Any additional sources of financing will likely involve the sale of our equity securities, which will have a dilutive effect on our stockholders. If we are unable to achieve profitability, the market value of our common stock will decline, and there would be a material adverse effect on our financial condition.

 

At December 31, 2014, we were in default on certain of our short-term bridge notes and have other substantial outstanding debt obligations.

 

At December 31, 2014, we were in default on short term bridge notes totaling $115,000 in principal. One of the two short term note holders is a member of our Board of Directors who has indicated he will extend the due date once we locate the other note holder as we have been looking for quite some time. The remedy for default under the notes is acceleration of principal and interest due thereunder. Further, we have secured convertible notes outstanding totaling $6,507,342 in principal face value at December 31, 2014. Although we have been able to extend the maturity dates of most of these convertible notes to February 21, 2015, there is no assurance that we will be able to continue to extend these obligations. Penalties for default under our convertible notes include but are not limited to acceleration of principal and interest and default interest rates up to 20%. As of December 31, 2014, we are were in default for one convertible notes payable for $37,000 as we are working with the debt holder as well as other debt holders with maturity dates in February, 2015 to extend the maturity date as maturity dates range from June 7, 2014 through April 30, 2016.

 

Defaults on these obligations could materially adversely affect our business operating results and financial condition to such extent that we may be forced to restructure, file for bankruptcy, sell assets or cease operation. Further, certain of these obligations are secured by our assets. Failure to fulfill our obligations under these notes and related agreements could lead to the loss of these assets, which would be detrimental to our operations.

 

We may not be able to develop successful new beverage products which are important to our growth.

 

An important part of our strategy is to increase our sales through the development of new beverage products. We cannot assure you that we will be able to continue to develop, market and distribute future beverage products that will have market acceptance. The failure to continue to develop new beverage products that gain market acceptance could have an adverse impact on our growth and materially adversely affect our financial condition.

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

We have identified material weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.

 

If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. Our most recent evaluation of our internal controls resulted in our conclusion that our disclosure controls and procedures and that our internal controls over financial reporting were not effective. Effective internal controls are necessary for us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. In our case, our failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could in turn have a material adverse effect on our stock price.

 

Further, we may have higher obsolescent product expense if new products fail to perform as expected due to the need to write off excess inventory of the new products.

 

Our results of operations may be impacted in various ways by the introduction of new products, even if they are successful, including the following:

 

-    sales of new products could adversely impact sales of existing products:

 

-    we may incur higher cost of goods sold and selling, general and administrative expenses in the periods when we introduce new products due to increase costs associated with the introduction and marketing of new products, most of which are expensed as incurred;

 

-    and when we introduce new platforms and bottle sizes, we may experience increased freight and logistics costs as our co-packers adjust their facilities for the new products.

 

The beverage business is highly competitive.

 

The premium and functional beverage drink industries are highly competitive. Many of our competitors have substantially greater financial, marketing, personnel and other resources than we do. Competitors in these industries include bottlers and distributors of nationally advertised and marketed products, as well as chain store and private label drinks. The principal methods of competition include brand recognition, price and price promotion, retail space management, service to the retail trade, new product introductions, packaging changes, distribution methods and advertising. We also compete for distributors, shelf space and customers primarily with other premium beverage companies. As additional competitors enter the field, our market share may fail to increase or may decrease.

 

The growth of our revenues is dependent on acceptance of our products by mainstream consumers.

 

We have limited resources to introduce our products to the mainstream consumer. As such, we will need to increase our sales force and execute agreements with distributors who, in turn, distribute to mainstream consumers at grocery stores, club stores and other retailers. If our products are not accepted by the mainstream consumer, our business could suffer.

 

Our failure to accurately estimate demand for our products could adversely affect our business and financial results.

 

We may not correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials including, but not limited to, containers, labels, flavors or packing arrangements, we might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain ingredients have been and could, from time to time in the future, be experienced, which could interfere with and/or delay production of certain of our products and could have a material adverse effect on our business and financial results. We do not use hedging agreements or alternative instruments to manage this risk.

 

40
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

The loss of our third-party distributors could impair our operations and substantially reduce our financial results.

 

We continually seek to expand distribution of our products by entering into distribution arrangements with regional bottlers or other direct store delivery distributors having established sales, marketing and distribution organizations. Many distributors are affiliated with and manufacture and/or distribute other beverage products. In many cases, such products compete directly with our products.

 

The marketing efforts of our distributors are important for our success. If our brands prove to be less attractive to our existing distributors and/or if we fail to attract additional distributors and/or our distributors do not market and promote our products above the products of our competitors, our business, financial condition and results of operations could be adversely affected.

 

Inability to secure co-packers for our products could impair our operations and substantially reduce our financial results.

