UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended March 31, 2015
Commission
File Number 000-52904
ATTITUDE
DRINKS INCORPORATED
(Exact
name of registrant as specified in its charter)
| Delaware |
65-0109088 |
| (State or other jurisdiction of |
(I.R.S. Employer |
| incorporation or organization) |
Identification No.) |
| |
11231U.S.
Highway 1, #201, North Palm Beach, Florida 33408 USA |
|
| |
(Address of principal
executive offices) (Zip Code) |
|
Telephone
number: (561) 227-2727
| Securities registered under Section 12(b) of
the Exchange Act: |
None |
| Securities registered under Section 12(g) of the Exchange Act |
Common Stock, $.00001par value (Title of class) |
| Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. |
| |
Yes ☐ No ☒ |
| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. |
| |
Yes ☐ No ☒ |
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No
☐ |
| |
|
| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ |
| |
|
| Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-X (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ☒ |
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. (check one)
| Large accelerated filer |
☐ |
Accelerated filer |
☐ |
| Non-accelerated filer |
☐ |
Smaller reporting company |
☒ |
| Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). |
| |
Yes ☐ No ☒ |
The aggregate market value of the voting stock held by non-affiliates of the issuer on September 30, 2014,
based upon the $.0003 per share close price of such stock on that date, was $207,074 based upon 690,246,659 shares held by non-affiliates
of the issuer. The total number of issuer's shares of common stock outstanding held by affiliates and non-affiliates
as of September 25, 2015 was 2,330,565,835 shares.
Transitional
Small Business Disclosure Format (check one): Yes ☐ No ☒
Documents
Incorporated By Reference: None
TABLE
OF CONTENTS
FORWARD-LOOKING
STATEMENTS
Statements
that are not historical facts, including statements about our prospects and strategies and our expectations about growth contained
in this report, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our
present expectations or beliefs concerning future events. We caution that such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include,
among other things, the uncertainty as to our future profitability; the accuracy of our performance projections and our ability
to obtain financing on acceptable terms to finance our operations until profitability. Unless the context requires otherwise,
references to “we”, “us”, “our” and “Attitude” refer to the business of Attitude
Drinks Incorporated and our subsidiaries.
PART
I
ITEM
1 - DESCRIPTION OF BUSINESS
Overview
We
are currently engaged in two segments of the beverage industry: (i) the functional beverage segment through our development and
sale of non-alcoholic beverages to retail establishments and (ii) the craft brewing segment through our indirect interest in a
World of Beer franchise restaurant that sells, among other items, beer to consumers. Our plan of operation during the next 12
months is to focus our management’s attention on the non-alcoholic single serving beverage business, developing and marketing
milk based products in two fast growing segments: sports recovery and functional dairy. Our indirect subsidiary, Attitude Beer
Holding Co. (“ABH”), which is now owned by our majority owned subsidiary Harrison, Vickers and Waterman Inc. (“HVWC”),
is a 51% owner of a World of Beer franchise restaurant located in Connecticut and intends to establish additional franchise restaurants
in other locations in Connecticut and the greater Boston area.
Recent
Developments and 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 HVWC pursuant to which the shareholders of ABH sold to HVWC all of the outstanding shares
of stock of ABH, and ABH thereupon became a wholly owned subsidiary of HVWC. In consideration for the purchase of the shares of
common stock of ABH, HVWC issued: (i) to us 51 shares of a newly created HVWC Series B Preferred Stock (the “Series
B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of HVWC’s common
stock, par value $.0001 per share (the “HVWC’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 HVWC’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 HVWC’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 HVWC’s
Series A Preferred Stock (convertible into 32,300,000 shares of HVWC’s Common Stock) from HVW Holdings LLC (an entity of
which Mr. James Giordano, HVWC’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 HVWC’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 HVWC. We will consolidate 100% of HVWC’s financial results
after April 21, with the recording of applicable minority interest eliminations.
From the formation of ABH on December 1, 2014 until April 21, 2015, we were the majority holder of the
outstanding equity of ABH (we held 87.5% of the outstanding common stock of ABH and Alpha and Tarpon Bay held 9.9% and 2.6%, respectively,
of the outstanding common stock of ABH) and the active manager of ABH,
accordingly for the year ended March 31, 2015, the financial results of ABH were consolidated into our overall financial statements
with the recording of any minority interest related activities.
The
Functional Beverage Business.
We
currently sell a milk-based protein drink, branded as “Phase III® Recovery,” which is available in chocolate and
vanilla flavors with expectation to produce a banana flavor in 2016. Phase III® Recovery 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 we believe
ever to be produced in the U.S. and is shelf-stable with a twelve (12) months long shelf life. We completed development of our,
“Phase III® Recovery” product, in 2010 and began selling this product in February 2010, which was introduced to
address the growing need for sophisticated, exercise recovery solutions while offering a natural protein/carbohydrate ratio optimal
for fitness recovery. This product contains 35 grams of protein that are naturally inherent in ultra-filtered milk. The product
is packaged as a retort processed shelf stable dairy-based 100% milk based sports recovery drink, in a new state of the art, eco-friendly
convenient re-sealable 14.5 ounce aluminum bottles. We began distribution of this product in early 2010. Storage, distribution
and sale of this product can be done at room temperature while our current retail presence is predominantly in coolers. We do
not directly manufacture our products but instead outsource the manufacturing process to a third party contract packer.
Our co-packer for our dairy based product is O-AT-KA Milk Products Cooperative, Inc. 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. We anticipate the development of other dairy based drink products
in 2016, depending upon available capital As our company grows and matures, a disruption or delay in production of any of such
products could significantly affect our revenues.
To
date we have derived $53,196 in net revenue from the sale of our “Phase III® Recovery” product. Our ability to
estimate demand for our products is imprecise 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, we might
not be able to satisfy demand on a short-term basis.
We
developed our first product which was a “healthful” energy drink called VisViva™ in 2008. This particular
product was formulated as a juice blend with our proprietary IQZOL™ energy formula in 12 ounce “slim” cans.
This additive blend provided a unique energy boost with low calories, carbohydrates and caffeine levels, thereby
revolutionizing the energy experience derived from energy drinks. Production began in January 2008 with the first generated
sales in late March 2008. Our initial co-packer for the VisViva ™ product was Carolina Beer & Beverage LLC in
Mooresville, North Carolina. We stopped the production and sale of the VisViva™ product during 2010 to focus on
production of our “Phase III® Recovery” product. We do intend, however, to consider reintroducing this
product as a “focus drink” when the market is favorable and when available capital is available, possibly in
2016.
Other
products to be considered in the future will be Blenders™ ’Meal on the Move’ which is expected to be a lactose
free milk based meal replacement in various flavors. This product is expected to be developed and marketed in 2016, depending
on available capital.
We
organized a Scientific Advisory Board of three well known experts that have extensive experience in sports nutrition. This board
is 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 will be very important in our sales efforts, especially in the early days.
Attitude
Beer Holding Co. (World of Beer)
On
December 24, 2014, we entered into a joint venture agreement with New England WOB, LLC (“NEWOB”), ABH (“ABH”),
Glenn E. Straub (“Straub”) and James D. Cecil (“Cecil”). 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. Pursuant to the terms of the joint venture agreement, 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% owner of any new World of Beer franchise
if it contributes 100% of the budgeted development costs of developing such new World of Beer franchise locations. NEWOB manages
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 HVWC subsequent to
its acquisition of ABH and our financial statements until such date. All applicable minority interest related items will be recorded
for proper consolidations and reported results for Attitude’s consolidated financial statements.
Also
on December 24, 2014, ABH acquired a 51% equity interest in the West Hartford, Connecticut World of Beer franchise location, which
is a 4,000 sq. foot tavern 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 the right to develop World of Beer franchise locations in
all of Connecticut and Massachusetts. ABH also obtained an option for two years to purchase 51% of the Stamford, Connecticut World
of Beer franchise location that was opened earlier in 2014. To date, the option has not been exercised.
ABH
expects to actively pursue the development of other World of Beer franchise locations in the state of Connecticut and the greater
Boson areas with our joint venture partner, New England WOB LLC. Since opening its first tavern in Tampa, Florida in 2007, World
of Beer has grown to over 80 locations in 20 states. What began as a neighborhood tavern to sample great craft beers and swap
beer-talk for co-founders Scott Zepp and Matt LaFon is becoming a unique cultural phenomenon celebrating the world of craft beers,
great food and camaraderie. Centered on a diverse selection of local and global craft beers, delicious “tavern fare”
and live music, World of Beer offers the best craft variety on the planet to the beer aficionado and casual beer fan alike. Additional
information can be found by visiting the World Beer website at www.worldobeer.com
World
of Beer restaurants feature a family friendly environment that offers over 500 imported and craft beers, 50 beers on tap plus
a wide variety of menu items. The restaurant creates a welcoming neighborhood atmosphere that includes a multi-media system, a
full beer and spirit bar and an open layout, which is designed to appeal to sports fans and families alike. We believe that the
World of Beer restaurant differentiates its dining experience from those at other restaurants by appealing to a wide demographic
base. First, for any beer aficionado, they can sample all sorts of brews not commonly found in a welcoming social environment.
Second, for the sports fans, they can find their favorite event on a wide variety of televisions. Third, for any family group
that is looking for a dining experience that is different from typical restaurants, the restaurant allows its guests to customize
their experience to meet their time demands and experience requirements. The restaurant gains acceptance through other World of
Beer locations throughout the country. The concept is further strengthened by the restaurant’s emphasis on operational excellence
supported by operating guidelines and employee training.
The
joint venture is expected to be a growth enterprise that tailors its restaurants to meet the needs of its target demographic base.
To implement its strategy, the joint venture intends to
| • | Identify,
invest in and develop new locations; |
| • | Continuously
develop and deliver unique guest experiences; |
| • | Create
an inviting neighborhood atmosphere; |
| • | Focus
on operational excellence; |
| • | Increase
same-store sales, average unit volumes, and profitability. |
ABH’s
joint venture (JV) with NEWOB is expected to originally concentrate in the New England area where ABH believes its strategy is
most likely to take hold. The JV has developed procedures for identifying new opportunities, determining its expansion strategy
in those areas and developing sites for franchised restaurants and taverns. The current growth strategy is to continue to open
franchised locations.
In
New England, the JV plans to continue to open new restaurants and taverns until a market is penetrated to a point that enables
it to gain marketing, operational, cost and other efficiencies. The JV intends to have a franchise system through the development
of new locations.
Along
with planned unit growth, the JV is focused on innovating its customer experience in order to enhance each visit to its establishment
and strengthen brand loyalty by customizing its menu for specific events that it believes will draw a particular crowd (e.g. -
Daytona 500) as well as combining foods with specific beer promotions (e.g. - Bavarian pretzels with German lager promotions).
The
World of Beer menu is standard for most items throughout all locations, but there are typically some specialty items added for
local tastes and preferences that vary based upon specific promotions or sporting events. The typical menu includes “Tavern
shares” which are appetizers that include onion rings, shrimp and potatoes. Entrees include traditional bar fare such as
hamburgers, salads and desserts.
The
West Hartford restaurant and tavern features a full bar which offers an extensive selection of over 500 different local, regional
and imported bottle beer selections and craft and favorite beer on 50 rotating taps as well as popular and craft wine and spirits.
NEWOB periodically introduces new menu items in order to improve the experience. The strategy is to balance the established menu
offerings that appeal to loyal guests with new menu items that increase guest frequency and attract new guests.
The
restaurants and taverns are “open layouts” which provide for complete visibility for patrons. The open layout, combined
with the detailed selection of beers, we believe makes for an excellent experience that combines a friendly atmosphere, sporting
events and its outstanding beer selection. ABH strives to provide a high-energy atmosphere where friends can gather for camaraderie
and to celebrate competition, as well as allow guests the flexibility to customize their dining experience. The inviting and energetic
environment of the restaurant is designed using furnishings that can be easily rearranged to accommodate parties of various sizes.
The restaurant and tavern also features distinct dining and bar areas.
The
site selection process is integral to the successful execution of ABH’s growth strategy. Criteria examined include key demographics,
population density and other measures. The JV examines site-specific details including visibility, signage, access to main roads
and parking. New England WOB LLC’s managing directors have many years of commercial real estate development and broad business
experience as entrepreneurs, operators as well as having managed numerous businesses and commercial real estate ventures.
All
franchise agreements will be subject to approval of World of Beer Franchising Inc. and will require that each franchised location
operate in accordance with their defined operating procedures, adhere to the established menus, meet applicable quality, service,
health and cleanliness standards and comply with all applicable laws.
The
West Hartford store utilizes a standard point-of-sale system which tabulates sales as well as items sold. The restaurant has daily
reporting of revenues and expenses plus inventory on hand.
The
restaurant industry is intensely competitive. ABH competes on the basis of the taste, quality and price of food offered, guest
service, ambience, location and overall guest experience. We believe that the restaurant’s attractive price-value relationship,
the atmosphere of the restaurant, the sports viewing experience, the focus on guests and the quality and distinctive flavor of
our food enable ABH to differentiate itself from its competitors. We believe ABH competes primarily with local and regional sports
bars and national casual dining and quick casual establishments and to a lesser extent with quick service restaurants. Many of
its direct and indirect competitors are well-established national, regional or local chains, and some have greater financial and
marketing resources than ABH’s does.
In
House Intellectual Property
We
have a trademark for Phase III® from the United States Patent and Trademark Office that was registered December 28, 2010.
While working on trademark and brand development for the dairy platform of functional drinks and protein
delivery, we were approached by the owners of the entire intellectual property portfolio once developed and commercialized at Bravo
Brands, Inc., a public company where Roy Warren (our CEO and director), Tommy Kee (our CFO) and Mike Edwards (our director) were
previously employed. On August 8, 2008, we entered into an Asset Purchase Agreement with RFC BB Holdings, LLC (seller) and issued
them a $507,500 secured convertible promissory note to purchase the right, title, trademarks and interest to this intellectual
property portfolio, notably “Slammers” and “Blenders”. As these particular brands have been marketed and
sold in the past, it is anticipated that these products can be reintroduced into the market much quicker and less expensive than
developing a brand new product. The entire $507,500 note has been converted into shares of common stock.
Production
Contracts/Administration
Our
operations are only in the United States and are run directly by our subsidiary, Attitude Drink Company, Inc. (“ADC”)
which also is the operating company. On December 16, 2008, the ADC signed a manufacturing co-packing agreement with O-AT-KA Milk
Products Cooperative, Inc. for the production of our latest product, Phase III® Recovery and future new dairy-based products.
The manufacturer is obligated to manufacture, package and ship such products. ADC pays for all shipping of the products F.O.B.,
the facility, as title of the products is passed to the receiver once products are delivered and received on premise.
Industry
Trends
The
Functional Beverage Market
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”, milk has yet to
be successfully branded and commercialized.
We
are an innovative beverage brand-development company that was formed to exploit the accelerating shift in beverage consumption
patterns of Americans. Consumers are embracing two distinct trends which have redefined the ever-growing single serve beverage
industry. First, consumers representing all demographics are purchasing fewer “empty-calorie”, sugar sweetened, carbonated
beverages, a trend that has continued for the last ten years. Second, and according to the May, 2015 edition of Beverage World,
in the Back-to-basics functionality section, “consumers are growing wary of some functional claims, and that is beginning
to shape the functional drink market. Consumers are increasingly looking for beverages to deliver more than just taste and refreshment;
namely some kind of functionality. Within functional drinks, the new “it” ingredient is “protein” We believe
consumers are demanding drinks with functionality, delivering either nutritional or experiential impact. During recent years,
we have seen beverage consumers demonstrate a growing willingness to pay significant premiums for these functional beverages,
while exhibiting passionate brand loyalty to the chosen brands.
Management
has extensive experience innovating functional products and helped pioneer the milk-based platform of this beverage “revolution”
previously at Bravo! Brands Inc. During that time, management worked with Coca-Cola Enterprises to launch branded milk beverages
nationwide. We enjoy strategic relationships, know-how, creativity and perspective in this space. We believe that the two platforms
that we will address, sports recovery and functional dairy, represent the fastest growing, most innovative and highest priced
drinks ever seen in the beverage industry.
Craft
Brewing Market
Craft
brewing is indeed booming in the United States. The demand for more flavorful beers is much higher. The 2015 beer drinker is more
knowledgeable, more adventurous and sophisticated and does not hesitate to pay premium prices for a premium product. The Brewers
Association point out that on a per capital basis, the United States is still underserved by existing craft brewers. There are
more beer drinkers than wine drinkers. The average craft beer drinker earns about $75,000 income and when they go out for the
evening, they are seeking a pub with 50 beers on tap, supporting ABH’s decision to develop and manage World of Beer franchise
taverns in the New England area which attracts millions of visitors each year who look to partake in the local flavors including
craft beers. We believe that the World of Beer locations will have what these customers want, both major and craft brands.
Market
Analysis:
Protein
beverages
According
to “Back-to-basics functionality” data from the Beverage World edition for May, 2015, “Ready-to-drink
protein beverages are seeing strong growth and Euromonitor International puts the U.S. RTD protein beverage market at $550
million. The segment is forecast to see 50 percent growth through 2018, Euromonitor says.” Well-documented nutritional
benefits bode well for protein’s continued growth. Energy shots have not fared as well and the segment seems to be
already a mature one, with sales declines the past two years. “Sports drinks saw a slight uptick last year” at
.2% volume growth (per May 2015 Beverage World). We believe there will be many more variations in flavor claims, packaging
and messaging as ways for brands in this category to grow.
Jessica
Jacobsen, editor of Beverage Industry released a research on May 12, 2015. In the research, she listed some interesting comments
from other key analysts in the beverage industry. “Howard Telford, beverage analyst for Chicago-based Euromonitor International,
notes that the U.S. sports drink market began to slow in 2012 and was essentially flat in 2013.” “The category has
been subject to a confluence of external pressures with consumers open to exiting the category--- for other hydration-focused
packaged beverages,” he says which we believe favor our Phase III® Recovery products. “Consumers have shied away
from high-sugar, high-calorie packaged beverages over the past two years,” Telford says and continued “But despite
the pressure they are facing from these outside categories, sports drinks still have opportunities to re-engage consumers. There
is considerable opportunity for ’natural’ alternative recovery and hydration beverages,” Telford explains.
Jessica
Jacobsen continued to present her findings on comments from Elizabeth Sisel, beverage analyst for Chicago-based Mintel.
“When it comes to sports drinks, two brands are synonymous with the category: Gatorade and Powerade. According to
Sisel, Purchase, N.Y.-based PepsiCo Inc’s Gatorade brand and Atlanta-based The Coco-Cola Co.’s Powerade brand
accounted for 96 percent of the category for the 52 weeks ending Nov. 3, 2013. For the non-aseptic sports drink segment, the
two accounted for 99 percent in IRI-measured channels ending March 23, 2014. Gatorade makes up nearly 78 percent of that
share.”
Further
reports from Jessica Jacobsen on “Protein, please” stated that “Sports drinks aren’t the only
ready-to-drink (RTD) beverages that consumers are turning to in order to support their active, healthy lifestyles. According
to Chicago-based The NPD Group’s “Protein Perceptions and Needs” report, 78 percent of U.S.
consumers say that protein is important for a healthy diet. However, they are split on what the best sources of protein are,
with half naming non-meat sources and the other half naming meat. Those non-meat sources included eggs, yogurt, nuts and
seeds, but consumers also are finding favor in protein drinks. Smaller than the sports drinks category, nutritional drinks,
including meal replacement beverages, accounted for less than half of the sales of sports drinks in 2013 at $3.2 billion,
according to Mintel’s January report “Nutritional and Performance Drinks – US. Even smaller than
that was protein drinks, with $2.1 billion in sales in 2013; however, this is a 51.2 percent increase from 2011 when sales
were $1.4 billion the report notes. Protein RTDs within the sports nutrition category are growing strongly, says
Euromonitor’s Chris Schmidt, consumer health analyst. Their push into mainstream retailers and an increasing focus on
lifestyle and functional nutrition branding – as opposed to hardcore sports recovery – along with the glowing
praise heaped on protein by the popular media, is driving growth in both relatively mature and emerging markets. Schmidt
notes that Euromonitor defines protein drinks as beverages that contain 20 or more grams of protein and are positioned for
sports performance and recovery.” In continuation, “Schmidt notes that although RTD protein drinks have gained a
bigger following n the past few years, the segment appeals more to everyday consumers versus hard-core athletes because of
the price difference compared with protein powders.”
Craft
Beer and World of Beer franchise restaurants and taverns
According
to the May, 2015 edition of Beverage World, “craft beer may only hold 11% of the U.S. market in terms of volume, but craft
brewers dominate when you look at the number of operating breweries in the U.S. Craft by the numbers: total retail dollar value,
$19.6 billion; dollar share of beer, 19.3%; total number of craft breweries, 3418; number of breweries in planning as of December
31, 2014, 2,051; number of brewery openings in 2014, 615; number of brewery closings in 2014, 46; and increase in number of breweries
2013/14, +19%. The overall U.S. beer market posted modest growth of about 0.5% last year; now that craft commands 11% volume share
(and 19.3% dollar share) of the total category, it’s starting to have an impact on the industry’s growth trajectory.
Craft is playing a much larger role in keeping total beer volume in the black.” Additional statistics reflected in the same
Beverage World edition are as follows:
| 2014 CRAFT BEER STYLES |
| RANKED BY U.S. $ SHARE |
| | | |
| |
| |
| | Dollar share of | | |
| |
| 2014 | |
| | top styles | | |
Segment | |
| growth | |
| | | | |
| |
| | |
| | 22.7 | % | |
India Pale Ale (IPA) | |
| +46.9% | |
| | 16.6 | % | |
Seasonal | |
| +9.9% | |
| | 10.6 | % | |
Pale ale | |
| +10.1% | |
| | 7.8 | % | |
Variety | |
| +20.3% | |
| | 5.7 | % | |
Amber ale | |
| +5.7% | |
| | 4.9 | % | |
Amber lager | |
| +1.7% | |
| | 4.0 | % | |
Bock | |
| +5.4% | |
| | 27.7 | % | |
All others | |
| | |
We
believe that the drinking age is more willing to pay more for something new and perceived as higher quality than what their parents
drank. Brand loyalty is perceived to be replaced by style. World of Beer franchises are expected to meet that demand as well as
providing a social and active lifestyle with its consumers. Beverage World even states that “the craft spirits segment isn’t
slowing down; if it continues on its current trajectory expect the number of small distilleries in the U.S. to surpass 1,000 by
the end of 2017.” We expect the improvement in economy to also improve the growth of this industry.
Market
Segment Strategy
Our
future strategy will be to directly develop our products in the two fast growing segments: sports recovery and functional milk.
We produced our first product, VisViva™ which is an energy drink; however, we are not currently producing that product as
we have decided to focus our attention initially on our Phase III® Recovery product. Phase III® Recovery is our second
product which is a protein sports recovery drink. We expect to develop two to three new products in the next two to three fiscal
years, depending on available capital.
We
know from experience that the largest retailers of milk products are demanding new and more diverse refreshment drinks, thus our
response to consumer interest and demand with our dairy based product, “Phase III® Recovery” that was introduced
in early 2010.
We
also will continue to seek other territories for the development of additional World of Beer franchises.
Competition
The
beverage industry is highly competitive. The principal areas of competition are pricing, packaging, development of new products
and flavors and marketing campaigns. Our products will compete with a wide range of drinks produced by a relatively large number
of manufacturers, any of which have substantially greater financial, marketing and distribution resources than we do.
Important
factors affecting our ability to compete successfully include taste and flavor of products, trade and consumer promotions, rapid
and effective development of new, unique cutting edge products, attractive and different packaging, branded product advertising
and pricing. We will also compete for distributors who will concentrate on marketing our products over those of our competitors,
provide stable and reliable distribution and secure adequate shelf space in retail outlets. Competitive pressures in the sports
beverage market could cause our products to be unable to gain market share, or we could experience price erosion, which could
have a material adverse effect on our business and results.
We
compete not only for customer acceptance but for maximum marketing efforts by multi-brand licensed bottlers, brokers and distributors,
many of which have a principal affiliation with competing companies and brands. Certain large companies such as The Coca-Cola
Company and Pepsico Inc. market and/or distribute products in that market segment such as Muscle Milk® and other protein beverages.
Our
subsidiaries’ entry into development of new World of Beer franchises is new to us and is subject to the usual learning curve
that is common among new developments. There is a large competition with other restaurant and/or bar establishments in the Northeast,
specifically Connecticut and Boston, for customers and patrons. Our restaurants must outperform its competition, provide customers
with the best value, service and satisfaction for their dining and drinking experiences.
Marketing
Management
believes that the impact of the internet and the enhanced communication systems that it has enabled have dramatically changed
the way we live our lives today. There is vastly improved access to information, and the public is bombarded with messages that
have diminished the value and impact of traditional media advertising. There have been increases in interest in protein RTD “ready
to drink” beverages.
Based
on available capital, strong emphasis will be placed on public relations initiatives in an effort to capture and maintain consumer
awareness. Validation of the advanced science behind each introduced brand will provide clear and reliable messaging behind each
functional line. Carefully developed and executed focus groups will also be conducted, designed to raise awareness about the true
functionality and lifestyle enhancement offered with each innovative line. We plan to focus on gorilla and grass roots marketing
programs, investing in sponsorships and spokespeople in venues of competitive sports activities. This strategy allows promoters
to develop brand essence, communicate directly with spectators and participants and promote trial with consumers directly. This
marketing approach, best executed by the Red Bull energy drink brand, escapes the filters that consumers use to reduce messaging.
When executed properly, as Red Bull has, this technique defines the brand image while consumers embrace the branding as trend
setting entertainment. In addition, we intend to continue participating in nationwide events and programs supporting the unique
causes.
Each
World of Beer franchise store contributes funds to the overall marketing programs and campaigns of corporate World of Beer. These
grouped marketing campaigns are expected to greatly spread the message about World of Beer stores over a much broader territory
and increase brand awareness and value of the World of Beer name. In addition, we believe that social media will greatly aid efforts
to attract customers to the restaurants as well as the promotion of local events and activities.
Government
Regulation
The
production, distribution and sale in the United States of many of our products are subject to the Federal Food, Drug and Cosmetic
Act; the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes;
and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety,
advertising, labeling and ingredients of such products.
Measures
have been enacted in various localities and states that require that a deposit be charged for certain non-refillable beverage
containers. The precise requirements imposed by these measures vary. Other deposit, recycling or product stewardship proposals
have been introduced in certain states and localities and in Congress, and we anticipate that similar legislation and regulations
may be proposed in the future at the local, state and federal levels, both in the United States and elsewhere.
We
do not expect that compliance with these provisions will have a material adverse effect upon our capital expenditures, net income
or competitive position.
The
World of Beer locations are governed by state and local government regulatory agencies for the sale of alcohol.
Our
History
We
were formed in Delaware on May 10, 1988 under the name of L.H.M. Corp which later became Mason Hill Holdings, Inc. On September
19, 2007, we acquired Attitude Drink Company, Inc., a Delaware corporation (“ADCI”), under an Agreement and Plan of
Merger among Mason Hill Holdings, Inc., MH 09122007, Inc. 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 our common stock.
The acquisition was accounted for as a reverse merger (recapitalization) with ADCI deemed to be the accounting acquirer, and Attitude
deemed to be the legal acquirer. On September 30, 2007, we changed our name to Attitude Drinks Incorporated. Our wholly owned
subsidiary, ADCI, was incorporated in Delaware on June 18, 2007. Our principal executive offices are located at 11231 U.S. Highway
1, #201, North Palm Beach, Florida 33408. The telephone number is 561-227-2727. Our company’s common stock shares (PINX:
ATTD) began trading in June 2008. Our fiscal year ends on March 31th.
Employees
As of March 31, 2015, we
currently have forty-eight full time employees as four individuals are employed at our corporate office. In addition, 44 of
the total full time employees are employed at the World of Beer franchise location in West Hartford, Connecticut.
Research
and Development
Over the last two years, we spent approximately $6,600 and $5,205, respectively, on research and development
activities related to the Phase III® Recovery products. All costs were borne by us.
ITEM
2 - DESCRIPTION OF PROPERTY
Corporate
office
On
February 7, 2013, we moved to our current office at 712 U.S. Highway 1, Suite 200, North Palm Beach, Florida 33408 from our previous
address at 10415 Riverside Drive, Suite 101, Palm Beach Gardens, Florida 33410. We entered into a three-year lease that began
on February 1, 2013 with two (2) year renewable terms with a termination date of January 31, 2016. The total minimum monthly base
rent including operating expense for March 31, 2015 is $4,370 (excluding certain variable operating expenses and taxes), and the
lease provides for annual 3% increases throughout its term. The lease covers 3,333 square feet and includes our right of first
refusal to contiguous space. During late 2014, we had a disagreement with our landlord as they filed a motion in the circuit court
of Palm Beach County, Florida to enforce a settlement for past due fees. We contest some of the amounts as we were forced to vacate
the premises in an unsatisfactory limited amount of time which we had to abandon some of our office furniture and inventory. We
now have a new mailing address of 11231 U.S. Highway, #201, North Palm Beach, Florida 33408.
World
of Beer West Hartford, Connecticut
The
West Hartford, Connecticut World of Beer property of 4,163 square feet of space is subject to a ten year lease that commenced
May 16 2014 and provides an 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.
ITEM
3 - LEGAL PROCEEDINGS
On
May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the District Court of Denton County, 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 will address this matter as soon as practical
and once we have adequate financing.
On August 21, 2009, CH Fulfillment Services,
LLC commenced a lawsuit in the District Court of Mobile, 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
October 1, 2013, Beanpot Broadcasting Corp. d/b/a WXRV-FM, commenced a lawsuit in the Commonwealth of Massachusetts District Court
Department of the Trial Court Haverhill Division 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 will address this matter as soon as practical and once we have
adequate financing.
On
November 27, 2013, we received an order of the court from The Trial Court of Massachusetts District Court Department, Small Claims
Session in Plymouth, Massachusetts 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 and once we have adequate financing.
On
February 4, 2014, Philip Terrano commenced a lawsuit in the circuit court of the 15th Judicial Circuit and for Palm
Beach County, 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.
On
June 9, 2014, North Palm Beach Broadcasting Company d/b/a/ WSVU-AM Radio filed a lawsuit in the 15th Judicial Circuit
in and for Palm Beach County, 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 County Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, 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 and when we have adequate capital.
On
November 11, 2014, C.A. Courtesy Demos, Inc. commenced a lawsuit in the County Court, Palm Beach County, Florida civil action
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 will address this matter as soon as practical and once we have adequate financing.
On
November 20, 2014, Pavilion Law Center, LLC filed a motion in the Circuit Court of the Fifteenth Judicial Circuit in and for 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 of the Fifteenth Judicial Circuit in and for 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. On August 13,
2015, the court entered into a final judgment against us for a total amount of $24,215. We expect to resolve this matter as soon
as practical and once we have adequate financing.
On
August 26, 2015, Harrison, Vickers and Waterman Inc. (“HVW”) which we own the majority of the outstanding shares received
a lawsuit from James Giordano, previous CEO of HVW that was filed in the State of Connecticut Superior Court in Stamford, Connecticut.
The claim is approximately $220,833 for past salaries. HVW does not agree with this complaint and will address as soon as possible.
HVW does have a recorded amount of $175,000 on its books.
ITEM
4- Mine Safety Disclosures – Not Applicable
PART
II
ITEM
5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common
stock market price
The
Company’s common stock began trading on the OTC Electronic Bulletin Board (ticker symbol PINK.OB) on June 19, 2008. The
approximate number of record holders of the Company’s common stock at September 22, 2015 was 6,515.
The
following quarterly quotations for common stock transactions on the OTC Bulletin Board reflect inter-dealer prices, without retail
mark-up, markdown or commissions and may not represent actual transactions. Source is NASDAQ.COM:
| |
|
|
|
|
| QUARTER |
|
HIGH STOCK PRICE |
|
LOW STOCK PRICE |
| |
|
|
|
|
| Fiscal year – 2013/2014 |
|
|
|
|
| |
|
|
|
|
| First Quarter |
|
$0.10 |
|
$0.05
|
| Second Quarter |
|
$0.05 |
|
$0.002 |
| Third Quarter |
|
$0.0024 |
|
$0.0005 |
| Fourth Quarter |
|
$0.003 |
|
$0.0008 |
| |
|
|
|
|
| Fiscal year – 2014/2015 |
|
|
|
|
| |
|
|
|
|
| First Quarter |
|
$0.0019 |
|
$0.0004
|
| Second Quarter |
|
$0.0006 |
|
$0.0002 |
| Third Quarter |
|
$0.001 |
|
$0.0002 |
| Fourth Quarter |
|
$0.0012 |
|
$0.0001 |
| |
|
|
|
|
| Fiscal year – 2015/2016 |
|
|
|
|
| |
|
|
|
|
| First Quarter |
|
$0.0002 |
|
$0.0001 |
Dividends
The
holders of common stock are entitled to receive, pro rata, such dividends and other distributions as and when declared by our
board of directors out of the assets and funds legally available therefore. We have not paid dividends on our common stock and
do not anticipate paying dividends to holders of our common stock in the foreseeable future. Management intends to retain future
earnings, if any, to finance working capital and to expand our operations.
Securities
Authorized for Issuance under Equity Compensation Plans
| |
|
|
|
|
|
|
|
|
|
|
|
| Plan
Category |
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights |
|
|
Weighted average exercise
price of outstanding options, warrants and rights |
|
|
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| 2013
Equity Incentive Plan approved by stockholders (Filed on January 28, 2013 as a Definitive 14C Information Statement |
|
|
1,060,000 |
|
|
|
Options
have not been granted, thus no exercise price |
|
|
1,060,000 |
|
| Equity
compensation plan (Filed on May 25, 2010 a Form S-8) |
|
|
7,500 |
|
|
$ |
30.00 |
|
|
3,922 |
|
| Total |
|
|
1,067,500 |
|
|
$ |
30.00 |
|
|
1,063,922 |
|
Sale
of Unregistered Securities
Quarter
Ended March 31, 2015
Attitude
Drinks Incorporated:
On
January 14, 2015, we issued a convertible note to Southridge Partners II LP pursuant to which we received $13,500. The note is
subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms
of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion
date but in no event greater than $.02. No conversions have been made for this note.
On
January 14, 2015, we issued a convertible note to Alpha Capital Anstalt pursuant to which we received $13,500. The note is subject
to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75%
of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion date
but in no event greater than $.02. No conversions have been made for this note.
On
January 14, 2015, we issued a convertible note to Whalehaven Capital Fund Ltd. pursuant to which we received $31,500. The note
is subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion
terms of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion
date but in no event greater than $.02. No conversions have been made for this note.
All
of the proceeds from the above new financings were used for working capital purposes.
Attitude
Beer Holding Co.
From
December 24, 2014 through March 24, 2015, ABH issued four installment convertible notes payable, the proceeds of which were used
for the purchase and financing of the West Hartford World of Beer restaurant and tavern:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DATE OF
NOTE
ISSUANCE |
|
ALPHA
CAPITAL
ANSTALDT |
|
TARPON
BAY
PARTNERS LLC |
|
TOTAL
NOTES |
|
MATURITY
DATE |
|
%
INTEREST
RATE |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12/24/2014 |
|
$ |
246,187 |
|
$ |
91,063 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| 1/23/2015 |
|
|
225,000 |
|
|
75,000 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| 2/24/2015 |
|
|
225,000 |
|
|
75,000 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| 3/24/2015 |
|
|
200,437 |
|
|
66,813 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TOTAL |
|
$ |
896,624 |
|
$ |
307,876 |
|
$ |
1,204,500 |
|
|
|
|
|
|
|
All
of the above funds were used for building and opening the West Harford World of Beer. The conversion terms shall be either (i)
if ABH’s common stock is traded on a trading market, the conversion price is 50% of the lowest bid price for the previous
50 days; (ii) if ABH’s common stock is not traded on a trading market, it is $0.40.
These
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.
During
the three months ended March 31, 2015, the Company issued a total of 470,916,133 shares of common stock for the conversions of
$94,750 of principal of convertible notes payable. No additional consideration was given for these conversions by the note holders.
The shares of common stock issued upon conversion of these notes were issued pursuant to an exemption from the registration requirements
of the Securities Act provided by Section 3(a)(9) thereof as the conversions were an exchange of securities with existing holders
exclusively, and no commission or other remuneration was paid or given in connection with the exchange.
ITEM
6 - SELECTED FINANCIAL DATA
Not
applicable.
ITEM
7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
EXECUTIVE
LEVEL OVERVIEW
Our
Business Model
Phase
III
Our plan of operation during the next
12 months is to continue the implementation of market and sales promotion programs to gain awareness of our “Phase III®
Recovery drink in new markets as well as to build a national sales campaign throughout key markets in the west coast, southwest,
Midwest, southeast and northeast parts of the United States. We plan to build an aggressive and experienced sales team to bring
the brand to discerning consumers. In addition, we intend to increase our efforts to sell our products online and through increased
social media marketing. Our management will continue to focus on the non-alcoholic single serving beverage business, developing
and marketing 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 a third party contract packer.
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. Without exception, these products are expected to 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. Singles should obtain higher margin than multi-packs.
World
of Beer
As already stated, ABH and its joint venture
partners of New England WOB, LLC, anticipate developing new World of Beer franchise locations throughout its protected territories
in Connecticut and greater Boston, Massachusetts. It is anticipated that 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 80 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.
ABH’s future plan of operations
for the World of Beer franchises is to continue the search, development and operations of World of Beer franchises throughout
the state of Connecticut and the greater Boston areas over the next few years, especially in that we have these protected territories.
Its joint venture partners are commercial real estate developer specialists and based on the availability of financing, plan to
aggressively to build and open as many World of Beer locations as financing will allow. The West Hartford, Connecticut store which
opened in late January, 2015 has exceeded expectations and budgets and is profitable since the opening date. Future new taverns
are projected to be at least 4,000 square feet and have one of the world’s widest selections of craft beers, bottled and
on tap with more than 500 bottles and 50 rotating taps. The stores will serve lunch and dinner daily with dishes inspired by international
flavors such as Giant Bavarian Pretzels, Guinness Brat Sliders and the Chimay Burger. The taverns will host live music performances
on Friday and Saturday nights each weekend. The taverns will also provide signature craft spirit cocktails, ciders, wine along
with nonalcoholic beverages. ABH is expected to continue the World of Beer theme as being uncommon establishments where the experience
is as essential as the products.