 

We rely on third parties, called co-packers in our industry, to produce our products.  We currently have only one co-packing agreement for our products and at this time have only one milk-based product commercially available (Phase III® Recovery). Our co-packing agreement with our principal co-packer was signed on December 16, 2008 and had an initial term of three (3) years which has now expired. This agreement automatically renews for consecutive one (1) year periods (next renewal date of December 16, 2013) unless either party provides notice of cancellation at least one hundred twenty (120) calendar days prior to the end of the initial term or subsequent extension period. Our dependence on one co-packer puts us at substantial risk in our operations. If we lose this relationship and/or require new co-packing relationships for other products, we may be unable to establish such relationships on favorable terms, if at all. Further, co-packing arrangements with potential new companies may be on a short term basis, and such co-packers may discontinue their relationship with us on short notice.  Our dependence on co-packing arrangements exposes us to various risks, including:

 

-  if any of those co-packers were to terminate our co-packing arrangements or have difficulties in producing beverages for us, our ability to produce our beverages would be adversely affected until we were able to make alternative arrangements;

 

-  and our business reputation would be adversely affected in any of the co-packers were to produce inferior quality products.

 

We compete in an industry that is brand-conscious so brand name recognition and acceptance of our products are critical to our success.

 

Our business is substantially dependent upon awareness and market acceptance of our products and brands by our targeted consumers. In addition, our business depends on acceptance by our independent distributors of our brands as beverage brands that have the potential to provide incremental sales growth rather than reduce distributors’ existing beverage sales. We believe that the success of our product name brands will also be substantially dependent upon acceptance of our product name brands. Accordingly, any failure of our brands to maintain or increase acceptance or market penetration would likely have a material adverse affect on our revenues and financial results.

 

41
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

We compete in an industry characterized by rapid changes in consumer preferences and public perception so our ability to continue to market our existing products and develop new products to satisfy our consumers’ changing preferences will determine our long-term success.

 

Consumers are seeking greater variety in their beverages. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of quality and health, although there can be no assurance of our ability to do so. There is no assurance that consumers will continue to purchase our products in the future. Additionally, many of our products are considered premium products and to maintain market share during recessionary periods, we may have to reduce profit margins, which would adversely affect our results of operations. Product lifecycles for some beverage brands and/or products and/or packages may be limited to a few years before consumers’ preferences change. The beverages we currently market are in their early lifecycles, and there can be no assurance that such beverages will become or remain profitable for us. The beverage industry is subject to changing consumer preferences, and shifts in consumer preferences may adversely affect us if we misjudge such preferences. We may be unable to achieve volume growth through product and packaging initiatives. We also may be unable to penetrate new markets. If our revenues decline, our business, financial condition and results of operations will be materially and adversely affected.

 

Our quarterly operating results may fluctuate significantly because of the seasonality of our business.

 

As our products are relatively new, there may be seasonality issues that could cause our financial performance to fluctuate. In addition, beverage sales can be adversely affected by sustained periods of bad weather.

 

Our business is subject to many regulations, and noncompliance is costly.

 

The production, marketing and sale of our unique beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be stopped, thus adversely affecting our financial conditions and operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we have no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.

 

We face risks associated with product liability claims and product recalls.

 

Other companies in the beverage industry have experienced product liability litigation and product recalls arising primarily from defectively manufactured products or packaging. Our co-packer maintains product liability insurance insuring our operations from any claims associated with product liability. This insurance may or may not be sufficient to protect us. We do not maintain product recall insurance. In the event we were to experience additional product liability or product recall claim, our business operations and financial condition could be materially and adversely affected.

 

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ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

Our intellectual property rights are critical to our success; the loss of such rights could materially, adversely affect our business.

 

We regard the protection of our trademarks, trade dress and trade secrets as critical to our future success. We have registered our trademarks in the United States that are very important to our business. We also own the copyright in and to portions of the content on the packaging of our products. We regard our trademarks, copyrights and similar intellectual property as critical to our success and attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to prevent infringement. Product packages, mechanical designs and artwork are important to our success, and we would take action to protect against imitation of our packaging and trade dress and to protect our trademarks and copyrights, as necessary. We also rely on a combination of laws and contractual restrictions, such as confidentiality agreements, to establish and protect our proprietary rights, trade dress and trade secrets. However, laws and contractual restrictions may not be sufficient to protect the exclusivity of our intellectual property rights, trade dress or trade secrets. Furthermore, enforcing our rights to our intellectual property could involve the expenditure of significant management and financial resources. There can be no assurance that other third parties will not infringe or misappropriate our trademarks and similar proprietary rights. If we lose some or all of our intellectual property rights, our business may be materially and adversely affected.

 

If we are not able to retain the full time services of our management team, including Roy G. Warren, it will be more difficult for us to manage our operations and our operating performance could suffer.

 

Our business is dependent, to a large extent, upon the services of our management team, including Roy G. Warren, our founder and Chief Executive Officer and Chairman of the Board. We depend on our management team, but especially on Mr. Warren’s creativity and leadership in running or supervising virtually all aspects of our day-to-day operations. We do not have a written employment agreement with any member of our management team or Mr. Warren. In addition, we do not maintain key person life insurance on any of our management team or Mr. Warren. Therefore, in the event of the loss or unavailability of any member of the management team to us, there can be no assurance that we would be able to locate in a timely manner or employ qualified personnel to replace him. The loss of the services of any member of our management team or our failure to attract and retain other key personnel over time would jeopardize our ability to execute our business plan and could have a material adverse effect on our business, results of operations and financial condition.

 

We need to manage our growth and implement and maintain procedures and controls during a time of rapid expansion in our business.

 

If we are to expand our operations, such expansion would place a significant strain on our management, operational and financial resources.  Such expansion would also require improvements in our operational, accounting and information systems, procedures and controls.  If we fail to manage this anticipated expansion properly, it could divert our limited management, cash, personnel, and other resources from other responsibilities and could adversely affect our financial performance.

 

Our business may be negatively impacted by a slowing economy or by unfavorable economic conditions or developments in the United States and/or in other countries in which we may operate.

 

A general slowdown in the economy in the United States or unfavorable economic conditions or other developments may result in decreased consumer demand, business disruption, supply constraints, foreign currency devaluation, inflation or deflation. A slowdown in the economy or unstable economic conditions in the United States or in the countries in which we operate could have an adverse impact on our business results or financial condition. Currently we do not have any international operations.

 

43
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

The beneficial ownership of a significant percentage of our common stock gives Roy Warren and members of his family effective control of us and limits the influence of other shareholders on important policy and management issues.

 

Roy Warren, our Chief Executive Officer and Chairman of our Board, through his control of 51% of our voting stock, has control over our company and important matters relating to us. As a result he can control the outcome of all matters submitted to our shareholders for approval, including the election of our directors, our business strategy, our day-to-day operations and any proposed merger, consolidation or sale of all or substantially all of our assets. This control of our company could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, preventing a change in control of our company that might be otherwise beneficial to our shareholders, and possibly depressing the trading price of our common stock. There can be no assurance that conflicts of interest will not arise with respect to Roy Warren’s ownership and control of our company or that any conflicts will be resolved in a manner favorable to the other shareholders of our company.

 

Certain provisions of the General Corporation Law of the State of Delaware, our Amended and Restated Certificate of Incorporation, as amended, and our bylaws may have anti-takeover effects which may make an acquisition of our company by another company more difficult.

 

We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The operation of Section 203 may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.

 

Our Amended and Restated Certificate of Incorporation and bylaws contain provisions that permit us to issue, without any further vote or action by the stockholders, up to 20,000,000 shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series, and the preferences and relative, participating, optional and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of such series.

 

These provisions on our Amended and Restated Certificate of Incorporation may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.

 

Certain of our officers may have a conflict of interest and lack of availability.

 

Some of our officers, including our Chief Executive Officer and our Chief Financial Officer, are currently working for the Company on a part-time basis and are the Chief Executive Officer and Chief Financial Officer of Harrison Vickers and Waterman Inc. These officers have discretion to decide what time they devote to our activities, which may result in a lack of availability when needed due to responsibilities at other jobs. 

 

We do not have an audit committee.

 

While not being legally obligated to have an audit committee or independent audit committee financial expert, we currently do not have an audit committee or independent audit committee financial expert which is an important entity-level control over the Company’s financial statements.

 

44
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

Risks Relating to Our Securities

 

There has been a very limited public trading market for our securities, and the market for our securities may continue to be limited and be sporadic and highly volatile.

 

There is currently a limited public market for our common stock. Our common stock has been listed for trading on the OTC Pink Sheets (the “PINK”). We cannot assure you that an active market for our shares will be established or maintained in the future. Holders of our common stock may, therefore, have difficulty selling their shares, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares, which may be purchased, may be sold without incurring a loss. Any such market price of our shares may not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value and may not be indicative of the market price for the shares in the future. In addition, the market price of our common stock may be volatile, which could cause the value of our common stock to decline. Securities markets experience significant price and volume fluctuations. This market volatility, as well as general economic conditions, could cause the market price of our common stock to fluctuate substantially. Many factors that are beyond our control may significantly affect the market price of our shares. These factors include: 

 

- price and volume fluctuations in the stock markets;

- changes in our revenues and earnings or other variations in operating results;

- any shortfall in revenue or increase in losses from levels expected by us or securities analysts;

- changes in regulatory policies or law;

- operating performance of companies comparable to us;

- and general economic trends and other external factors.

 

Even if an active market for our common stock is established, stockholders may have to sell their shares at prices substantially lower than the price they paid for it or might otherwise receive than if a broad public market existed.

 

Future financings as well as conversion of existing convertible securities could adversely affect common stock ownership interest and rights in comparison with those of other security holders.