Plan
of Operations
We are continuing to seek other sources
of financing to develop our business plan, implement our sales and marketing plan and to meet other operational expense requirements
and to find and develop new World of Beer locations. Historically, we have had to rely on convertible debt financings to cover
operating costs. Based on the available cash, we have no assurance that we will be able to obtain additional funding to sustain
our limited operations. 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. We may also need to sell our interest in the World of Beer locations if we do not
continue to obtain the proper financing for our needs. However, certain of our Attitude Drinks Incorporated convertible debt obligations
totaling $6,208,842 and ABH convertible debt obligations for $1,204,500 are secured by Attitude’s 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.
Our
future operations are totally dependent upon obtaining additional funding. Past fundings have been subject to defaults by the
company’s 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
the holders agree to further extensions.
We
will consider equity and/or convertible debt financings, either or both of a private sale or a registered public offering of our
common stock; however, at this time and with the current economy, it seems unlikely that we can obtain an underwriter.
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. Our “Phase III® Recovery” drink product was introduced in early 2010
and based on historical spending, we anticipate a need of funding in the range of $1,500,000 to $1,700,000 for the next twelve
months to meet our business plan and operating needs only. This figure does not include any new product research and development
activities.
This
discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with accounting principles that are generally accepted in the United States
of America.
Critical
Accounting Policies
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 for the period ended March 31, 2015, we use all available information and
appropriate techniques including outside consultants to develop our estimates. However, actual results could differ from our estimates.
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.
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.
Impairment
of Long-Lived Assets
Our
long-lived assets consist principally of intangible assets, and to a much lesser extent, furniture and equipment. We evaluate
the carrying value and recoverability of our long-lived assets when circumstances warrant such evaluation by applying the provisions
of the FASB Accounting Standards Codification which requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted
cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value exceeds the fair value. We did note record any impairment expense
for the years ended March 31, 2015 and March 31, 2014,
Recent
accounting pronouncements
In
August, 2014, the Financial Accounting Standards 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 for one year.
In
November, 2014, the Financial Accounting Standards 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.
In
February, 2015, the Financial Accounting Standards Board issued an ASU that contained guidance about Consolidation (Topic 810)
and amendments to the consolidation analysis. These provisions provide amendments to limited partnerships and similar legal entities.
As the Company owns the 51% majority of the World of Beer location in West Hartford which is an LLC corporation, the Company believes
there is no change needed for this update.
RESULTS
OF OPERATIONS
| Revenues and Gross Margin |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
| Revenues |
| 3/31/2015 | |
| 3/31/2014 | |
| $
Change | | |
| %
Change | |
| |
| | |
| | |
| | | |
| | |
| Phase III |
| | |
| | |
| | | |
| | |
| Revenues |
$ | 70,905 | |
$ | 202,994 | |
$ | (132,089 | ) | |
| -65.1 | % |
| Less slotting expense |
| — | |
| (875 | ) |
| 875 | | |
| -100.0 | % |
| Less returns and allowance |
| (15,826 | ) |
| (11,535 | ) |
| (4,291 | ) | |
| 37.2 | % |
| Less
Sales Discounts |
| (1,201 | ) |
| (8,002 | ) |
| 6,801 | | |
| -85.0 | % |
| Net Revenues |
| 53,878 | |
| 182,582 | |
| (128,704 | ) | |
| -70.5 | % |
| Less
cost of sales |
| 154,999 | |
| 164,639 | |
| (9,640 | ) | |
| -5.9 | % |
| Gross
profit/(loss) |
| (101,121 | ) |
| 17,943 | |
| (119,064 | ) | |
| -663.6 | % |
| |
| | |
| | |
| | | |
| | |
| World of Beer |
| | |
| | |
| | | |
| | |
| Revenues |
| 754,895 | |
| — | |
| 754,895 | | |
| N/M | |
| Less sales discounts |
| (681 | ) |
| — | |
| (681 | ) | |
| N/M | |
| Less comps |
| (11,372 | ) |
| — | |
| (11,372 | ) | |
| N/M | |
| Less
promotions |
| (4,377 | ) |
| — | |
| (4,377 | ) | |
| N/M | |
| Net revenues |
| 738,465 | |
| — | |
| 738,465 | | |
| N/M | |
| Less
costs of sales |
| 209,908 | |
| — | |
| 209,908 | | |
| N/M | |
| Gross
profit/(loss) |
$ | 528,557 | |
$ | — | |
$ | 528,557 | | |
| N/M | |
| |
| | |
| | |
| | | |
| | |
| Total Net Revenues |
$ | 792,343 | |
$ | 182,582 | |
| 609,761 | | |
| 334.0 | % |
| Total costs of sales |
| 364,907 | |
| 164,639 | |
| 200,268 | | |
| 121.6 | % |
| Total
gross profit/(loss) |
$ | 427,436 | |
$ | 17,943 | |
$ | 409,493 | | |
| 2282.2 | % |
All
revenues were generated in the United States. The increase in our revenues for the year ended March 31, 2015 as compared to the
prior year ended March 31, 2014 is the result of opening the first World of Beer tavern in late January, 2015. Phase III revenues
were lower for the year ended March 31, 2015 by 65.1% mainly due to the fact that we no longer sell our products in the Florida
Walgreens’ stores.
Slotting
fees are common in the large store channels and represent cash payments made for rights to place our products on customer retail
shelves for a stipulated period of time. A component of our growth plan includes increasing penetration in the large store channel
which may be subject to future slotting fees. We recorded a total of $875 for slotting fees for the year ended March 31, 2014
only. As part of opening and operating a new World of Beer location, we provided certain free complimentary drinks and services
to customers in the amount of $15,749 for the reporting period from late January, 2015 through March 31, 2015.
Based
on available capital, we, on our own or through our subsidiaries, plan to increase our revenues during the next twelve months
by implementing marketing and sales promotion programs to introduce our “Phase III® Recovery” drink to new markets
in the 2015 calendar year, developing a sales force, securing additional national distributors, expanding our products offering,
developing and opening new World of Beer taverns, increasing our volume per outlet and implementing new grass roots marketing
and sample programs.
The
computation of the percentage of expenses to revenues is not meaningful at this time and is not representative of expected future
operations.
Product
and shipping costs for the Phase III products for the year ended March 31, 2015 were less than the year ended March 31, 2014 mainly
due to the lower sales of the Phase III® Recovery products.
Operating Expenses
| |
|
|
|
|
|
|
|
|
| |
|
|
|
| Revenues |
| 3/31/2015 | |
| 3/31/2014 | |
| $
Change | | |
| %
Change | |
| |
| | |
| | |
| | | |
| | |
| Attitude Drink Company Inc. and Attitude
Drinks Incorporated |
| | |
| | |
| | | |
| | |
| Salaries, taxes and employee
benefit costs |
$ | 695,336 | |
$ | 883,306 | |
$ | (187,970 | ) | |
| -21.3 | % |
| Consulting fees |
| 322,462 | |
| 312,500 | |
| 9,962 | | |
| 3.2 | % |
| Other administrative and general
expenses |
| 129,634 | |
| 280,935 | |
| (151,301 | ) | |
| -53.9 | % |
| Marketing and promotion expenses |
| 25,555 | |
| 52,659 | |
| (27,104 | ) | |
| -51.5 | % |
| Professional and legal fees |
| 17,251 | |
| 196,071 | |
| (178,820 | ) | |
| -91.2 | % |
| Product development costs |
| 6,600 | |
| 5,205 | |
| 1,395 | | |
| 26.8 | % |
| Stock compensation expense |
| 84 | |
| 26,997 | |
| (26,913 | ) | |
| -99.7 | % |
| Depreciation and amortization |
| 7,401 | |
| 7,687 | |
| (286 | ) | |
| -3.7 | % |
| |
| | |
| | |
| | | |
| | |
| Total
operating expenses |
| 1,204,323 | |
| 1,765,360 | |
| (561,037 | ) | |
| -31.8 | % |
| |
| | |
| | |
| | | |
| | |
| Attitude Beer Holding Co. |
| | |
| | |
| | | |
| | |
| Restaurant/tavern salaries,
taxes and employee benefit costs |
| 215,676 | |
| — | |
| 215,676 | | |
| N/M | |
| Restaurant/tavern other administrative
and general expenses |
| 221,949 | |
| — | |
| 221,949 | | |
| N/M | |
| Depreciation and amortization |
| 29,753 | |
| — | |
| 29,753 | | |
| N/M | |
| |
| | |
| | |
| | | |
| | |
| Total
operating expenses |
| 467,378 | |
| — | |
| 467,378 | | |
| N/M | |
| |
| | |
| | |
| | | |
| | |
| Consolidated
operating expenses |
$ | 1,671,701 | |
$ | 1,765,360 | |
$ | (93,659 | ) | |
| -5.3 | % |
Attitude
Drink Company Inc. and Attitude Drinks Incorporated:
Administrative
salaries, taxes and employee benefit costs
For
the year ended March 31, 2015, total expenses of $695,336 were lower by $187,970 (21.3%) over last year’s comparable figures
of $883,306 mainly due to fewer employees caused by a lack of financing
Administrative
consulting fees
Consulting
fees of $322,462 for the year ended March 31, 2015 were $9,962 or 3.2% higher than last year’s figures. These fees relate
to the use of an outside financial services consulting firm.
Other
administrative and general expenses
For
the year ended March 31, 2015, total expenses of $129,634 were $151,301 (53.9%) less than last year’s comparable figures
of $280,935 mainly due to decreased activities from a lack of financing. These expenses mainly relate to rent expense for $54,951,
board of directors accrued fees of $36,000, filing fees for $16,022 and telephone costs for $13,583.
Administrative
marketing and promotion expenses
For
the year ended March 31, 2015, we incurred total administrative marketing and promotion expenses of $25,555 as compared to $52,659
for the year ended March 31, 2014 for a decrease of $27,104 or (51.5%). This decrease was due primarily to the decision to spend
fewer marketing dollars for the year ended March 31, 2015 due to limited resources and capital.
Administrative
professional and legal fees
These
costs related to the use of outside legal, accounting and auditing firms. Total costs for the year ended March 31, 2015 of $17,251
were $178,820 (91.2%) lower than the previous year’s comparable costs of $196,071 mainly due to lower legal requirement
costs and lower audit fees accruals due to reduced financial activities.
Stock
compensation expense
For
the year ended March 31, 2015, we recorded stock compensation expense of $84 due to the issuance of warrants for Attitude Beer
Holding Co. as compared to $26,997 for the issuance of 10,000,000 fully vested non-qualified common stock options for the year
ended March 31, 2014.
ABH
(World of Beer):
Restaurant/tavern
salaries, taxes and employee benefit costs
As
this location was opened in late January, 2015, there are no comparable costs for 2014. These costs relate to all of the payroll
and tax expenses for operating the West Hartford World of Beer location.
Restaurant/tavern
other administrative and general expenses
These
costs relate to the new World of Beer franchise location in West Hartford, Connecticut that opened in late January, 2015. The
key expenses relate to: rent expense for $31,850, royalties to corporate World of Beer for $36,540, management fees for $29,232,
utility costs for $13,414, credit card processing fees for $14,949, disposal fees for $10,083, marketing fees for $10,962, music
and entertainment costs for $9,865, personal property taxes for $9,000 and the rest for restaurant cleaning costs plus, travel
expense from our joint venture partners for $8,671 for the initial setup of the location. There are no comparable costs for 2014.
Depreciation
and amortization
For
the year ended March 31, 2015, we recorded depreciation and amortization expense for $37,154 as compared to $7,687 for the year
ended March 31, 2014 for a difference of $29,467. The increase is due to the new World of Beer location that opened in late January,
2015 in West Hartford, Connecticut for the depreciable fixed assets and amortized deferred pre-opening expenses.
Other
Income (Expense)
Interest
income/(expense)
The
following table summarizes the effects on our income (expense) associated with changes in the fair values of our financial instruments
that are carried at fair value from the twelve months ended March 31, 2015 and the twelve months ended March 31, 2014:
| | |
| | |
| |
| | |
Twelve Months | | |
Twelve Months | |
| | |
ended | | |
ended | |
| | |
March 31, 2015 | | |
March 31, 2015 | |
| Our financing arrangements giving ris to derivative financial instruments and the income effects: | |
| | | |
| | |
| | |
| | | |
| | |
| Total interest income/(expense) arising from fair value adjustments | |
$ | 185,817 | | |
$ | 3,426,344 | |
| Amortization of debt expense/accretion | |
| (3,512,756 | ) | |
| (1,492,964 | ) |
| Other interest expense | |
| (432,444 | ) | |
| (397,978 | ) |
| | |
$ | (3,759,383 | ) | |
$ | 1,535,402 | |
Our
financial instruments that are recorded at fair value will change in future periods based upon changes in our trading market price
and changes in other assumptions and market indicators used in the valuation techniques.
Interest
and Other Financing Costs:
We
recorded interest expense for the fiscal year ended March 31, 2015 for $3,759,383 and interest income for $1,535,402 for the year
ended March 31, 2014 in connection with our debt obligations at interest rates from 10% to 15%. The change of ($5,294,785) over
the prior fiscal year was attributed to the recording of debt instruments at fair value (debt discount expense) due to the changes
in the stock price. We recorded the amortization of debt discounts for $3,512,756 and $1,492,964 for the years ended March 31,
2015 and March 31, 2014, respectively.
Minority
Interest
For
the fiscal year ended March 31, 2015, we recorded minority interest in the amount of $21,596 which represents the elimination
of 49% profit of the West Hartford World of Beer location as well as 12.5% for the expense of Attitude Beer Holding Co. as these
percentages represent minority ownership interests in both companies.
Net
Loss
We
reported a net loss for the year ended March 31, 2015 of ($5,030,873) and a net loss of $212,015 for the year ended March 31,
2014. The majority of the expenses for the year ended March 31, 2015 related to salary related costs, consulting fees, general
and administrative fees and recognition of interest income reflecting the changes in the fair value of the convertible debts.
Most of the costs incurred in the prior year ended March 31, 2014 related to salary related costs, consulting fees, professional
and legal fee and recognition of interest income reflecting changes in the fair value of the convertible debts.
Loss
per Common Share Applicable to Common Stockholders
The
Company’s basic and diluted loss per common share applicable to common stockholders for the period ended March 31, 2015
was $(0.01), and the basic and diluted loss per common share for the period ended March 31, 2014 was $(0.00). Because the Company
experienced a net loss for the period ended March 31, 2015, all potential common share conversions existing in our financial instruments
would have an anti-dilutive impact on earnings per share; therefore, diluted loss per common share equals basic loss per common
share for this period. The weighted average common shares outstanding for the period ended March 31, 2015 and 2014 were 625,605,503
and 102,827,957, respectively for the basic and diluted loss calculation.
LIQUIDITY
AND CAPITAL RESOURCES
We
have yet to achieve any substantial revenues or profitability, and our ability to continue as a going concern will be dependent
upon us receiving additional third party financings to fund our business at least throughout the next twelve months in our new
fiscal year. Ultimately, our ability to continue is dependent upon the achievement of profitable operations. We anticipate that,
depending on market conditions and our plan of operations, we may incur operating losses in the future based mainly based 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. These
conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do
not reflect any adjustments that may result from the outcome of this uncertainty.
Working
Capital Needs and Major Cash Expenditures
We
currently have monthly working capital needs of approximately $125,000 to $150,000. This amount is, however, expected to increase
in the next fiscal year, primarily due to the following factors:
| | | |
| • | Increased
employees, sales consultant and related travel costs |
| • | Required
interest payments on our convertible promissory notes payable |
| • | Increased
product development costs for new products, packaging and marketing materials |
External
Sources of Liquidity-External Debt Financing and Use of Common Stock for the last two years:
External
Debt Financing:
On
April 11, 2013, we executed a $71,500 allonge #8 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February
22, 2012 in which we received $65,000 as $6,500 was paid as a finder’s fee.
June
5, 2013, we executed an $88,000 allonge #9 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February
22, 2012 in which we received $80,000 as $8,000 was paid as a finder’s fee.
On
June 7, 2013, we entered into a promissory note with conversion rights with outside legal counsel (Jeffrey Stein) for past due
services in the amount of $37,000. This note is not subject to any interest rate and is payable on June 7, 2014. 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 this convertible note payable.
On
June 21, 2013, we executed an $88,000 allonge #10 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated
February 22, 2012 in which we received $80,000 as $8,000 was paid as a finder’s fee.
On
July 23, 2013, we executed an $82,500 allonge #11 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated
February 22, 2012 in which we received $75,000 as $7,500 was paid as a finder’s fee.
On
August 8, 2013, we executed an $110,000 allonge #12 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated
February 22, 2012 in which we received $100,000 as $10,000 was paid as a finder’s fee.
On
September 18, 2013, we executed an $110,000 allonge #13 with Alpha Capital Anstalt to a secured convertible note for $175,000
dated February 22, 2012 in which we received $100,000 as $10,000 was paid as a finder’s fee.
On
October 28, 2013, we executed a $55,000 allonge #14 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated
February 22, 2012 in which we received $50,000 as $5,000 was paid as a finder’s fee.
On
November 15, 2013, we executed a $55,000 allonge #15 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated
February 22, 2012 in which we received $50,000 as $5,000 was paid as a finder’s fee.
From December 19, 2013 through December
24, 2013, we entered into four non-convertible promissory notes with the following accredited investors: Centaurian Fund - $12,500;
Alpha Capital - $15,005; Tarpon Bay Partners - $5,000; and Whalehaven Capital - $13,000. These amounts were 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 holders surrendering the same. No service charge will be made for such registration or transfer
or exchange. The notes are in default.
On February 11, 2014, we executed a $55,000
allonge #16 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received
$50,000 as $5,000 was paid as a finder’s fee.
On March 24, 2014, we entered into three
non-convertible promissory notes with the following accredited investors: Centaurian Fund - $15,000; Southridge Partners II LP
- $20,000; and Whalehaven Capital - $15,000. These amounts were 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 holders
surrendering the same. No service charge will be made for such registration or transfer or exchange. The notes are in default.
On April 30, 2014, we issued a promissory
note to Southridge Partners II LP pursuant to which we received $12,000.
On May 2, 2014, we executed a $27,600 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 to LG Capital Funding, LLC in we received $35,200.
On June 11, 2014, we issued four promissory
notes ($10,000 for each note) 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.
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.
On January 14, 2015, we issued a convertible
note to Southridge Partners II LP pursuant to which we received $13,500. The note is subject to an interest rate of ten percent
(10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest
closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02.
On January 14, 2015, we issued a convertible
note to Alpha Capital Anstalt pursuant to which we received $13,500. The note is subject to an interest rate of ten percent (10%)
and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest closing
bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02. .
On January 14, 2015, wee issued a convertible
note to Whalehaven Capital Fund Ltd. pursuant to which we received $31,500. The note is subject to an interest rate of ten percent
(10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest
closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02.
All of the proceeds from the above new
financings were used for working capital purposes.
Attitude Beer Holding Co.
From December 24, 2014 through March 24,
2015, Attitude Beer Holding Co. issued four installment convertible notes payable each to Alpha Capital Anstalt and Tarpon Bay
Partners LLC that were used for the purchase and financing of the West Hartford World of Beer tavern:
| DATE OF |
|
|
ALPHA |
|
|
TARPON |
|
|
|
|
|
|
|
|
% |
|
| NOTE |
|
|
CAPITAL |
|
|
BAY |
|
|
TOTAL |
|
|
MATURITY |
|
|
INTEREST |
|
| ISSUANCE |
|
|
ANSTALDT |
|
|
PARTNERS LLC |
|
|
NOTES |
|
|
DATE |
|
|
RATE |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12/24/2014 |
|
$ |
246,187 |
|
$ |
91,063 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| 1/23/2015 |
|
|
225,000 |
|
|
75,000 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| 2/24/2015 |
|
|
225,000 |
|
|
75,000 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| 3/24/2015 |
|
|
200,437 |
|
|
66,813 |
|
|
|
|
|
12/24/2015 |
|
|
10 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TOTAL |
|
$ |
896,624 |
|
$ |
307,876 |
|
$ |
1,204,500 |
|
|
|
|
|
|
|
All of the above funds were used for building
and opening the West Hartford World of Beer. The conversion terms are either (i) if ABH’s common stock is traded on a trading
market, the conversion price is 50% of the lowest bid price for the previous 50 days; (ii) if ABH’s common stock is not traded
on a trading market, the conversion price is $0.40.
Information about our cash flows
| | |
For The Year Ended | |
| | |
March 31, | | |
March 31, | |
| | |
2015 | | |
2014 | |
| Cash provided by (used in): | |
| | | |
| | |
| | |
| | | |
| | |
| Operating activities | |
$ | 1,076,364 | | |
$ | (732,940 | ) |
| | |
| | | |
| | |
| Investing activities | |
$ | (1,256,355 | ) | |
$ | (4,365 | ) |
| | |
| | | |
| | |
| Financing activities | |
$ | 392,967 | | |
$ | 750,505 | |
For the year ended March 31, 2015, we
reported a net loss of $5,030,873 which was affected by recording the fair value adjustment of the convertible notes for
$185,817, offset by the amortization of debt discount for $3,512,756 as well as changes in accounts payable and accrued
expenses for $2,489,463. Cash flows generated from our operating activities were inadequate to cover our cash disbursement
needs as we had to rely on new convertible debt financings and bridge loans to cover operating costs. Cash used by investing
activities were attributed mainly to the purchase of equipment and operating expenses related to the opening of the World of
Beer restaurant and tavern. Cash provided by financing activities increased due to the proceeds from the issuance of
additional convertible debt financings and short-term bridge loans payable for net proceeds of $392,967.
For the year ended March 31, 2014, we reported
a net loss of $212,015 which was affected by recording the fair value adjustment of the convertible notes for $3,359,968, offset
by the amortization of debt discount for $990,842 as well as changes in accounts payable and accrued expenses for $1,426,981. Cash
flows generated from our operating activities were inadequate to cover our cash disbursement needs as we had to rely on new convertible
debt financings and bridge loans to cover operating costs. Cash used by investing activities were attributed mainly to the purchase
of a company vehicle. Cash provided by financing activities increased due to the proceeds from the issuance of additional convertible
debt financings and short-term bridge loans payable for net proceeds of $750,505.
Defaults for Short-Term Non-Convertible
Loans for the Year Ended March 31, 2015:
At March 31, 2015, two short-term
bridge notes for a total of $115,000 were past due. One of these notes is held by one of our Board of Directors and will extend
the due date once we locate the other debt holder.
Debt
restructuring program after 3/31/15 reporting date
Our subsequent events section reflects reductions of our liabilities
of $10,052.591. The restructuring relates to a reduction of overall notes and loans payables of $5,079,480, total salaries
payable of $3,546,669, accrued interest payable for $1,288,483 and accounts payable of $137,959. Total gains to our statement
of operations from this restructuring program will be $5,834,709. These results will be reflected in the Form 10-Q for June
30, 2015 and September 30, 2015.
| RECAP ANALYSIS OF ALL CONVERTIBLE NOTES PAYABLE |
| AND SHORT-TERM BRIDGE NON-CONVERTIBLE LOANS |
| FOR THE TWELVE MONTHS ENDED MARCH 31, 2015 |
The following table sets forth various
details of all convertible notes and short-term bridge loans including applicable interest and default rates for the period ended
March 31, 2015:
| Outstanding |
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
|
Default |
|
|
Accrued |
|
|
| Convertible |
|
|
Issue |
|
|
|
Default |
|
|
$ Amount |
|
Interest |
|
|
Interest |
|
|
Default |
|
|
| Note Amounts |
|
|
Date |
|
Due Date |
|
Yes/No |
|
Past Due |
|
Rate |
|
|
Rate |
|
|
Interest |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
5,452,892 |
|
(a) |
February, 2013 |
|
2/21/2015 |
|
Yes (b) |
|
|
5,452,892 |
|
4 |
% |
|
20 |
% |
|
— |
|
|
| $ |
5,250 |
|
|
March, 2013 |
|
12/31/2014 |
|
Yes (b) |
|
|
5,250 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
April, 2013 |
|
12/31/2014 |
|
Yes (b) |
|
|
25,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
May, 2013 |
|
12/31/2014 |
|
Yes (b) |
|
|
25,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
June, 2013 |
|
12/31/2014 |
|
Yes (b) |
|
|
25,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
37,000 |
|
|
June, 2013 |
|
6/7/2014 |
|
Yes (b) |
|
|
37,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
July, 2013 |
|
12/31/2014 |
|
Yes (b) |
|
|
25,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
August, 2013 |
|
12/31/2014 |
|
Yes (b) |
|
|
25,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
September, 2013 |
|
1/31/2015 |
|
Yes (b) |
|
|
25,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
October, 2013 |
|
2/28/2015 |
|
Yes (b) |
|
|
25,000 |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
25,000 |
|
|
November, 2013 |
|
3/31/2015 |
|
Yes (b) |
|
|
25,000 |
|
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 |
|
|
— |
|
10 |
% |
|
20 |
% |
|
— |
|
|
| $ |
246,187 |
|
|
December, 2014 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| $ |
91,063 |
|
|
December, 2014 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| $ |
25,000 |
|
|
January, 2015 |
|
5/31/2016 |
|
No |
|
|
— |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
13,500 |
|
|
January, 2015 |
|
1/14/2017 |
|
No |
|
|
— |
|
10 |
% |
|
20 |
% |
|
— |
|
|
| $ |
13,500 |
|
|
January, 2015 |
|
1/14/2017 |
|
No |
|
|
— |
|
10 |
% |
|
20 |
% |
|
— |
|
|
| $ |
31,500 |
|
|
January, 2015 |
|
1/14/2017 |
|
No |
|
|
— |
|
10 |
% |
|
20 |
% |
|
— |
|
|
| $ |
225,000 |
|
|
January, 2015 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| $ |
75,000 |
|
|
January, 2015 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| $ |
25,000 |
|
|
February, 2015 |
|
6/30/2016 |
|
No |
|
|
— |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
225,000 |
|
|
February, 2015 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| $ |
75,000 |
|
|
February, 2015 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| $ |
25,000 |
|
|
March, 2015 |
|
7/31/2016 |
|
No |
|
|
— |
|
None |
|
|
None |
|
|
— |
|
|
| $ |
200,437 |
|
|
March, 2015 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| $ |
66,813 |
|
|
March, 2015 |
|
12/24/2015 |
|
No |
|
|
— |
|
10 |
% |
|
15 |
% |
|
— |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
7,413,342 |
|
|
|
|
|
|
|
|
$ |
5,695,142 |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
Total amount includes total consolidated notes plus additional issued allonges. |
|
| (b) |
The Company is implementing a restructuring program and is working with the debt holders to extend the maturity dates.
No presentation of defaults to the Company from the debt holders has occurred, thus no recording of
default interest rates. |
|
| (c) |
Notes indicated in default are in default only because they are past due. |
|
| |
|
|
| SHORT—TERM BRIDGE LOANS (d) |
|
| |
|
| $ |
60,000 |
|
|
April 14, 2008 |
|
Past due |
|
Yes |
|
$ |
60,000 |
|
|
|
|
15% |
|
$ |
52,857 |
|
|
| $ |
55,000 |
|
|
August 5, 2008 |
|
Past due |
|
Yes |
|
$ |
55,000 |
|
|
|
|
15% |
|
$ |
65,096 |
|
|
| $ |
115,000 |
|
|
Total amount past due |
|
|
|
|
|
$ |
115,000 |
|
|
|
|
|
|
$ |
117,953 |
|
|
| (d) | 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. |
During August, 2015, approximately $3.3
million of the above debt that was in default was exchanged for Series C Convertible Preferred Stock.
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,
or the Exchange Act, before deciding 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 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 March 31, 2015, we had a total shareholders’
deficit of $16,942,378 and a working capital deficit of $17,997,151, 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 $233,591 as of March 31, 2015 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.
Our auditors have expressed doubt
as to 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 and classification
of liabilities that might be necessary should we be unable to continue as a going concern.. Our auditor’s report reflects
substantial doubt about our ability 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 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 March 31, 2015, we were in default
on certain of our short-term bridge loans and convertible note payables.
At March 31, 2015, we were in default on
short term bridge notes totaling $115,000 in principal. One of the two note holders is on our Board of Directors and will extend
the due date once we locate the other note holder which we have been doing for some time. The remedy for default under the notes
is acceleration of principal and interest due thereunder. In addition, we were in default on certain convertible note payables
in the total amount of $5,695,142. Further, we have other secured convertible notes outstanding totaling $1,718,200 in principal
face value at March 31, 2015. We are implementing a restructuring program and working with our investors to extend these maturity
dates. 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 from 15% up to 20%.
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. Our main assets relate to ABH’s assets in the World of Beer location in
West Hartford, Connecticut. If we lose those assets, we would have a very difficult time conducting our business..
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.
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 increased 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.
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 is automatically
renewed for consecutive one (1) year periods (next renewal date of December 16, 2015) 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:
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our business reputation would be adversely affected if 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.
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.
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.
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.
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.
Risks Related to the World of Beer
operations
If ABH is unable to identify and
obtain suitable new franchises sites and successfully open new franchises, our revenue will suffer and profits may be reduced.
ABH requires that all proposed franchise
sites meet certain site selection criteria. ABH may make errors in selecting these criteria or applying these criteria to a particular
site, or there may be an insignificant number of new sites meeting these criteria that would enable us to achieve our planned expansion
in future periods. ABH faces significant competition from other restaurant companies and retailers for sites that meet its criteria,
and the supply of sites may be limited in some markets. Further, ABH may be precluded from acquiring an otherwise suitable site
due to an exclusivity restriction held by another tenant. As a result of these factors, costs to obtain and lease sites may increase,
or ABH may not be able to obtain certain sites due to unacceptable costs. ABH’s inability to obtain suitable sites at reasonable
costs may reduce our income growth.
To successfully expand its business, ABH
must open new World of Beer restaurants on schedule and in a profitable manner. In the past, World of Beer franchisees have experienced
delays in restaurant openings, and may experience similar delays in the future. Delays in opening new sites could hurt ABH’s
ability to meet its growth objectives, which may affect our results of operations and thus our stock price. We cannot guarantee
that ABH or any future franchisees will be able to achieve its expansion goals. Further, any sites that it opens may not achieve
operating results similar or better than the existing restaurant. If ABH is unable to generate positive cash flow from a new site,
it may be required to recognize an impairment loss with respect to the assets for that restaurant. ABH’s ability to expand
successfully will depend on a number of factors, many of which are beyond its control. These factors include:
| · | Negotiating acceptable lease or purchase terms for new sites; |
| · | Cost effective and timely planning, design and build-out of sites; |
| · | Creating Guest awareness of our restaurants and taverns in new markets; |
| · | Competition in new and existing markets; |
| · | General economic conditions. |
The restaurants and taverns may not achieve market acceptance
in the new regions ABH enters.
ABH’s expansion plans depend on opening
restaurants and taverns in markets starting with New England where it has little or no operating experience. ABH may not be successful
in operating in locations in new markets on a profitable basis. The success of these new locations will be affected by the different
competitive conditions, consumer tastes and discretionary spending patterns of the new markets as well as ABH’s ability to
generate market awareness of its brands. Sales at locations opening in new markets may take longer to reach profitable levels,
if at all.
New restaurants added to existing markets may take sales
from existing restaurants.
ABH intends to open new restaurants and
taverns in its existing market, which may reduce sales performance and guest visits for existing location. In addition, new locations
added in existing markets may not achieve sales and operating performance at the same level as established restaurants in the market.
A security failure in ABH’s
information technology systems could expose us to potential liability and loss of revenues.
ABH accepts credit and debit card payments
at our restaurant. A number of retailers have recently experienced actual or potential security breaches in which credit and debit
card information may have been stolen, including a number of highly publicized incidents with well-known retailers. The intentional,
inadvertent or negligent release or disclosure of data by ABH or its service providers could result in theft, loss, fraudulent
or unlawful use of customer data which could harm its and our reputation and result in remedial and other costs, fines or
lawsuits.
Shortages or interruptions in the
availability and delivery of food and other supplies may increase costs or reduce revenues.
Possible shortages or interruptions in
the supply of food items and other supplies to a location(s) caused by inclement weather, terrorist attacks, natural disasters
such as floods, drought and hurricanes, pandemics, the inability of vendors to obtain credit in a tightened credit market, food
safety warnings or advisories or the prospect of such pronouncements, or other conditions beyond ABH’s control could adversely
affect the availability, quality and cost of items it buys and the operations of its restaurants. ABH’s inability to effectively
manage supply chain risk could increase costs and limit the availability of products critical to the restaurant operations.
There are general risks associated
with the restaurant and bar/tavern industry.
Restaurants are a very cyclical business.
Specific factors that impact economic recessions can negatively influence discretionary consumer spending in restaurants and bars
and result in lower customer counts as consumers become more price conscientious, tending to conserve their cash amid unemployment
and other economic uncertainty. The effects of higher gasoline prices can also negatively affect discretionary consumer spending
in restaurants and bars. Increasing costs for energy can affect profit margins in many other ways. Petroleum based material is
often used to package certain products for distribution. In addition, suppliers may add fuel surcharges to their invoices. The
cost to transport products from the distributors to restaurant operations will rise with each increase in fuel prices. Higher costs
for electricity and natural gas result in higher costs to a) heat and cool restaurant facilities, b) refrigerate and cook food
and c) manufacture and store food at ABH’s locations.
Inflationary pressure, particularly on
food costs, labor costs (especially associated with increases in the minimum wage) and health care benefits, can negatively affect
the operation of the business. Shortages of qualified labor are sometimes experienced in certain local economies. In addition,
the loss of any key executives could pose a significant adverse effect on ABH and us.
If consumer confidence in the business deteriorates, our
business, financial condition and results of operations could be adversely affected.
The restaurants are built on consumers’
confidence in the World of Beer brand. As a consumer business, the strength of the brand and reputation are of paramount importance
to ABH and us. A number of factors could adversely affect consumer confidence in the brand, many of which are beyond ABH’s
control and could have an adverse impact on its and our results of operations. These factors include:
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any negative publicity
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In addition, ABH is largely dependent on
the other World of Beer franchisees to maintain the reputation of its brand. Despite the measures that it puts in place to ensure
their compliance with its performance standards, ABH’s lack of control over its operations may result in the low quality
of service being attributed to the brand, negatively affecting its and our overall reputation. Any event that hurts its or our
brand and reputation among consumers as a reliable services provider could have a material adverse effect on its and our business,
financial condition and results of operations.
ABH faces substantial competition in our target markets
The restaurant industry is highly competitive,
and many of the competitors are substantially larger and possess greater financial resources than ABH and us. Our restaurant(s)
have numerous competitors, including national chains, regional and local chains, as well as independent operators. None of these
competitors, in the opinion of our management, is dominant in the family-style sector of the restaurant industry. In addition,
competition continues to increase from non-traditional competitors such as supermarkets that not only offer home meal replacement
but also have in-store dining space trends that continue to grow in popularity.
The principal methods of competition in
the restaurant industry are brand name recognition and advertising; menu selection and prices; food quality and customer perceptions
of value, speed and quality of service; cleanliness and fresh, attractive facilities in convenient locations. In addition to competition
for customers, sharp competition exists for qualified restaurant managers, hourly restaurant workers and quality sites on which
to build new locations.
The restaurant and bar industry is very
competitive, and ABH faces competition from large national chains as well as individually owned restaurants. Large chains such
as Buffalo Wild Wings have a similar open style that appeals to sports fan and family demographics. There are additional restaurants
that feature custom beers. Many of these competitors have substantially more resources than ABH and us which allow them to have
economies of scale allowing them price points which compare favorably to ABH’s price points. They also have the ability to
market their restaurants given their sheer size which ABH does not possess. All of these factors may make it difficult for ABH
and us to succeed.
Unfavorable publicity could harm ABH’s and our business.
Multi-unit restaurant businesses such as
ABH’s business can be adversely affected by publicity resulting from complaints or litigation or general publicity regarding
poor food quality, food-borne illness, personal injury, food tampering, adverse health effects of consumption of various food products
or high-calorie foods (including obesity), or other concerns. Negative publicity from traditional media or on-line social network
postings may also result from actual or alleged incidents or events taking place in ABH’s restaurants. Regardless of whether
the allegations or complaints are valid, unfavorable publicity relating to a number of our restaurants, or only to a single restaurant,
could adversely affect public perception of the entire brand. Adverse publicity and its effect on overall consumer perceptions
of food safety, or ABH’s failure to respond effectively to adverse publicity, could have a material adverse effect on its
and our business.
Changes in employment laws or regulation could harm ABH’s
performance.
Various federal and state labor laws govern
ABH’s relationship with its employees and affect operating costs. These laws include minimum wage requirements, overtime
pay, healthcare reform and the implementation of the Patient Protection and Affordable Care Act, unemployment tax rates, workers’
compensation rates, citizenship requirements, union membership and sales taxes. A number of factors could adversely affect ABH’s
operating results, including additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and
mandated health benefits, mandated training for employees, increased tax reporting and tax payment requirements for employees who
receive tips, a reduction in the number of states that allow tips to be credited toward minimum wage requirements, changing regulations
from the National Labor Relations Board and increased employee litigation including claims relating to the Fair Labor Standards
Act.
The Americans with Disabilities Act is
a federal law that prohibits discrimination on the basis of disability in public accommodations and employment. Although ABH’s
restaurants are designed to be accessible to the disabled, ABH could be required to make modifications to its restaurants to provide
service to, or make reasonable accommodations for disabled persons.
Economic conditions could have a
material adverse impact on ABH’s landlords or other tenants in retail centers in which it or its franchisees are located,
which in turn could negatively affect its financial results.
ABH’s landlords may be unable to
obtain financing or remain in good standing under their existing financing arrangements, resulting in failures to pay required
construction contributions or satisfy other lease covenants to ABH. In addition other tenants at retail centers in which ABH or
its franchisees are located or have executed leases may fail to open or may cease operations. If any landlords fail to satisfy
required co-tenancies, such failures may result in ABH or its franchisees terminating leases or delaying openings in these locations.