 

Our board of directors has the power to issue additional shares of common or preferred stock without stockholder approval. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. In addition, as of December 31, 2014, we had issued and outstanding options that may be exercised into 10,054,454 shares of common stock, 4,545,000 warrants that may be exercised into 4,545,000 shares of common stock, 9,000,000 shares of Series A Convertible Preferred Stock and 51 shares of Series A-1 Convertible Preferred Stock that may be converted into 54,000,306 shares of common stock, outstanding principal convertible notes totaling $6,170,092 and accrued interest payable of $1,469,892 which together may be converted into 14,542,141,612 shares of common stock (subject to 4.99-9.99% beneficial ownership limitations) at a maximum conversion cap rate of $.02 per share. The Series A and A-1 Preferred Stock vote with the common stock on an as converted basis. Pursuant to the terms and conditions of the Company’s outstanding Series A and Series A-1 Preferred Stock, the conversion rate and the voting rights of the Series A and A-1 will not adjust as a result of any reverse stock split. Further, the authorized but unissued Series A will not adjust as a result of any reverse split. As a result, in the event of a reverse split of our common stock, the voting power would be concentrated with the Series A holder.

 

45
 

 

ITEM 2. –MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

CERTAIN BUSINESS RISKS (continued):

 

Further, if we issue any additional common stock or securities convertible into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder. In addition, such stock issuances might result in a reduction of the book value of our common stock.

 

A substantial number of our shares are available for sale in the public market, and sales of those shares could adversely affect our stock price and our ability to obtain financing.

 

Sales of a substantial number of shares of common stock into the public market, or the perception that such sales could occur, could substantially reduce our stock price in the public market for our common stock and could impair our ability to obtain capital through a subsequent financing of our securities. We have 690,277,229 shares of common stock outstanding as of December 31, 2014 of which 690,246,659 shares are held by non-affiliates. Further, the Company has outstanding convertible notes in the face value of $6,507,342 of which $6,170,092 may be converted into 11,673,746,667 shares of Attitude Drinks Incorporated common stock. Generally, the holders of the securities convertible or exercisable into our common stock may be able to sell the common stock issued upon conversion or exercise after a six month holding period under Rule 144 adopted under the Securities Act of 1933 (as amended, the “Securities Act”). As such, you should expect a significant number of such shares of common stock to be sold. Depending upon market liquidity at the time our common stock is resold by the holders thereof, such re-sales could cause the trading price of our common stock to decline. In addition, the sale of a substantial number of shares of our common stock, an anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

 

ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4. – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

 

The Company has disclosed management’s determination in its annual report that deficiencies existed in the Company’s internal controls over financial reporting as of March 31, 2014. Management concluded that control deficiencies existed as of March 31, 2014 that constituted material weaknesses, as described below.

 

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ITEM 4. – CONTROLS AND PROCEDURES (continued)

 

* We have noted that there may be an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

 

* We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management’s view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert, is an important entity-level control over the Company's financial statements. Currently, the Board does not have sufficient independent directors to form such an audit committee. Also, the Board of Directors does not have an independent director with sufficient financial expertise to serve as an independent financial expert.

 

* Due to the complex nature of recording derivatives and similar financial instruments, we noted a need for increased coordination and review of techniques and assumptions used in recording derivatives to ensure accounting in conformity with generally accepted accounting principles.

 

Remediation Efforts to Address Deficiencies in Internal Control Over Financial Reporting

 

As a result of the findings from the evaluation conducted of the effectiveness of our internal control over financial reporting as set forth above, management intends to take practical, cost-effective steps in implementing internal controls, including the following remedial measures:

 

* Interviewing and potentially hiring outside consultants that are experts in designing internal controls over financial reporting based on criteria established in Internal Control-Integrated Framework issued by COSO.

 

* The Company has hired an outside consultant to assist with controls over the review and application of derivatives to ensure accounting in conformity with generally accepted accounting principles.

 

* The Board of Directors to consider nominating an audit committee and audit committee financial expert, which may or may not consist of independent members as funds allow.

 

Due to inadequate financing, the Company has not hired any outside experts to design additional internal controls over financing reporting or reviewed or made recommendations to shareholders concerning the composition of the Board of Directors or recommended a new board director that is a financial expert.

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Accordingly, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective, as of December 31, 2014, for the purposes of recording, processing, summarizing, and timely reporting material information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934.

 

Changes in Internal Control Over Financial Reporting

 

No change in the Company’s internal control over financial reporting occurred during the quarter ended December 31, 2014, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008.  This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Denton County, Texas for a total sum of $22,348. This claim has been recorded on the Company’s records.  Due to the lack of adequate capital financing, we have not been able to make any payments.  We expect to resolve this matter as soon as practical.

 

On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services. The claim is for $2,106 plus interest and legal costs. This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095. On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount. Current outstanding balance due is $2,438. No other payments have been made.

 

On September 20, 2013, James N. Fuller, Jr. commenced a lawsuit in the state of Florida to recover past due amounts owed by us for rendered independent sales contracting services. The claim was for $18,300 plus filing fee of $460. The $18,300 was already recorded on our records. Due to lack of adequate capital financing, we have not been able to make any payments. We expect to resolve that matter as soon as practical.