Also, decreases in total tenant occupancy in retail centers in which ABH are located may affect guest traffic at its restaurants.
All of these factors could have a material adverse impact on its and our operations.
ABH may experience higher-than-anticipated
costs associated with the opening of new locations or with the closing, relocating and remodeling of existing restaurants, which
may adversely affect its and our results of operations.
ABH’s and our revenues and expenses
can be impacted significantly by the location, number and timing of the opening of new restaurants and the closing, relocating,
and remodeling of existing restaurants. ABH incurs substantial pre-opening expenses each time it opens a new restaurant and incurs
other expenses when it closes, relocates or remodels existing restaurants. These expenses are generally higher when it opens restaurants
in new markets, but the costs of opening, closing, relocating or remodeling any of our restaurants may be higher than anticipated.
An increase in such expenses could have an adverse effect on ABH’s and our results of operations.
ABH’s and our success depends
substantially on the value of ABH’s brands and its reputation for offering guests an unparalleled Guest experience.
We believe that ABH has built a strong
reputation for the quality and breadth of its menu items as part of the total experience that guests enjoy in its restaurants.
We believe ABH must protect and grow the value of its brands to continue to be successful in the future. Any incident that erodes
consumer trust in or affinity for its brands could significantly reduce their value. If consumers perceive or experience a reduction
in food quality, service, or ambiance, or in any way believe ABH failed to deliver a consistently positive experience, its and
our brand value could suffer.
ABH’s inability to successfully
and sufficiently raise menu prices could result in a decline in profitability.
ABH utilizes menu price increases to help
offset cost increases, including increased cost for commodities, minimum wages, employee benefits, insurance arrangements, construction,
utilities and other key operating costs. If its selection and amount of menu price increases are not accepted by consumers
and reduce guest traffic, or are insufficient to counter increased costs, its and our financial results could be harmed.
Our quarterly operating results may
fluctuate due to the timing of special events and other factors, including the recognition of impairment losses.
Our quarterly operating results depend,
in part, on revenue that ABH derived from special events, such as the Super Bowl® and other sporting events viewed by our guests
in our World of Beer franchised locations such as the NFL, MLB, NBA, NHL and NCAA. Interruptions in the viewing of these professional
and collegiate sporting league events due to strikes, lockouts or labor disputes may impact our results. Additionally, ABH’s
and thus indirectly our results are subject to fluctuations based on the dates of sporting events and their availability for viewing
through broadcast, satellite and cable networks. Historically, sales in most of World of Beer restaurants have been higher during
fall and winter months based on the relative popularity and extent of national, regional and local sporting and other events. Further,
quarterly operating results may fluctuate significantly because of other factors, including:
| · | Fluctuations in food costs, particularly chicken wings; |
| · | The timing of new restaurant openings which may impact margins due to the related preopening costs
and initially higher restaurant level operating expense ratios; |
| · | Potential distraction or unusual expenses associated with expansion into other geographical territories; |
| · | ABH’s ability to operate effectively in new markets in which it has limited operating experience; |
| · | Labor availability and costs for hourly and management personnel; |
| · | Changes in competitive factors; |
| · | General economic conditions, consumer confidence and fluctuations in discretionary spending; |
| · | Claims experience for self-insurance programs; |
| · | Increases or decreases in labor or other variable expenses; |
| · | The impact of inclement weather, natural disasters and other calamities; |
| · | Fluctuations in interest rates; |
| · | The timing and amount of asset impairment loss and restaurant closing charges; and |
| · | Tax expenses and other non-operating costs. |
ABH may not be able to attract and
retain qualified team members and key executives to operate and manage our business.
ABH”s success and the success of
its individual restaurant(s) and business depends on its ability to attract, motivate, develop and retain a sufficient number of
qualified key executives and restaurant employees, including restaurant managers and hourly team members. The inability to recruit,
develop and retain these individuals may delay the planned openings of new restaurant and tavern locations or result in high employee
turnover in existing locations, thus increasing the cost to efficiently operate our restaurants. This could inhibit expansion plans
and business performance and, to the extent that a labor shortage may force ABH to pay higher wages, harm its profitability. The
loss of any of its key executive officers could jeopardize its ability to meet its financial targets.
The sale of alcoholic beverages at
ABH’s locations subjects it to additional regulations and potential liability.
Because ABH’s locations sell alcoholic
beverages, it is required to comply with the alcohol licensing requirements of the federal government, states and municipalities
where its restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain
locations, county and municipal authorities for a license and permit to sell alcoholic beverages on the premises and to provide
service for extended hours and on Sundays. Typically, the licenses are renewed annually and may be revoked or suspended for cause
at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants and bars,
including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling,
storage and dispensing of alcoholic beverages. If ABH fails to comply with federal, state or local regulations, its licenses may
be revoked, and it may be forced to terminate the sale of alcoholic beverages at one or more of its locations. Further, growing
movements to change laws relating to alcohol may result in a decline in alcohol consumption at its facilities or increase the number
of dram shop claims made against it, either of which may negatively impact operations or result in the loss of liquor licenses.
In certain states ABH is subject to “dram
shop” statutes, which generally allow a person injured by an intoxicated person the right to recover damages from an establishment
that wrongfully served alcoholic beverages to the intoxicated person. Some dram shop litigation against restaurant companies has
resulted in significant judgments, including punitive damages.
Changes in consumer preferences or
discretionary consumer spending could harm ABH’s and our performance.
The success of ABH’s World of Beer
franchises depends, in part, upon the continued popularity of the overall World of Beer system locations throughout the United
States as well as ABH’s unique food and beverage items and appeal of sports bars and casual dining restaurants. ABH also
depends on trends toward consumers eating away from home. Shifts in these consumer preferences could negatively affect its future
profitability. Such shifts could be based on health concerns related to the cholesterol, carbohydrate, fat, calorie or salt content
of certain food items, including items featured on its menu. Negative publicity over the health aspects of such food items may
adversely affect consumer demand for its menu items and could result in a decrease in guest traffic to its restaurants, which could
materially harm its business. In addition, ABH will be required to disclose calorie counts for all food items on its menus, due
to federal regulations, and this may have an effect on consumers’ eating habits. Other federal regulations could follow this
pattern. In addition, ABH’s success depends to a significant extent on numerous factors affecting discretionary consumer
spending, including economic conditions, disposable consumer income and consumer confidence. A decline in consumer spending or
in economic conditions could reduce guest traffic or impose practical limits on pricing, either of which could harm its business,
financial condition, operating results or cash flow.
A regional or global health pandemic
could severely affect ABH’s business.
A health pandemic is a disease outbreak
that spreads rapidly and widely by infection and affects many individuals in an area or population at the same time. If a regional
or global health pandemic was to occur, depending upon its duration and severity, ABH’s and our business could be severely
affected. ABH has positioned its brand as a place where people can gather together.
Customers might avoid public gathering
places in the event of a health pandemic, and local, regional or national governments might limit or ban public gatherings to halt
or delay the spread of disease. A regional or global health pandemic might also adversely impact our business by disrupting or
delaying production and delivery of materials and products in its supply chain and by causing staffing shortages in ABH’s
restaurants. The impact of a health pandemic might be disproportionately greater than on other companies that depend less on the
gathering of people together for the sale or use of their products and services.
As a result of the factors discussed above,
ABH’s and our quarterly and annual operating results may fluctuate significantly. Accordingly, results for any one quarter
are not necessarily indicative of results to be expected for any other quarter or for any year. These fluctuations may cause future
operating results to fall below the expectations of securities analysts and shareholders. In that event, the price of our common
stock would likely decrease.
ABH may be subject to increased labor
and insurance costs.
ABH’s restaurant operations are subject
to federal and state laws governing such matters as minimum wages, working conditions, overtime, and tip credits. As federal and
state minimum wage rates increase, ABH may need to increase not only the wages of our minimum wage employees, but also the wages
paid to employees at wage rates that are above minimum wage. Labor shortages, increased employee turnover, and health care mandates
could also increase its labor costs. This, in turn, could lead it to increase prices which could impact its sales. Conversely,
if competitive pressures or other factors prevent ABH from offsetting increased labor costs by increases in prices, its profitability
may decline. In addition, the current premiums that ABH pays for its insurance (including workers’ compensation, general liability,
property, health, and directors’ and officers’ liability) may increase at any time, thereby further increasing our costs. The dollar
amount of claims that ABH actually experiences under its workers’ compensation and general liability insurance, for which it carries
high per-claim deductibles, may also increase at any time, thereby further increasing its costs. Also, the decreased availability
of property and liability insurance has the potential to negatively impact the cost of premiums and the magnitude of uninsured
losses.
ABH’s current insurance may
not provide adequate levels of coverage against claims.
ABH currently maintains insurance customary
for businesses of its size and type. However, there are types of losses it may incur that cannot be insured against or that it
believed are not economically reasonable to insure, such as losses due to natural disasters. Such damages could have a material
adverse effect on its and our business and results of operations.
ABH is dependent on information technology
and any material failure of that technology could impair its ability to efficiently operate its business.
ABH relies on information systems across
its operations, including, for example, point-of-sale processing in its locations, management of its supply chain, collection of
cash and credit and debit card payments, payment of obligations and various other processes and procedures. ABH’s ability
to efficiently manage its business depends significantly on the reliability and capacity of these systems. The failure of these
systems to operate effectively, problems with maintenance, upgrading or transitioning to replacement systems, or a breach in security
of these systems could cause delays in customer service, reduce efficiency in its operations, require significant investment to
remediate the issue or cause negative publicity that could damage its and our brand. Significant capital investments might be required
to remediate any problems.
If ABH is unable to maintain its
rights to use key technologies of third parties, its and our business may be harmed.
ABH relies on certain technology licensed
from third parties and may be required to license additional technology in the future for use in managing its internet sites and
providing related services to users and customers. These third-party technology licenses may not continue to be available to it
on acceptable commercial terms or at all. The inability to enter into and maintain any of these technology licenses could significantly
harm its and our business, financial condition and operating results.
ABH’s future growth may require
it to raise additional capital in the future, but that capital may not be available when it is needed or may be available only
at an excessive cost.
In order to build out ABH’s business
plan and to be ultimately successful, it will need ample capital to purchase/rent new properties, build new locations, hire personnel
and market its locations. ABH may not generate sufficient cash from its existing operations in order to do so. Therefore, it or
we may at some point choose to raise additional capital to support its continued growth. ABH’s and our ability to raise additional
capital will depend, in part, on conditions in the capital markets at that time which are outside of its control. Accordingly,
it or we may be unable to raise additional capital, if and when needed, on terms acceptable to it or us, or at all. If ABH or we
cannot raise additional capital when needed, its ability to further expand operations through internal growth and acquisitions
could be materially impacted. In the event of a material decrease in our stock price, future issuances of equity securities could
result in dilution of existing shareholder interests.
The occurrence of any failure, breach
or interruption in service involving ABH’s systems or those of its service providers could damage its reputation, cause losses,
increase its expenses, and result in a loss of customers, an increase in regulatory scrutiny or expose ABH to civil litigation
and possibly financial liability, any of which could adversely impact its and our financial condition, results of operations and
the market price of our stock.
Communications and information systems
are essential to the conduct of ABH’s business, as it uses such systems to manage its customer relationships, its general
ledger, its deposits and its loans. ABH’s operations rely on the secure processing, storage and transmission of confidential
and other information in its computer systems and networks. Although ABH takes protective measures and endeavor to modify them
as circumstances warrant, the security of its computer systems, software and networks may be vulnerable to breaches, unauthorized
access, misuse, computer viruses or other malicious code and cyber attacks that could have a security impact. In addition, breaches
of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to its confidential
or other information or the confidential or other information of our customers, clients or counterparties. If one or more of such
events was to occur, the confidential and other information processed and stored in and transmitted through its computer systems
and networks could potentially be jeopardized or could otherwise cause interruptions or malfunctions in its operations or the operations
of its customers, clients or counterparties. This could cause ABH significant reputational damage or result in its experiencing
significant losses.
Furthermore, ABH may be required to expend
significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures
arising from operational and security risks. ABH also may be subject to litigation and financial losses that are either not insured
against or not fully covered through any insurance it maintains. In addition, ABH routinely transmits and receives personal, confidential
and proprietary information by e-mail and other electronic means. It has discussed and worked with its customers, clients and counterparties
to develop secure transmission capabilities, but it does not have, and may be unable to put in place, secure capabilities with
all of these constituents, and it may not be able to ensure that these third parties have appropriate controls in place to protect
the confidentiality of such information.
While ABH has established policies and
procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will
not occur or that they will be adequately addressed if they do. In addition, ABH outsources certain aspects of its data processing
to certain third-party providers. If its third-party providers encounter difficulties, or if it has difficulty in communication
with them, its ability to adequately process and account for customer transactions could be affected, and its business operations
could be adversely impacted. Threats to information security also exist in the processing of customer information through various
other vendors and their personnel.
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. 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:
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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 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 September 22, 2015, we had issued and outstanding options and warrants that may be exercised into 14,599,204 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 $1,488,487 (excludes ABH’s
convertible notes of $2,371,545 which are not convertible into our common stock) and accrued interest payable of $417,338 (excludes
accrued interest for ABH convertible notes) which together may be converted into shares of common stock (subject to 4.99-9.99%
beneficial ownership limitations and a limit of a total of 20,000,000 authorized shares) at a maximum conversion cap rate of $.02
per share. Actual conversion prices are subject to certain discounts from market prices as the stock prices change daily and have
been significantly less than the $.02 price, resulting in a possible calculation to reach the maximum authorized amount of 20,000,000,000
common shares. 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 our 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.
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 diluting each stockholder. In addition, such stock issuances might result in a reduction of the book value of
our common stock.
Because we do not have an audit or
compensation committee, shareholders will have to rely on our President, who is not independent, to perform these functions.
We do not have an audit or compensation
committee comprised of independent directors. Indeed, we do not have any audit or compensation committee. These functions are performed
by our Chief Executive Officer and Chief Financial Officer. An independent audit committee plays a crucial role in the corporate
governance process, assessing our processes relating to our risks and control environment, overseeing financial reporting, and
evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the Board from being
independent from our management in their judgments and decisions and their ability to pursue the responsibilities of an audit
committee without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications.
If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised. Our
lack of an independent compensation committee presents the risk that our executive officers on the Board may have influence over
his personal compensation and benefits levels that may not be commensurate with our financial performance.
Our common shares are subject to
the “Penny Stock” Rules of the SEC and the trading market in our securities is limited, which makes transactions in our
stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission
has adopted Rule 15g-9, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person’s account for transactions in penny stocks; and
·
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased.
·
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
o obtain financial information and investment experience objectives of the person; and
o make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver,
prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market,
which, in highlight form:
·
sets forth the basis on which the broker or dealer made the suitability determination; and
·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing
to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors
to dispose of our shares of common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the
risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both
the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available
to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stocks.
If an active market develops for
our shares, sales of our shares relying upon Rule 144 may depress prices in that market by a material amount.
The majority of the outstanding shares
of our common stock held by present stockholders are “restricted securities” within the meaning of Rule 144 under the
Securities Act of 1933, as amended. The SEC has recently adopted amendments to Rule 144, which became effective on February 15,
2008 and applies to securities acquired both before and after that date. Under these amendments, a person who has beneficially
owned restricted shares of our common stock or warrants for at least six months would be entitled to sell their securities provided
that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding,
a sale and (ii) we have been current with the Exchange Act periodic reporting requirements for at least twelve months before the
sale.
Persons who have beneficially owned restricted
shares of our common stock or warrants for at least six months but who are our affiliates at the time of, or at any time during
the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell
within any three-month period only a number of securities that does not exceed 1% of the total number of shares of our common stock
then outstanding, which would equal 1,263,374 shares of our common stock immediately after this offering, for a company trading
on the pink sheets or Over-the-Counter Bulletin Board such as us.
The market for penny stocks has experienced
numerous frauds and abuses which could adversely impact investors in our stock.
We believe that the market for penny stocks
has suffered from patterns of fraud and abuse. Such patterns include:
· Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
· Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
· “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales
persons;
· Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
· The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent investor losses.
We do not expect to pay dividends
to holders of our common stock in the foreseeable future. As a result, holders of our common stock must rely on stock appreciation
for any return on their investment.
There are no restrictions in our Articles
of Incorporation or Bylaws that prevent us from declaring dividends. The Nevada General Corporation Law, however, does prohibit
us from declaring dividends where, after giving effect to the distribution of the dividend, we would not be able to pay our debts
as they become due in the usual course of business, or if our total assets would be less than the sum of our total liabilities
plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving
the distribution. We have not declared any dividends since our inception, and we do not plan to declare any dividends on our common
stock in the foreseeable future. Accordingly, holders of our common stock will have to rely on capital appreciation, if any, to
earn a return on their investment in our common stock.
We may issue shares of preferred
stock in the future that may adversely impact the right of holders of our common stock.
As of the date of this Report, our
Articles of Incorporation authorizes us to issue up to 20,000,000 shares of preferred stock, of which 14,999,949 shares have
been designated as shares of Series A, 51 shares have been designated as Series A-1 and 100,000 shares have been designated
as Series C. Accordingly, our Board of directors will have the authority to fix and determine the relative rights and
preferences of preferred shares, as well as the authority to issue such shares, without further stockholder approval. As a
result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders
preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of
our common stock and the right to the redemption of such preferred shares, together with a premium, prior to the redemption
of the common stock. To the extent that we do issue such additional shares of preferred stock, the rights of holders of
common stock could be impaired thereby, including, without limitation, dilution of their ownership interests in us. In
addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make
removal of management more difficult, which may not be in the interest of holders of common stock. To date, our investors in
the Series A Preferred Convertible Preferred Stock have waived their dividends which we were obligated to pay to them. There
is no guarantee going forward that they will waive these dividends in the future. If so, the number of shares issued may be
materially dilute your investment.
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 1,161,193,362 shares of common stock outstanding as of March 31, 2015 of which 1,161,162,792 shares are held
by non-affiliates. Further, we have outstanding convertible notes in the face value of $6,208,842 (excludes ABH notes) which may
be converted into 388,227,593 shares of common stock at a maximum conversion price of $.02. 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.
EFFECTS OF INFLATION
We believe that inflation has not had any
material effect on our net sales and results of operations.
ITEM 8 – FINANCIAL STATEMENTS
The consolidated financial statements for
the years ended March 31, 2015 and 2014 are contained on Pages F-1 to F-36 which follows.
ITEM 9 - CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - 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 March 31, 2015. 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 as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Management’s Report on Internal
Control over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal controls over financial reporting. Under the supervision and with the participation of our management,
including our Chief Executive Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting
using framework similar to criteria referenced in the initial steps of the Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management
concluded that our internal control over financial reporting was not effective as of the year ended March 31, 2015.
A material weakness is a significant deficiency
(as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 2), or a combination of significant
deficiencies, that results in reasonable possibility that a material misstatement of the annual or interim financial statements
will not be prevented or detected on a timely basis. In its assessment of the effectiveness of our internal controls over
financial reporting, management determined that there were control deficiencies as of the year ended March 31, 2015 that constituted
material weaknesses, as described below.
* 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.
This annual report does not include an
attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s
report is not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide
only management’s report in this annual report.
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 financing reporting as set forth above, we intend to take practical,
cost-effective steps in implementing internal controls, including the following remedial measures, some of which have already been
taken:
* 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.
* we have
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, we have not
hired any outside experts to design additional internal controls over financial reporting 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.
Changes in Internal Control over Financial
Reporting
No change in our internal control over
financial reporting occurred during the quarter ended March 31, 2015, that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
None
PART III
ITEM 10 – DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
The directors and executive officers as
of March 31, 2014 are as follows. Our directors serve until their successors are elected and qualified.
| Name of Officer and Age |
|
Position with the Company |
Year Appointed |
| Roy Warren |
59 |
Chairman, Chief Executive Officer and President |
2007 |
| Michael Edwards |
55 |
Director |
2007 |
| H. John Buckman |
69 |
Director |
2007 |
| Tommy Kee |
66 |
Chief Financial Officer |
2007/ 2010* |
* Mr. Kee resigned as CFO in July 2009
but rejoined the Company in April 2010.
The experience and background of the Company’s
directors, executive officers and significant employees follow:
Mr. Roy Warren – Chairman,
Chief Executive Officer and President since September, 2007
Mr. Warren serves as our Chairman of the
Board, Chief Executive Officer and President. As Chief Executive Officer, Mr. Warren provides overall company leadership
and strategy. Mr. Warren also serves as a director of our wholly owned subsidiary, Attitude Drink Company, Inc. For
15 years from 1981 through 1996, Mr. Warren was in the securities brokerage industry. During those years, Mr. Warren
acted as executive officer, principal, securities broker and partner with brokerage firms in Florida, most notably Kemper Financial
Companies, Alex Brown & Sons and Laffer Warren & Company. From 1999 to 2007, Mr. Warren was Chief Executive
Officer of Bravo! Brands, Inc, in Florida, a public company which was a beverage brand-development company, similar to Attitude
Drinks Incorporated. This experience in the beverage industry as well as with a public company led to the conclusion that he should
serve as a director of the Company. Mr. Warren is also the Chief Executive Officer and a director of HVWC.
Mr. Michael Edwards – Director
since 2007
Mr. Edwards has served on the Board of
Directors since 2007. He currently is the sole proprietor of a chain of automobile car washes in Martin County, Florida
which he has owned over seven years. Prior to this, he served as Chief Revenue Officer for Bravo! Brands, Inc. for over
five years in which he led the sales team force for introduction and sales of the company’s various developed beverage brands
and products. This expertise in the development and sales of beverage products led to the conclusion that he should serve as a
director of the Company. Prior to that time, he worked for 5 years in beverage marketing research for Message Factors, Inc.,
a Memphis, Tennessee marketing research firm. Mr. Edwards has a BS degree from Florida State University in Management
and Marketing and spent 13 years in the banking industry, leaving CitiBank to join Message Factors in 1995.
Mr. H. John Buckman – Director
since 2007
Mr. Buckman has served on the Board of
Directors since 2007. He is a principal and majority shareholder of Buckman, Buckman and Reid, a licensed broker-dealer
co-founded by Mr. Buckman in 1988. Mr. Buckman also joined the Board of Center for Vocational Rehabilitation (CVR) in
1994 and was a member for ten years. Presently, Mr. Buckman is President of the Board of Directors for Asian Youth Ministries
in New Jersey. His many years of broker-dealer experience, which provide valuable direction in the Company’s interactions
in the securities market as well as his management and director experience, supports his role as director of the Company.
Mr. Tommy Kee –Chief Financial
Officer since 2007
Tommy Kee joined our company in November,
2007 as Chief Financial Officer. Mr. Kee was previously the Chief Accounting Officer of Bravo! Brands, Inc. He
graduated with an MBA from the University of Memphis and a BS degree in accounting from the University of Tennessee. Before
joining us, he served for several years as CFO for Allied Interstate, Inc. in the West Palm Beach area. Prior to that,
Mr. Kee served as CFO and Treasurer for Hearx Ltd. a West Palm Beach, Florida public company. He also served 18 years
as International Controller and Financial Director with the Holiday Inns Inc. organization in Memphis and Orlando. Mr.
Kee gave his letter of resignation as CFO, effective July 10, 2009 but rejoined the Company in April, 2010. Mr. Kee also serves
as the Chief Financial Officer of HVWC.
Section 16(a) Beneficial Ownership Reporting
Compliance
Based solely on a review of the appropriate
Forms 3, 4 and 5 and any amendments to such forms filed pursuant to Section 16(a) during the most recent fiscal year, there are
no late filings.
Code of Ethics
On May 14, 2009, the Board of Directors
approved and ratified a Code of Ethics that is applicable to all directors, officers and employees. A copy of the Code
of Ethics was attached an Exhibit 14 in the Form 10-K/A-2 that was filed for the fiscal year that ended March 31, 2009. The
Code of Ethics is also available for review on our website at www.attitudedrinks.com. Furthermore, a copy of
the code is available to any person free of charge upon request by writing to our company at 11231 U.S. Highway 1, #201, North
Palm Beach, Florida 33408.
Committees
Although we have a majority of independent
directors, we do not have a separately designated audit committee, nominating committee, compensation committee or a person designated
as an audit committee member financial expert. We do not have a separately designated audit committee or an audit committee
member financial expert because the cost of identifying, interviewing, appointing, educating, and compensating such persons would
outweigh the benefits to our stockholders at the present time. If we are successful in our efforts to secure additional
capital, the resources may be available to appoint additional directors, have a separately designated audit committee, nominating
committee, compensation committee and a person designated as an audit committee member financial expert. All directors participate
in nominations of directors, and there is no formal nomination charter or policy in regard to recommendation of directors by shareholders
due to the Company’s size and operations.
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation
earned during the last two fiscal years by our executive officers as well as any unpaid compensation for the applicable years with
the company. Please note that the company did not have sufficient capital to make regular compensation payments to these
officers, and unpaid amounts have been accrued and reflected as expense:
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| |
Stock | |
Option | |
Plan Comp. | |
Comp. | |
All Other | |
|
| Name | |
Position | |
Year | |
Consulting $ | |
Bonus $ | |
Awards $ | |
Awards $ | |
$ | |
Earnings $ | |
Comp. $ | |
Total $ |
| Roy Warren (f) | |
| CEO | | |
| 2015 (a) | | |
$ | 220,373 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 5,981 | | |
$ | 226,354 | |
| Roy Warren (f) | |
| CEO | | |
| 2014 (b) | | |
$ | 220,373 | | |
$ | — | | |
$ | — | | |
$ | 1,350 | | |
$ | — | | |
$ | — | | |
$ | 13,459 | | |
$ | 235,182 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Tommy Kee (f) | |
| CFO | | |
| 2015 (c) | | |
$ | 173,644 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,685 | | |
$ | 175,329 | |
| Tommy Kee (f) | |
| CFO | | |
| 2014 (d) | | |
$ | 173,644 | | |
$ | — | | |
$ | — | | |
$ | 4,877 | | |
$ | — | | |
$ | — | | |
$ | 6,760 | | |
$ | 185,281 | |
(a) For the year ended March 31, 2015, Roy Warren, CEO, earned a salary of $208,373 plus annual director’s
fees of $12,000 for a total of $220,373. His base salary is accrued at the same $208,373 amount, although there is no assurance
the Company will have sufficient capital to pay this amount. Of the total $220,373 amount, a total amount of $95,252 has not been
paid.
(b) For the year ended March 31, 2014,
Roy Warren, CEO, earned an income of $208,373 plus annual director’s fees of $12,000 for a total of $220,373. His base salary
is accrued at the same $208,373 amount, although there is no assurance the Company will have sufficient capital to pay this amount.
Of the total $220,373 amount, a total amount of $71,079 has not been paid.
(c) For the year ended March 31, 2015,
Tommy Kee, CFO, earned an annual base salary of $173,644 which is the same amount that is used for his accrual. There is no assurance
the Company will have sufficient capital to pay this amount. Of the total earned amount of $173,644, a total amount of $130,519
has not been paid.
(d) For the year ended March 31, 2014,
Tommy Kee, CFO, earned an annual base salary of $173,644 which is the same amount that is used for his accrual. There is no assurance
the Company will have sufficient capital to pay this amount. Of the total earned amount of $173,644, a total of $125,289 has not
been paid.
(e) This amount represents the aggregate
grant date fair value that was computed in accordance with FASB Topic 718 for the grant of non-qualified stock options to Roy Warren,
CEO and Tommy Kee, CFO. These options were granted in September, 2013 and have an exercise price of $.004 and vest immediately
with an expiration life of five (5) years. The stock options were valued at $.0027 per stock option for Roy Warren (500,000 stock
options at $.0027 = $1,350) and the same value of $.0027 per stock option for Tommy Kee (1,806,426 stock options at $.0027 = $4,877).
(f) Neither executive has an employment
or a consulting agreement. The Company intends to pay accrued but unpaid amounts either by conversions of certain past due amounts
into the Company’s common stock and/or cash once the Company’s fundings and financial position will allow such payments.
Since we were not able to consistently make salary payments to these two named executives, we had to treat some of these payments
as consulting fees.
(g) All other compensation figures represent
company paid medical insurance for the above named executives.
Outstanding Equity Awards at March 31,
2015:
| |
|
Option Awards |
|
|
Stock Awards |
|
| |
|
|
|
|
|
|
|
|
Equity |
| |
|
|
|
|
|
|
|
Equity |
Incentive |
| |
|
|
|
|
|
|
|
Incentive |
Plan Awards: |
| |
|
|
Equity |
|
|
|
|
Plan Awards: |
Market or |
| |
|
|
Incentive Plan |
|
|
|
Market |
Number |
Payout Value |
| |
|
|
Plan Awards: |
|
|
Number of |
Value of |
of Unearned |
of Unearned |
| |
Number of |
Number of |
Number of |
|
|
Shares or |
Shares of |
Shares, Units |
Shares |
| |
Securities |
Securities |
Securities |
|
|
Units of |
Units of |
or Other |
Units or |
| |
Underlying |
Underlying |
Underlying |
|
|
Stock That |
Stock That |
Rights That |
Other Rights |
| |
Unexercised |
Unexercised |
Unexercised |
Option |
Option |
Have Not |
Have Not |
Have Not |
That Have |
| |
Options # |
Options # |
Unearned |
Exercise |
Expiration |
Vested |
Vested |
Vested |
Not Vested |
| Name |
Exercisable |
Unexercisable |
Options # |
Price $ |
Date |
# |
$ |
# |
$ |
| Roy Warren, CEO (a) (c) |
500,000 |
500,000 |
— |
(d) |
(d) |
— |
$ — |
— |
$ — |
| Tommy Kee, CFO (b) |
1,817,739 |
1,817,739 |
— |
(e) |
(e) |
— |
$ — |
— |
$ — |
| |
|
|
|
|
|
|
|
|
|
| Total |
2,317,739 |
2,317,739 |
— |
|
|
— |
$ — |
— |
|
(a) All 500,000 stock options were granted during September, 2013.
(b) Stock options were granted as follows:
11,313 stock options during December, 2011 and 1,806,426 stock options during September, 2013.
(c) Roy Warren was issued 51 shares of
Series A-1 Preferred Stock during the year ended March 31, 2013.
(d) During September 2013. Roy Warren
was granted 500,000 non-qualified stock options at an exercise price of $.004 with an expiration date of September 16, 2018.
(e) On March 2009, Tommy Kee was granted
11,313 non-qualified stock options at an exercise price of $10.00 with an expiration date of December 31, 2016 and 1,806,426 non-qualified
stock options at an exercise price of $.004 with an expiration date of September 16, 2018.
Director Compensation Table
| |
|
(a) |
|
|
|
|
|
|
| |
|
Fees |
|
|
Non-equity |
Nonqualified |
|
|
| |
|
Earned or |
|
|
Incentive |
Deferred |
|
|
| |
|
Paid In |
Stock |
Option |
Plan Comp. |
Comp. |
All Other |
|
| Name |
Year |
Cash $ |
Awards $ |
Awards $ |
$ |
Earnings $ |
Comp. $ |
Total $ |
| H. John Buckman (b ) |
2015 |
$ 12,000 |
$ — |
$ — |
$ — |
$ — |
$ — |
$ 12,000 |
| |
2014 |
$ 12,000 |
$ 1,350 |
$ — |
$ — |
$ — |
$ — |
$ 13,350 |
| Mike Edwards ( c ) |
2015 |
$ 12,000 |
$ — |
$ — |
$ — |
$ — |
$ — |
$ 12,000 |
| |
2014 |
$ 12,000 |
$ 1,350 |
$ — |
$ — |
$ — |
$ — |
$ 13,350 |
Roy G. Warren, CEO, is the Chairman of
the Board of Directors. His director compensation is reported in the Summary Compensation Table.
(a) Each above director is compensated
$1,000 per month for their role as directors; however, no cash payments have been made for the year ended March 31, 2015. Roy G.
Warren is the only non-independent director. The Company intends to pay these past due amounts either by issuing shares of the
Company’s common stock and/or cash once the Company’s financial position will allow such payments. Total past due director
fees are $78,000 for H. John Buckman and $74,792 for Mike Edwards.
(b) In addition to H. John Buckman being
a Director, he also is an investor and debt holder of the Company whereas the Company issued him a note payable at face value of
$55,000. He also received 22 shares of restricted stock that related to his note payable, 2 shares were issued to him in 2009 for
his Director services, and he received 300 shares of restricted stock in November 2009 for his efforts in a financing during that
month (total of 324 restricted shares). In September, 2013, he received 500,000 non-qualified stock options at an exercise price
of $.004 with immediate vesting. The stock options have a life of five (5) years. We recorded the value of these stock options
at $1,350 (500,000 options x $.0027 = $1,350).
(c) In September, 2013, Mike Edwards
received 500,000 non-qualified stock options at an exercise price of $.004 with immediate vesting. The stock options have a life
of five (5) years. We recorded the value of these stock options at $1,350 (500,000 options x $.0027 = $1,350).
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial
ownership of our company’s common stock as of September 25, 2015 as to:
· each
person known to beneficially own more than 5% of our issued and outstanding common stock
· each
of our directors
· each
executive officer
· all
directors and officers as a group
Except as otherwise noted, the named beneficial
owners have direct ownership of the stock and have sole voting and investment power with respect to the shares shown:
Beneficial Owners
| |
Name and Address of |
Amount and Nature |
Percent of |
| Title of Class |
Beneficial Owner (1) |
of Beneficial Ownership (1) |
Class (2) |
| Common |
Alpha Capital Anstaldt (3) |
1,309,117,178 |
9.99% |
| |
Pradafant 7 |
|
|
| |
9490 Furstentums |
|
|
| |
Vaduz, Lichetenstein |
|
|
| |
|
|
|
| Common |
Southridge Partners II LP (3) |
596,930,978 |
9.99% |
| |
90 Grove Street, Suite 206 |
|
|
| |
Ridgefield, Connecticut 06877 |
|
|
| |
|
|
|
| Common |
Roy G. Warren (4) |
2,480,116,908 |
51.55% |
| |
712 U.S. Highway 1, Suite 200 |
|
|
| |
North Palm Beach, Florida 33408 |
|
|
(1) Beneficial
Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
(2) Percentage
calculated from base of 2,330,565,835 shares of common stock outstanding at September 25, 2015 plus for each person shares subject
to convertible debt, convertible accrued interest, or preferred stock currently exercisable or convertible within 60 days of September
25, 2015 that are deemed outstanding for computing the percentage of the person holding such convertible instrument but are not
deemed outstanding for computing the percentage of any other person.
(3) This owner is
contractually limited to a beneficial ownership of our equity not to exceed 9.99%. Equity listed consists of common stock, convertible
notes, convertible accrued interest and convertible preferred stock. Alpha’s total relates to Series C Convertible Preferred
Stock, and Southridge’s total relates mainly to Series C Convertible Preferred Stock and some convertible notes payable.
(4) Equity
listed consists of common stock, preferred stock and stock options to purchase common stock. Due to the Company’s stockholders’
deficit, conversion of the Series A and A-1 convertible preferred stock cannot be converted at this time. Mr. Warren also owns
269 shares of Series C Convertible Preferred Stock which cannot be converted 60 days from September 25, 2015 as he must hold the
preferred stock for six months of holding per Rule 144 before doing any conversions due to salary treatment. His total includes
voting rights for 2,425,586,666, Series A Convertible Preferred Stock for 54,000,000, common stock for 30,242 and stock options
for 500,000.
Management Owners
| |
Name and Address of |
Amount and Nature |
Percent of |
| Title of Class |
Beneficial Owner (1) |
of Beneficial Ownership (1) |
Class (1) |
| Common |
Roy G. Warren (2) |
2,480,116,908 |
51.55% |
| |
712 U.S. Highway 1, Suite 200 |
|
|
| |
North Palm Beach, Florida 33408 |
|
|
| |
|
|
|
| Common |
Tommy Kee (3) |
1,817,741 (3) |
Less than 1% |
| |
712 U.S. Highway 1, Suite 200 |
|
|
| |
North Palm Beach, Florida 33408 |
|
|
| |
|
|
|
| Common |
H. John Buckman (4) |
500,324 (4) |
Less than 1% |
| |
712 U.S. Highway 1, Suite 200 |
|
|
| |
North Palm Beach, Florida 33408 |
|
|
| |
|
|
|
| Common |
Mike Edwards (5) |
500,002 (5) |
Less than 1% |
| |
712 U.S. Highway 1, Suite 200 |
|
|
| |
North Palm Beach, Florida 33408 |
|
|
| |
|
|
|
| Common |
Executive officers and directors as a group |
2,482,934,975 |
51.58% |
| |
|
|
|
(1) Beneficial
Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject to options currently exercisable or exercisable within
60 days of September 25, 2015 are deemed outstanding for computing the percentage of the person holding such option or warrant
but are not deemed outstanding for computing the percentage of any other person.
(2) The
total amount includes 30,242 shares of common stock, 500,000 non-qualified stock options and 54,000,000 shares of common stock
from the potential conversion of 9,000,000 Series A Preferred Stock and 51 shares of Series A-1 Preferred Stock having voting
rights for 2,425,586,666.
(3) Represents
1,817,739 non-qualified stock options and 2 shares of common stock. Mr. Kee also owns 371 shares of Series C Convertible Preferred
Stock which cannot be converted 60 days from September 25, 2015 as he must hold the preferred stock for six months of holding before
doing any conversions.
(4) Includes
324 shares of common stock and 500,000 non-qualified stock options.
(5) Represents
2 shares of common stock and 500,000 non-qualified stock options.
Changes in Control
None
ITEM
13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The Company issued aggregate notes of $100,000
($50,000 in October 2007 and $50,000 in February 2008) to Roy Warren, the Company’s CEO, an accredited investor with whom
the Company entered into subscription agreements for 10% convertible notes. Roy Warren assigned the $100,000 notes to another party.
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 for services rendered. We recorded a non-cash expense for $1,620,000
which is 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 vote with the common stock at a rate of 6 votes per share (54,000,000
total votes). 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).