 

On October 1, 2013, Beanpot Broadcasting Corp. d/b/a WXRV-FM, commenced a lawsuit in the state of Massachusetts to recover past due amounts owed by us for rendered independent sales contracting services. The claim was for $15,500 for past due services, $4,169 in service charges, $363 for prejudgment interest and $200 court costs for a total of $20,232. The total $20,232 amount was already recorded on our records. On November 15, 2013, the Trial Court of Massachusetts entered a judgment for the plaintiff (“Beanpot”) for the total $20,232. Due to the lack of adequate capital financing, we have not been able to make any payments. We expect to resolve this matter as soon as practical.

 

On November 27, 2013, we received an order of the court from The Trial Court of Massachusetts Small Claims Session, to attend a hearing on December 12 2013 about a small claims amount of $5,000 from Marshfield Broadcasting Company, Inc. to recover past due amounts. A total of $5,500 was already recorded our records. On December 31, 2013, a judgment in the amount of $5,238 was entered in favor of Marshfield Broadcasting Inc. No payments have been made as we expect to resolve this matter as soon as practical.

 

On February 4, 2014, Philip Terrano commenced a lawsuit in the state of Florida to recover past due amounts owed by us for past compensation in the amount of approximately $17,000. We disagree with this amount as our records reflect a total amount owed of $6,974. On May 28, 2014, we entered into a settlement agreement with Terrano to pay him a total of $11,000, to be remitted 60 days of the effective date of this agreement. Due to a lack of capital financing, we expect to address this matter as soon as we can.

 

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PART II – OTHER INFORMATION (continued)

 

Item 1. Legal Proceedings (continued)

 

On June 9, 2014, North Palm Beach Broadcasting Company d/b/a/ WSVU-AM Radio filed a lawsuit in the state of Florida to recover past due services owed by us in the amount of $22,000 that is due with interest. We do not agree with that amount as we did make various payments in 2013 that totaled $8,000. We are working with that party to arrive at a mutual agreeable outstanding amount if any. We do not have any other outstanding balance that is recorded on our records. On August 6, 2014, we received a Default Final Judgment from Palm Beach County Circuit Court in Florida for a total amount of $23, 411. We are still contesting that amount and will resolve the matter as soon as possible.

 

On June 26, 2014, Innerworkings, Inc. filed a lawsuit in the state of Florida to recover past due services owed by us in the amount of $5,039 that is due with interest. This same amount has already been recorded on our records. We expect to address this issue as soon as practical.

 

On November 11, 2014, C.A. Courtesy Demos, Inc. commenced a lawsuit in the state of Florida to recover past due amounts owed by us for rendered services. The claim was for $5,803. We do not agree with this amount and have not recorded this amount on our records as services were supposed to be rendered, but a hurricane in the northeastern section of the United States occurred at that given time. We expect to resolve this matter as soon as we can.

 

On November 20, 2014, Pavilion Law Center, LLC filed a motion in the circuit court of Palm Beach County, Florida to enforce a settlement agreement for past due fees. We are contesting some of the amounts and will resolve this matter as soon as practical.

 

On April 22, 2015, Edgar Agents LLC filed a lawsuit in the Circuit Court in Palm Beach County, Florida to recover past due amounts owned by us for rendered services. The claim was for $23,323.50 plus interest and costs. We have recorded $19,069.50 in our records as we have not received the backup for the $4,254.00 difference. We expect to resolve this matter as soon as practical.

 

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

 

During the three months ended December 31, 2014, the Company did not issue any new shares of common stock as there were no conversions of principal of convertible notes payable or related accrued interest to note holders of the Company pursuant to the terms of the note instruments.

 

On November 19, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $10,000.

 

On December 19, 2014, we issued a promissory note with no interest to Centaurian Fund in which we received $31,500.

 

On December 24, 2014, ABH issued two promissory notes, one for $246,188 to Alpha Capital Anstalt and the other for $91,063 to Tarpon Bay Partners LLC, for a total of $337,250. Both notes have an interest rate of 10% and a maturity date of December 24, 2015.

 

49
 

 

PART II – OTHER INFORMATION (continued)

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)

 

The foregoing securities were issued in reliance upon an exemption from registration under Section 4(a)(2) and/or Regulation D of the Securities Act of 1933, as amended. All of the investors were accredited investors and/or had preexisting relationships with the Company, there was no general solicitation or advertising in connection with the offer or sale of securities and the securities were issued with a restrictive legend.

 

Item 3. Defaults on Senior Securities

 

As of December 31, 2014, we were in default in paying the April 14, 2008 short-term bridge loan with principal balance of $60,000 and the August 5, 2008 short-term bridge loan with principal balance of $55,000 for a total of $115,000. These debt holders agreed in January, 2009 to extend the due dates to April 30, 2009. We are working on the extension of the due dates for these debts although there is no guarantee that we will obtain such extensions. One of the debt holders is a Board Director and has agreed to extend the note once we locate the other debt holder as we are searching for current contact information for the second investor.

 

In addition, we were in default in paying a convertible note payable for $37,000 that was due on June 7, 2014. We are working with the debt holder to extend the maturity date.

 

Item 4. Mine Safety Disclosures - None

 

Item 5. Other Information

 

See Note 10 – “Subsequent Events” of Note to Condensed Consolidated Financial Statements for additional disclosure data on events occurring after the date of the financial statements included herein.

 

ITEM 6 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

The exhibits listed in the accompanying Exhibit Index are filed, furnished or incorporated by reference as part of this Quarterly Report on Form 10-Q.

 

50
 

 

Exhibit       Incorporated   Filed
No.   Documents Description   By Reference   Herewith
(10)(149)   Promissory Note October 1, 2014   (37)    
(10)(150)   Promissory Note November 1, 2014   (37)    
(10)(151)   Promissory Note November 19, 2014   (37)    
(10)(152)   Promissory Note December 1, 2014   (37)    
(10)(152) (ii)   Certificate of Incorporation Attitude Beer Holding Co. December 1, 2014       X
(10)(153)   Class A Common Stock Purchase Warrant-Attitude Drinks Incorporated   (36)    
(10)(154)   Form of Convertible Note   (36)    
(10)(155)   Non-Circumvention-No-Shop Agreement   (36)    
(10)(156)   Confidentiality, Non-solicitation and Noncompetition Agreement   (36)    
(10)(157)   West Hartford WOB, LLC Amended & Restated Operating Agreement   (36)    
(10)(158)   Joint Venture Agreement   (36)    
(10)(159)   Form of Secured Convertible Note-Attitude Beer Holding Co.   (36)    
(10)(159)(ii)(Ref 159-161)   ABH Notes and Warrants Face Pages December 24, 2014       X
(10)(160)   Escrow Agreement   (36)    
(10)(161)   Form of Class A Common Stock Purchase Warrant-Attitude Beer Holding Co.   (36)    
(10)(162)   Guaranty   (36)    
(10)(163)   Form of Security Agreement   (36)    
(10)(164)   Securities Purchase Agreement   (36)    
(10)(165)   Promissory Note dated December 19, 2014   (37)    
(10)(166)   Convertible Note dated December 19, 2014   (37)    
(10)(166)(ii)   Lease Agreement West Hartford, Connecticut       X
(10)(167)   Promissory Note January 1, 2015   (37)    
(10)(168)   Form of Convertible Note January 14, 2015   (37)    
(10)(169)   Form of Convertible Note  and Class A Purchase Warrant dated January 23, 2015   (37)    
(10)(169)(ii)(Ref 159-161)   ABH Notes and Warrants Face Pages January 23, 2015       X
(10)(170)   Promissory Note dated February 1, 2015   (37)    
(10)(170)(ii)(Ref 159-161)   ABH Notes and Warrants Face Pages February 24, 2015       X
(10)(171)   Promissory Note dated March 1, 2015   (39)    
(10)(172)   Promissory Note dated March 5, 2015   (39)    
(10)(173)   Promissory Note dated March 13,2015   (39)    
(10)(174)   Promissory Note dated March 19, 2015   (39)    
(10)(174)(ii)(Ref 159-161)   ABH Notes and Warrants Face Pages March 24, 2015       X
(10)(175)   Promissory Note dated March 26, 2015   (39)    
(10)(176)   Promissory Note dated April 1, 2015   (39)    
(10)(177)   Promissory Note dated April 3, 2015   (39)    
(10)(178)   Promissory Note dated April 17, 2015   (39)    
(10)(179)   Certificate of Designations of Series B Convertible Preferred Stock of Harrison   (38)    
    Vickers  and Waterman Inc. as Exhibit 4.1 to the Company's Form 8-K filed on        
    April 27, 2015        
(10)(180)   Warrant issued to Attitude Drinks Incorporated as Exhibit 4.2 to the Company's Form 8-K filed on April 27,2015   (38)    
(10)(181)   Secured Convertible Note due 2017 issued to Alpha Capital Anstalt as Exhibit 4.3 to the Company's Form 8-K filed on April 27,2015   (38)    
(10)(182)   Secured Convertible Note due 2017 issued to Tarpon Bay Partners LLC as Exhibit 4.4 to the Company's Form 8-K filed on April 27, 2015   (38)    

 

51
 

 