H. John Buckman is a board director of
the company and is a debt holder of the company of a note payable at the face value of $55,000. He also received 21
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 324 shares of restricted stock). He also received
500,000 non-qualified stock options at an exercise price of $.004 with full vestment as the life of the stock options is five (5)
years.
Director Independence
H. John Buckman and Mike Edwards are independent
directors as defined by Rule 10A-3 of the Exchange Act under NASDAQ rules. Roy G. Warren is not independent as he is an officer
of the Company.
Attitude Beer Holding Co.
On April 21, 2015, ABH was sold to HVWC.
As part of the sale, we received 87,990,000 shares of HVWC resulting in us being the majority owner of the common shares of HVWC.
See Part 1, Item 1 under the section of “Recent Developments and Change in Business Model” for more information.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES
AND SERVICES
Audit Fees
The aggregate fees billed for the year
ended March 31, 2015 for professional services rendered by the principal accountant for the review of financial statements included
in our Form 10-Q’s were approximately $20,000. We have accrued expected audit
fees for the year ended March 31, 2015 in the amount of $45,000. Total audit fees for the previous year ended March
31, 2014 were approximately $36,000.
Audit Related Fees
None.
Tax Fees
None
All Other Fees
None
Audit Committee Pre-Approval Policies
The Company does not have an audit committee
and therefore the board considers and has approval authority over all engagements of the independent auditors. All of the engagements
resulting in the fees disclosed above for fiscal 2014-2015 were approved by the Chairman of the Board prior to the engagement.
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Form
10-K:
1. Financial Statements
The following financial statements are included in Part II,
Item 8 of this Form 10-K:
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders’ Deficit
Consolidated Statement of Cash flows
2. Exhibits
The exhibits listed in the Exhibit Index are incorporated herein
by reference and are filed as part of this Form 10-K,
| Exhibit |
|
Incorporated |
Filed |
| No. |
Documents Description |
By Reference |
Herewith |
| (2)(1) |
Agreement and Plan of Merger dated September 14,2007 |
(1) |
|
| (3)(1)(i) |
Restated Certificate of Incorporation |
(1) |
|
| (3)(1)(ii) |
Certificate of Amendment to Certificate of Incorporation |
(5) |
|
| (3)(1)(iii) |
Certificate of Amendment to Certificate of Incorporation |
(6) |
|
| (3)(1)(iv) |
Certificate of Amendment to the Certificate of Incorporation |
(11) |
|
| (3)(1)(iv-2) |
Certificate of Amendment to the Certificate of Incorporation |
(13) |
|
| (3)(1)(v) |
Certificate of Amendment to the Certificate of Incorporation |
(16) |
|
| (3)(2) |
Amended and Restated Bylaws |
(1) |
|
| (4)(1) |
Certificate of Designation of the Series A Convertible Preferred |
(1) |
|
| (4)(1)(i) |
Certificate of Designation of the Relative Rights and |
|
|
| |
and Preferences of the Series A Convertible Preferred |
(12) |
|
| (4)(2) |
Form of Common Stock Certificate |
(1) |
|
| (4)(6) |
Certificate of Amendment to the certificate of Designation of the Series A |
|
|
| |
Convertible Preferred Stock |
(3) |
|
| (10)(1) |
Sublicense Agreement, Termination Agreement, Promissory Note with |
|
|
| |
Nutraceutical Discoveries, Inc. - August, 2008 and February, 2010 |
(7) |
|
| (10)(2) |
Manufacturing Agreement dated December 16, 2008 with O-AT-KA |
|
|
| |
Milk Products Cooperative, Inc. |
(2) |
|
| (10)(3) |
Intentionally left blank |
|
|
| (10)(4) |
Form of Note with previous Landlord dated January 26, 2011 |
(8) |
|
| (10)(5) |
Form of Promissory Note dated October 7, 2011 (Alpha) |
(9) |
|
| (10)(6) |
Form of Promissory Note dated October 7, 2011 (Centaurian) |
(9) |
|
| (10)(7) |
Form of Promissory Note with conversion rights November 3, 2011 |
(9) |
|
| (10)(8) |
Form of Promissory Note dated December 1, 2011 (Centaurian) |
(10) |
|
| (10)(9) |
Form of Promissory Note dated December 1, 2011 (Alpha) |
(10) |
|
| (10)(10) |
Form of Note dated December 28, 2011 (Alpha) |
(10) |
|
| (10)(10) ii |
Certificate of Amendment to the Certificate of Incorporation May 1, 2012 |
(11) |
|
| (10)(11) |
Amendment to the Certificate of Designation of the Relative Rights and |
|
|
| |
Preferences of the Series A Convertible Preferred Stock January 9, 2013 |
(15) |
|
| (10)(12) |
Submission of Matters to a Vote of Security Holders to Approve Increase in |
|
|
| |
Authorized Shares for Common Stock to Twenty Billion Shares and to |
|
|
| |
Decrease Par Value of Common Stock and Preferred Stock from $.001 |
|
|
| |
to $.00001 plus Ratification of the 2013 Equity Incentive Plan-January 29, 2013 |
(14) |
|
| (10)(13) |
Certificate of Amendment of Certificate of Incorporation January 30, 2013 |
(15) |
|
| (10)(14) |
Form of New Office Lease Agreement, Commencing February 1, 2013 |
(14) |
|
| (10)(15) |
Allonge No. 8 dated April 11, 2013 to Secured Note Issued February 22, 2013 |
(18) |
|
| (10)(16) |
Form of Exchange Agreement (Surrendered Notes) February 21, 2013 |
(18) |
|
| (10)(17) |
Form of Exchange Agreement (Surrendered Warrants) February 21, 2013 |
(18) |
|
| (10)(18) |
Form of Consolidated Note at February 21, 2013 |
(18) |
|
| (10)(19) |
Convertible Note for Services Provided at February 21, 2013 |
(18) |
|
| (10)(20) |
Promissory Note March 1, 2013 |
(18) |
|
| (10)(21) |
Promissory Note April 1, 2013 |
(18) |
|
| (10)(22) |
Submission of Matters to a Vote of Security Holders on April 30, 2013 that |
|
|
| |
Approved the Amendment of the Company’s Certificate of Incorporation to |
|
|
| |
Effect a Reverse Stock Split of a ratio of One-For-500 Subject to Regulatory |
|
|
| |
Approval (to be effective July 1, 2013) |
(17) |
|
| (10)(23) |
Promissory Note May 1, 2013 |
(18) |
|
| (10)(24) |
Promissory Note June 1, 2013 |
(18) |
|
| (10)(25) |
Allonge No. 9 dated June 5, 2013 to Secured Note Issued February 22, 2013 |
(18) |
|
| (10)(26) |
Assignment and Escrow Agreement June 5, 2013 |
(18) |
|
| (10)(27) |
Promissory Note June 7, 2013 |
(18) |
|
| (10)(28) |
Allonge No. 10 dated June 21, 2013 to Secured Note Issued February 22, 2013 |
(18) |
|
| (10)(29) |
Promissory Note July 1, 2013 |
(18) |
|
| (10)(30) |
Debt amendments for extension of maturity dates to December 31, 2014 |
(18) |
|
| (10)(31) |
Allonge No. 11 dated July 23, 2013 to Secured Note Issued February 22, 2013 |
(19) |
|
| (10)(32) |
Promissory Note August 1, 2013 |
(19) |
|
| (10)(33) |
Allonge No. 12 dated August 8, 2013 to Secured Note Issued February 22, 2013 |
(19) |
|
| (10)(34) |
Promissory Note September 1, 2013 |
(20) |
|
| (10)(35) |
Form of Approval of Grant of Stock Options at September 13, 2013 |
(20) |
|
| (10)(36) |
Allonge No. 13 dated September 18, 2013 to Secured Note Issued February 22, 2013 |
(20) |
|
| (10)(37) |
Promissory Note October 1, 2013 |
(20) |
|
| (10)(38) |
Allonge No. 14 dated October 28, 2013 to Secured Note Issued February 22, 2013 |
(20) |
|
| (10)(39) |
Promissory Note November 1, 2013 |
(20) |
|
| (10)(40) |
Allonge No. 15 dated November 15, 2013 to Secured Note Issued February 22, 2013 |
(20) |
|
| (10)(41) |
Promissory Note December 1, 2013 |
(20) |
|
| (10)(42) |
Form of Promissory Notes between December 23 and 24, 2013 |
(20) |
|
| (10)(43) |
Promissory Note January 1, 2014 |
(20) |
|
| (10)(44) |
Promissory Note February 1, 2014 |
(20) |
|
| (10)(45) |
Allonge No. 16 dated February 11, 2014 to Secured Note Issued February 22, 2013 |
(20) |
|
| (10)(46) |
Promissory Note March 1, 2014 |
(20) |
|
| (10)(47) |
Form of Promissory Note March 24, 2014 |
(21) |
|
| (10)(48) |
Promissory Note April 1, 2014 |
(23) |
|
| (10)(49) |
Promissory Note April 30, 2014 |
(23) |
|
| (10)(50) |
Promissory Note May 1, 2014 |
(23) |
|
| (10)(51) |
Allonge No. 17 dated May 2, 2014 to Secured Note Issued February 22, 2013 |
(23) |
|
| (10)(52) |
Convertible Note dated May 13, 2014 issued to LG Capital Funding LLC |
(23) |
|
| (10)(53) |
Promissory Note June 1, 2014 |
(23) |
|
| (10)(54) |
Form of Promissory Note dated June 11, 2014 - four investors |
(23) |
|
| (10)(55) |
Promissory Note July 1, 2014 |
(23) |
|
| (10)(56) |
Allonge No. 18 dated July 11, 2014 to Secured Note Issued February 22, 2013 |
(23) |
|
| (10)(57) |
Promissory Note July 31, 2014 |
(23) |
|
| (10)(58) |
Promissory Note August 1, 2014 |
(23) |
|
| (10)(59) |
Promissory Note August 21, 2014 |
(23) |
|
| (10)(60) |
Promissory Note August 29, 2014 |
(23) |
|
| (10)(61) |
Promissory Note September 1, 2014 |
(23) |
|
| (10)(62) |
Promissory Note September 17. 2014 |
(23) |
|
| (10)(63) |
Form of Promissory Note September 30. 2014 - two investors |
(23) |
|
| (10)(64) |
Promissory Note October 1, 2014 |
(23) |
|
| (10)(65) |
Promissory Note November 1, 2014 |
(23) |
|
| (10)(66) |
Promissory Note November 19, 2014 |
(23) |
|
| (10)(67) |
Promissory Note December 1, 2014 |
(23) |
|
| (10)(68) |
Certificate of Incorporation Attitude Beer Holding Co. December 1, 2014 |
(28) |
|
| (10)(69) |
Class A Common Stock Purchase Warrant-Attitude Drinks Incorporated |
(22) |
|
| (10)(70) |
Form of Convertible Note |
(22) |
|
| (10)(71) |
Non-Circumvention-No-Shop Agreement |
(22) |
|
| (10)(72) |
Confidentiality, Non-solicitation and Noncompetition Agreement |
(22) |
|
| (10)(73) |
West Hartford WOB, LLC Amended & Restated Operating Agreement |
(22) |
|
| (10)(74) |
Joint Venture Agreement |
(22) |
|
| (10)(75) |
Form of Secured Convertible Note-Attitude Beer Holding Co. |
(22) |
|
| (10)(76) |
ABH Notes and Warrants Face Pages December 24, 2014 |
(28) |
|
| (10)(77) |
Escrow Agreement |
(22) |
|
| (10)(78) |
Form of Class A Common Stock Purchase Warrant-Attitude Beer Holding Co. |
(22) |
|
| (10)(79) |
Guaranty |
(22) |
|
| (10)(80) |
Form of Security Agreement |
(22) |
|
| (10)(81) |
Securities Purchase Agreement |
(22) |
|
| (10)(82) |
Promissory Note dated December 19, 2014 |
(23) |
|
| (10)(83) |
Convertible Note dated December 19, 2014 |
(23) |
|
| (10)(84) |
Lease Agreement West Hartford, Connecticut |
(28) |
|
| (10)(85) |
Promissory Note January 1, 2015 |
(23) |
|
| (10)(86) |
Form of Convertible Note January 14, 2015 |
(23) |
|
| (10)(87) |
Form of Convertible Note and Class A Purchase Warrant dated January 23, 2015 |
(23) |
|
| (10)(88) |
ABH Notes and Warrants Face Pages January 23, 2015 |
(28) |
|
| (10)(89) |
Promissory Note dated February 1, 2015 |
(23) |
|
| (10)(90) |
ABH Notes and Warrants Face Pages February 24, 2015 |
(28) |
|
| (10)(91) |
Promissory Note dated March 1, 2015 |
(25) |
|
| (10)(92) |
Promissory Note dated March 5, 2015 |
(25) |
|
| (10)(93) |
Promissory Note dated March 13,2015 |
(25) |
|
| (10)(94) |
Promissory Note dated March 19, 2015 |
(25) |
|
| (10)(95) |
ABH Notes and Warrants Face Pages March 24, 2015 |
(28) |
|
| (10)(96) |
Promissory Note dated March 26, 2015 |
(25) |
|
| (10)(97) |
Promissory Note dated April 1, 2015 |
(25) |
|
| (10)(98) |
Promissory Note dated April 3, 2015 |
(25) |
|
| (10)(99) |
Promissory Note dated April 17, 2015 |
(25) |
|
| (10)(100) |
Certificate of Designations of Series B Convertible Preferred Stock of Harrison |
(24) |
|
| |
Vickers and Waterman Inc. as Exhibit 4.1 to the Company’s Form 8-K filed on |
|
|
| |
April 27, 2015 |
|
|
| (10)(101) |
Warrant issued to Attitude Drinks Incorporated as Exhibit 4.2 to the |
(24) |
|
| |
Company’s Form 8-K filed on April 27,2015 |
|
|
| (10)(102) |
Secured Convertible Note due 2017 issued to Alpha Capital Anstalt as Exhibit 4.3 |
(24) |
|
| |
to the Company’s Form 8-K filed on April 27,2015 |
|
|
| (10)(103) |
Secured Convertible Note due 2017 issued to Tarpon Bay Partners LLC as Exhibit 4.4 |
(24) |
|
| |
to the Company’s Form 8-K filed on April 27, 2015 |
|
|
| (10)(104) |
Additional Investment Right issued to Alpha Capital Anstalt as Exhibit 4.5 |
(24) |
|
| |
to the Company’s Form 8-K filed on April 27,2015 |
|
|
| (10)(105) |
Additional Investment Right issued to Tarpon Bay Partners LLC as Exhibit 4.6 |
(24) |
|
| |
to the Company’s Form 8-K filed on April 27,2015 |
|
|
| (10)(106) |
Asset Purchase Agreement dated as of April 21, 2015 by and between Harrison |
(24) |
|
| |
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. |
|
|
| (10)(107) |
Pledge Agreement dated as of April 21, 2015 by and between Attitude Drinks Incorporated |
(24) |
|
| |
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. |
|
|
| (10)(108) |
Security Agreement dated as of April 21, 2015 among Harrison Vickers and Waterman |
(24) |
|
| |
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 |
|
|
| (10)(109) |
Guaranty dated as of April 21, 2015 entered into by Attitude Beer Holding Co. for the |
(24) |
|
| |
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 |
|
|
| (10)(110) |
Guaranty dated as of April 21, 2015 entered into by Attitude Drinks Incorporated for the |
(24) |
|
| |
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 |
|
|
| (10)(111) |
Exchange Agreement dated as of April 21, 2015 by and among Attitude Beer Holding |
(24) |
|
| |
Co., Attitude Drinks Incorporated, Alpha Capital Anstalt and Tarpon Bay Partners |
|
|
| |
as exhibit 10.6 to the Company’s Form 8-K filed on April 27, 2015 |
|
|
| (10)(112) |
Purchase Agreement dated as of April 21, 2015 between HVW Holdings LLC and |
(24) |
|
| |
Attitude Drinks Incorporated as exhibit 10.7 to the Company’s Form 8-K on April |
|
|
| |
27, 2015 |
|
|
| (10)(113) |
A Warrant issued to Alpha Capital Anstalt as exhibit 99.1 to the Company’s Form |
(24) |
|
| |
8-K on April 27, 2015 |
|
|
| (10)(114) |
Series A Warrant issued to Tarpon Bay Partners LLC as exhibit 99.2 to the Company’s |
(24) |
|
| |
Form 8-K on April 27, 2015 |
|
|
| (10)(115) |
Purchase Agreement dated as of April 21, 2015 between HVW Holdings LLC and |
(24) |
|
| |
Alpha Capital Anstalt as exhibit 99.3 to the Company’s Form 8-K on April 27, 2015 |
|
|
| (10)(116) |
Promissory Note dated April 24, 2015 |
(25) |
|
| (10)(117) |
Promissory Note dated May 1, 2015 |
(25) |
|
| (10)(118) |
Promissory Note dated May 1, 2015 |
(25) |
|
| (10)(119) |
Promissory Note dated May 1, 2015 |
(25) |
|
| (10)(120) |
Promissory Note dated May 15, 2015 |
(25) |
|
| (10)(121) |
Promissory Note dated June 1, 2015 |
(26) |
|
| (10)(122) |
Promissory Note dated May 22, 2015 |
|
X |
| (10)(123) |
Promissory Note dated May 29, 2015 |
|
X |
| (10)(124) |
Operating Agreement with Milford Craft, LLC May 29, 2015 |
|
X |
| (10)(125) |
Promissory Note dated July 1, 2015 |
|
X |
| (10)(126) |
Convertible Note for Harrison, Vickers and Waterman dated July 29, 2015 |
|
X |
| (10)(127) |
Class A Common Stock Purchase Warrant for Harrison Vickers and Waterman 7/29/15 |
|
X |
| (10)(128) |
2015 Stock Incentive Plan August 12, 2015 Attitude Drinks Incorporated |
(29) |
|
| (10)(129) |
Corrected Restated Certificate of Incorporation July 31, 2015 |
(30) |
|
| (10)(130) |
Certificate of Amendment to the Certificate of Designations, Powers, Preferences and |
(30) |
|
| |
Rights of Series A Convertible Preferred Stock August 7, 2015 |
|
|
| (10)(131) |
Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock August 7, 2015 |
(30) |
|
| (10)(132) |
Promissory Note dated August 1, 2015 |
|
X |
| (10)(133) |
Form of Promissory Notes Warrant August 18, 2015 |
(31) |
|
| (10)(134) |
Form of Promissory Notes Additional Investment Right August 18, 2015 |
(31) |
|
| (10)(135) |
Form of Accrued Salary Warrant August 18, 2015 |
(31) |
|
| (10)(136) |
Form of Accrued Salary Additional Investment Right August 18, 2015 |
(31) |
|
| (10)(137) |
Form of Promissory Notes Exchange Agreement August 18, 2015 |
(31) |
|
| (10)(138) |
Form of Accrued Salary Exchange Agreement August 18, 2015 |
(31) |
|
| (10)(139) |
Promissory Note dated September 1, 2015 |
|
X |
| (10)(140) |
Approval to file Amendment of Articles of Incorporation for Harrison, Vickers |
(32) |
|
| |
and Waterman Inc. to increase authorized shares of common stock from |
|
|
| |
2,000,000,000 to 7,500,000,000 |
|
|
| (10)(141) |
Approval to file Amendment of Articles of Incorporation for Harrison, Vickers |
(32) |
|
| |
and Waterman, Inc. to change the name to Attitude Beer, Inc. |
|
|
| (10)(142) |
Approval to adopt the 2015 Stock Incentive Plan of Harrison, Vickers and Waterman Inc. |
(32) |
|
| (14) |
Code of Ethics |
* |
|
| (21) |
Subsidiaries of Registrant |
|
X |
| (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 |
| (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 Definition Linkbase Document |
|
X |
| 101.LAB |
XBRL Taxonomy Extension Label Linkbase |
|
X |
| 101.PRE |
XBRL Taxonomy Extension Presentation Linkbase |
|
X |
| |
|
|
|
| * previously filed with the Commission on August 14, 2009 as an exhibit to Form 10K (SEC Accession Number 0001213900-09-002104) |
| |
|
|
|
| (1) previously filed with the Commission on April 11, 2008 as an exhibit to Form S-1/A (SEC Accession Number 0001144204-08-021783) |
| (2) previously filed with the Commission on March 5, 2009 as Exhibit 10.18 to Form 10-Q (SEC Accession Number 0001213900-09-0005) |
| (3) previously filed with the Commission on November 23, 2009 as Exhibit 4.6 to Form 10-Q (SEC Accession No. 0001213900-09-003372) |
| (4) previously filed with the Commission on May 25, 2010 as Exhibit 10.1 to Form S-8 (SEC Accession No. 0001213900-10-002206) |
|
| (5) previously filed with the Commission on July 14, 2010 as Exhibit 3(1)(ii) to Form 10-K (SEC Accession No. 0001213900-10-002857) |
| (6) previously filed with the Commission on July 7, 2010 as Exhibit 3.1 to Form 8-K (SEC Accession No. 0001213900-10-002769) |
|
| (7) previously filed with the Commission on April 21, 2011 as an exhibit to Form 10-K/A (SEC Accession No. 0001213900-11-002129) |
|
| (8) previously filed with the Commission on May 9, 2011 as an exhibit to Form 8-K/A (SEC Accession No. 0001213900-11-002409) |
|
| (9) previously filed with the Commission on November 21, 2011 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-11-006291) |
| (10) previously filed with the Commission on February 21, 2012 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-12-000838) |
| (11) previously filed with the Commission on July 13, 2012 as an exhibit to Form 10-K (SEC Accession No. 0001213900-12-003795) |
|
| (12 previously filed with the Commission on January 10, 2013 as an exhibit to Form 8-K (SEC Accession No. 0001213900-13-000118) |
|
| (13) previously filed with the Commission on January 28, 2013 as Appendix A to Definitive 14C (SEC Accession No. 0001213900-13-000370) |
| (14) previously filed with the Commission on January 30, 2013 as an item to Form 8-K (SEC Accession No. 0001213900-13-000407) |
|
| (15) previously filed with the Commission on February 19, 2013 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-13-000797) |
| (16) previously filed with the Commission on May 14, 2013 as Appendix A Definitive 14C (SEC Accession No. 0001213900-13-002476) |
| (17) previously filed with the Commission on July 1, 2013 as a Form 8-K (SEC Accession No. 0001213900-13-003367) |
|
| (18) previously filed with the Commission on July 15, 2013 as an exhibit to Form 10-K (SEC Accession No. 0001213900-13-0003610) |
|
| (19) previously filed with the Commission on August 19, 2013 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-13-004654) |
|
| (20) previously filed with the Commission on March 19, 2014 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-14-001532) |
| (21) previously filed with the Commission on April 15, 2014 as an exhibit to From 10-Q (SEC Accession No. 0001213900-14-002397) |
|
| (22) previously filed with the Commission on December 31, 2014 as a Form 8-K (SEC Accession No. 0001144204-14-076573) |
|
| (23) previously filed with the Commission on February 13,2015 as a Form 10-K (SEC Accession No. 0001144204-15-009097) |
|
| (24) previously filed with the Commission on April 27, 2015 as a Form 8-K (SEC Accession No. 0001144204-15-025275) |
|
| (25) previously filed with the Commission on May 18, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001144204-15-031872) |
|
| (26) previously filed with the Commission on June 12, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001144204-15-036831) |
|
| (27) intentionally left blank |
|
|
| (28) previously filed with the Commissi8on on July 1, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001615774-15-001667) |
|
| (29) previously filed with the Commission on June 25, 2015 to Form DEF 14C (SEC Accession No. 0001615774-15-001595) |
|
| (30) previously filed with the Commission on August 12, 2015 as an exhibit to Form 8-K (SEC Accession No. 0001615774-15-002174) |
|
| (31) previously filed with the Commission on August 18, 2015 as an exhibit to Form 8-K (SEC Accession No. 0001615774-15-002293) |
|
(32) previously filed with the Commission on August 18, 2015 under Harrison, Vickers and Waterman Inc. to Form DEF 14C
(SEC Accession No. 0001615774-15-002284) |
|
| |
|
|
3. Financial Statement Schedules
Financial statement schedules are omitted because they are not
required or are not applicable, or the required information is provided in the consolidated financial statements or notes described
in Item 15(a)(1) above.
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)
|
|
|
|
| |
ATTITUDE DRINKS INCORPORATED |
|
| |
|
|
|
| Date: September 28, 2015 |
By: |
/s/ Roy G. Warren |
|
| |
|
Roy G. Warren |
|
| |
|
President and Chief Executive Officer |
|
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated,
| Signature |
|
Title |
|
|
| |
|
|
|
|
| /s/ Roy G. Warren |
|
President and Chief Executive Officer |
|
|
| Roy G. Warren |
|
|
|
|
| Name |
|
|
|
|
| |
|
|
|
|
|
/s/ Tommy E. Kee |
|
Chief Financial Officer and Principal |
|
|
| Tommy E. Kee |
|
Accounting Officer |
|
|
| Name |
|
|
|
|
| /s/ H. John Buckman |
|
Director |
|
|
| H. John Buckman |
|
|
|
|
| Name |
|
|
|
|
| |
|
|
|
|
| /s/ Mike Edwards |
|
Director |
|
|
|
Mike Edwards |
|
|
|
|
| Name |
|
|
|
|
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Scrudato
& Co., PA
CERTIFIED PUBLIC ACCOUNTING FIRM
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Attitude Drinks Incorporated
We have audited the accompanying
consolidated balance sheet of Attitude Drinks Incorporated as of March 31, 2015 and 2014 and the related consolidated statements
of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the
responsibility of the Company management. Our responsibility is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Attitude Drinks
Incorporated at March 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements
have been prepared assuming that Attitude Drinks Incorporated will continue as a going concern. As more fully described in Note
2, the Company had an accumulated deficit at March 31, 2015, a net loss and net cash used in operating activities for the fiscal
year then ended. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management’s
plans in regards to these matters are also described in Note 2. The 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 may result from the outcome of this uncertainty.
/s/
Scrudato & Co., PA
Califon, New Jersey
September 23, 2015
7
Valley View Drive Califon, New Jersey 07830
Registered
Public Company Accounting Oversight Board Firm
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
| |
|
March 31, 2015 |
|
|
March 31, 2014 |
|
| |
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| CURRENT ASSETS: |
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
233,591 |
|
|
$ |
20,615 |
|
| Accounts receivable |
|
|
4,478 |
|
|
|
1,422 |
|
| Inventories less reserve for abandoned property of $2,339 and allowance for obsolescence of $90,000 at March 31, 2015 and allowance for obsolescence of $44,107 at March 31, 2014 |
|
|
112,797 |
|
|
|
30,090 |
|
| Prepaid expenses |
|
|
1,150 |
|
|
|
2,873 |
|
| TOTAL CURRENT ASSETS |
|
|
352,016 |
|
|
|
55,000 |
|
| |
|
|
|
|
|
|
|
|
| FIXED ASSETS, NET |
|
|
1,013,141 |
|
|
|
25,491 |
|
| |
|
|
|
|
|
|
|
|
| OTHER ASSETS: |
|
|
|
|
|
|
|
|
| Capitalized pre-opening costs - World of Beer |
|
|
204,059 |
|
|
|
— |
|
| Trademarks, net |
|
|
4,537 |
|
|
|
4,834 |
|
| Deposits and other assets |
|
|
8,145 |
|
|
|
896 |
|
| TOTAL OTHER ASSETS |
|
|
216,741 |
|
|
|
5,730 |
|
| |
|
|
|
|
|
|
|
|
| TOTAL ASSETS |
|
$ |
1,581,898 |
|
|
$ |
86,221 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
1,911,005 |
|
|
$ |
1,667,615 |
|
| Accrued liabilities |
|
|
6,757,764 |
|
|
|
5,733,308 |
|
| Derivative liabilities |
|
|
1,868,857 |
|
|
|
1,993,393 |
|
| Short-term bridge loans payable |
|
|
115,000 |
|
|
|
115,000 |
|
| Convertible notes payable |
|
|
7,195,794 |
|
|
|
5,891,182 |
|
| Less: Discount on convertible notes payable |
|
|
(196,499 |
) |
|
|
(3,511,738 |
) |
| Non-convertible notes payable |
|
|
625,016 |
|
|
|
411,517 |
|
| Loans payable -World of Beer Minority Owners |
|
|
50,767 |
|
|
|
— |
|
| Loans payable to related parties |
|
|
21,463 |
|
|
|
21,463 |
|
| TOTAL CURRENT LIABILITIES |
|
|
18,349,167 |
|
|
|
12,321,740 |
|
| |
|
|
|
|
|
|
|
|
| LONG TERM LIABILITIES: |
|
|
|
|
|
|
|
|
| Convertible notes payable |
|
|
178,500 |
|
|
|
100,000 |
|
| Minority interest |
|
|
(3,391 |
) |
|
|
— |
|
| TOTAL LONG TERM LIABILITES |
|
|
175,109 |
|
|
|
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 March 31, 2015 and March 31, 2014, respectively |
|
|
90 |
|
|
|
90 |
|
|
Common stock, par value $0.00001, 20,000,000,000 shares authorized and
1,161,193,362 and 181,714,134 shares issued and outstanding at March 31, 2015 and March 31, 2014, respectively |
|
|
11,612 |
|
|
|
1,817 |
|
| Additional paid-in capital |
|
|
19,830,637 |
|
|
|
19,416,418 |
|
| Deficit accumulated |
|
|
(36,784,717 |
) |
|
|
(31,753,844 |
) |
| TOTAL STOCKHOLDERS’ (DEFICIT) |
|
|
(16,942,378 |
) |
|
|
(12,335,519 |
) |
| |
|
|
|
|
|
|
|
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) |
|
$ |
1,581,898 |
|
|
$ |
86,221 |
|
See accompanying
notes to condensed consolidated financial statements
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF OPERATIONS
| |
|
Year |
|
|
Year |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| REVENUES: |
|
|
|
|
|
|
| Net revenues - World of Beer |
|
$ |
738,465 |
|
|
$ |
— |
|
| Net revenues - Phase III |
|
|
53,878 |
|
|
|
182,582 |
|
| Food and beverage costs - World of Beer |
|
|
(209,908 |
) |
|
|
— |
|
| Product and shipping costs |
|
|
(154,999 |
) |
|
|
(164,639 |
) |
| GROSS PROFIT |
|
|
427,436 |
|
|
|
17,943 |
|
| |
|
|
|
|
|
|
|
|
| OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
| Total salaries, taxes and employee benefits |
|
|
911,012 |
|
|
|
883,306 |
|
| Administrative consulting fees |
|
|
322,462 |
|
|
|
312,500 |
|
| Total general and administrative expenses |
|
|
351,583 |
|
|
|
280,935 |
|
| Administrative marketing and promotion expenses |
|
|
25,555 |
|
|
|
52,659 |
|
| Administrative professional and legal fees |
|
|
17,251 |
|
|
|
196,071 |
|
| Product development costs |
|
|
6,600 |
|
|
|
5,205 |
|
| Stock compensation expense |
|
|
84 |
|
|
|
26,997 |
|
| Depreciation and amortization |
|
|
37,154 |
|
|
|
7,687 |
|
| Total Operating Expenses |
|
|
1,671,701 |
|
|
|
1,765,360 |
|
| |
|
|
|
|
|
|
|
|
| LOSS FROM OPERATIONS |
|
|
(1,244,265 |
) |
|
|
(1,747,417 |
) |
| |
|
|
|
|
|
|
|
|
| OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
| Interest and other financing costs |
|
|
(3,759,383 |
) |
|
|
1,535,402 |
|
| Reserve for assets abandonment |
|
|
(5,629 |
) |
|
|
— |
|
| Total Other Income (Expense) |
|
|
(3,765,012 |
) |
|
|
1,535,402 |
|
| |
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
|
|
(5,009,277 |
) |
|
|
(212,015 |
) |
| Minority interest |
|
|
(21,596 |
) |
|
|
— |
|
| Provision for income taxes |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| NET INCOME (LOSS) |
|
$ |
(5,030,873 |
) |
|
$ |
(212,015 |
) |
| |
|
|
|
|
|
|
|
|
| Basic income (loss) per common share |
|
$ |
(0.01 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
| Diluted income (loss) per common share |
|
$ |
(0.01 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
|
|
625,605,503 |
|
|
|
102,827,957 |
|
| |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - diluted |
|
|
625,605,503 |
|
|
|
102,827,957 |
|
See accompanying
notes to consolidated financial statements
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED MARCH 31, 2015 AND 2014
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
| |
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid In |
|
|
Accumulated |
|
|
|
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
| Balance, March 31, 2013 |
|
|
9,000,051 |
|
|
$ |
90 |
|
|
|
18,414,546 |
|
|
$ |
184 |
|
|
$ |
18,686,258 |
|
|
$ |
(31,541,829 |
) |
|
$ |
(12,855,297 |
) |
|
Conversions of debt to common stock |
|
|
|
|
|
|
|
|
|
|
163,299,588 |
|
|
|
1,633 |
|
|
|
703,163 |
|
|
|
— |
|
|
|
704,796 |
|
| Issuance of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,997 |
|
|
|
— |
|
|
|
26,997 |
|
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212,015 |
) |
|
|
(212,015 |
) |
| Balance, March 31, 2014 |
|
|
9,000,051 |
|
|
$ |
90 |
|
|
|
181,714,134 |
|
|
$ |
1,817 |
|
|
$ |
19,416,418 |
|
|
$ |
(31,753,844 |
) |
|
$ |
(12,335,519 |
) |
|
Conversions of debt to common stock |
|
|
|
|
|
|
|
|
|
|
979,479,228 |
|
|
|
9,795 |
|
|
|
414,737 |
|
|
|
— |
|
|
|
424,532 |
|
| Issuance of warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(518 |
) |
|
|
— |
|
|
|
(518 |
) |
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,030,873 |
) |
|
|
(5,030,873 |
) |
| Balance, March 31, 2015 |
|
|
9,000,051 |
|
|
$ |
90 |
|
|
|
1,161,193,362 |
|
|
$ |
11,612 |
|
|
$ |
19,830,637 |
|
|
$ |
(36,784,717 |
) |
|
$ |
(16,942,378 |
) |
See accompanying
notes to consolidated financial statements
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASH FLOWS
| |
|
Year |
|
|
Year |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
| CASH FLOWS (USED) BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
| Net loss |
|
$ |
(5,030,873 |
) |
|
$ |
(212,015 |
) |
|
Adjustment to reconcile net loss to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
37,154 |
|
|
|
7,685 |
|
| Compensatory stock and warrants |
|
|
84 |
|
|
|
26,997 |
|
| Issuance of convertible notes for past due services |
|
|
320,000 |
|
|
|
262,000 |
|
| Bad debt expense |
|
|
— |
|
|
|
(16,007 |
) |
| Fair value adjustment of convertible note |
|
|
(185,817 |
) |
|
|
(3,359,968 |
) |
| Reserve for abandoned assets |
|
|
5,629 |
|
|
|
— |
|
| Amortization of debt discount |
|
|
3,512,756 |
|
|
|
990,842 |
|
| Minority interest |
|
|
21,596 |
|
|
|
— |
|
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
(3,056 |
) |
|
|
41,677 |
|
| Prepaid expenses and other assets |
|
|
(5,526 |
) |
|
|
27,237 |
|
| Inventories |
|
|
(85,046 |
) |
|
|
71,631 |
|
| Deferred revenue |
|
|
— |
|
|
|
— |
|
| Accounts payable and accrued liabilities |
|
|
2,489,463 |
|
|
|
1,426,981 |
|
| Net cash (used) in operating activities |
|
|
1,076,364 |
|
|
|
(732,940 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS (USED) BY INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Purchase of equipment and fixed assets |
|
|
(1,023,911 |
) |
|
|
(3,910 |
) |
| Dividends to World of Beer minority owners |
|
|
(24,500 |
) |
|
|
— |
|
| Capitalized pre-opening expenses - World of Beer |
|
|
(207,944 |
) |
|
|
— |
|
| Trademarks |
|
|
— |
|
|
|
(455 |
) |
| Net cash (used) in investing activities |
|
|
(1,256,355 |
) |
|
|
(4,365 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Loans payable - World of Beer minority owners |
|
|
50,767 |
|
|
|
— |
|
| Proceeds from convertible notes payable |
|
|
146,200 |
|
|
|
715,000 |
|
| Proceeds from short-term bridge loans payable |
|
|
— |
|
|
|
95,505 |
|
| Proceeds from promissory notes |
|
|
198,500 |
|
|
|
(60,000 |
) |
| Other costs of financing |
|
|
(2,500 |
) |
|
|
— |
|
| Net cash provided by financing activities |
|
|
392,967 |
|
|
|
750,505 |
|
| |
|
|
|
|
|
|
|
|
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
212,976 |
|
|
|
13,200 |
|
| |
|
|
|
|
|
|
|
|
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
20,615 |
|
|
|
7,415 |
|
| |
|
|
|
|
|
|
|
|
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
233,591 |
|
|
$ |
20,615 |
|
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASHFLOWS (CONTINUED)
| |
|
|
|
|
|
|
| |
|
Year |
|
|
Year |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
| SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
| Cash paid during the period for interest |
|
$ |
— |
|
|
$ |
— |
|
| Cash paid for taxes |
|
$ |
— |
|
|
$ |
— |
|
| Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
| Payment of financing fees with issuance of new notes payable |
|
$ |
— |
|
|
$ |
— |
|
| Payment of financing fees with common stock and warrants |
|
$ |
— |
|
|
$ |
— |
|
See accompanying
notes to consolidated financial statements
ATTITUDE DRINKS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and Nature
of Business:
Attitude Drinks Incorporated, a Delaware
corporation, and subsidiaries (“the Company”) are engaged in the development and sale of functional beverages, primarily
in the United States as well as during the year ended March 31, 2015 was engaged in the development and operations of World of
Beer franchise locations, mainly in the New England area.
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. In addition, ABH plans to
open new World of Beer franchise locations based on available financing capital.
April 2015 Material definitive Agreement
On April 21, 2015, “HVWC”
purchased ABH by entering into a Purchase Agreement (the “Purchase Agreement”), with the three original shareholders
of Attitude Beer Holding Co., a Delaware corporation (“ABH”), namely, the Company, Alpha Capital Anstalt, a company
organized under the laws of Liechtenstein (“Alpha”) and Tarpon Bay Partners LLC, a Florida limited liability company
(“Tarpon Bay”), pursuant to which the shareholders sold to HVWC all of the outstanding shares of stock of ABH, and
ABH thereupon became a wholly owned subsidiary of HVWC. In consideration for the purchase of the shares of common stock of ABH, HVWC
issued: (i) to Attitude Drinks, 51 shares of a newly created Series B Preferred Stock of HVWC (the “Series B Preferred Stock”)
and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of HVWC’s common stock, par value $.0001
per share (the “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 1,295,500,500, shares of HVWC’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 $554,792, a
seven year warrant (the “Tarpon Warrant”) to purchase 443,833,333 shares of HVWC’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 HVWC’s Series A Preferred Stock
(convertible into 32,300,000 shares of HVWC’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”). The Company purchased 87,990,000 shares of HVWC’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”). The Alpha Warrant and the Tarpon Warrant are collectively referred to herein as the “A Warrants”
and the B Warrant and the A Warrants are collectively referred to herein as the “Warrants.”
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 (“West Hartford WOB”), 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.
Note 2 - Going Concern and Management’s
Plans:
As reflected in the accompanying consolidated
financial statements, the Company has incurred accumulated operating losses of $36,784,717 and negative cash flows from operations
and has a significant working capital deficiency in the amount of $16,942,378 at March 31, 2015. The Company has been dependent
upon third party financing and will continue to depend on additional financing for at least the next twelve months. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern.
Note 2 - Going Concern and Management’s
Plans (continued):
During 2016, the Company plans to
file a registration statement to provide working capital as needed to increase operations and sales efficiencies through the
need to implement sales and marketing programs to increase awareness of the Company’s products as well as to pay for
slotting fees for certain retail channels of revenues. The Company plans to increase its sales, primarily by significantly
increasing its sales force and partnering with new distributors, as well as offering new products in the next twelve months.
The Company’s margins are expected to improve as a result of increased sales, expected economies of scale due to
anticipated lower product costs based on increased volumes per production run and lower transportation costs from the
expected shipment of full truck loads. However, the Company will work to reduce its dependency on third party financing
during the next twelve months. There is no assurance that further funding will be available at acceptable terms, if at all,
or that the Company will be able to achieve profitability. Ultimately, the Company’s ability to continue as a going
concern is dependent upon the achievement of profitable operations. The accompanying financial statements do not reflect any
adjustments that may result from the outcome of this uncertainty.
Note 3 - Significant Accounting Policies:
(a) Principles
of Consolidation:
The Company’s consolidated financial
statements include the accounts of Attitude Drinks Incorporated and its wholly-owned subsidiary, Attitude Drink Company, Inc.,
and majority owned subsidiary, Attitude Beer Holding Co. All material intercompany balances and transactions have been eliminated
as well as the recording of applicable minority interest transactions to eliminate minority ownerships implications including consolidation
adjustments.
(b) Use of Estimates:
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America 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
significant estimate included in the Company’s financial statements is the following: Fair value of the Company’s financial
instruments that are required to be carried at fair value. The Company uses all available information and appropriate techniques
to develop its estimates, including the use of outside consultants. However, actual results could differ from the Company’s
estimates.
(c) Business
Segment and Geographic Information:
The Company currently operates in one dominant
industry segment that it has defined as the sports-recovery drink industry. However, its next two products will enter into the
functional milk category. Presently, there is no international business, although the Company may pursue the sale of its products
in international markets during the next fiscal year. In addition, the Company’s subsidiary at the time opened its first
World of Beer franchise location in Connecticut in late January, 2015, and ABH plans to open additional locations in the New England
areas based on available financing capital.
(d) Cash and Cash Equivalents:
The Company considers all highly liquid
investments purchased with a remaining maturity of three months or less to be cash equivalents.
(e) Inventories:
Inventories, which consist of finished
goods and raw materials, are stated at the lower of cost on the first in, first-out method or market. Further, the Company’s
inventories are perishable. The Company estimates for each fiscal quarter any unsalable inventory reserves based upon a specific
identification basis. The components of inventories as of March 31, 2015 and March 31, 2014 are below:
| |
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2015 |
|
|
March 31, 2014 |
|
|
| |
|
|
|
|
|
|
|
|
|
| World of Beer |
|
$ |
88,235 |
|
|
$ |
— |
|
|
| Finished goods- Phase III |
|
|
116,901 |
|
|
|
74,197 |
|
|
| Less reserve for obsolescence |
|
|
(90,000 |
) |
|
|
(44,107 |
) |
|
| Less reserve for abandoned inventory |
|
|
(2,339 |
) |
|
|
— |
|
|
| |
|
|
|
|
|
|
|
|
|
| Total inventories |
|
$ |
112,797 |
|
|
$ |
30,090 |
|
|
Note 3 - Significant Accounting Policies
(continued):
(f) Fixed Assets:
Fixed assets are stated at cost. Depreciation
is computed using the straight-line method over a period of ten years for furniture and certain bar equipment, three years for
corporate computer equipment and purchased software plus five years for World of Beer computer and point of sale systems. Maintenance,
repairs and minor renewals are charged directly to expenses as incurred. Additions and betterments to property and equipment are
capitalized. 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. Leasehold improvements for the World of Beer location
are depreciated over the life of the lease or twenty years. See footnote 4 for more details.
(g) Capitalized Pre-Opening Expenses
– World of Beer
Certain pre-opening expenses such as capitalized
franchise fees, interest, legal costs, startup and organization costs are recorded as long term assets and are amortized over
fifteen years unless certain capitalized costs have a shorter life period to amortize. Any incurred costs that are at best uncertain
and fail to satisfy the suggested measurability test for accounting recognition as an asset are expensed.
| |
|
|
|
|
|
|
|
|
| |
|
|
2015 |
|
|
2014 |
|
| Propery Description |
|
|
Amount |
|
Amount |
|
| |
|
|
|
|
|
|
|
| Pre-opening labor costs |
|
$ |
66,734 |
|
$ |
— |
|
| Franchise fees |
|
|
45,000 |
|
|
— |
|
| Training fees |
|
|
28,857 |
|
|
— |
|
| Legal fees |
|
|
22,615 |
|
|
— |
|
| Start-up costs |
|
|
19,557 |
|
|
— |
|
| Other |
|
|
25,181 |
|
|
— |
|
| Accumulated amortization |
|
|
(3,885 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
| Total |
|
$ |
204,059 |
|
$ |
— |
|
Amortization expense amounted to $3,885
and $0 for the years ended March 31, 2015 and March 31, 2014, respectively.
(h) Trademarks:
| | Trademarks are being amortized on a straight-line basis over fifteen years. The following table summarizes the components
of the Company’s trademarks: |
| |
|
|
|
|
|
|
|
| |
|
March 31, 2015 |
|
March 31, 2014 |
|
| |
|
|
|
|
|
|
|
| Trademark costs |
|
$ |
32,151 |
|
$ |
32,151 |
|
| Less accumulated amortization |
|
|
(27,614 |
) |
|
(27,317 |
) |
| Total Trademarks - Net |
|
$ |
4,537 |
|
$ |
4,834 |
|
Amortization expense amounted to $297 and
$407 for the years ended March 31, 2015 and March 31, 2014, respectively.
(i) Impairment of Long-Lived Assets:
Our long-lived assets consist
principally of trademarks, furniture and equipment. We evaluate the carrying value and recoverability of our long-lived
assets when circumstances warrant such evaluation by applying the provisions of the FASB Accounting Standards
Codification which requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated
undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment
exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. See the note
above (g) for further explanation.
Note 3 - Significant Accounting Policies
(continued):
(j) 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 the notes payable and derivative financial instruments are more akin to debt
than equity.
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, redeemable preferred stock 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, 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.
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.
(j) Financial Instruments (continued):
Pursuant to the requirements of the Fair
Value 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 a convertible note issued in the twelve months ended March 31, 2015, which are Level
3 and are further described below in note 6.
The Company carries cash and cash equivalents,
inventory, and accounts payable and accrued expense at historical cost which approximates the fair value because of the short-term
nature of these instruments.
| Note 3 - | Significant Accounting Policies (continued): |
The Company recognizes revenue
in accordance with the FASB Accounting Standards Codification. Revenue is recognized when there is persuasive evidence of an arrangement,
delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured.
Revenues are recognized pursuant to formal revenue arrangements with the Company’s customers, at contracted prices, when
the Company’s product is delivered to their premises, and collectability is reasonably assured. The Company extends merchantability
warranties to its customers on its products but otherwise does not afford its customers with rights of return. Warranty costs have
been insignificant to date. In determining revenue recognition for products shipped to this customer, the Company follows the guidance
in ASC 605, “Revenue Recognition” (“ASC 605”).
The Company’s revenue arrangements
often provide for industry-standard slotting fees where the Company makes cash payments to the respective customer to obtain rights
to place the Company’s products on their retail shelves for a stipulated period of time. We did record slotting fees for
$ 0 and $875 for the years ended March 31, 2015 and 2014, respectively, which are recorded as reductions to the reported revenues.
The Company also engages in other promotional discount and complimentary programs in order to enhance its sales activities. The
Company believes its participation in these arrangements is essential to ensuring continued volume and revenue growth in the competitive
marketplace. These payments, discounts, allowances and complimentary products are recorded as reductions to the Company’s
reported revenue and were $17,631 and $8.002 for the year ended March 31, 2015 and March 31, 2014 respectively.
| (l) | Shipping and Handling Costs: |
Shipping and handling costs incurred to
deliver products to our customers are included as a component of cost of sales. These costs amounted to $6,989 and $22,119 for
the year ended March 31, 2015 and March 31, 2014, respectively.
We utilize the liability method of accounting
for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the differences between
the financial reporting basis and the tax basis of the assets and liabilities and are measured using enacted tax rates and laws
that will be in effect, when the differences are expected to reverse. An allowance against deferred tax assets is recognized, when
it is more likely than not, that such tax benefits will not be realized. We have recorded a 100% valuation allowance against net
deferred tax assets due to uncertainty of their realization. The Company’s open tax years are from 2009 through 2015.
Our practice is to recognize interest and/or
penalties related to income tax matters in income tax expense. For the year ended March 31, 2015 and 2014, we had no accrued interest
or penalties related to income taxes. We currently have no federal or state tax examinations in progress.
| (n) | Loss Per Common Share: |
Our basic loss per common share is computed
by dividing loss 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 except that diluted loss 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 year ended March 31, 2015 and 2014, respectively, potential
common shares arising from the our stock warrants, stock options, convertible preferred stock and convertible debt and accrued
interest payable amounted to 18,770,207,129 shares for 2015 and 5,724,704,499 shares for 2014 and were not included in the computation
of diluted loss per share because their effect was anti-dilutive.
| (o) | Recent Accounting Pronouncements Affecting the Company: |
In May 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”)
This guidance amends the existing FASB
Accounting Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer. The core principle of
the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
| Note 3 - | Significant Accounting Policies (continued): |
To achieve that core principle, an entity
should apply the following steps:
| 1. | Identify the contract(s) with the customer |
| 2. | Identify the performance obligations in the contract |
| 3. | Determine the transaction price |
| 4. | Allocate the transaction price to the performance obligations
in the contract |
| 5. | Recognize revenue when (or as) the entity satisfies a performance
obligations |
The ASU also provides guidance on disclosures
that should be provided to enable financial statement users to understand the nature, amount, timing and uncertainty of revenue
recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about the
following:
| | 1. | Contracts with customers – including revenue and impairments recognized, disaggregation
of revenue and information about contract balances and performance obligations (including the transaction price allocated to the
remaining performance obligations) |
| | 2. | Significant judgments and changes in judgments – determining the timing of satisfaction
of performance obligations (over time or at a point in time) and determining the transaction price and amounts allocated to performance
obligations |
| | 3. | Assets recognized from the costs to obtain or fulfill a contract. |
ASU 2014-09 is effective for periods beginning
after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early application
is not permitted.
Management does not believe that any other
recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial
statements.
In August, 2014, the Financial
Accounting Standards 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 for one year from
the date of completion of the audit..
In November, 2014, the
Financial Accounting Standards 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.
In February, 2015, the
Financial Accounting Standards Board issued an ASU that contained guidance about Consolidation (Topic 810) and amendments to the
consolidation analysis. These provisions provide amendments to limited partnerships and similar legal entities. As ABH owns the
51% majority of the World of Beer location in West Hartford which is an LLC corporation, the Company believes there is no change
needed for this update.
Advertising costs are charged to operations
when incurred and are included in operating expenses. Advertising costs for the years ended March 31, 2015 and 2014 were $1,540
and $17,732, respectively.
| (q) | Concentration of Sales to Certain Clients |
During fiscal 2014-2015, the Company had
Phase III sales to one primary client that represented 93% of total revenues in the amount of $66,027. We had an outstanding receivable
balance of $3,839 from this entity at March 31, 2015. The rest of our gross sales of $753,895 originated from ABH’s World
of Beer location in West Hartford, Connecticut.
| Note 3 - | Significant Accounting Policies (continued): |
The Company follows subtopic 850-10 of
the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related
parties include (a) affiliates of the Company; (b) Entities for which investments in their equity securities would be required,
absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted
for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company;
(f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate
interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties
or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall
include disclosures of material related party transactions, other than compensation arrangements, expense allowances and other
similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of
consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature
of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts
were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to
an understanding of the effects of the transactions on the consolidated financial statements; (c) the dollar amounts of transactions
for each of the periods for which income statements are presented and the effects of any change in the method of establishing the
terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet
presented and, if not otherwise apparent, the terms and manner of settlement.
| (s) | Commitment and Contingencies |
The Company follows subtopic 450-20 of
the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date
the consolidated financial statements are issued which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred, and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are
generally not disclosed unless they involve guarantees in which case the guarantees would be disclosed. Management does not believe,
based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated
financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and
adversely affect the Company’s business, financial position and results of operations or cash flows.
The Company’s fixed assets
are comprised of the following as of March 31, 2015 and 2014 :
| | |
March 31, 2015 | | |
March 31, 2014 | |
| | |
| | | |
| | |
| Attitude Drink Company (a) | |
$ | 58,336 | | |
$ | 61,625 | |
| World of Beer: | |
| | | |
| | |
| Audio Visual | |
| 82,635 | | |
| — | |
| Bar furniture and equipment | |
| 198,836 | | |
| — | |
| Computer equipment | |
| 48,839 | | |
| — | |
| Leasehold improvements | |
| 490,964 | | |
| — | |
| Coolers | |
| 59,832 | | |
| — | |
| Millwork | |
| 69,000 | | |
| — | |
| Other | |
| 73,805 | | |
| — | |
| | |
| | | |
| | |
| Total gross fixed assets | |
| 1,082,247 | | |
| 61,625 | |
| Less accumulated depreciation | |
| (69,106 | ) | |
| (36,134 | ) |
| | |
| | | |
| | |
| Net fixed assets | |
$ | 1,013,141 | | |
$ | 25,491 | |
| (a) Net of reserve for abandoned furniture for $3,290 | |
| | |
Depreciation expense aggregated $32,972
and $7,278 for the year ended March 31, 2015 and 2014, respectively.
| Note 5 – | Accrued Liabilities: |
Accrued liabilities consist of the following
as of March 31, 2015 and 2014:
| | |
2015 | | |
2014 | |
| | |
| | | |
| | |
| Accrued payroll and related taxes | |
$ | 3,719,785 | | |
$ | 3,261,045 | |
| Accrued interest | |
| 1,846,857 | | |
| 1,456,904 | |
| Accrued marketing program costs | |
| 580,000 | | |
| 580,000 | |
| Accrued professional fees | |
| 108,640 | | |
| 98,000 | |
| Accrued board of directors’s fees | |
| 242,792 | | |
| 206,792 | |
| Other expenses | |
| 259,690 | | |
| 130,567 | |
| | |
| | | |
| | |
| Total Accrued Liabilities | |
$ | 6,757,764 | | |
$ | 5,733,308 | |
| Note 6 – | Convertible Notes Payable: |
All convertible notes payable are recorded
at fair value as prescribed by the FASB Accounting Standards Codification (see Note 9 for more details). Convertible debt carrying
values consist of the following:
| | |
| |
Fair Value Amounts | |
| Outstanding | |
| |
March 31, | | |
March 31, | |
| Face Value | |
| |
2015 | | |
2014 | |
| | |
| |
| | |
| |
| $ | 5,547,372 | |
Convertible Note Financing due February 21 2015 (a), (1) | |
$ | 5,413,574 | | |
$ | 5,554,182 | |
| | 605,520 | |
Convertible Note Financing due December 31, 2014 (b), (2) | |
| 605,520 | | |
| 400,000 | |
| | 37,000 | |
Convertible Note Financing due June 7, 2014 (c), (3) | |
| 37,000 | | |
| 37,000 | |
| | 1,204,500 | |
Convertible Note Financing due December 24, 2014 (d), (4) | |
| 1,204,500 | | |
| — | |
| | 35,200 | |
Convertible Note Financing due May 13, 2015 (e), (5) | |
| 35,200 | | |
| — | |
| | 20,000 | |
Convertible Note Financing due December 22, 2016 (f), (6) | |
| 20,000 | | |
| — | |
| | 58,500 | |
Convertible Note Financing due January 14, 2017 (g), (7) | |
| 58,500 | | |
| — | |
| | | |
| |
| | | |
| | |
| | | |
Less discount on convetible notes (4) | |
| (196,499 | ) | |
| (3,511,738 | ) |
| $ | 7,508,092 | |
Total convertible notes payable (8) | |
$ | 7,177,795 | | |
$ | 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. The principal amount of the above $5,547,372 balance equals the original $5,492,271 total financing plus allonges for
$767,500 less conversions of $712,399.
(2) Monthly retainer fee to our outside
financial consulting firm of $25,000 face value for December, 2012 through March 31, 2015 for a total original amount of $700,000
less conversions of $94,480
(3) Retainer fee to our previous legal
counsel of $37,000 face value issued June 7, 2013
(4) Issued convertible promissory note
for $35,200 on May 13, 2014
(5) Issued convertible note for $20,000
on December 12, 2014 for past due services
(6) Includes total of all installment convertible
notes issued December, 2014 through March, 2015 for financing the World of Beer franchise location in West Hartford Connecticut.
(7) Issued three convertible notes for
$13,500, $13,500 and $31,500 to three different accredited investors on January 14, 2015
(8) 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, we needed to use a different valuation model for applicable valuations, derivatives
and fair market value. In order to determine the fair market value, we 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 our 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 are 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 is treated as a liability. These derivative liabilities
are marked-to-market each quarter with the change in fair value recorded in the Statement of Operations.
Note
6 – Convertible Notes Payable (continued):
Long-term
Convertible Debt Maturities:
Annual maturities
of long-term outstanding convertible debt (face value) as of March 31, 2015 are as follows:
| | | | |
| | |
| | | | |
Face
Value | |
| | Years
ending March 31, | | |
$
Amount | |
| | 2015 | | |
$ | 5,695,142 | |
| | 2016 | | |
| 335,200 | |
| | 2018 | | |
| 70,000 | |
| | 2019 | | |
| 108,500 | |
| | 2020 | | |
| — | |
| | thereafter | | |
| — | |
| | | | |
| | |
| | | | |
$ | 6,208,842 | |
(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 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%. They are in default. The Company is working with each
debt holder to extend the maturity date as well as implementing in 2015 a debt restructuring program to address such issues. 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 $10.00. 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 $806.879 in principal and $193.214 in accrued interest were converted into shares of
common stock from February 21, 2013 through March 31, 2015. In addition, additional allonge financings were added as follows:
Note
6 – Convertible Notes Payable (continued):
| 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 April 9, 2013 and another $100,000 on June 5, 2013 from these February
21, 2013 notes. These new replacement notes contain the same terms as in the February 21, 2013 consolidated convertible notes.
The entire total of $100,000 was converted from the original $100,000 balance, and $2,960 in conversions were made on the second
$100,000 note for an outstanding remaining amount of $97,040.
| | (b) Monthly
$25,000 Retainer Fee Convertible Notes |
We issue
each month a convertible note for $25,000 to SC Advisors 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. From December, 2012
through March, 2015, we issued $25,000 monthly convertible notes for a total of $700,000. All of these notes have maturity dates
from December 31, 2014 to July 31, 2015. The Company is working with the debt holder to extend the maturity dates of these convertible
notes. The notes can be converted into shares of Common Stock six months after issuance 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. Total conversions
of $94,480 have been made for these convertible 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 and the note
is in default. The Company is working with the debt holder to extend the maturity date of this convertible note. 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 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 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).
Note
6 – Convertible Notes Payable (continued):
(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 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 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,
2014 through March, 2015 Installment Convertible Notes
ABH issued
convertible notes to two accredited investors for the purchase of the World of Beer franchise location in West Hartford, Connecticut
as follows: December 24, 2014 for a total of $337,250; January 23, 2015 for a total of $300,000; February 24, 2015 for a total
of $300,000; and March 24, 2015 for a total of $267,250 for a grand total of $1,204,500. All notes have the same maturity date
of March 24, 2015 with 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. There have been no conversions of these convertible notes.
(g) January
14, 2015 convertible notes
On January
14, 2015, we issued three (3) convertible notes for $13,500, $13,500 and $31,500 for a total of $58,500. All notes have the same
maturity date of January 14, 2017 and the same interest rate of ten percent (10%). All three notes contain the same conversion
language as follows: the conversion price per share shall be equal to seventy-five (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. There have been no conversions of these convertible notes.
Note
7 – Short Term Bridge Loans:
Summary
of short-term bridge loan balances is as follows:
| | |
| |
|
| | |
March 31, 2015 |
|
|
March 31, 2014 |
|
| | |
| |
|
| | 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.
Note
7 – Short Term Bridge Loans (continued):
We 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
8 - 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. We have not made any more payments and plan to address these payments as soon as practical.
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 is 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.
Note
8 - Non-convertible Notes Payable (continued):
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 proceeds 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 this note 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.
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.
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.
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.
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.
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.
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.
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. .
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.
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.
On March
5, 2015, we entered into a promissory note with a current investor in the total principal amount of $7,500 with a maturity date
of March 5, 2016 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.
On March
13, 2015, we entered into a promissory note with a current investor in the total principal amount of $7,500 with a maturity date
of March 13, 2016 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.
On March
19, 2015, we entered into a promissory note with a current investor in the total principal amount of $7,500 with a maturity date
of March 19, 2016 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.
Note
8 - Non-convertible Notes Payable (continued):
On March
27, 2015, we entered into a promissory note with a current investor in the total principal amount of $7,500 with a maturity date
of March 26, 2016 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
9 – 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 March 31, 2015:
| |
|
|
|
|
Fair
Value Measurements at March 31, 2015 |
|
| |
|
Total
Carrying
Value at
March 31, 2015 |
|
|
Quoted
prices in
active
markets
(Level 1) |
|
|
Significant
other
observable
inputs
(Level 2) |
|
|
Significant
unobservable
inputs
(Level 3) |
|
| Conversion feature liability |
|
$ |
1,868,857 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,868,857 |
|
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 March
31, 2015, there were no transfers in or out of level 3 from other levels in the fair value hierarchy. Starting with the 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
10 – 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 $500.00 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 11). 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 (see Note 11(a)).
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
324 shares of restricted stock).
Note
11 – Stockholders’ Deficit:
(a) Series
A 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 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. Inasmuch as the Series A Convertible Preferred Stock
has been outstanding for in excess of five years, it no longer has the right to convert into six shares of common stock for each
one share of preferred 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. The Series A and A-1 has liquidation rights 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
shall be 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 shall 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 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. We recorded a non-cash
expense for $1,620,000 which is 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 the 54,000,000 common stock equivalents. The Board of Directors on September 4, 2009 approved
an amendment 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 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
(14,999,049) shares have been designated as shares of “Series A.
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 Warrants:
As of March
31, 2015, the Company had 4,545,000 outstanding warrants at an exercise price of $0.0005. The warrants have an expiration date
of December 24, 2019. No warrants were exercised during the fiscal year ended March 31, 2015.
Note
11 – Stockholders’ Deficit (continued):
(c) Common Stock:
At March
31, 2015, the Company had issued and outstanding 1,161,193,362 shares of common stock of which 30,244 shares are owned by our
two officers. 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.
Note
11 – Stockholders’ Deficit (continued):
| COMMON STOCK ISSUED FROM APRIL 1, 2014 THROUGH MARCH
31, 2015 | |
| | | |
| | |
| | |
| | |
| |
| | | | |
| #
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 | |
| | | 1/2/2015 | |
| 62,500,000 | | |
| 25,000 | | |
| — | | |
| 0.0004 | |
| | | 1/23/2015 | |
| 58,680,556 | | |
| 16,900 | | |
| — | | |
| 0.000288 | |
| | | 2/10/2015 | |
| 19,687,500 | | |
| 3,150 | | |
| — | | |
| 0.00016 | |
| | | 2/10/2015 | |
| 50,625,000 | | |
| 8,100 | | |
| — | | |
| 0.00016 | |
| | | 2/24/2015 | |
| 70,673,077 | | |
| 14,700 | | |
| — | | |
| 0.000208 | |
| | | 3/3/2015 | |
| 44,687,500 | | |
| 7,150 | | |
| — | | |
| 0.00016 | |
| | | 3/3/2015 | |
| 39,062,500 | | |
| 6,250 | | |
| — | | |
| 0.00016 | |
| | | 3/19/2015 | |
| 43,750,000 | | |
| 7,000 | | |
| — | | |
| 0.00016 | |
| | | 3/30/2015 | |
| 81,250,000 | | |
| 6,500 | | |
| — | | |
| 0.00008 | |
| | | | |
| | | |
| | | |
| | | |
| | |
Note
11 – Stockholders’ Deficit (continued):
Common
Stock Issued for the Year Ended March 31, 2014:
All
issued shares and conversion rates are reflected at the values after the reverse stock split.
On
April 3, 2013, we issued 300,000 shares of common stock pursuant to a conversion for $11,250 of February, 2013 consolidated convertible
notes at a conversion price of $.0375.
On
April 4, 2013, we issued 438,400 shares of common stock pursuant to a conversion for $16,440 of February, 2013 consolidated convertible
notes at a conversion price of $.0375.
On
April 4, 2013, we issued 1,166,667 shares of common stock pursuant to a conversion for $43,750 of February, 2013 consolidated
convertible notes at a conversion price of $.0375.
On
April 9, 2013, we issued 400,000 shares of common stock pursuant to a conversion for $15,000 accrued interest of February, 2013
consolidated convertible notes at a conversion price of $.0375.
On
April 9, 2013, we issued 179,093 shares of common stock pursuant to a conversion for $6,716 accrued interest of February, 2013
consolidated convertible notes at a conversion price of $.0375.
On
April 10, 2013, we issued 439,067 shares of common stock pursuant to a conversion for $16,465 of February, 2013 consolidated convertible
notes at a conversion price of $.0375.
On
April 11, 2013, we issued 320,000 shares of common stock pursuant to a conversion for $12,000 of February, 2013 consolidated convertible
notes at a conversion price of $.0375.
On
April 15, 2013, we issued 400,000 shares of common stock pursuant to a conversion for $15,000 accrued interest of February, 2013
consolidated convertible notes at a conversion price of $.0375.
On
April 16, 2013, we issued 1,273,333 shares of common stock pursuant to a conversion for $47,750 of February, 2013 consolidated
convertible notes at a conversion price of $.0375.
On
April 22, 2013, we issued 124,867 shares of common stock pursuant to a conversion for $4,675 accrued interest of February, 2013
consolidated convertible notes at a conversion price of $.0375.
On
April 22, 2013, we issued 400,000 shares of common stock pursuant to a conversion for $15,000 accrued interest of February, 2013
consolidated convertible notes at a conversion price of $.0375.
On
April 29, 2013, we issued 500,000 shares of common stock pursuant to a conversion for $18,750 accrued interest of February, 2013
consolidated convertible notes at a conversion price of $.0375.
On
April 30, 2013, we issued 320,000 shares of common stock pursuant to a conversion for $12,000 of February, 2013 consolidated convertible
notes at a conversion price of $.0375.
On
July 2, 2013, we issued 1,918,462 shares of common stock pursuant to a conversion for $62,350 of February, 2013 consolidated convertible
notes at a conversion price of $.0325.
On
July 2, 2013, we issued 524,154 shares of common stock pursuant to a conversion for $17,035 of February, 2013 consolidated convertible
notes at a conversion price of $.0325.
On
July 15, 2013, we issued 609,756 shares of common stock pursuant to a conversion for $10,000 of February, 2013 consolidated convertible
notes at a conversion price of $.0164.
On
July 23, 2013, we issued 1,353,000 shares of common stock pursuant to a conversion for $5,412 of accrued interest at a conversion
price of $.004.
Note
11 – Stockholders’ Deficit (continued):
On
July 29, 2013, we issued 2,686,667 shares of common stock pursuant to a conversion for $10,075 of February, 2013 consolidated
convertible notes at a conversion price of $.00375.
On
August 5, 2013, we issued 2,352,941 shares of common stock pursuant to a conversion for $10,000 of February, 2013 consolidated
convertible notes at a conversion price of $.00425.
On
August 16, 2013, we issued 1,183,908 shares of common stock pursuant to a conversion for $2,575 of February, 2013 consolidated
convertible notes at a conversion price of $.002175.
On
August 16, 2013, we issued 1,498.851 shares of common stock pursuant to a conversion for $3,260 of February, 2013 consolidated
convertible notes at a conversion price of $.002175.
On
August 19, 2013, we issued 2,000,000 shares of common stock pursuant to a conversion for $4,350 of February, 2013 consolidated
convertible notes at a conversion price of $.002175.
On
August 19, 2013, we issued 1,500,000 shares of common stock pursuant to a conversion for $3,300 of February, 2013 consolidated
convertible notes at a conversion price of $.0022.
On
August 21, 2013, we issued 1,702,529 shares of common stock pursuant to a conversion for $3,703 of accrued interest at a conversion
price of $.002175.
On
August 22, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $6,525 of February, 2013 consolidated
convertible notes at a conversion price of $.002175.
On
August 22, 2013, we issued 1,818,182 shares of common stock pursuant to a conversion for $4,000 of February, 2013 consolidated
convertible notes at a conversion price of $.0022.
On
August 28, 2013, we issued 1,818,182 shares of common stock pursuant to a conversion for $4,000 of February, 2013 consolidated
convertible notes at a conversion price of $.0022.
On
September 6, 2013, we issued 4,256,098 shares of common stock pursuant to a conversion for $8,725 of February, 2013 consolidated
convertible notes at a conversion price of $.00205.
On
September 11, 2013, we issued 2,500,000 shares of common stock pursuant to a conversion for $5,250 of February, 2013 consolidated
convertible notes at a conversion price of $.0021.
On
September 12, 2013, we issued 2,500,000 shares of common stock pursuant to a conversion for $5,000 of February, 2013 consolidated
convertible notes at a conversion price of $.002.
On
September 12, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $5,850 of February, 2013 consolidated
convertible notes at a conversion price of $.002.
On
September 12, 2013, we issued 2,500,000 shares of common stock pursuant to a conversion for $5,000 of February, 2013 consolidated
convertible notes at a conversion price of $.002.
On
September 12, 2013, we issued 2,500,000 shares of common stock pursuant to a conversion for $5,000 of February, 2013 consolidated
convertible notes at a conversion price of $.002.
On
September 12, 2013, we issued 2,500,000 shares of common stock pursuant to a conversion for $5,000 of February, 2013 consolidated
convertible notes at a conversion price of $.002.
On
September 13, 2013, we issued 4,256,410 shares of common stock pursuant to a conversion for $8,300 of February, 2013 consolidated
convertible notes at a conversion price of $.00195.
Note
11 – Stockholders’ Deficit (continued):
On
September 13, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $6,300 of February, 2013 consolidated
convertible notes at a conversion price of $.0021.
On
September 14, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $6,000 of February, 2013 consolidated
convertible notes at a conversion price of $.002.
On
September 17, 2013, we issued 2,500,000 shares of common stock pursuant to a conversion for $5,000 of February, 2013 consolidated
convertible notes at a conversion price of $.002.
On
September 18, 2013, we issued 2,500,000 shares of common stock pursuant to a conversion for $4,750 of February, 2013 consolidated
convertible notes at a conversion price of $.0019.
On
September 20, 2013, we issued 3,286,842 shares of common stock pursuant to a conversion for $6,245 of accrued interest at a conversion
price of $.0019.
On
September 23, 2013, we issued 2,600,000 shares of common stock pursuant to a conversion for $4,940 of February, 2013 consolidated
convertible notes at a conversion price of $.0019.
On
September 24, 2013, we issued 2,481,579 shares of common stock pursuant to a conversion for $4,715 of February, 2013 consolidated
convertible notes at a conversion price of $.0019.
On
September 24, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $5,700 of February, 2013 consolidated
convertible notes at a conversion price of $.0019.
On
September 24, 2013, we issued 4,326,316 shares of common stock pursuant to a conversion for $8,220 of February, 2013 consolidated
convertible notes at a conversion price of $.0019.
On
September 30, 2013, we issued 8,500,000 shares of common stock pursuant to a conversion for $15,300 of February, 2013 consolidated
convertible notes at a conversion price of $.0018.
On
October 3, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $4,800 of February, 2013 consolidated
convertible notes at a conversion price of $.0016.
On
October 9, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $3,600 of February, 2013 consolidated
convertible notes at a conversion price of $.0012.
On
October 10, 2013, we issued 3,000,000 shares of common stock pursuant to a conversion for $3,600 of February, 2013 consolidated
convertible notes at a conversion price of $.0012.
On
October 14, 2013, we issued 9,150,000 shares of common stock pursuant to a conversion for $9,150 of February, 2013 consolidated
convertible notes at a conversion price of $.001.
On
October 17, 2013, we issued 5,000,000 shares of common stock pursuant to a conversion for $4,500 of February, 2013 consolidated
convertible notes at a conversion price of $.0009.
On
October 29, 2013, we issued 8,000,000 shares of common stock pursuant to a conversion for $7,200 of February, 2013 consolidated
convertible notes at a conversion price of $.0009.
On
November 1, 2013, we issued 5,000,000 shares of common stock pursuant to a conversion for $4,500 of February, 2013 consolidated
convertible notes at a conversion price of $.0009.
On
November 6, 2013, we issued 5,000,000 shares of common stock pursuant to a conversion for $4,500 of February, 2013 consolidated
convertible notes at a conversion price of $.0009.
Note
11 – Stockholders’ Deficit (continued):
On
November 6, 2013, we issued 11,777,778 shares of common stock pursuant to a conversion for $10,600 of February, 2013 consolidated
convertible notes at a conversion price of $.0009.
On
November 6, 2013, we issued 6,935,556 shares of common stock pursuant to a conversion for $6,242 of accrued interest at a conversion
price of $.0009.
On
November 6, 2013, we issued 8.000,000 shares of common stock pursuant to a conversion for $7,200 of February, 2013 consolidated
convertible notes at a conversion price of $.0009.
On
November 13, 2013, we issued 6.000,000 shares of common stock pursuant to a conversion for $4,800 of February, 2013 consolidated
convertible notes at a conversion price of $.0008.
(d)
Compensation and Incentive Plan:
On
May 25, 2010, a registration that covers the offering of an aggregated 7,500 shares of the Company’s common stock was approved
by the Company’s Board of Directors. As such, the 2010 Stock Compensation and Incentive Plan was created for employees,
directors, consultants and other persons associated with the Company in which awards of common stock and/or non-qualified stock
options may be granted. During the fiscal year ended March 31, 2011, we issued 6,578 shares of common stock for a total of $161,000
for past due professional services and payroll in which 3,000 shares were returned back to the plan, leaving an available 3,922
shares to be issued in the future
On
December 21, 2011, the Company’s Board of Directors approved the issuance of 54,204 non-qualified stock options to certain
employees for the return of previously issued shares of common stock that were issued for payment of past due expenses to be effective
at December 31, 2011. The stock options have an exercise price of $10.00, full vesting rights and a life of five years. The Board
of Directors intends to approve a registration to cover an offering to include these stock options as well as certain other stock
options (see below) in 2015/2016. We recognized the full compensation expense of $12,656 at December 31, 2011 by using the Black-Scholes
valuation model (54,204 x $.2335). No options have been exercised.
On
January 10, 2013, the stockholders holding a majority voting rights of our Common Stock approved the 2013 Equity Incentive Plan
by written consent without a meeting in accordance with Delaware Law. This plan provides for the grant of stock awards to employees,
directors and consultants of the Company and its affiliates covering an aggregate of 1,000,000 shares of its common stock. The
number of shares of common stock available for issuance under this plan shall automatically increase on February 1st
of each year for a period of 9 years commencing January 1, 2014 in an amount equal to the lesser of 5% of the total number of
shares of common stock outstanding on December 31st of the preceding calendar year or 30,000 shares. Revised number
is now 1,060,000 as of March 31, 2014. No stock awards have been granted as of March 31, 2015.
On
September 16 2013, the Company’s Board of Directors approved the issuance of 10,000,000 non-qualified stock options to certain
employees and the two independent Board Directors. The stock options have an exercise price of $.004, full vesting rights and
a life of five years. The Board of Directors intends to approve a registration to cover an offering to include these stock options
in 2015/2016. We recognized the full compensation expense of $26,997 by using the Black-Scholes valuation model (10,000,000 x
$.0026997). No options have been exercised.