(10)(183)   Additional Investment Right issued to Alpha Capital Anstalt as Exhibit 4.5 to the Company's Form 8-K filed on April 27,2015   (38)    
(10)(184)   Additional Investment Right issued to Tarpon Bay Partners LLC as Exhibit 4.6 to the Company's Form 8-K filed on April 27,2015   (38)    
(10)(185)   Asset Purchase Agreement dated as of April 21, 2015 by and between Harrison Vickers and Waterman Inc., Attitude Drinks Incorporated, Alpha Capital Anstalt and Tarpon Bay Partners LLC as Exhibit 10.1 to the Company’s From 8-K filed on April 27, 2015.   (38)    
(10)(186)   Pledge Agreement dated as of April 21, 2015 by and between Attitude Drinks Incorporated and Tarpon Bay Partners LLC as collateral agent on behalf of Alpha Capital Anstalt and Tarpon Bay Partners LLC as exhibit 10.2 to the Company's Form 8-K filed on April 27, 2015.   (38)    
(10)(187)   Security Agreement dated as of April 21, 2015 among Harrison Vickers and Waterman Inc., each subsidiary of Harrison Vickers and Waterman Inc. and Tarpon Bay Partners LLC as collateral agent as Exhibit 10.3 to the Company's Form 8-K on April 27, 2015   (38)    
(10)(188)   Guaranty dated as of April 21, 2015 entered into by Attitude Beer Holding Co. for the benefit of Alpha Capital Anstalt and Tarpon Bay Partners LLC as Exhibit 10.4 to the Company's Form 8-K filed on April 27,2015   (38)    
(10)(188)   Guaranty dated as of April 21, 2015 entered into by Attitude Drinks Incorporated for the benefit of Alpha Capital Anstalt and Tarpon Bay Partners LLC as Exhibit 10.5 to the Company's Form 8-K filed on April 27,2015   (38)    
(10)(189)   Exchange Agreement dated as of April 21, 2015 by and among Attitude Beer Holding Co., Attitude Drinks Incorporated, Alpha Capital Anstalt and Tarpon Bay Partners loc as exhibit 10.6 to the Company's Form 8-K filed on April 27, 2015   (38)    
(10)(190)   Purchase Agreement dated as of April 21, 2015 between HVW Holdings LLC and Attitude Drinks Incorporated as exhibit 10.7 to the Company's Form 8-K on April 27, 2015   (38)    
(10)(191)   A Warrant issued to Alpha Capital Anstalt as exhibit 99.1 to the Company's Form 8-K on April 27, 2015   (38)    
(10)(192)   Series A Warrant issued to Tarpon Bay Partners LLC as exhibit 99.2 to the Company's Form 8-K on April 27, 2015   (38)    
(10)(193)   Purchase Agreement dated as of April 21, 2015 between HVW Holdings LLC and Alpha Capital Anstalt as exhibit 99.3 to the Company's Form 8-K on April 27, 2015   (38)    
(10)(194)   Promissory Note dated April 24, 2015   (39)    
(10)(195)   Promissory Note dated May 1, 2015   (39)    
(10)(196)   Promissory Note dated May 1, 2015   (39)    
(10)(197)   Promissory Note dated May 1, 2015   (39)    
(10)(198)   Promissory Note dated May 15, 2015   (39)    
(10)(199)   Promissory Note dated June 1, 2015   (40)    
(14)   Code of Ethics   **    
(21)   Subsidiaries of Registrant   *    
(31)(i)   Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14 (a),        
    as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X
(31)(ii)   Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14 (a),        
    as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X

 

52
 

 

(32)(1)   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002       X
101.INS   XBRL Instance Document       X
101.SCH   XBRL Taxonomy Extension Schema Document       X
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document       X
101.DEF   XBRL Taxonomy Extension Definitiom Linkbase Documeent       X
101.LAB   XBRL Taxonomy Extension Label Linkbase       X
101.PRE   XBRL Taxonomy Extension Presentation Linkbase       X

 

(36) previously filed with the Commission on December 31, 2014 as a Form 8-K (SEC Accession No. 0001144204-14-076573)

(37) previously filed with the Commission on February 13,2015 as a Form 10-K (SEC Accession No. 0001144204-15-009097)

(38) previously filed with the Commission on April 27, 2015 as a Form 8-K (SEC Accession No. 0001144204-15-025275)

(39) previously filed with the Commission on May 18, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001144204-15-031872)

(40) previously filed with the Commission on June 12, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001144204-15-036831)

 

53
 

 

SIGNATURES

 

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

 

ATTITUDE DRINKS INCORPORATED

(Registrant)

Date: July 1, 2015

 

/S/Roy G. Warren  
Roy G. Warren  
President and Chief Executive Officer  
   
/S/Tommy E. Kee  
Tommy E. Kee  
Chief Financial Officer and Principal Accounting Officer  

 

54



 

EXHIBIT (10)(152)(ii)

 

 

State of Delaware

Secretary of State

Division of Corporations

Delivered 12:00 PM 12/01/2014

FILED 12:00 PM 12/01/2014

SRV 141478010 – 5648964 FILE

 

STATE of DELAWARE

CERTIFICATE of INCORPORATION

A STOCK CORPORATION

 

·First: The name of this Corporation is Attitude Beer Holding Co.

 

·Second: Its registered office in the State of Delaware is to be located at 1209 Orange Street, in the City of Wilmington County of New Castle Zip Code 19801. The registered agent in charge thereof is The Corporation Trust Company.

 

·Third: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

 

·Fourth: The amount of the total stock of this corporation is authorized to issue is 50,000,000 shares (number of authorized shares) with a par value of 0.0000100000 per share.

 

·Fifth: The name and mailing address of the incorporator are as follows:

 

  Name Roy G. Warren

 

  Mailing Address 712 U.S. Highway 1 #200
    North Palm Beach F1 Zip Code 33408

 

·I, The Undersigned, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate, and do certify that the facts herein stated are true, and I have accordingly hereunto set my hand this 24 day of November, A.D. 2014.