As
required by the FASB Accounting Standards Codification, we would normally estimate forfeitures
of employee stock option and recognize the compensation cost over the requisite service period for the entire award in accordance
with the provisions. As all stock options were fully vested, no estimate of forfeitures was required, and compensation cost is
fully recognized at the time of grant and full vesting. We estimated the fair value of these stock options on the date of grant
using a Black-Scholes-Merton (BSM) option-pricing formula, applying the following assumptions (before and after reverse stock
split):
Note
11 – Stockholders’ Deficit (continued):
A
summary of option activity under these stock option plans for the year ended March 31, 2015 is presented below:
| | |
| | |
| | |
Weighed- | | |
| |
| | |
| | |
| | |
Average | | |
| |
| | |
| | |
Weighted- | | |
Remaining | | |
| |
| | |
| | |
Average | | |
Contractual | | |
Aggregate | |
| | |
| | |
Exercise | | |
Term | | |
Intrinsic | |
| Options | |
Shares | | |
Price | | |
(in
years) | | |
Value | |
| | |
| | | |
| | | |
| | | |
| | |
| Outstanding at 3/31/13 | |
| 60,180 | | |
$ | 30.00 | | |
| 3.66 | | |
| — | |
| Granted | |
| 10,000,000 | | |
$ | 0.02 | | |
| 4.47 | | |
| | |
| Exercised | |
| — | | |
| — | | |
| | | |
| | |
| Forfeited | |
| — | | |
| — | | |
| | | |
| | |
| Expired | |
| (1,804 | ) | |
| — | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Outstanding at 3/31/14 | |
| 10,058,376 | | |
$ | 0.26 | | |
| 4.66 | | |
| — | |
| Granted | |
| — | | |
| — | | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | | |
| | | |
| | |
| Forfeited | |
| — | | |
| — | | |
| | | |
| | |
| Expired | |
| (4,172 | ) | |
| — | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Outstanding at
3/31/15 | |
| 10,054,204 | | |
$ | 0.06 | | |
| 3.46 | | |
| — | |
Note
that all of the stock options are outstanding, fully vested and exercisable for the year ended March 31, 2015. As such, all compensation
expense for the above options has been recognized, and there is no unrecognized compensation expense to be recorded in the future.
Note
12 – Income Taxes:
| The Company has recorded
no income tax benefit for its taxable losses during the period ending March 31, 2015 because there is no certainty that the
Company will realize those benefits. The components of the Company’s deferred tax assets and liabilities as of March
31, 2015 and 2014 are as follows: |
| | |
2015 | | |
2014 | |
| Net operating loss carryforwards | |
$ | 8,745,372 | | |
$ | 5,999,692 | |
| Compensatory stock and warrants | |
| 33 | | |
| 10,691 | |
| Accrued expenses that are deductible in
future periods | |
| 43,021 | | |
| 38,808 | |
| Depreciation method
differences | |
| — | | |
| — | |
| | |
| 8,788,426 | | |
| 6,049,191 | |
| Valuation allowances | |
| (8,788,426 | ) | |
| (6,049,191 | ) |
| | |
| | | |
| | |
| Net deferred tax
assets | |
$ | — | | |
$ | — | |
As
of March 31, 2015 the Company has a net tax operating loss of $25,721,000 that will be available to
offset future taxable income, if any. The use of net operating loss carryforwards to reduce future
income tax liabilities is subject to limitations, and these amounts will begin to expire in 2028. |
Note
12 – Income Taxes (continued):
The
following table illustrates the reconciliation of the tax benefit at the federal statutory rate to the Company’s effective
rate for the period ending March 31, 2014 and 2013:
| | |
2015 | | |
2014 | |
| Benefit
at federal statutory rate | |
| -34.00 | % | |
| -39.60 | % |
| Benefit at state
rate, net of federal deficit | |
| 5.70 | % | |
| 94.36 | % |
| Fair value adjustment
of convertible debt | |
| -3.69 | % | |
| -1616.09 | % |
| Non-deductible derivative
loss | |
| 0.00 | % | |
| 0.00 | % |
| Loss on extinguishment
of debt | |
| 0.00 | % | |
| 0.00 | % |
| Non-deductible travel
expenses | |
| 0.01 | % | |
| 0.48 | % |
| Benefit
at the Company’s effective rate | |
| 31.98 | % | |
| 1560.85 | % |
| Less
valuation allowance effective tax rate | |
| 0.00 | % | |
| 0.00 | % |
The
Company is required to file income tax returns for U.S. Federal and State of Florida purposes. The Company is not currently under
any tax examination, but the statute of limitations has not yet expired because no federal or state tax returns have been filed
since 2007. Therefore, the Company generally remains subject to examination of its U.S. Federal income tax returns for 2008 and
subsequent years by the Internal Revenue Service. In addition, the Company also remains subject to examinations of its State of
Florida tax returns for 2008 and subsequent years.
Note
13 – Commitments and Contingencies:
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 March 31, 2015, are as follows:
| Years
ending March 31, | | |
Amount | |
| | | | |
| | |
| | 2016 | | |
$ | 52,540 | |
| | 2017 | | |
| 53,146 | |
| | 2018 | | |
| 44,730 | |
| | | | |
| | |
| | | | |
| | |
| | | | |
$ | 150,416 | |
Rental
expense, which also includes maintenance and parking fees, for the twelve months period ended March 31, 2015 was $54,951. 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, 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 March 31, 2015, are as follows:
Note
13. Commitments and Contingencies (continued):
| Years
ending March 31, | | |
Amount | |
| | | | |
| | |
| | 2016 | | |
| 130,016 | |
| | 2017 | | |
| 133,196 | |
| | 2018 | | |
| 137,197 | |
| | 2019 | | |
| 141,308 | |
| | 2019 | | |
| 145,552 | |
| thereafter | |
| 795,932 | |
| | | | |
$ | 1,483,201 | |
Rent
expense recorded since the opening of the tavern in late January, 2015 through March 31, 2014 is $31,850.
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 future
new products that are in the development stage. The manufacturer shall manufacture, package and ship such products. All products
shall be purchased F.O.B., the facility by the company.
Litigation
On
May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the District Court of Denton County, 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 will address this matter as soon as practical
and once we have adequate financing.
On
August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the district court of Mobile, 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
October 1, 2013, Beanpot Broadcasting Corp. d/b/a WXRV-FM, commenced a lawsuit in the Commonwealth of Massachusetts District Court
Department of the Trial Court Haverhill Division 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 will address this matter as soon as practical and once we have
adequate financing.
On
November 27, 2013, we received an order of the court from The Trial Court of Massachusetts District Court Department, Small Claims
Session in Plymouth, Massachusetts 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 and once we have adequate financing.
On
February 4, 2014, Philip Terrano commenced a lawsuit in the circuit court of the 15th Judicial Circuit and for Palm
Beach County, 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.
On
June 9, 2014, North Palm Beach Broadcasting Company d/b/a/ WSVU-AM Radio filed a lawsuit in the 15th Judicial Circuit
in and for Palm Beach County, 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.
Note
13. Commitments and Contingencies (continued):
On
June 26, 2014, Innerworkings, Inc. filed a lawsuit in the County Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, 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 and when we have adequate capital.
On
November 11, 2014, C.A. Courtesy Demos, Inc. commenced a lawsuit in the County Court, Palm Beach County, Florida civil action
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 will address this matter as soon as practical and once we have adequate financing.
On
November 20, 2014, Pavilion Law Center, LLC filed a motion in the Circuit Court of the Fifteenth Judicial Circuit in and for 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 of the Fifteenth Judicial Circuit in and for 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. On August 13,
2015, the court entered into a final judgment against us for a total amount of $24,215. We expect to resolve this matter as soon
as practical and once we have adequate financing.
On
August 26, 2015, Harrison, Vickers and Waterman Inc. (“HVWC”) which we own the majority of the outstanding shares received
a lawsuit from James Giordano, previous CEO of HVW that was filed in the State of Connecticut Superior Court in Stamford, Connecticut.
The claim is approximately $220,833 for past salaries. HVWC does not agree with this complaint and will address as soon as possible.
HVW does have a recorded amount of $175,000 on its books.
Note
14 - Segment Reporting
The
Company operates in two segments which are consistent with its internal organization. The major segments are beverage brand development
and restaurant/tavern World of Beer franchise locations.
Revenues,
expenses and assets not explicitly attributed to a segment are deemed to be unallocated.
See
below for a summary:
| ATTITUDE DRINKS INCORPORATED |
| SEGMENT REPORTING |
| MARCH 31, 2015 |
| | |
| | |
| | |
| | |
| |
| | |
| Corporate | | |
| | | |
| | | |
| | |
| | |
| Beverage | | |
| | | |
| | | |
| | |
| | |
| Branding | | |
| Restaurant/ | | |
| Minority | | |
| | |
| | |
| Development | | |
| Tavern | | |
| Interest | | |
| Total | |
| | |
| | | |
| | | |
| | | |
| | |
| Net Revenues | |
$ | 53,878 | | |
$ | 738,465 | | |
$ | — | | |
$ | 792,343 | |
| | |
| | | |
| | | |
| | | |
| | |
| Cost of Goods Sold | |
| 154,999 | | |
| 209,908 | | |
| — | | |
| 364,907 | |
| | |
| | | |
| | | |
| | | |
| | |
| Gross Margin | |
| (101,121 | ) | |
| 528,557 | | |
| — | | |
| 427,436 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating Expenses | |
| 1,204,323 | | |
| 467,378 | | |
| — | | |
| 1,671,701 | |
| | |
| | | |
| | | |
| | | |
| | |
| Other Income/(Expense) | |
| (3,711,923 | ) | |
| (53,089 | ) | |
| — | | |
| (3,765,012 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net Income (Loss) Before Minority Interest | |
| (5,017,206 | ) | |
| 7,929 | | |
| — | | |
| (5,009,277 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Minority Interest | |
| — | | |
| — | | |
| (21,596 | ) | |
| (21,596 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net income/(Loss) | |
| (5,017,206 | ) | |
| 7,929 | | |
| (21,596 | ) | |
| (5,030,873 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total Current Assets | |
| 36,510 | | |
| 315,506 | | |
| — | | |
| 352,016 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Assets | |
| 56,145 | | |
| 1,525,753 | | |
| — | | |
| 1,581,898 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Liabilities | |
| 16,985,040 | | |
| 1,542,626 | | |
| (3,390 | ) | |
| 18,524,276 | |
Note
14 - Segment Reporting (continued)
| ATTITUDE DRINKS INCORPORATED |
| SEGMENT REPORTING |
| MARCH 31, 2014 |
| | |
| | |
| | |
| | |
| |
| | |
| Corporate | | |
| | | |
| | | |
| | |
| | |
| Beverage | | |
| | | |
| | | |
| | |
| | |
| Branding | | |
| Restaurant/ | | |
| Minority | | |
| | |
| | |
| Development | | |
| Tavern | | |
| Interest | | |
| Total | |
| | |
| | | |
| | | |
| | | |
| | |
| Net Revenues | |
$ | 182,582 | | |
$ | — | | |
$ | — | | |
$ | 182,582 | |
| | |
| | | |
| | | |
| | | |
| | |
| Cost of Goods Sold | |
| 164,639 | | |
| — | | |
| — | | |
| 164,639 | |
| | |
| | | |
| | | |
| | | |
| | |
| Gross Margin | |
| 17,943 | | |
| — | | |
| — | | |
| 17,943 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating Expenses | |
| 1,765,360 | | |
| — | | |
| — | | |
| 1,765,360 | |
| | |
| | | |
| | | |
| | | |
| | |
| Other Income/(Expense) | |
| 1,535,402 | | |
| — | | |
| — | | |
| 1,535,402 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net Income (Loss) Before Minority Interest | |
| (212,015 | ) | |
| — | | |
| — | | |
| (212,015 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Minority Interest | |
| — | | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income/(Loss) | |
| (212,015 | ) | |
| — | | |
| — | | |
| (212,015 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Total Current Assets | |
| 55,000 | | |
| — | | |
| — | | |
| 55,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Assets | |
| 86,221 | | |
| — | | |
| — | | |
| 86,221 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Liabilities | |
| 12,421,740 | | |
| — | | |
| — | | |
| 12,421,740 | |
Note
15 – Subsequent Events
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 July 30, 2015, we issued 754,116,580 restricted shares of common stock as payments to
previous employees and certain vendors for past due services. This debt restructuring program resulted in the reduction of
payables of $1,825,139 and the recording of a gain from debt restructuring for $1,654,914.
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.
Note
15 – Subsequent Events (continued)
On
April 21, 2015, Alpha Capital Anstalt, Tarpon Bay Partners LLC and the Company (all “shareholders” of ABH) entered
into the Purchase Agreement with Harrison, Vickers and Waterman. Inc. (HVWC) pursuant to which the shareholders sold to HVWC all
of the outstanding shares of stock of ABH, and ABH thereupon became a wholly owned subsidiary of HVWC. In consideration for the
purchase of the shares of common stock of ABH, HVWC issued: (i) to the Company 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 HVWC’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 HVWC’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 HVWC’s Series A Preferred Stock (convertible
into 32,300,000 shares of the HVWC’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”). The Company 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”). The Company
is now the majority owner of HVWC.
On
April 24, 2015, the Company 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, the Company 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, the Company 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, the Company issued a convertible note to Southridge Partners II LP for $25,000 for their May, 2015 consulting services.
On
May 8, 2015, the Company 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, the Company 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, the Company 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, the Company issued a convertible note to an accredited investor for $7,500 which has a maturity date of May 22,
2016. The note bears no interest.
On
May 26, 2015, HVWC, in which Attitude Drinks Incorporated is the majority owner, filed a Form 8-K to change their independent
registered public accounting firm effective May 8, 2015 to Scrudato and Co., PA (same registered public accounting firm used by
Attitude Drinks Incorporated).
On
May 29, 2015, the Company issued a convertible note to an accredited investor for $7,500 which has a maturity date of May 29,
2015. The note bears no interest.
On
May 29, 2015, the Company’s majority owned subsidiary, ABH, entered into an operating agreement with New England WOB, LLC
for the development of a World of Beer franchise location in Milford, Connecticut.
On
June 1, 2015, the Company issued a convertible note to Southridge Partners II LP for $25,000 for their June, 2015 consulting services.
Note
15 – Subsequent Events (continued)
On
June 25, 2015, the Company 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.
On
July 1, 2015, the Company issued a convertible note to Southridge Partners II LP for $25,000 for their July, 2015 consulting services.
On
July 29, 2015, HVWC. which Attitude Drinks Incorporated is the majority owner issued a convertible note in the amount of $80,000
with a maturity date of July 29, 2017 at an interest rate of 10% as well as 64,000 warrants with a life of 7 years and an exercise
price of $0.0025.
On
August 1, 2015, the Company issued a convertible note to Southridge Partners II LP for $25,000 for their August, 2015 consulting
services
On
August 12, 2015, the Company filed a Form 8K to list filings with the state of Delaware for a (1) Corrected Restated Certificate
of Incorporation (2) Certificate of Amendment to the Certificate of Designations, Powers, Preferences and Rights of Series A Convertible
Preferred Stock and (3) Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock.
On
August 18, 2015 and August 28, 2015, the Company filed a Form 8K for the exchange of notes payable and past due
accrued salaries for shares of Series C Convertible Preferred Stock, warrants equating to the same number of common stock
from conversions of Series C Convertible Preferred Stock as well as Additional Investment Rights to purchase same number of
Series C Convertible Preferred Stock and corresponding warrants. A total of 4,265 shares of Series C Convertible Preferred
Stock were issued for these debt exchanges. Total notes payable, accrued interest payable and accrued salaries and accrued
payroll taxes in the total amount of $8,227,452 were taken off the Company’s records with approximately $3,933,051 that
was moved to equity accounts for the Series C Convertible Preferred Stock transactions and $4,179,795 recorded of a gain from
the debt restructuring program for the forgiveness of approximately one half of the past due liabilities.
Also
on August 18, 2015, HVWC which Attitude Drinks Incorporated is the majority owner filed a DEF 14C which the majority of the voting
power was received to change the name of Harrison, Vickers and Waterman Inc. to Attitude Beer, Inc. In addition, approval was
received to increase the authorized common stock from 2,000,000,000 to 7,500,000,000 as well as the 2015 Stock Incentive Plan.
An application has been filed with FINRA to approve these requests.
On
September 1, 2015, the Company issued a convertible note to Southridge Partners II LP for $25,000 for their September, 2015 consulting
services.
EXHIBIT
(10)(122)
NEITHER
THIS SECURITY NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION
OR SAFE HARBOR THEREFROM.
ATTITUDE
DRINKS INCORPORATED
PROMISSORY
NOTE DUE MAY 22, 2016
THIS
Note is a duly authorized issuance of up to $7,500.00 of ATTITUDE DRINKS INCORPORATED, a Delaware corporation and located at 712
U.S. Highway 1, Suite #200, North Palm Beach, Florida 33408 (the “Company”) designated as its Note, pursuant to the
Consulting Agreement entered into by the Company and the Holder as of July 19, 2012.
FOR
VALUE RECEIVED, the Company promises to pay to SOUTHRIDGE PARTNERS II, LP, the registered holder hereof (the “Holder”),
the principal sum of Seven Thousand Five Hundred and 00/100 Dollars (US $7,500.00) on May 22, 2016 (the “Maturity Date”).
The principal of this Note is payable at the option of the Holder at any time after the Maturity Date, in shares of the Company’s
common stock, $.00001 par value per share (“Common Stock”) as set forth below, or in United States dollars, at the address
last appearing on the Note Register of the Company as designated in writing by the Holder. The Company will pay the outstanding
principal amount of this Note in cash on the Maturity Date to the registered holder of this Note. The forwarding of such wire
transfer shall constitute a payment hereunder and shall satisfy and discharge the liability for principal on this Note to the
extent of the sum represented by such check or wire transfer plus any amounts so deducted.
This
Note is subject to the following additional provisions:
1. The
Note is issuable in denominations of Ten Thousand Dollars (US$10,000) and integral multiples thereof, provided that
the number of shares to be issued upon conversion is a minimum of 3,000 (unless if at the time of election to convert the
number of shares of Common Stock issuable upon conversion is less than 3,000). The Note is exchangeable for an equal
aggregate principal amount of Note 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.
2. The
Holder of this Note is entitled any time after the Maturity Date, subject to the following provisions, to convert all
or a portion of the principal amount of this Note into shares of Common Stock at a conversion price for each share of Common
Stock equal to the Current Market Price multiplied by eighty percent (80%) (the “Conversion Price”). “Current
Market Price” means the average of the closing bid prices for the Common Stock as reported by Bloomberg, LP or, if not
so reported, as reported on the over-the-counter market, for the five (5) trading days ending on the trading day immediately
before the relevant Conversion Date (as defined below). The amount of shares issuable pursuant to a conversion shall equal
the principal amount (or portion thereof) of the Note to be converted, divided by the Conversion Price.
Conversion
shall be effectuated by surrendering the Note to the Company, accompanied by or preceded by facsimile or other delivery to
the Company of the form of conversion notice attached hereto as Exhibit A, executed by the Holder evidencing such Holder’s
intention to convert a specified portion hereof No fractional shares of Common Stock or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The date
on which notice of conversion is given (the “Conversion Date”) shall be deemed to be the date on which the Holder
faxes or otherwise delivers the conversion notice (“Notice of Conversion”), substantially in the form annexed
hereto as Exhibit A, duly executed, to the Company. Facsimile delivery of the Notice of Conversion shall be accepted by the
Company at facsimile number ________ ) ATTN: Chief Financial Officer. Certificates representing
Common Stock upon conversion will be delivered within three (3) business days from the Conversion Date. (“Delivery
Date”)
The
Company understands that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date (as defined in this Section)
could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay late payments
to the Holder for late issuance of Shares upon Conversion, unless the delay is due to causes beyond the reasonable control of
the Company or the Transfer Agent, in accordance with the following schedule (where “No. Business Days Late” refers
to the number of business days which is beyond three (3)) business days after the Delivery Date):’
| |
|
|
| No.
Business Days Late |
|
Late
Payment For Each $10,000
of Note Principal or Interest
Amount Being Converted
|
| |
|
|
| 1 |
|
$100 |
| 2 |
|
$200 |
| 3 |
|
$300 |
| 4 |
|
$400 |
| 5 |
|
$500 |
| 6 |
|
$600 |
| 7 |
|
$700 |
| 8 |
|
$800 |
| 9 |
|
$900 |
| 10 |
|
$1,000 |
| >10 |
|
$1,000+$200
for each Business Day Late beyond 10 days |
The
Company shall pay any payments incurred under this Section in immediately available funds upon demand as the Holder’s remedy for
such delay. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock by close of business on the Delivery Date, unless such
failure is due to causes beyond the Company’s reasonable control or that of its Transfer Agent, the Holder will be entitled to
revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company, whereupon the Company and the Holder
shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion; provided, however,
that an amount equal to any payments contemplated by this Section which have accrued through the date of such revocation notice
shall remain due and owing to the Converting Holder notwithstanding such revocation.
If,
by the relevant Delivery Date, the Company fails, unless such failure is due to causes beyond the Company’s reasonable control
or that of its Transfer Agent, for any reason to deliver the Shares to be issued upon conversion of the Note and after such Delivery
Date, the Holder of the Note being converted (a “Converting Holder”) purchases, in an arm’s-length open market transaction
or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of
Common Stock by the Converting Holder (the “Sold Shares”), which delivery such Converting Holder anticipated to make
using the Shares to be issued upon such conversion (a “Buy-In”), the Converting Holder shall have the right, to require
the Company to pay to the Converting Holder, in addition to and not in lieu of the amounts due hereunder (but in addition to all
other amounts contemplated in other provisions of the Transaction Agreements, and not in lieu of any such other amounts), the
Buy-In Adjustment Amount (as defined below). The “Buy-hi Adjustment Amount” is the amount equal to the excess, if any,
of (x) the Converting Holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares over (y)
the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The
Company shall pay the Buy-In Adjustment Amount to the Company in immediately available funds immediately upon demand by the Converting
Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-1n with respect to shares of Common
Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting
Holder will be $1,000.
In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the Company’s Transfer Agent is participating in the
Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, upon request of the Holder and its
compliance with the provisions contained in this paragraph, so long as the certificates therefore do not bear a legend and
the Holder thereof is not obligated to return such certificate for the placement of a legend thereon, the Company shall use
its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the
Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
The
Holder of the Note shall be entitled to exercise its conversion privilege with respect to the Note notwithstanding the commencement
of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In the event the Company is a debtor under
the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.
S .C. §362 in respect of such holder’s conversion privilege. The Company hereby waives, to the fullest extent permitted,
any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Note.
3.
This Note has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged
only in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and foreign securities
laws. In the event of any proposed transfer of this Note, the Company may require, prior to issuance of a new Note in the name
of such other person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Note
in such other name does not and will not cause a violation of the Act or any applicable state or foreign securities laws. Prior
to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this
Note is duly registered on the Company’s Note Register as the owner hereof for the purpose of receiving payment as herein provided
and for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected
by notice to the contrary.
4.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the
principal of this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct obligation
of the Company.
5.
The Holder of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will
not offer, sell or otherwise dispose of this Note or the shares of Common Stock issuable upon conversion thereof except under
circumstances which will not result in a violation of the Act or any applicable state Blue Sky or foreign laws or similar laws
relating to the sale of securities.
6.
This Note shall be governed by and construed in accordance with the laws of the State of Connecticut. Each of the parties consents
to the jurisdiction of the federal or state courts whose districts encompass any part of the State of Connecticut in connection
with any dispute arising under this Note and hereby waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions.
Each of the parties hereby waives the right to a trial
by jury in connection with any dispute arising under this Note.
7. The
following shall constitute an “Event of Default”:
| a. | The
Company shall default in the payment of principal and interest on this Note and same shall continue for a period of five (5) days;
or |
| b. | Any
of the representations or warranties made by the Company herein, in any certificate or financial or other written statements heretofore
or hereafter furnished by the Company in connection with the execution and delivery of this Note shall be false or misleading
in any material respect at the time made; or |
| c. | The
Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or
obligation of any Note and such failure shall continue uncured for a period of thirty (30) days after written notice from the
Holder of such failure; or |
| d. | The
Company fails to authorize or to cause its Transfer Agent to issue shares of Common Stock upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Note, fails to transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon conversion of this Note and when required by this Note, and such
transfer is otherwise lawful, or fails to remove any restrictive legend on any certificate or fails to cause its Transfer Agent
to remove such restricted legend, in each case where such removal is lawful, as and when required by this Note, the Agreement,
and any such failure shall continue uncured for ten (10) business days; or |
| e. | The
Company shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit
of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator
or receiver for its or for a substantial part of its property or business; or |
| f. | A
trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such appointment; or |
| g. | Any
governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or
assets of the Company and shall not be dismissed within sixty (60) days thereafter; or |
| h. | Any
money judgment, writ or warrant of attachment, or similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or |
| | Bankruptcy, reorganization, insolvency
or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within
sixty (60) days after such institution or the Company shall by any action or answer approve of; consent to, or acquiesce in
any such proceedings or admit the material allegations of, or default in answering a petition filed in any such proceeding;
or |
| | The Company shall have its Common
Stock suspended or delisted from an exchange or over-the-counter market from trading for in excess of five trading
days. |
Then,
or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by
the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the
Holders sole discretion, the Holder may consider all obligations under this Note immediately due and payable within five (5) days
of notice, without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately enforce any and
all of the Holders rights and remedies provided herein or any other rights or remedies afforded by law.
8. The
Holder may not convert this Note to the extent such conversion would result in the Holder, together with any
affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules
promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock held by such Holder
after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of
Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance
of shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an affiliate thereof; the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and
to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which
portion of the principal amount of Note are convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for a principal amount of Note that would result in the issuance of in excess of the
permitted amount hereunder, without regard to any other shares that the Holder or its affiliates may beneficially own, the
Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date and, at the option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future conversions or return such excess principal amount to the
Holder. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not
less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.
9. Nothing
contained in this Note shall be construed as conferring upon the Holder the right to vote or to receive dividends or
to consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a
shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.
IN
WITNES S WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.
| |
|
|
|
|
| Dated: May 22, 2015 |
|
|
| |
|
ATTITUDE DRINKS INCORPORATED |
| |
|
|
| |
|
By: Tommy E. Kee |
| |
|
/s/ Tommy E. Kee |
| ATTESTOR |
|
Title CFO |
| |
|
|
| By: |
/s/ Connie A. Kee |
|
|
|
| Name: Connie A. Kee |
|
|
EXHIBIT (10)(123)
NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED
UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
ATTITUDE DRINKS INCORPORATED
PROMISSORY NOTE DUE MAY 29, 2016
THIS Note is a duly authorized
issuance of up to $7,500.00 of ATTITUDE DRINKS INCORPORATED, a Delaware corporation and located at 712 U.S. Highway 1, Suite #200,
North Palm Beach, Florida 33408 (the “Company”) designated as its Note, pursuant to the Consulting Agreement entered
into by the Company and the Holder as of July 19, 2012.
FOR VALUE
RECEIVED, the Company promises to pay to SOUTHRIDGE PARTNERS II, LP, the registered holder hereof (the “Holder”), the
principal sum of Seven Thousand Five Hundred and 00/100 Dollars (US $7,500.00) on May 29, 2016 (the “Maturity Date”).
The principal of this Note is payable at the option of the Holder at any time after the Maturity Date, in shares of the Company’s
common stock, $.00001 par value per share (“Common Stock”) as set forth below, or in United States dollars, at the address
last appearing on the Note Register of the Company as designated in writing by the Holder. The Company will pay the outstanding
principal amount of this Note in cash on the Maturity Date to the registered holder of this Note. The forwarding of such wire transfer
shall constitute a payment hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of
the sum represented by such check or wire transfer plus any amounts so deducted.
This Note is subject to the following additional provisions:
1. The Note is issuable
in denominations of Ten Thousand Dollars (US$10,000) and integral multiples thereof, provided that the number of shares to be
issued upon conversion is a minimum of 3,000 (unless if at the time of election to convert the number of shares of Common Stock
issuable upon conversion is less than 3,000). The Note is exchangeable for an equal aggregate principal amount of Note 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.
2. The
Holder of this Note is entitled any time after the Maturity Date, subject to the following provisions, to convert all or a
portion of the principal amount of this Note into shares of Common Stock at a conversion price for each share of Common Stock
equal to the Current Market Price multiplied by eighty percent (80%) (the “Conversion Price”). “Current
Market Price” means the average of the closing bid prices for the Common Stock as reported by Bloomberg, LP or, if not
so reported, as reported on the over-the-counter market, for the five (5) trading days ending on the trading day immediately
before the relevant Conversion Date (as defined below). The amount of shares issuable pursuant to a conversion shall equal
the principal amount (or portion thereof) of the Note to be converted, divided by the Conversion Price.
Conversion shall
be effectuated by surrendering the Note to the Company, accompanied by or preceded by facsimile or other delivery to the
Company of the form of conversion notice attached hereto as Exhibit A, executed by the Holder evidencing such Holder’s
intention to convert a specified portion hereof No fractional shares of Common Stock or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The date
on which notice of conversion is given (the “Conversion Date”) shall be deemed to be the date on which the Holder
faxes or otherwise delivers the conversion notice (“Notice of Conversion”), substantially in the form annexed
hereto as Exhibit A, duly executed, to the Company. Facsimile delivery of the Notice of Conversion shall be accepted by the
Company at facsimile number ________ ) ATTN: Chief Financial Officer. Certificates representing Common Stock
upon conversion will be delivered within three (3) business days from the Conversion Date. (“Delivery
Date”)
The Company understands
that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date (as defined in this Section) could result
in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay late payments to the Holder
for late issuance of Shares upon Conversion, unless the delay is due to causes beyond the reasonable control of the Company or
the Transfer Agent, in accordance with the following schedule (where “No. Business Days Late” refers to the number of
business days which is beyond three (3)) business days after the Delivery Date):’
| |
|
| |
Late Payment For Each $10,000 |
| |
of Note Principal or Interest |
| No. Business Days Late |
Amount Being Converted |
|
| |
|
| 1 |
$100 |
| 2 |
$200 |
| 3 |
$300 |
| 4 |
$400 |
| 5 |
$500 |
| 6 |
$600 |
| 7 |
$700 |
| 8 |
$800 |
| 9 |
$900 |
| 10 |
$1,000 |
| >10 |
$1,000+$200 for
each Business Day Late beyond 10 days |
The Company shall pay
any payments incurred under this Section in immediately available funds upon demand as the Holder’s remedy for such delay. Furthermore,
in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect
delivery of such shares of Common Stock by close of business on the Delivery Date, unless such failure is due to causes beyond
the Company’s reasonable control or that of its Transfer Agent, the Holder will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion; provided, however, that an amount equal to any payments contemplated
by this Section which have accrued through the date of such revocation notice shall remain due and owing to the Converting Holder
notwithstanding such revocation.
If, by the relevant
Delivery Date, the Company fails, unless such failure is due to causes beyond the Company’s reasonable control or that of its Transfer
Agent, for any reason to deliver the Shares to be issued upon conversion of the Note and after such Delivery Date, the Holder of
the Note being converted (a “Converting Holder”) purchases, in an arm’s-length open market transaction or otherwise,
shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by
the Converting Holder (the “Sold Shares”), which delivery such Converting Holder anticipated to make using the Shares
to be issued upon such conversion (a “Buy-In”), the Converting Holder shall have the right, to require the Company to
pay to the Converting Holder, in addition to and not in lieu of the amounts due hereunder (but in addition to all other amounts
contemplated in other provisions of the Transaction Agreements, and not in lieu of any such other amounts), the Buy-In Adjustment
Amount (as defined below). The “Buy-hi Adjustment Amount” is the amount equal to the excess, if any, of (x) the Converting
Holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Company in immediately available funds immediately upon demand by the Converting Holder. By way of illustration
and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-1n with respect to shares of Common Stock it sold for net proceeds
of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000.
In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion, provided the Company’s Transfer Agent is participating
in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, upon request of the Holder and
its compliance with the provisions contained in this paragraph, so long as the certificates therefore do not bear a legend and
the Holder thereof is not obligated to return such certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by
crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
The Holder of the
Note shall be entitled to exercise its conversion privilege with respect to the Note notwithstanding the commencement of any case
under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In the event the Company
is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may
have under 11 U. S .C. §362 in respect of such holder’s conversion privilege. The Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Note.
3. This
Note has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged
only in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and foreign
securities laws. In the event of any proposed transfer of this Note, the Company may require, prior to issuance of a new Note
in the name of such other person, that it receive reasonable transfer documentation including legal opinions that the issuance
of the Note in such other name does not and will not cause a violation of the Act or any applicable state or foreign securities
laws. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose
name this Note is duly registered on the Company’s Note Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
4.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct
obligation of the Company.
5. The
Holder of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Note or the shares of Common Stock issuable upon conversion thereof except under circumstances
which will not result in a violation of the Act or any applicable state Blue Sky or foreign laws or similar laws relating to the
sale of securities.
6. This Note shall be governed by and construed in accordance with the laws of the State of Connecticut. Each of the parties
consents to the jurisdiction of the federal or state courts whose districts encompass any part of the State of Connecticut in
connection with any dispute arising under this Note and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions.
Each of the parties hereby waives the right to a trial by jury in connection with any dispute arising under this
Note.
7. The following shall constitute an “Event
of Default”:
| a. | The Company shall default in the payment of principal and interest on this
Note and same shall continue for a period of five (5) days; or |
| b. | Any of the representations or warranties made by the Company herein, in
any certificate or financial or other written statements heretofore or hereafter furnished by the Company in connection with the
execution and delivery of this Note shall be false or misleading in any material respect at the time made; or |
| c. | The Company shall fail to perform or observe, in any material respect, any
other covenant, term, provision, condition, agreement or obligation of any Note and such failure shall continue uncured for a period
of thirty (30) days after written notice from the Holder of such failure; or |
| d. | The Company fails to authorize or to cause its Transfer Agent to issue shares
of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails
to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock issued to the Holder upon conversion
of this Note and when required by this Note, and such transfer is otherwise lawful, or fails to remove any restrictive legend on
any certificate or fails to cause its Transfer Agent to remove such restricted legend, in each case where such removal is lawful,
as and when required by this Note, the Agreement, and any such failure shall continue uncured for ten (10) business days; or |
| e. | The Company shall (1) admit in writing its inability to pay its debts generally
as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for
or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business;
or |
| f. | A trustee, liquidator or receiver shall be appointed for the Company or
for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after
such appointment; or |
| g. | Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within sixty (60) days
thereafter; or |
| | h. | Any money judgment, writ or warrant of attachment,
or similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets and
shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or |
| | | Bankruptcy, reorganization, insolvency
or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action or answer approve of; consent to, or acquiesce in any such proceedings or admit
the material allegations of, or default in answering a petition filed in any such proceeding; or |
| | | The Company shall have its Common
Stock suspended or delisted from an exchange or over-the-counter market from trading for in excess of five trading days. |
Then, or at any time
thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holders sole discretion,
the Holder may consider all obligations under this Note immediately due and payable within five (5) days of notice, without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately enforce any and all of the Holders rights and remedies
provided herein or any other rights or remedies afforded by law.
8. The Holder
may not convert this Note to the extent such conversion would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder)
in excess of 9.999% of the then issued and outstanding shares of Common Stock held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at
the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in
excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially
owned by the Holder or an affiliate thereof; the Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the determination of which portion of the principal amount
of Note are convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion
Notice for a principal amount of Note that would result in the issuance of in excess of the permitted amount hereunder,
without regard to any other shares that the Holder or its affiliates may beneficially own, the Company shall notify the
Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such
Conversion Date and, at the option of the Holder, either retain any principal amount tendered for conversion in excess of the
permitted amount hereunder for future conversions or return such excess principal amount to the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 65 days
prior notice to the Company. Other Holders shall be unaffected by any such waiver.
9. Nothing
contained in this Note shall be construed as conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a
shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.
IN WITNES S WHEREOF,
the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.
| |
|
| Dated: May 29, 2015 |
|
| |
ATTITUDE DRINKS INCORPORATED |
|
|
|
| |
|
| |
By: Tommy E. Kee |
| |
/s/ Tommy E. Kee |
| ATTESTOR |
Title CFO |
| |
|
| By:/s/ Connie A. Kee |
|
| Name: Connie A. Kee |
|
EXHIBIT
(10)(124)
MILFORD
CRAFT, LLC
OPERATING
AGREEMENT
As of May 29, 2015
OPERATING
AGREEMENT
THIS
OPERATING AGREEMENT (the “Agreement”) of MILFORD CRAFT, LLC, a Connecticut limited liability company (the “Company”),
dated as of May __, 2015, by and among New England WOB, LLC and Attitude Beer Holding Co. (each a “Member and collectively
the “Members”).
WHEREAS,
the Company, was formed as a limited liability company pursuant to the laws of the State of Connecticut by filing the Articles
of Organization with the Connecticut Secretary of State on April 10, 2015, as the same may be amended, supplemented or modified
from time to time (the “Articles of Organization”); and
WHEREAS,
the undersigned desire to provide for the regulation and establishment of the affairs of the Company, the conduct of its business
and the relations among them as Members of the Company.
NOW
THEREFORE, for and in consideration of the premises stated, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Members hereby agree as follows:
Article
1
DEFINITIONS
SECTION
1.1 Definitions. As used herein, the following terms have the following respective meanings:
(a) “Act”
shall mean the Limited Liability Company Law of the State of Connecticut and any successor statute, as amended from time to
time.
(b) “Adjusted
Capital Account” means the cash contributed by a Member, (i) reduced from time to time by cash distributions from
the Company to him in accordance with Section 5.2(b)(ii) herein, and (ii) increased from time to time by any additional cash contributions
made by him in accordance with Section 3.2(a) herein, and (iii) otherwise adjusted as required under Treasury Regulations § 1.704-1(b)(2)(iv).
(c) “Affiliate”
means any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under
common control with, another Person.
(d) “Agreement”
means this Operating Agreement, as amended from time to time.
(e) “Available
Cash” means all cash of the Company after paying its current obligations and making the appropriate reservations
for foreseeable future expenses.
(f) “Bankruptcy”,
with respect to any Person, means (i) making an assignment for the benefit of creditors, (ii) filing a voluntary petition in bankruptcy,
(iii) becoming the subject of an order for relief or being-declared insolvent in any federal or state bankruptcy or insolvency
proceeding (unless such order is dismissed within ninety (90) days following entry), (iv) filing a petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute,
law, or regulation, (v) filing an answer or other pleading admitting or failing to contest the material allegation of a petition
filed against it in any proceeding similar in nature to those described in the preceding clause, or otherwise failing to obtain
dismissal of such petition within one hundred- twenty (120) days following its filing, or (vi) seeking, consenting to, or acquiescing
in, the appointment of a trustee, receiver, or liquidator of all or any substantial part of its properties.