 

  BY: /s/ Roy G. Warren
    (Incorporator)
     
  NAME: Roy G. Warren
    (type or print)

 

 



 

EXHIBIT (10)(159)(ii)(Ref 159-161)

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: December 24, 2014

Principal Amount: $246,187.50

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Alpha Capital Anstalt, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of two hundred forty six thousand one hundred eighty seven dollars and fifty cents ($246,187.50) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: December 24, 2014

Principal Amount: $91,062.50

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Tarpon Bay Partners LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of ninety one thousand sixty two dollars and fifty cents ($91,062.50) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 1 Issue Date:  December 24, 2014

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ALPHA CAPITAL ANSTALT, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)         Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 2 Issue Date:  December 24, 2014

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, TARPON BAY PARTNERS LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)          Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been

 

 



 

EXHIBIT (10)(166)(ii)

 

Lease Agreement West Hartford, Connecticut

 

Due to confidential information contained in this agreement, the Company requests confidential treatment of this information in order to not disclose the full document. Certain information has been disclosed in the footnotes of the Form 10-Q.

 

 



 

EXHIBIT (10)(169)(ii)(Ref 159-161)

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: January 23, 2015

Principal Amount: $225,000.00

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Alpha Capital Anstalt, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of two hundred twenty five thousand dollars and no cents ($225,000.00) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: January 23, 2015

Principal Amount: $75,000.00

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Tarpon Bay Partners LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of seventy five thousand dollars and no cents ($75,000.00) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 1 Issue Date:  January 22, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ALPHA CAPITAL ANSTALT, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)         Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 2 Issue Date:  January 22, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, TARPON BAY PARTNERS LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)         Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available he

 

 



 

EXHIBIT (10)(170)(ii)(Ref 159-161)

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: February 24, 2015

Principal Amount: $225,000.00

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Alpha Capital Anstalt, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of two hundred twenty five thousand dollars and no cents ($225,000.00) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: February 24, 2015

Principal Amount: $75,000.00

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Tarpon Bay Partners LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of seventy five thousand dollars and no cents ($75,000.00) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 3 Issue Date:  February 24, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ALPHA CAPITAL ANSTALT, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)         Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 4 Issue Date:  February 24, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, TARPON BAY PARTNERS LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)         Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been

 

 

 



 

EXHIBIT (10)(174)(ii)(Ref 159-161)

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: March 24, 2015

Principal Amount: $200,437.50

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Alpha Capital Anstalt, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of two hundred thousand, four hundred and thirty seven dollars and fifty cents ($200,437.50) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: March 24, 2015

Principal Amount: $66,812.50

 

SECURED CONVERTIBLE NOTE

DUE December 24, 2015

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of Attitude Beer Holding Co. a Delaware corporation, (the “Borrower”), having its principal place of business at 712 US Highway 1, Suite 200, North Palm Beach, FL 33408, due December 24, 2015 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to Tarpon Bay Partners LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of sixty six thousand, eight hundred and twelve dollars and fifty cents ($66,812.50) on December 24, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in asset of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 5 Issue Date:  March 24, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ALPHA CAPITAL ANSTALT, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)         Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been

 

 
 

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

FORM OF CLASS A COMMON STOCK PURCHASE WARRANT

 

ATTITUDE BEER HOLDING CO.

 

Warrant No: 6 Issue Date:  March 24, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, TARPON BAY PARTNERS LLC, Executive Pavilion, 90 Grove Street, Ridgefield CT 06877 Fax: (203) 431– 8301 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from ATTITUDE BEER HOLDING CO., a Delaware corporation (the “Company”), a number shares equal to the number of share the Holder could acquire upon the complete conversion of the Note issued to it by the Company on or about the Issue Date (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1.          Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated December 24, 2014, among the Company and the purchasers signatory thereto.

 

Section 2.          Exercise.

 

a)         Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been

 

 

 



 

Exhibit 31.(i)

 

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Roy G. Warren, certify that:

 

(1)I have reviewed this quarterly report on Form 10-Q of Attitude Drinks Incorporated.

 

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/Roy G. Warren  
Roy G. Warren  
President and Chief Executive Officer  
Dated: July 1, 2015  

 

 



 

Exhibit 31.(ii)

 

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Tommy E. Kee, certify that:

 

(1)I have reviewed this quarterly report on Form 10-Q of Attitude Drinks Incorporated.

 

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

(5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/Tommy E. Kee  
Tommy E. Kee  
Chief Financial Officer and Principal Accounting Officer  
Dated: July 1, 2015  

 

 

 



 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Report of Attitude Drinks Incorporated (the "Company") on Form 10-Q for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Roy G. Warren, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  By: /S/  Roy G. Warren  
      Roy G. Warren  
      President and Chief Executive Officer  

July 1, 2015

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Report of Attitude Drinks Incorporated (the "Company") on Form 10-Q for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Tommy E. Kee, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  By: /S/  Tommy E. Kee  
      Tommy E. Kee  
      Chief Financial Officer and Principal Accounting Officer

July 1, 2015