(g) “Capital
Contribution” means the aggregate capital contribution made from time to time in cash by a Member to the Company.
(h) “Capital
Proceeds” means the proceeds of the sale of all or substantially all the assets of the Company.
(i) “Code”
means the Internal Revenue Code of 1986, as amended, and any successor statute.
(j) “Company”
means MILFORD CRAFT, LLC, a New York limited liability company.
(k) “Incompetency,”
with respect to any member who is a natural person, shall mean the entry by a court of competent jurisdiction of an order or decree
adjudicating such Member incompetent to manage his person or his estate.
(l) “Interest(s)”
means an interest as a Member of the Company.
(m) “Lien”
means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, conditional sale agreement or encumbrance
of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest in respect
of such asset.
(n) “Liquidator”
means the Manager, or if there are no Manager at the time in question, such other Person who is appointed in accordance with
applicable law to take all actions related to the winding up of the Company’s business and the distribution of the Company’s
assets.
(o) “Manager”
means New England WOB, LLC.
(p) “Management
Fee” shall mean 4% of Net Sales. Net Sales shall mean the total revenue from sales generated by a company, less
deduction of returns, allowances for damaged or missing goods and any discounts allowed.
(q) “Member”
means any of those Persons identified above as Members and any substitute or additional Member in such Person’s capacity
as a member of the Company.
(r) “Member
Majority” or “Majority of Members” means, at any time, any combination of Members holding, in
the aggregate, a majority of all of the Interests.
(s) “Membership
Interest” shall mean the same thing as Interest as defined in Section 1.1(o) herein.
(t) “Membership
Percentage” means, with respect to each Member, the percentage set forth in “Schedule A” attached
hereto.
(u) “Net
Profits and Net Losses” means, for any period, the net profits and net losses, respectively, derived from the operation
of the Company for Federal income tax purposes, including gains and losses on the sale of all or any portion of the Company’s
assets.
(v) “Notice”
means a written notice containing all information which is either desirable, relevant or necessary to satisfy the purposes
for which such notice is being delivered.
(w) “Operating
Reserves” means cash reserves of the Company held by the Company to ensure it can make future payments despite any
drop in revenue. Operating Reserves shall not exceed two (“2”) months expenses determined by taking the average monthly
expense for the previous 12 months.
(x) “P&L
Participant” means a person entitled to participate in the profits and losses of the Company but shall not be a
Member of the Company and shall not have any voting rights, equity interest or stake in the Company. A P&L Participant shall
solely have a contractual agreement with the Company.
(y) “Person”
means any natural person, corporation (stock or nonstock), limited liability company, limited partnership, general partnership,
joint stock company, joint venture, association (profit or nonprofit), company, estate, trust, bank, trust company, land trust,
business trust or other organization, whether or not a legal entity, and any government agency or political subdivision thereof.
(z) “Securities
Act” means the Securities Act of 1933, as amended, and any successor statute, and the rules and regulations promulgated
thereunder.
(aa) “Transfer”
means the sale, transfer, assignment, pledge, mortgage, hypothecation, encumbrance, distribution or other disposition of any
Interests.
(bb) “Treasury
Regulations” means regulations adopted by the Treasury Department of the United States governing application and
enforcement of the Code. Any reference to a section or provision of the Treasury Regulations shall be deemed to refer also to
such section or provision as amended or superseded.
(cc) “Unreturned
Capital Contribution” of any Member means, at any date, the Capital Contributions of such Member reduced from time
to time (but not below zero) by any distribution to such Member pursuant to Section 5.2(b)(ii) hereof.
Article
2
THE COMPANY; THE MEMBERS; VOTING RIGHTS
SECTION
2.1 Registered Office and Registered Agent. The address of the registered office of the Company is 3472 Pine Haven
Circle, Boca Raton, FL 33431 and the registered agent is Corporate Creations Network, Inc.
SECTION
2.2 Principal Office. The address of the principal office of the Company shall be 3472 Pine Haven Circle, Boca Raton,
FL 33431 or such other place as the Manager may from time to time determine.
SECTION
2.3 Duration. The Company’s existence shall continue until dissolved in accordance with the Act and this Agreement.
SECTION
2.4 Maintenance. The Members shall promptly sign and file all certificates, amendments or other instruments as required
by law to maintain the Company in good standing as a limited liability company in all jurisdictions in which it conducts business,
including without limitation, as required to comply with any fictitious name statutes.
SECTION
2.5 Changes in Registered Office, etc. The Manager may make such changes in the registered office, registered agent
and principal office as they may deem necessary or advisable, and shall give Notice to all Members promptly following any such
change. The Company may maintain such other or additional business offices at such other place or places as the Manager may from
time to time deem advisable.
SECTION
2.6 Business Purpose. The Company is formed and organized to engage in the following business:
(a) To
own, improve, develop, operate and manage a World of Beer Franchise in Milford, Connecticut; and
(b) To
engage in any business related or incidental to one or more of the foregoing activities.
The
Members have entered into a Joint Venture Agreement dated December 24, 2014, regarding the establishment of World of Beer franchises
(the “JV Agreement”).
SECTION
2.7 Authority and Powers. The Company is authorized and empowered to do any and all acts and things necessary, appropriate,
proper, advisable, incidental to, or convenient for the furtherance and accomplishment of its purposes, and for the protection
and benefit of the Company, including without limitation, all acts and things permitted under the Act and this Agreement.
SECTION
2.8 Juridical Existence, Properties, Etc. The Company shall maintain, preserve, and keep in full force and effect
its limited liability company existence and all rights, franchises, licenses and permits necessary to the proper conduct of its
business, and the ownership, lease, or operation of its properties which, if not so maintained, could reasonably be expected to
have a material adverse effect on the Company, and to take all action which may be reasonably required to obtain, preserve, renew
and extend all material licenses, permits, authorizations, trade names, trademarks, service names, service marks, copyrights and
patents which are necessary for the continuance of the operation of any such property by the Company.
SECTION
2.9 Members and Membership Percentages. The Members and their respective Membership Percentages shall are set forth
in “Schedule A” attached hereto.
SECTION
2.10 Voting Rights. All Members shall have the right to vote their membership interest in proportion to their respective
Membership Percentages shall are set forth in “Schedule A” attached hereto.
SECTION
2.11 P&L Participants. The Manger may grant solely to significant
employees of the Company the rights to be a P&L Participant of the Company, up to five percent (5%) of the Company’s
profits and losses. Such P&L Participant shall participate in the profits and losses as if such person was a Member. All P&L
Participant shall be identified on Schedule C and their participation with the Members in the profits and losses of the Company
shall be set forth on Schedule B. No Member or employee of a Member may be a P&L Participant.
Article
3
CAPITAL CONTRIBUTIONS
SECTION
3.1 Initial Capital Contributions. The members have made an initial capital contribution as set forth on Schedule
A.
SECTION
3.2 Additional Capital Contributions.
(a) Upon
the consent of a Majority of Members, the Manager shall have the right to require additional capital contributions (“Capital
Calls”) from the Members to be paid on a pro rata basis as to all Members in accordance with the percentages set forth on
Schedule A.
(b) The
Manager may obtain Company loans to cover any Company required Additional Capital Contributions, with the consent of the Members
holding a majority of the Membership Interest in the Company.
(c) In
the event that a Member fails to, or refuses to contribute towards a Capital Call (the “Defaulting Member”), then
either:
(i) The
remaining Members may elect to purchase the Membership Interest from the Defaulting Member, at a 15% discount to the Defaulting
Member’s Initial Capital Contribution; or
(ii) The
remaining Members may elect to contribute the necessary funds (the “Lending Members”) on behalf of the Defaulting
Member which shall be considered a loan to the Defaulting Member, to be secured by its Membership Interest in the Company.
(A) Any
loan given to the Company by the Lending Member on behalf of the Defaulting Member, shall accrue interest at a rate of 300 basis
points above LIBOR per annum. In the event of a Distribution by the Manager under Article 5 herein or under a dissolution of the
Company under Article 10 herein, the Manager shall use the funds attributable to the Defaulting Member, to first pay off any loans
to the Defaulting Member by the Lending Member.
(B) In
furtherance of any loan to any Defaulting Member by the Lending Members in accordance with this Section, the Members hereby expressly
agree to execute any and all loan documents which the Company’s attorneys deem necessary, including but not limited to;
a Note, Guaranty, Loan Agreement, and Pledge Agreement. Furthermore, the Defaulting Member shall be responsible to pay for all
legal fees that the Company shall incur in furtherance of such loan.
SECTION
3.3 Return of Capital Contributions. The contributions of the Members to the capital of the Company shall be returned
to them in cash, in whole or in part, at any time in the discretion of the Manager in accordance with Section 5.2(b) herein.
SECTION
3.4 Time when Capital is Returned. Upon the satisfaction of all the Company’s financing obligations, or a
liquidation of the assets of the LLC, or the dissolution of the LLC, the Capital Contributions shall be returned to the Members
pro rata in accordance with each Member’s Capital Contributions.
SECTION
3.5 No Right to Priority. Except as otherwise expressly provided in this Agreement, or as required to comply with
the Code and Treasury Regulations, no Member shall have priority over any other Member as to any allocations, distributions, or
return of all or any part of its Capital Contributions.
SECTION
3.6 Dilution. No dilution of the membership interest of any member shall occur without the consent of World of Beer
Franchising, Inc.
Article
4
ALLOCATION OF PROFITS AND LOSSES TO MEMBERS
SECTION
4.1 Allocation of Net Profits and Net Losses. Net profits and net losses shall be allocated in the proportions set
forth on Schedule B.
SECTION
4.2 Required Special Allocations. Notwithstanding Section 4.1 hereof,
(a) Appropriate
adjustments shall be made to the allocations of Net Profits and Net Losses to the extent required under Section 704(c) of the
Code and the Treasury Regulations thereunder and under Sections 1.704-1(b)(2)(iv)(d), (e), (f) and (g) of the Treasury Regulations;
(b) Appropriate
adjustments shall be made to the allocations of Net Profits and Net Losses to the extent required to comply with the “qualified
income offset” provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations; the partnership “minimum gain
chargeback” provisions of Section 1.704-2(f) of the Treasury Regulations; and the “partner nonrecourse deduction”
and “partner nonrecourse debt minimum gain chargeback” provisions of Section 1.704-2(i) of the Treasury Regulations,
all issued pursuant to Section 704(b) of the Code. To the extent permitted by such Treasury Regulations, the allocations in such
year and subsequent years shall be further adjusted so that the cumulative effect of all the allocations shall be the same as
if all such allocations were made pursuant to Section 4.1 hereof (as adjusted by Section 4.3(a) hereof) without regard to this
Section 4.3(b).
SECTION
4.3 Other Allocation Rules. For purposes of determining the Net Profits, Net Losses, or any other items allocable
to any period, Net Profits, Net Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined
by the Manager using any permissible method under Code § 706 and the Treasury Regulations applicable thereto.
SECTION
4.4 Recapture Income. “Recapture Income,” if any, realized by the Company pursuant to Sections 1245
or 1250 of the Code shall be allocated to the Members to whom the prior corresponding depreciation deductions were allocated,
in proportion to the amounts of such depreciation deductions previously allocated to them.
Article
5
DISTRIBUTIONS
SECTION
5.1 Distributions in Kind. No Member shall be entitled to demand and receive distributions other than in cash form.
Any non-cash Company assets distributed in kind shall be distributed to the Members entitled thereto as tenants-in-common owning
undivided interests in the same proportion as would be applicable to cash distributions, however, such distribution in kind may
only be made with consent of the Members holding a Member Majority.
SECTION
5.2 Distribution of Available Cash and Capital Proceeds.
(a) Available
Cash. The Manager shall distribute Available Cash in the percentages set forth on Schedule B. It is anticipated the Manager
shall make distributions on a monthly basis.
(b) Capital
Proceeds. Capital Proceeds remaining after the payment of any debts and liabilities of the Company due and payable at such
time and the establishment of any Operating Reserves which the Manager determines, in his sole discretion necessary for reasonable
ongoing business requirements, and necessary to provide for any contingent or unforeseen liabilities or obligations of the Company,
shall be distributed in accordance with the following order of priority:
(i) First,
to repay the Capital Contributions of the Members as set forth on Schedule A; and
(ii) Second,
in the percentages set forth on Schedule B.
Article
6
RESIGNATION OR BANKRUPTCY OF A MEMBER
RESTRICTIONS ON THE TRANSFER OF INTERESTS;
ADMISSION OF SUBSTITUTE AND ADDITIONAL MEMBERS;
SECTION
6.1 Resignation or Bankruptcy of a Member; Continuation of the Company.
(a) A
Member shall have the right to withdraw his Capital Contribution upon the termination of the Company as provided in Section 10.2
hereof, provided, however, that no part of the Capital Contribution of any Member shall be withdrawn unless all liabilities of
the Company, except obligations to Members on account of their Capital Contributions, have been paid, or unless the Company has
assets sufficient to pay them.
(b) Within
ninety (90) days following the Resignation or the Bankruptcy (other than by reason of death or incompetency) of a Member, the
Company shall dissolve unless, within such applicable period, a majority in interest of the Members (excluding for such purpose
the successor in interest to the terminated Member’s Interest) elect in writing to continue the Company on such terms as
they may agree upon in writing. If an election to continue the Company is so made then the Company shall continue in existence
until the end of the term for which it has been formed, or until a subsequent Resignation (other than by reason of death or incompetency),
Bankruptcy or other event of dissolution occurs.
(c) The
death or Incompetency of a Member shall neither dissolve nor terminate the Company.
SECTION
6.2 Restrictions on the Transfer of Interests.
(a) Except
as expressly provided herein, no Member shall have the right to Transfer all or any part of its Interest without the prior written
consent of the Manager, which may be withheld in his sole discretion, according to reasonable terms.
Upon
the consent of the Manager, a Member may transfer his Membership Interest in the Company to a permitted transferee (“Transferee”).
Such Transferee shall be required to pay the Company’s legal fees in connection with effectuating such Transfer as a condition
precedent to the consent. Such Transferee shall be bound to the same extent as a Member hereunder in making a Transfer of his
Interest. Any purported Transfer in violation of the provisions of this Agreement shall be null and void ab initio.
(b) Notwithstanding
subparagraph (a) above, any Member may Transfer all of his Interest during his lifetime to;
(i) an
entity that is wholly controlled, and continues to be controlled by that Member.
(ii) another
Member of the Company, pursuant to Section 6.2 herein.
(iii) an
immediate family member of the Member or a trust for the benefit of an immediate family member.
For
purposes of this subparagraph (b), the term “Entity” shall be limited to the transfer of Member’s interest to
a Corporation, LLC or Trust. If control of such Entity is transferred to another individual or another entity, such change and
transfer shall constitute an unauthorized transfer pursuant to the terms of this agreement.
(c) Notwithstanding
anything to the contrary contained herein, pursuant to Section 6.1(a) or the applicability of Section 6.1(b) or 6.2 hereof:
(i) No
Transfer of an Interest shall be made if the Interest which is the subject of a proposed Transfer when added to the total of all
other Interests Transferred within the period of twelve (12) consecutive months prior thereto would result in the termination
of the Company under Section 708 of the Code or if the Transfer would cause the Company to lose its status under the Code as a
partnership for Federal income tax purposes.
(ii) No
Interest shall be transferred unless the registration provisions of the Securities Act of 1933, as amended, and all applicable
state “blue sky laws” have been complied with or unless compliance with such provisions is not required, each Member
recognizing that no interest in the Company has been registered under Federal or state securities laws. The Manager may request
in their sole discretion an opinion from the Company’s counsel or any other counsel that such transfer will not violate
applicable securities laws. The costs of such opinion shall be paid for by the Transferee.
(iii) Although
a permitted Transferee pursuant to Sections 6.1(b) or 6.2 shall be treated as an assignee of, and be entitled to, all of the rights
of the Selling Member to receive profits, losses and distributions to the extent of the Interest assigned to him, no Transferee
whatsoever shall become substituted as a Member in the Company (x) without the prior written consent of a Majority of Members,
which may be withheld in their sole discretion, for any or no reason, and (y) unless and until such Transferee shall have evidenced
his consent and agreement to be bound by all of the terms and provisions of this Agreement, and to assume, as a substituted Member,
his pro rata share hereunder of the obligations of his transferor as a Member, by executing and acknowledging a counterpart of
an amendment of this Agreement and/or such other agreement to that effect as the Manager may request, each of which shall appropriately
reflect his admission as a member of the Company and his capital contribution thereto, and such other documents, all as may reasonably
be required by the Managing Member. Such substitution shall then take effect when the Manager have accepted such person as a Member
and the books and records of the Company reflect such Person as admitted to the Company as a Member. As a condition to such
Transferee becoming a substituted Member, such Transferee shall also be required to pay the Company’s costs and expenses,
including but not limited to legal fees and disbursements, in connection with his becoming a Member.
(d) If
a Transfer or attempted Transfer of an Interest is made other than in accordance with the terms of this Agreement, it shall be
null and void and no right, title or interest in the Company shall be transferred.
(e) No
assignment, transfer or other disposition of all or any part of the interest of any Member permitted under this Agreement shall
be binding upon the Limited Liability Company unless and until a duly executed and acknowledged counterpart of such assignment
or instrument of transfer, in form and substance satisfactory to the Company, has been delivered to the Company.
(f) As
between a Member and an assignee or transferee of such Member’s interest in accordance with this Agreement, allocations and distributions
for any fiscal year shall be apportioned as of the date of the assignment or transfer, on the basis of the number of days before
and after said date, without regard to the results of the Company’s operations before or after the assignment or transfer.
(g) No
assignment or other disposition of any interest of any Member may be made if such assignment or disposition, alone or when combined
with other transactions, would result in the termination of the Company within the meaning of Section 708 of the Internal Revenue
Code or under any other relevant section of the Code or any successor statute. No assignment or other disposition of any interest
of any Member may be made without an opinion of counsel satisfactory to the Company that such assignment or disposition is subject
to an effective registration under, or exempt from the registration requirements of, the applicable State and Federal securities
laws. No interest in the Company may be assigned or given to any person below the age of 21 years or to a person who has been
adjudged to be insane or incompetent.
SECTION
6.3 RIGHT OF FIRST REFUSAL
(a) Anything
herein contained to the contrary, the Company shall be entitled to treat the record holder of the interest of a Member as the
absolute owner thereof, and shall incur no liability by reason of distributions made in good faith to such record holder, unless
and until there has been delivered to the Company the assignment or other instrument of transfer and such other evidence as may
be reasonably required by the Company to establish to the satisfaction of the Limited Liability Company that an interest has been
assigned or transferred in accordance with this Agreement.
(b) Notwithstanding
the forgoing terms, and subject to Section 6.1(b) herein, if a Member desires to sell, or otherwise dispose of all or any part
of its interest in the Company, such Member (the “Selling Member”) shall first offer to sell and convey such interest
to any other Members before selling, or otherwise disposing of such interest to any other person, corporation or other entity.
Such offer shall be in writing, shall be given to every other Member, and shall set forth the interest to be sold, purchase price
to be paid, the date on which the closing is to take place, (which date shall be not less than thirty nor more than sixty days
after the delivery of the offer), the location within the State of New York at which the closing is to take place, and all other
material terms and conditions of the sale, transfer or the disposition.
(c) Within
fifteen days after the delivery of said offer to the other Members shall deliver to the Selling Member a written notice either
accepting or rejecting the offer. Failure to deliver said notice within said fifteen days conclusively shall be deemed a rejection
of the offer. Any or all of the other Members may elect to accept the offer, and if more than one of the other Members elects
to accept the offer, the interest being sold and the purchase price therefor shall be allocated among the Members so accepting
the offer in proportion to their Members’ Percentage Interest, unless they otherwise agree in writing.
(d) If
any or all of the other Members elect to accept the offer, then (a) upon such acceptance in writing, the Member(s) shall pay a
non-refundable ten percent (10%) down payment of the purchase price and (b) then the transfer of the Membership Interest shall
be held in accordance with the offer and the Selling Member shall deliver to the other Members who have accepted the offer an
assignment of the interest being sold by the Selling Member, and said other Member shall pay the remaining balance of the purchase
price prescribed in the offer.
(f) If
no other Member accepts the offer, or if the Members who have accepted such offer default in the obligation to purchase the interest,
than the Selling Member within 120 days after the delivery of the offer may sell such interest to any other person or entity at
a purchase price which is not less than the purchase price prescribed in the offer and upon terms and conditions which are substantially
the same as the terms and conditions set forth in the offer, provided all other applicable requirements of the Agreement are complied
with. An assignment of such interest to a person or entity who is not a Member of the Limited Liability Company shall cause such
Person to become a member upon the execution of the such documents required by Section 6.2(c)(iii).
(g) If
the Selling Member does not sell such interest within said 120 days, then the Selling Member may not thereafter sell such interest
without again offering such interest to the other Members in accordance with this Article 6.
SECTION
6.4 Admission of Persons as Additional Members. In regards to permitted Transferee’s pursuant to Section 6.1
and 6.2 herein, the Manager shall have the right to admit, and each of the Members hereby consents to the admission of, such additional
Members to the Company as the Manager shall unanimously determine in his sole discretion; it being understood no Member shall
have its Membership Percentage reduced without his prior written consent. In the event that the Manager shall determine to admit
one or more Members to the Company, the Members hereby agree to execute and deliver such documents as the Manager shall request
in order to effectuate the admission of such additional Member(s). Any additional Member(s) admitted to the Company shall be required
to execute a counterpart signature page to this Agreement and, if required, an amendment to the Articles of Organization of the
Company and such other documents as the Manager may request in order to effectuate admission to the Company.
SECTION
6.5 Attitude Beer Holding Co. The Company and Members acknowledge that Attitude Beer Holding Co. is owned by Harrison
Vickers and Waterman, Inc., a publicly traded company. No change in the direct or indirect ownership of Attitude Beer Holding
Co. shall be deemed a transfer of Attitude Beer Holding Co.’s Membership Interest. The Company agrees to fully cooperate
with Attitude Beer Holding Co. and Harrison Vickers and Waterman in supplying all information to Harrison Vickers and Waterman
and its auditor so Harrison Vickers and Waterman can timely comply with its Securities and Exchange Commission reporting obligations.
SECTION
6.6 WOB. The Members acknowledge that the business of the Company is subject to a franchising agreement with WOB
and pursuant to the Franchise Agreement, the Members may be required to or prohibited from transferring their membership interest
or make other changes to this agreement in accordance with the terms of the Franchise Agreement.
Article
7
MANAGEMENT
SECTION
7.1 Manager New England WOB, LLC is hereby appointed the Manager of the Company (the “Manager”). The
business and affairs of the Company shall be managed under the sole direction and control of the Manager, using reasonable business
practices, and all powers of the Company shall be exercised by or under the authority of the Manager. No other Person shall have
any right or authority to act for or bind the Company except as permitted in this Agreement or as required by law. The Manager
may be removed by a Majority of Members only for gross negligence or fraud.
SECTION
7.2 General Powers. The Manager shall have the full power to execute and deliver, for and on behalf of the
Company, any and all documents and instruments which may be necessary or desirable to carry on the business of the Company, including,
without limitation, any and all deeds, contracts, leases, mortgages, deeds of trust, promissory notes, security agreements, and
financing statements pertaining to the Company’s assets or obligations, and to authorize the confession of judgment against the
Company. No person dealing with the Manager need inquire into the validity or propriety of any document or instrument executed
in the name of the Company by the Manager, or as to the authority of the Manager in executing the same.
SECTION
7.3. Limitation on Authority of Members.
(a) No
Member is an agent of the Company solely by virtue of being a Member, and no Member has authority to act for the Company solely
by virtue of being a Member.
(b) This
Article 7 supersedes any authority granted to the Members pursuant to Section 412 of the Law. Any non-manager Member who takes
any action or binds the Company in violation of this Article 7 shall be solely responsible for any loss and expense incurred by
the Company as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to the loss
or expense.
SECTION
7.4 Appointment of New Manager. A new Manager can be appointed only by Members holding a Member Majority. Such new
Manager need not be a Member of the company.
SECTION
7.5 Liability and Indemnification.
(a) The
Manager shall not be liable, responsible, or accountable, in damages or otherwise, to any Member or to the Company for any act
performed by the Manager within the scope of the authority conferred on the Manager by this Agreement, except for fraud, bad faith,
gross negligence, or an intentional breach of this Agreement.
(b) The
Company shall indemnify the Manager for any act performed by the Manager within the scope of the authority conferred on the Manager
by this Agreement, except for fraud, bad faith, gross negligence, or an intentional breach of this Agreement.
SECTION
7.6 Major Decisions
(a) Approval
of Major Decisions. Notwithstanding anything to the contrary in this Agreement, certain decisions or actions as set forth
in this Section 7.6 (“Major Decisions”) may not be taken solely in the Manager’s discretion and shall require
the affirmative vote of a Member Majority. Approval of Major Decisions may be given at a Meeting called for that purpose or by
written consent.
(b) Designation
of Major Decisions. The following shall constitute Major Decisions subject to this Section:
(i)
Other than in the regular course of business, the sale of all or a substantial portion of the assets owned by the Company. For
this purpose, Twenty Percent (20%) of the fair market value of the assets owned by the Company shall constitute a “substantial
portion.”
(ii) The
dissolution, liquidation or other termination or cessation of the business operations of the Company, including without limitation
the filing of a voluntary petition in Bankruptcy, the assignment of all or substantially all of the assets of the Company for
the benefit of the Company’s creditors or the appointment of trustee, liquidator, administrator or like person or entity
for the purpose of winding up the business and affairs of the Company.
(iii) Any
change in the principal purpose of the Company’s business, as set forth in Section 2.6 above.
(iv) Any
borrowing or pledge of assets owned by the Company in excess of $50,000 in the aggregate or any loan to a Member or Manager.
(v) The
admission of new Member.
Article
8
RELATED PARTY DEALINGS
SECTION
8.1 Outside Business Interests; Business Opportunity. The Members may each engage in or possess interests in other
business ventures of every kind and description for its own account, including without limitation, serving as a member, partner
or shareholder of other entities which own, either directly or through interests in other entities, properties similar to the
assets of the Company and neither the Company nor any of the Members shall have any rights by virtue of this Agreement in or to
such other business ventures or to the income or profits derived therefrom, or to any business opportunities as may become available
to the Manager or any Member, whether or not similar in nature to the Company’s then existing business activities.
SECTION
8.2 Member Dealing With the Company. The fact that a Member or an affiliate thereof is employed by or is directly
or indirectly interested in or connected with any person, firm or corporation employed by the Company for real estate management
or otherwise to perform a service, or from or with which the Company may purchase any property or have other business dealings,
shall not prohibit the Member from employing or otherwise dealing with such person, firm or corporation, so long as such business
dealing, contract, or agreement follows and contains reasonable business terms. Neither the Company nor any of the Members shall
have any rights in or to any income or profits derived therefrom. The said Member or his affiliated company shall not receive
any benefit of any kind, other that is specifically and contractually agreed upon, in writing, between the respective companies
and or parties.
Article
9
MEMBER LIABILITY; INDEMNIFICATION AND LIABILITY LIMITATION
SECTION
9.1 Liability of Members; Enforcement of Obligations. Except to the extent otherwise expressly stated in this Agreement
or prescribed under the Act, (a) the Members shall have no fiduciary or partnership relationship between or among themselves solely
by reason of their status as Members, and (b) the rights of each of the Members and the Company to sue for matters and claims
arising out of or pertaining to this Agreement shall not be dependent upon the dissolution, winding-up or termination of the Company.
SECTION
9.2 Indemnification of Members . Except as provided in Section 9.4, every Person who was or is a party, or who is
threatened to be made a party, to any pending, completed or impending action, suit or proceeding of any kind, whether civil, criminal,
administrative, arbitrative or investigative (whether or not by or in the right of the Company) by reason of (a) being or having
been a Member of the Company, (b) being or having been a Member, manager, partner, officer or director of any other entity at
the request of the Company, or (c) serving or having served in a representative capacity for the Company in connection with any
partnership, joint venture, committee, trust, employee benefit plan or other enterprise, shall be indemnified by the Company against
all expenses (including reasonable attorneys’ fees and expenses), judgments, fines, penalties, awards, costs, amounts paid
in settlement and liabilities of all kinds, actually incurred by such Person incidental to or resulting from such action, suit
or proceeding to the fullest extent permitted under the Act, without limiting any other indemnification rights to which such Person
otherwise may be entitled. The Company may, but shall not be required to, purchase insurance on behalf of such Person against
liability asserted against or incurred by such Person in its capacity as a Manager or Member of the Company, or arising from such
Person’s status as a Manager or Member, whether or not the Company would have authority to indemnify such Person against
the same liability under the provisions of this Section 9.2 or the Act.
SECTION
9.3 Limitation of Liability. Except as otherwise expressly provided in this Agreement, no Member or Manager shall
have liability to the Company or other Members for monetary damages resulting from errors made in the exercise of good-faith judgment.
SECTION
9.4 Qualification of Indemnification and Liability Limitation.
(a) The
indemnification rights and limitations on liabilities set forth in Sections 9.2 and 9.3 shall not apply to claims based upon any
willful misconduct, intentional breach or disregard of the terms of this Agreement or knowing violation of criminal law or any
federal or state securities law, including without limitation, unlawful insider trading or market manipulation for any security,
nor shall such indemnification rights and limitations on liabilities preclude the Company or any Member from recovery for any
loss or damage otherwise covered under any insurance policy or fidelity bonding. Nothing herein shall be deemed to prohibit or
limit the Company’s right to pay, or obtain insurance covering, the costs (including reasonable attorneys’ fees and
expenses) to defend an indemnitee, Member or Manager against any such claims, subject to a full reservation of rights to reimbursement
in the event of a final adjudication adverse to such indemnitee, Member or Manager.
(b) An
indemnitee shall be entitled to recover from an indemnitor all legal costs or expenses, including reasonable attorney’s
fees and expenses, incurred by such indemnitee to enforce its rights hereunder, or to collect any sums due from the indemnitor
hereunder.
Article
10
DISSOLUTION AND LIQUIDATION OF THE COMPANY
SECTION
10.1 Dissolution of the Company. The Company shall be dissolved on the earlier of the expiration of the term of
the Company or upon:
(a) The
Resignation (other than by reason of death or incompetency) or Bankruptcy of a Member unless a majority in interest of the Members
(as defined in Section 6.1(b)) elect to continue the Company pursuant to Section 6.1(b);
(b) The
Resignation or Bankruptcy of a Member which leaves only one (1) Member remaining, and no additional or substitute Member is admitted
to the Company in accordance with this Agreement within ninety (90) days thereafter;
(c) The
expiration of thirty (30) days following the sale or other disposition of all or substantially all of the Company’s assets;
(d) The
election by a majority of the Members to liquidate the Company; or
(e) The
occurrence of any other event of dissolution under the provisions of this Agreement or the Act.
SECTION
10.2 Winding-up and Distribution of the Company.
(a) Upon
the dissolution of the Company pursuant to Section 10.1, the Company’s business shall be wound up and its assets liquidated
by the Liquidator as provided in this Section 10.2, and the net proceeds of such liquidation shall be distributed as follows:
(i) First,
to payment of all debts and liabilities of the Company, including, without limitation, any loans from Members and the expenses
of liquidation;
(ii) Second,
to establishment of any reserves reasonably deemed necessary by the Liquidator for contingent, unmatured or unforeseen liabilities
or obligations of the Company. Said reserves shall be paid over to an attorney-at-law of the State of New York, as escrowee, to
be held by him for the purpose of disbursing such reserves in payment of any of the aforementioned contingencies, and, at the
expiration of such period as shall be deemed advisable, to distribute the balance thereafter remaining in the manner hereinafter
provided, together with accrued interest thereon, if any;
(iii) Third,
to those Members having positive Capital Account balances pro rata in the proportion that each such Member’s positive Capital
Account balance bears to the aggregate of the positive Capital Account balances of all such Members, until all Member’s
Capital Account balances are equal to zero;
(iv) Fourth,
any funds remaining shall be distributed in the percentages set forth on Schedule B.
(b) The
Liquidator shall file all certificates and notices of the Company’s dissolution required by law. The Liquidator shall sell
and otherwise liquidate the Company’s assets without unnecessary delay. Upon the complete liquidation of the Company’s
assets and distribution to the Members, they shall cease to be Members of the Company, and the Liquidator shall execute, acknowledge
and cause to be filed all certificates and notices required by law to terminate the existence of the Company.
Article
11
AMENDMENTS
SECTION
11.1 Adoption of Amendments Generally. Amendments to this Agreement to reflect the substitution or addition of a
Member shall be made by written instrument executed by the substituted Member, the added Member, or the resigned Member (or its
authorized representative), as applicable. Any other amendments to this Agreement may be made by a written instrument executed
by Members holding, in the aggregate, at least two-thirds of Membership Interests; provided, however, that no amendment
to this Agreement may:
(a) substantially
alter the purposes of the Company without the written consent of all Members;
(b) expand
the obligations or liabilities of any Member under this Agreement, or modify any Member’s limited liability, without the
written consent of such Member;
(c) modify
the computational method of determining, or priority applicable to, allocations or distributions under Articles 4 and 5 and Section
10.2, without the written consent of all Members; or
(d) amend
this Article 11 without the written consent of all Members.
Article
12
MISCELANEOUS
SECTION
12.1 Non-Recourse Company Loans. Any loans taken by the Company, shall be non-recourse loans as to any and all individual
Members or the Manger, and no Member or Manager shall be required to sign a personal guaranty to in order to secure such loan(s),
unless unanimously consented to by the Members.
Article
13
GENERAL PROVISIONS.
SECTION
13.1 Books and Records. All records of the Company shall be kept at the principal office of the Company and shall
be available for examination by any Member, or such Member’s duly authorized representatives, at all reasonable times at
the office of the Company and by way of internet access to Company bank accounts. The method of accounting on which the books
shall be maintained shall be determined by the majority of the Members . The Manager may make on behalf of the Company the election
permitted by Section 754 of the Code. New England WOB, LLC shall be designated as the “tax matters partner” (the “TMP”)
for purposes of the Code and the “Designated Person” for purposes of maintaining an Investor List to the extent required
by the Code. The TMP is hereby authorized to take such actions as may be required by the Code and the regulations thereunder to
continue such designations. The determination by the TMP with respect to the treatment of any item or its allocation for Federal,
state or local tax purposes shall be binding upon all of the Members, so long as such determination is reasonable and will not
be inconsistent with any express terms hereof. No cause of action shall accrue to any Member under this Section 13.1 if the TMP
acted in good faith to comply with his obligations hereunder. No charge shall be made to the Company for his acting as tax matters
partner. Upon the Resignation or Bankruptcy of the TMP, a majority of the Members may select a Member to become the new “tax
matter partner” and “Designated Person”.
SECTION
13.2 Fiscal Year. The fiscal year of the Company shall be the calendar year.
SECTION
13.3 Custody of Company Funds; Bank Accounts.
(a) The
Manager shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, whether or not
in their immediate possession or control. The Company’s funds shall not be commingled with the funds of any other Person
and the Manager shall not use, or permit use of, the Company’s funds in any manner except for the benefit of the Company.
(b) All
funds of the Company not otherwise invested shall be deposited in one or more internet–accessible accounts maintained in
such federally insured financial institutions as the Manager may deem appropriate, and withdrawals shall be made only in the regular
course of Company business on such signature or signatures as the Manager may deem appropriate. Usernames and passwords for access
to all accounts shall be made available to all members.
SECTION
13.4 Notices. Except as otherwise provided herein, all Notices, requests, consents and other communications hereunder
to the Company or to any Member shall be deemed to be sufficient if contained in a written instrument delivered in person or sent
by telecopier, nationally-recognized overnight courier or first class registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
(a) if
to the Company, to its principal office set forth in Section 2.4, as such office may be changed in accordance with Section 2.7.
(b) if
to any Member, to its respective address set forth on Schedule A hereto.
Any
Member may, at any time and from time to time, designate a substitute address or addresses for itself by delivering a Notice to
the Company and to each other Member in the manner set forth in this Section. All such Notices, requests, consents and other communications
shall be deemed to have been delivered (i) in the case of personal delivery or delivery by telecopier, on the date of such delivery,
(ii) in the case of delivery by nationally-recognized overnight courier, on the date of such delivery, and (iii) in the case of
mailing in the manner set forth in this Section, on the third business day after the posting thereof.
SECTION
13.5 Burden and Benefit. This Agreement shall be binding upon, and shall inure to the benefit of, the Members, and
their respective heirs, executors, administrators, successors and assigns. There shall be no third party beneficiaries of this
Agreement.
SECTION
13.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to
be an original, and all of which together shall constitute one Agreement binding on all parties hereto, notwithstanding that not
all parties shall have signed the same counterpart.
SECTION
13.7 Severability of Provisions. If any term or provision of this Agreement or the application thereof to any Person
or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such
term or provision to Persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be enforceable to the fullest extent permitted by law.
SECTION
13.8 Entire Agreement. This Agreement sets forth all (and is intended by the Members to be an integration of all)
of the promises, agreements and understandings among the Members with respect to the Company, its business operations and management,
the Property and all other Company assets, and there are no promises, agreements, or understandings, oral or written, express
or implied, among them other than as set forth or incorporated herein.
SECTION
13.9 Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement.
SECTION
13.10 Pronouns and Plurals. Whenever the context may require, any pronouns used herein shall be deemed to refer
to the masculine, feminine, or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural, and
vice versa.
SECTION
13.11 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws
of the State of New York.
SECTION
13.12 Dispute Resolution. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in New York County, New York for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery). Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted
by law. Each party irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of the documents contemplated herein, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or proceeding.
SECTION
13.13 Agreement in Counterparts. This Agreement may be executed in several counterparts, and all such executed counterparts
shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties are not signatory
to the original or to the same counterpart.
[REST
OF THIS PAGE LEFT INTENTIONALLY BLANK]
IN
WITNESS WHEREOF, the parties hereto have executed this Operating Agreement as of the date first above written.
COMPANY:
MILFORD
CRAFT, LLC
| |
|
| /s/ Glenn E. Straub |
|
Name:
Glenn E. Straub
Title:
Manager of its manager New England World of Beer
|
MEMBERS:
| |
|
|
| New England World of Beer |
|
Attitude Beer Holding Co. |
| |
|
|
| /s/ Glenn E. Strabu |
|
/s/ Roy Warren |
| By: Glenn E. Straub |
|
By: Roy Warren |
| Its: Manager |
|
Its: President |
SCHEDULE
A
| Member |
Percentage
Interest |
Initial Capital Contribution |
New
England World of Beer
505
S. Flagler Drive, Suite 1010
West
Palm Beach, FL 33401 |
49% |
$1.00 |
Attitude
Beer Holding Co.
712
US Highway 1, Suite 200
North
Palm Beach, FL 33408 |
51% |
$1,373,000* |
| Total |
100% |
$1,373,001 |
*
This amount shall be paid on the following schedule:
1.
$40,000 on or before June 30, 2015;
2.
$78,000 on or before July 30, 2015;
3.
$210,000 on or before October 1, 2015;
4.
$261,250 on or before January 1, 2016;
5.
$261,250 on or before February 1, 2016;
6.
$261,250 on or before March 1, 2016; and
7.
$261,250 on or before April 1, 2016;.
EXHIBIT
(10)(125)
NEITHER
THIS SECURITY NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION
OR SAFE HARBOR THEREFROM.
ATTITUDE
DRINKS INCORPORATED
PROMISSORY NOTE DUE NOVEMBER 30, 2016
THIS
Note is a duly authorized issuance of up to $25,000.00 of ATTITUDE DRINKS INCORPORATED, a Delaware corporation and located at
712 U.S. Highway 1, Suite #200, North Palm Beach, Florida 33408 (the “Company”) designated as its Note, pursuant to
the Consulting Agreement entered into by the Company and the Holder as of July 19, 2012.
FOR
VALUE RECEIVED, the Company promises to pay to SOUTHRIDGE PARTNERS II, LP, the registered holder hereof (the “Holder”),
the principal sum of twenty five thousand and 00/100 Dollars (US $25,000.00) on November 30, 2016 (the “Maturity Date”).
The principal of this Note is payable at the option of the Holder at any time after the Maturity Date, in shares of the Company’s
common stock, $.00001 par value per share (“Common Stock”) as set forth below, or in United States dollars, at the address
last appearing on the Note Register of the Company as designated in writing by the Holder. The Company will pay the outstanding
principal amount of this Note in cash on the Maturity Date to the registered holder of this Note. The forwarding of such wire
transfer shall constitute a payment hereunder and shall satisfy and discharge the liability for principal on this Note to the
extent of the sum represented by such check or wire transfer plus any amounts so deducted.
This
Note is subject to the following additional provisions:
1. The
Note is issuable in denominations of Ten Thousand Dollars (US$10,000) and integral multiples thereof, provided that the number
of shares to be issued upon conversion is a minimum of 3,000 (unless if at the time of election to convert the number of shares
of Common Stock issuable upon conversion is less than 3,000). The Note is exchangeable for an equal aggregate principal amount
of Note 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.
2. The
Holder of this Note is entitled any time after the Maturity Date, subject to the following provisions, to convert all or a
portion of the principal amount of this Note into shares of Common Stock at a conversion price for each share of Common Stock
equal to the Current Market Price multiplied by eighty percent (80%) (the “Conversion Price”). “Current
Market Price” means the average of the closing bid prices for the Common Stock as reported by Bloomberg, LP or, if not
so reported, as reported on the over-the-counter market, for the five (5) trading days ending on the trading day immediately
before the relevant Conversion Date (as defined below). The amount of shares issuable pursuant to a conversion shall equal
the principal amount (or portion thereof) of the Note to be converted, divided by the Conversion Price.
Conversion
shall be effectuated by surrendering the Note to the Company, accompanied by or preceded by facsimile or other delivery to the
Company of the form of conversion notice attached hereto as Exhibit A, executed by the Holder evidencing such Holder’s intention
to convert a specified portion hereof No fractional shares of Common Stock or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The date on which notice of conversion
is given (the “Conversion Date”) shall be deemed to be the date on which the Holder faxes or otherwise delivers the
conversion notice (“Notice of Conversion”), substantially in the form annexed hereto as Exhibit A, duly executed, to
the Company. Facsimile delivery of the Notice of Conversion shall be accepted by the Company at facsimile number ________ )
ATTN: Chief Financial Officer. Certificates representing Common Stock upon conversion will be delivered within three (3)
business days from the Conversion Date. (“Delivery Date”)
The
Company understands that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date (as defined in this Section)
could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay late payments
to the Holder for late issuance of Shares upon Conversion, unless the delay is due to causes beyond the reasonable control of
the Company or the Transfer Agent, in accordance with the following schedule (where “No. Business Days Late” refers
to the number of business days which is beyond three (3)) business days after the Delivery Date):’
| |
|
Late Payment
For Each $10,000 |
| |
|
of
Note Principal or Interest |
| No.
Business Days Late |
|
Amount
Being Converted |
| 1 |
|
$100 |
| 2 |
|
$200 |
| 3 |
|
$300 |
| 4 |
|
$400 |
| 5 |
|
$500 |
| 6 |
|
$600 |
| 7 |
|
$700 |
| 8 |
|
$800 |
| 9 |
|
$900 |
| 10 |
|
$1,000 |
| >10 |
|
$1,000+$200 for each Business Day Late beyond
10 days |
The
Company shall pay any payments incurred under this Section in immediately available funds upon demand as the Holder’s remedy for
such delay. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock by close of business on the Delivery Date, unless such
failure is due to causes beyond the Company’s reasonable control or that of its Transfer Agent, the Holder will be entitled to
revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company, whereupon the Company and the Holder
shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion; provided, however,
that an amount equal to any payments contemplated by this Section which have accrued through the date of such revocation notice
shall remain due and owing to the Converting Holder notwithstanding such revocation.
If,
by the relevant Delivery Date, the Company fails, unless such failure is due to causes beyond the Company’s reasonable control
or that of its Transfer Agent, for any reason to deliver the Shares to be issued upon conversion of the Note and after such Delivery
Date, the Holder of the Note being converted (a “Converting Holder”) purchases, in an arm’s-length open market transaction
or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of
Common Stock by the Converting Holder (the “Sold Shares”), which delivery such Converting Holder anticipated to make
using the Shares to be issued upon such conversion (a “Buy-In”), the Converting Holder shall have the right, to require
the Company to pay to the Converting Holder, in addition to and not in lieu of the amounts due hereunder (but in addition to all
other amounts contemplated in other provisions of the Transaction Agreements, and not in lieu of any such other amounts), the
Buy-In Adjustment Amount (as defined below). The “Buy-hi Adjustment Amount” is the amount equal to the excess, if any,
of (x) the Converting Holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares over (y)
the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The
Company shall pay the Buy-In Adjustment Amount to the Company in immediately available funds immediately upon demand by the Converting
Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-1n with respect to shares of Common
Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting
Holder will be $1,000.
In
lieu of delivering physical certificates representing the Common Stock issuable upon conversion,
provided the Company’s Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer program, upon request of the Holder and its compliance with the provisions contained in this paragraph, so long as the
certificates therefore do not bear a legend and the Holder thereof is not obligated to return such certificate for the placement
of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system.
The
Holder of the Note shall be entitled to exercise its conversion privilege with respect to the Note notwithstanding the commencement
of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In the event the Company is a debtor under
the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.
S .C. §362 in respect of such holder’s conversion privilege. The Company hereby waives, to the fullest extent permitted,
any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the Note.
3.
This Note has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged
only in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and foreign securities
laws. In the event of any proposed transfer of this Note, the Company may require, prior to issuance of a new Note in the name
of such other person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Note
in such other name does not and will not cause a violation of the Act or any applicable state or foreign securities laws. Prior
to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this
Note is duly registered on the Company’s Note Register as the owner hereof for the purpose of receiving payment as herein provided
and for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected
by notice to the contrary.
4.
No provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional, to pay the principal of this Note at the time, place,
and rate, and in the coin or currency, herein prescribed. This Note is a direct obligation of the Company.
5.
The Holder of the Note, by acceptance hereof,
agrees that this Note is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this
Note or the shares of Common Stock issuable upon conversion thereof except under circumstances which will not result in a violation
of the Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities.
6.
This Note shall be governed by and construed
in accordance with the laws of the State of Connecticut. Each of the parties consents to the jurisdiction of the federal or state
courts whose districts encompass any part of the State of Connecticut in connection with any dispute arising under this Note and
hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non coveniens,
to the bringing of any such proceeding in such jurisdictions.
Each
of the parties hereby waives the right to a trial by jury in connection with any dispute arising under this Note.
7.
The
following shall constitute an “Event of Default”:
| a. | The
Company shall default in the payment of principal and interest on this Note and same shall continue for a period of five (5) days;
or |
| b. | Any
of the representations or warranties made by the Company herein, in any certificate or financial or other written statements heretofore
or hereafter furnished by the Company in connection with the execution and delivery of this Note shall be false or misleading
in any material respect at the time made; or |
| c. | The
Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or
obligation of any Note and such failure shall continue uncured for a period of thirty (30) days after written notice from the
Holder of such failure; or |
| d. | The
Company fails to authorize or to cause its Transfer Agent to issue shares of Common Stock upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Note, fails to transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon conversion of this Note and when required by this Note, and such
transfer is otherwise lawful, or fails to remove any restrictive legend on any certificate or fails to cause its Transfer Agent
to remove such restricted legend, in each case where such removal is lawful, as and when required by this Note, the Agreement,
and any such failure shall continue uncured for ten (10) business days; or |
| e. | The
Company shall (1) admit in writing its inability to pay its debts generally as they mature; (2) make an assignment for the benefit
of creditors or commence proceedings for its dissolution; or (3) apply for or consent to the appointment of a trustee, liquidator
or receiver for its or for a substantial part of its property or business; or |
| f. | A
trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such appointment; or |
| g. | Any
governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within sixty
(60) days thereafter; or |
| h. | Any money judgment, writ or warrant of
attachment, or similar process in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be entered or
filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed
for a period of sixty (60) days or in any event later than five (5) days prior to the date of any proposed sale
thereunder; or |
| | Bankruptcy,
reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Company and, if instituted against the
Company, shall not be dismissed within sixty (60) days after such institution or the
Company shall by any action or answer approve of; consent to, or acquiesce in any such
proceedings or admit the material allegations of, or default in answering a petition
filed in any such proceeding; or |
| | The
Company shall have its Common Stock suspended or delisted from an exchange or over-the-counter
market from trading for in excess of five trading days. |
Then,
or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by
the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the
Holders sole discretion, the Holder may consider all obligations under this Note immediately due and payable within five (5) days
of notice, without presentment, demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately enforce any and
all of the Holders rights and remedies provided herein or any other rights or remedies afforded by law.
8. The
Holder may not convert this Note to the extent such conversion would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder)
in excess of 9.999% of the then issued and outstanding shares of Common Stock held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of
a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999%
of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder
or an affiliate thereof; the Holder shall have the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained
in this Section applies, the determination of which portion of the principal amount of Note are convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of Note that would result
in the issuance of in excess of the permitted amount hereunder, without regard to any other shares that the Holder or its affiliates
may beneficially own, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal
amount permitted to be converted on such Conversion Date and, at the option of the Holder, either retain any principal amount
tendered for conversion in excess of the permitted amount hereunder for future conversions or return such excess principal amount
to the Holder. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.
9. Nothing
contained in this Note shall be construed as conferring upon the Holder the right
to vote or to receive dividends or to consent or receive notice as a shareholder in respect of any meeting of shareholders or
any rights whatsoever as a shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.
IN
WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.
| |
|
| Dated: July 1, 2015 |
|
| |
ATTITUDE DRINKS INCORPORATED |
|
|
| |
/s/ Tommy E. Kee |
| |
|
| |
By: Tommy E. Kee |
|
Title CFO |
| |
|
| ATTESTOR |
|
| |
|
| By:/s/ Connie A. Kee |
|
| Name: Connie A. Kee |
|
EXHIBIT (10)(126)
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.
THIS NOTE HAS BEEN ISSUED PURSUANT TO
THE EXERCISE OF AN ADDITIONAL INVESTMENT RIGHT ISSUED PURSUANT TO AN ASSET PURCHASE AGREEMENT AMONG HARRISON VICKERS AND WATERMAN
INC., THE INITIAL HOLDER ON APRIL 21, 2015 (THE “PURCHASE AGREEMENT”) IN CONNECTION WITH TRANSACTIONS DESCRIBED
THEREIN.
Original Issue Date: July 29,
2015
Principal Amount: $80,000.00
SECURED
CONVERTIBLE NOTE
DUE
JulY 29, 2017
THIS CONVERTIBLE NOTE
is one of a series of duly authorized and validly issued Notes of HARRISON VICKERS AND WATERMAN INC., a Nevada corporation, (the
“Borrower”), having its principal place of business at 4224 White Plains Road, 3rd Floor, Bronx,
New York 10466, due July 29, 2017 (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 Eighty Thousand Dollars ($80,000.00) on July 29, 2017 (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 assets of the 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 dismissed within 60 days after commencement, (c) Borrower or any Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered,
(d) Borrower or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 calendar days after such appointment, (e) Borrower or any Subsidiary thereof
makes a general assignment for the benefit of creditors, (f) Borrower or any Subsidiary thereof calls a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its debts or (g) Borrower or any Subsidiary thereof, by
any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the foregoing.
“Beneficial
Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.
“Buy-In”
shall have the meaning set forth in Section 4(c)(v).
“Change
of Control Transaction” means, other than by means of conversion or exercise of the Notes and the Securities issued together
with the Notes, the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal
entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of in excess of 50% of the voting
securities of Borrower, (b) Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates
with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately prior to such transaction
own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction, or (c) Borrower sells
or transfers all or substantially all of its assets to another Person and the stockholders of Borrower immediately prior to such
transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) the
execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the events set
forth in clauses (a) through (d) above.
“Closing
Price” means on any particular date (a) the last reported closing bid price per share of Common Stock on such date
on the Trading Market (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (b) if there is no such price on such
date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg L.P. at
4:15 p.m. (New York City time)), or (c) if the Common Stock is not then listed or quoted on a Trading Market and if prices
for the Common Stock are then reported in the “pink sheets” published by Pink OTC Markets, Inc. (or a similar organization
or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported,
or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably acceptable to Borrower, the fees and expenses of
which shall be paid by Borrower.
“Common
Stock” means the common stock of the Company, $0.0001 par value, and any other class of securities into which such securities
may hereafter be reclassified or changed.
“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Conversion”
shall have the meaning ascribed to such term in Section 4.
“Conversion
Date” shall have the meaning set forth in Section 4(a).
“Conversion
Price” shall have the meaning set forth in Section 4(b).
“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the
terms hereof.
“Distribution”
shall have the meaning set forth in Section 5(d).
“Event
of Default” shall have the meaning set forth in Section 8(a).
“Fundamental
Transaction” shall have the meaning set forth in Section 5(e).
“Interest
Payment Date” shall have the meaning set forth in Section 2(a).
“Loan
Documents” shall have the meaning set forth in Section 9.
“Mandatory
Conversion” shall have the meaning set forth in Section 6.
“Mandatory
Conversion Date” shall have the meaning set forth in Section 6.
“Mandatory
Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Note divided by the
Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an
Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date
the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii)
115% of the outstanding principal amount of this Note and (b) all other amounts, costs, expenses and liquidated damages due in
respect of this Note.
“New
York Courts” shall have the meaning set forth in Section 9(d).
“Note
Register” shall have the meaning set forth in Section 2(c).
“Notice
of Mandatory Conversion” shall have the meaning set forth in Section 6.
“Original
Issue Date” means the date of the first issuance of the Notes, regardless of any transfers of any Note and regardless
of the number of instruments which may be issued to evidence such Notes.
“Other
Holders” means the holders of Other Notes.
“Other
Notes” means Notes nearly identical to this Note issued to other Holders pursuant to the Purchase Agreement.
“Permitted
Indebtedness” means (x) any liabilities for borrowed money or amounts owed not in excess of $200,000 in the aggregate
(other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Borrower’s consolidated
balance sheet (or the notes thereto) not affecting more than $200,000 in the aggregate, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of
any lease payments not in excess of $200,000 due under leases required to be capitalized in accordance with GAAP. Neither the Borrower
nor any Subsidiary is in default with respect to any Indebtedness.
“Permitted
Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Borrower) have
been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of Borrower’s
business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other
similar Liens arising in the ordinary course of Borrower’s business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business
of Borrower and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien,
and (c) Liens incurred prior to the Closing Date in connection with Permitted Indebtedness under clauses (a), (b) thereunder, and
Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured
by assets of Borrower or its Subsidiaries other than the assets so acquired or leased.
“Purchase
Agreement” has the meaning set forth on the first page of this Note.
“Purchase
Rights” shall have the meaning set forth in Section 5(b).
“Reservation
Date” shall have the meaning set forth in Section 4(e)(vi).
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share
Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Successor
Entity” shall have the meaning set forth in Section 5(e).
“Threshold
Period” shall have the meaning set forth in Section 6(b).
“Trading
Day” means a day on which the principal Trading Market is open for trading.
“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any successors to any of the foregoing).
“Transaction
Documents” shall have the meaning set forth in the Purchase Agreement of even date herewith among the Borrower and other
parties thereto.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common
Stock are then reported on the OTCQX, OTCQB or OTC Pink Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization
or agency succeeding to its functions of reporting prices), the volume weighted average price of the Common Stock on the first
such facility (or a similar organization or agency succeeding to its functions of reporting prices), or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers
of a majority in interest of the Securities then outstanding and reasonably acceptable to Borrower, the fees and expenses of which
shall be paid by Borrower.
Section 2.
Interest.
a) Interest
in Cash or in Kind. Holders shall be entitled to receive, and Borrower shall pay, cumulative interest on the outstanding principal
amount of this Note compounded annually at the annual rate of 10% (subject to increase as set forth in this Note) payable
on each anniversary of the Original Issue Date and on the Maturity Date (each such date, an “Interest Payment Date”)
(if the Interest Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day).
b) Payment
Grace Period. The Borrower shall not have any grace period to pay any monetary amounts due under this Note.
c) Conversion Privileges.
The Conversion Rights set forth in Section 4 shall remain in full force and effect immediately from the date hereof and until the
Note is paid in full regardless of the occurrence of an Event of Default. This Note shall be payable in full on the Maturity Date,
unless previously converted into Common Stock in accordance with Section 4 hereof.
d) Application of Payments.
Interest on this Note shall be calculated on the basis of a 360-day year and the actual number of days elapsed. Payments made in
connection with this Note shall be applied first to amounts due hereunder other than principal and interest, thereafter to interest
and finally to principal.
e) Pari Passu. Except as
otherwise set forth herein, all payments made on this Note and the Other Notes and all actions taken by the Borrower with respect
to this Note and the Other Notes, shall be made and taken pari passu with respect to this Note and the Other Notes. Notwithstanding
anything to the contrary contained herein or in the Transaction Documents, it shall not be considered non-pari passu for a Holder
or Other Holder to elect to receive interest paid in shares of Common Stock or for the Borrower to actually pay interest in shares
of Common Stock to such electing Holder or Other Holder.
f) Manner
and Place of Payment. Principal and interest on this Note and other payments in connection with this Note shall be payable
at the Holder’s offices as designated above in lawful money of the United States of America in immediately available funds
without set-off, deduction or counterclaim. Upon assignment of the interest of Holder in this Note, Borrower shall instead make
its payment pursuant to the assignee’s instructions upon receipt of written notice thereof. This Note may not be prepaid
or mandatorily converted without the consent of the Holder.
Section 3.
Registration of Transfers and Exchanges.
a) Different
Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
b) Investment
Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance
on Note Register. Prior to due presentment for transfer to Borrower of this Note, Borrower and any agent of Borrower may treat
the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Note is overdue, and neither Borrower nor any such agent shall
be affected by notice to the contrary.
Section 4.
Conversion.
a) Voluntary
Conversion. At any time after the Original Issue Date until this Note is no longer outstanding, Note principal and/or at the
election of the Holder accrued interest shall be convertible, in whole or in part, into shares of Common Stock at the option of
the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The
Holder shall effect conversions by delivering to Borrower a Notice of Conversion, the form of which is attached hereto as Annex
A (each, a “Notice of Conversion”), specifying therein the principal and/or interest amount of this Note
to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”).
If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note
to Borrower unless the entire principal amount of this Note has been so converted. Conversions hereunder shall have the effect
of lowering the outstanding principal amount of this Note or accrued interest, at the option of the Holder, in an amount equal
to the applicable conversion. The Holder and Borrower shall maintain records showing the principal and interest amount(s) converted
and the date of such conversion(s). Borrower may deliver an objection to any Notice of Conversion only within one (1) Business
Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling
and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and
agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted
principal amount of this Note may be less than the amount stated on the face hereof.
b) Conversion
Price. The conversion price for the principal and interest in connection with voluntary conversions by the Holder shall be
equal to the lesser of (i) $0.0025, or (ii) fifty percent (50%) of the lowest Closing Price of the Common Stock for the thirty
(30) Trading Days preceding the Conversion Date, subject to adjustment herein (the “Conversion Price”).
c) Mechanics
of Conversion.
i.
Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon
a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note
to be converted plus interest elected by the Holder to be converted by (y) the Conversion Price.
ii. Delivery
of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery
Date”), Borrower shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the
Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) after the
effective date or a current registration statement, shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion
of this Note. On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the effective date, Borrower
shall use its best efforts to deliver any certificate or certificates required to be delivered by Borrower under this Section 4(c)
electronically through the Depository Trust Company or another established clearing corporation performing similar functions.
iii. Failure
to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to
or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to
Borrower at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event Borrower
shall promptly return to the Holder any original Note delivered to Borrower and the Holder shall promptly return to Borrower the
Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.
iv. Obligation
Absolute; Partial Liquidated Damages. Borrower’s obligations to issue and deliver the Conversion Shares upon conversion
of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the
Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by the Holder or any other Person of any obligation to Borrower or any violation or alleged violation of law by
the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower
to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall
not operate as a waiver by Borrower of any such action Borrower may have against the Holder. In the event the Holder of this Note
shall elect to convert any or all of the outstanding principal amount hereof, Borrower may not refuse conversion based on any claim
that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any
other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of
this Note shall have been sought and obtained, and Borrower posts a surety bond for the benefit of the Holder in the amount of
150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until
the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to
the extent it obtains judgment. In the absence of such injunction, Borrower shall issue Conversion Shares or, if applicable, cash,
upon a properly noticed conversion. If Borrower fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(c)(ii) by the Share Delivery Date, Borrower shall pay to the Holder, in cash, as liquidated damages and not
as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the
fifth (5th) Trading Day after such liquidated damages being to accrue) for each Trading Day after such Share Delivery
Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right
to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for Borrower’s failure to deliver Conversion
Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable
law.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder,
if Borrower fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant
to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open
market transaction or otherwise), or the Holder or Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion
relating to such Share Delivery Date (a “Buy-In”), then Borrower shall (A) pay in cash to the Holder (in addition
to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase
price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale
price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B)
at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the
attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of
Common Stock that would have been issued if Borrower had timely complied with its delivery requirements under Section 4(c)(ii).
For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence,
Borrower shall be required to pay the Holder $1,000. The Holder shall provide Borrower written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of Borrower, evidence of the amount of such loss. Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
vi. Reservation
of Shares Issuable Upon Conversion. Borrower covenants that it will from and after the Original Issue Date, and at all times
thereafter reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance
upon conversion of this Note as herein provided, free from preemptive rights or any other actual contingent purchase rights of
Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common
Stock as shall be issuable upon the conversion of the then outstanding principal amount of this Note and interest which has accrued
and would accrue on such principal amount, assuming such principal amount was not converted through the Maturity Date. Borrower
covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully
paid and non-assessable.
vii. Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to
any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, Borrower shall at its election,
either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion
Price or round up to the next whole share.
viii. Transfer
Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without
charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates, provided that, Borrower shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note
so converted and Borrower shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting
the issuance thereof shall have paid to Borrower the amount of such tax or shall have established to the satisfaction of Borrower
that such tax has been paid. Borrower shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.
d) Holder’s
Conversion Limitations. Borrower shall not effect any conversion of this Note, and a Holder shall not have the right to convert
any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion,
the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the
Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For
purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is
being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted
principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of Borrower subject to a limitation on conversion or exercise analogous
to the limitation contained herein (including, without limitation, any other Notes or the Warrants) beneficially owned by the Holder
or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible
(in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is
convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the
Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together
with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation.
To ensure compliance with this restriction, the Holder will be deemed to represent to Borrower each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and Borrower shall have
no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as stated in the most recent of the following: (i) Borrower’s most recent periodic
or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by Borrower, or (iii) a
more recent written notice by Borrower or Borrower’s transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, Borrower shall within two Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of Borrower, including this Note, by the Holder or
its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder may decrease
the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to Borrower, may
increase the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation
in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance
of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of
this Section 4(d) shall continue to apply. Any such increase will not be effective until the 61st day after such notice
is delivered to Borrower. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or
supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Note.
Section 5.
Certain Adjustments.
a) Stock
Dividends and Stock Splits. If Borrower, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents
(which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of the Notes),
(ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse
stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification
of shares of the Common Stock, any shares of capital stock of Borrower, then the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of Borrower) outstanding immediately
before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or re-classification.
b) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time Borrower grants, issues or
sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders
of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations
on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however,
to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the
Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or
beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Beneficial Ownership Limitation).
d) Pro
Rata Distributions. During such time as this Note is outstanding, if Borrower shall declare or make any dividend or other distribution
of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend,
spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Note (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder’s right to participate in any such Distribution
would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
e) Fundamental
Transaction. If, at any time while this Note is outstanding, (i) Borrower, directly or indirectly, in one or more related transactions
effects any merger or consolidation of Borrower with or into another Person, (ii) Borrower, directly or indirectly, effects any
sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or
a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by Borrower
or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv)
Borrower, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization
of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property, (v) Borrower, directly or indirectly, in one or more related transactions consummates a
stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares
of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated
or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination)
(each a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have
the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence
of such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Note),
the number of shares of Common Stock of the successor or acquiring corporation or of Borrower, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental
Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental
Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Note). For purposes of
any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction,
and Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities,
cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following such Fundamental Transaction. Borrower shall cause any successor
entity in a Fundamental Transaction in which Borrower is not the survivor (the “Successor Entity”) to assume
in writing all of the obligations of Borrower under this Note and the other Transaction Documents (as defined in the Purchase Agreement)
in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory
to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option
of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable
upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction,
and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account
the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital
stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value
of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form
and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other
Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every
right and power of Borrower and shall assume all of the obligations of Borrower under this Note and the other Transaction Documents
with the same effect as if such Successor Entity had been named as Borrower herein.
f) Subsequent
Equity Sales. If, at any time while this Note is outstanding, Borrower or any Subsidiary, as applicable, sells or grants any
option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or
any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base
Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock
or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued
in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than
the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever
such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this
Section 6(b) in respect of an Exempt Issuance. If Borrower enters into a Variable Rate Transaction, despite the prohibition set
forth in the Purchase Agreement, Borrower shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion price at which such securities may be converted or exercised. Borrower shall notify the Holder in writing,
no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 6(b),
indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing
terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not Borrower provides
a Dilutive Issuance Notice pursuant to this Section 6(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled
to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless
of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
g) Calculations.
All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued and outstanding.
h) Notice
to the Holder.
i. Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, Borrower shall
promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
ii.
Notice to Allow Conversion by Holder. If (A) Borrower shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of Borrower shall be required in
connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale or
transfer of all or substantially all of the assets of Borrower, or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property or (E) Borrower shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear
upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities,
cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided
that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate
action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material,
non-public information regarding Borrower or any of the Subsidiaries, Borrower shall simultaneously file such notice with the Commission
pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing
on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly
set forth herein.
Section 6. Redemption
and Mandatory Conversion. Borrower shall have no right to require the Holder to surrender the Note for redemption, nor convert
any part or all of this Note without the consent of the Holder.
Section 7. Negative
Covenants. As long as any portion of this Note remains outstanding, unless the holders of at least 51% in principal amount
of the then outstanding Notes which must include the Lead Investor shall have otherwise given prior written consent, Borrower shall
not, and shall not permit any of the Subsidiaries to, directly or indirectly:
a) other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money
of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom;
b) other
than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
c) amend
its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially
and adversely affects any rights of the Holder;
d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common
Stock or Common Stock Equivalents other than as to the Conversion Shares as permitted or required under the Transaction Documents;
e) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise),
all or any portion of any Indebtedness (other than the Notes if on a pro-rata basis), whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Indebtedness;
f) pay cash dividends or distributions on any equity securities of Borrower;
g) enter
into any transaction with any Affiliate of Borrower which would be required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors
of Borrower (even if less than a quorum otherwise required for board approval);
h) any material damage to, or loss,
theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation,
or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue
producing activities at any facility of Borrower or any Subsidiary, if any such event or circumstance could have a Material Adverse
Effect; or
i)
enter into any agreement with respect to any of the foregoing.
Section 8.
Events of Default.
a)
“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event
and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or
order of any court, or any order, rule or regulation of any administrative or governmental body):
i. any
default in the payment of (A) the principal amount of any Note or (B) liquidated damages and other amounts owing to a Holder on
any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration
or otherwise) which default, solely in the case of a default under clause (B) above, is not cured within 7 Trading Days after Borrower
has become or should have become aware of such default;
ii. Borrower
shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by Borrower of its
obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which
failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent
by the Holder or by any Other Holder to Borrower and (B) 15 Trading Days after Borrower has become or should have become aware
of such failure;
iii. a
default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which
Borrower or any Subsidiary is obligated (and not covered by clause (vi) below);
iv. any
representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto
or any other report, financial statement or certificate made or delivered to the Holder or any Other Holder shall be untrue or
incorrect in any material respect as of the date when made or deemed made;
v. Borrower
or any Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
vi. Borrower
or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness
for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than
$200,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise become due and payable;
vii. Borrower
shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in
excess of 30% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a
Change of Control Transaction);
viii. Borrower
does not meet the current public information requirements under Rule 144;
ix.
Borrower shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion
Date pursuant to Section 4(c) or Borrower shall provide at any time notice to the Holder, including by way of public announcement,
of Borrower’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof;
x.
any Person shall breach any agreement delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;
xi.
any monetary judgment, writ or similar final process shall be entered or filed against Borrower, any subsidiary or any of
their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain
unvacated, unbonded or unstayed for a period of 90 calendar days;
xii. any
dissolution, liquidation or winding up by Borrower or a material Subsidiary of a substantial portion of their business;
xiii. cessation
of operations by Borrower or a material Subsidiary;
xiv. The
failure by Borrower or any material Subsidiary to maintain any material intellectual property rights, personal, real property,
equipment, leases or other assets which are necessary to conduct its business (whether now or in the future) and such breach is
not cured with twenty (20) days after written notice to the Borrower from the Holder;
xv. An
event resulting in the Common Stock no longer being listed or quoted on a Trading Market, or notification from a Trading Market
that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for twenty
(20) days following such notification;
xvi. a
Commission or judicial stop trade order or suspension from its Principal Trading Market;
xvii. except
as disclosed in the SEC Reports, the restatement after the date hereof of any financial statements filed by the Borrower with the
Commission for any date or period from two years prior to the Original Issue Date and until this Note is no longer outstanding,
if the result of such restatement would, by comparison to the unrestated financial statements, have constituted a Material Adverse
Effect. For the avoidance of doubt, any restatement related to new accounting pronouncements shall not constitute a default under
this Section;
xviii. the
Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to the Holder;
xix. the
Borrower fails to have authorized and reserved 150% of the Conversion Shares issuable upon conversion of the Notes including Conversion
Shares issuable upon conversion of interest through the Maturity Date;
xx. a
failure by Borrower to notify Holder of any material event of which Borrower is obligated to notify Holder pursuant to the terms
of this Note or any other Transaction Document;
xxi. a
default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and
Holder are parties, or the occurrence of an event of default under any such other agreement to which Borrower and Holder are parties
which is not cured after any required notice and/or cure period;
xxii. the
occurrence of an Event of Default under any Other Note; or
xxiii. any
provision of any Transaction Document shall at any time for any reason (other than pursuant to the express terms thereof) cease
to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof shall be contested
by any party thereto, or a proceeding shall be commenced by Borrower or any Subsidiary or any governmental authority having jurisdiction
seeking to establish the invalidity or unenforceability thereof, or Borrower or any Subsidiary shall deny in writing that it has
any liability or obligation purported to be created under any Transaction Document.
b) Remedies
Upon Event of Default, Fundamental Transaction and Change of Control Transaction. If any Event of Default or a Fundamental
Transaction or a Change of Control Transaction occurs, the outstanding principal amount of this Note, liquidated damages and other
amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due
and payable in cash at the Mandatory Default Amount. Commencing on the Maturity Date and also five (5) days after the occurrence
of any Event of Default interest on this Note shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum
rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender
this Note to or as directed by Borrower. In connection with such acceleration described herein, the Holder need not provide, and
Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it
under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this
Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
Section 9. Security
Interest/Waiver of Automatic Stay. This Note is secured by a security interest granted to the Holder pursuant to a Security
Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy
or insolvency law be commenced by or against the Borrower or a Subsidiary, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other
relief to which the Holder may be entitled under the Transaction Documents and any other agreement to which the Borrower or a Subsidiary
and Holder are parties (collectively, “Loan Documents”) and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL
STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER
THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by
the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any
opposition to any motion for relief from stay filed by the Holder. The Borrower represents, acknowledges and agrees that this provision
is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents
if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that this waiver is knowingly,
intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations
to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of
this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that
the Borrower has discussed this waiver with counsel.
Section 10. Miscellaneous.
a) Notices.
All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted
by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine,
at the address or number designated below (if delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to Borrower, to: Harrison Vickers and Waterman Inc., 4224 White Plains Road, 3rd
Floor, Bronx, New York 10466, Attn: Roy Warren, and (ii) if to the Holder, to: the address and fax number indicated on the front
page of this Note, with an additional copy by fax only to (which shall not constitute notice): Grushko & Mittman, P.C., 515
Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697-3575.
b) Absolute
Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of Borrower,
which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note
at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of Borrower.
This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.
c) Lost
or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, Borrower shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to Borrower.
d) Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by
and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict
of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated
hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in
the investigation, preparation and prosecution of such action or proceeding. This Note shall be deemed an unconditional obligation
of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower
by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction
where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower
are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder
or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered
together herewith or was executed apart from this Note.
e) Waiver.
Any waiver by Borrower or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of this Note. The failure of Borrower or the Holder
to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion.
Any waiver by Borrower or the Holder must be in writing.
f) Severability.
If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.
g) Usury.
If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury,
the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under
applicable law. Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and
Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has been enacted.
h) Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
i) Headings.
The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit
or affect any of the provisions hereof.
j) Amendment.
Unless otherwise provided for hereunder, this Note may not be modified or amended or the provisions hereof waived without the written
consent of Borrower and the Holder.
k) Facsimile
Signature. In the event that the Borrower’s signature is delivered by facsimile transmission, PDF, electronic signature
or other similar electronic means, such signature shall create a valid and binding obligation of the Borrower with the same force
and effect as if such signature page were an original thereof.
*********************
(Signature Pages Follow)
IN WITNESS WHEREOF, Borrower has
caused this Note to be signed in its name by an authorized officer as of the 29th day of July, 2015.
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HARRISON VICKERS AND WATERMAN, INC. |
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By: |
/s/ Roy G. Warren |
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Name: Roy G. Warren |
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Title: President and CEO |
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| WITNESS: |
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| /s/ Tommy E. Kee |
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby
elects to convert principal under the Convertible Note due July 29, 2017 of Harrison Vickers and Waterman, Inc., a Nevada corporation
(the “Borrower”), into shares of common stock (the “Common Stock”), of Borrower according
to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by Borrower in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
By the delivery of
this Notice of Conversion the undersigned represents and warrants to Borrower that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees
to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
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Date to Effect Conversion: _______________________________ |
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Principal Amount of Note to be Converted: $__________________ |
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Number of shares of Common Stock to be issued: ______________ |
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* Interest Amount to be Converted: $________________________ |
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Signature: ____________________________________________ |
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Name: _______________________________________________ |
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Address for Delivery of Common Stock Certificates: _____________ |
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DWAC Instructions: _________________________________ |
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Account No: _______________ |
* Interest on Principal Amount of $____________ for period of
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EXHIBIT
(10)(127)
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.
COMMON
STOCK PURCHASE CLASS A WARRANT
HARRISON
VICKERS AND WATERMAN INC.
| Warrant Shares: 64,000 |
Initial Exercise Date: July
29, 2015 |
Warrant
No: A3
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, at any time on
or after the date hereof (the “Initial Exercise Date”) 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 HARRISON VICKERS AND WATERMAN INC., a Nevada corporation (the “Company”), up to 64,000
shares (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 Asset Purchase Agreement (the “Purchase Agreement”), dated April 21, 2015, 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 exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation
within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this
Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of
lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant
Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date
of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one (1) Trading Day of delivery
of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions
of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available
for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise
Price. The initial exercise price per share of the Common Stock under this Warrant shall be $0.0025, subject to adjustment
hereunder (the “Exercise Price”).
c) Cashless
Exercise. If at any time after the Initial Exercise Date, there is no effective registration statement registering, or no
current prospectus available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the
Holder’s election, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall
be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A)
= the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless
exercise,” as set forth in the applicable Notice of Exercise;
(B)
= the Exercise Price of this Warrant, as adjusted hereunder; and
(X)
= the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant
if such exercise were by means of a cash exercise rather than a cashless exercise.
Notwithstanding
anything herein to the contrary, on the Termination Date, unless the Holder notifies the Company otherwise, if there is no effective
Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then
this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d) Mechanics
of Exercise.
| i. | Delivery
of Certificates Upon Exercise. Certificates for shares purchased hereunder shall
be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s
prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian
system (“DWAC”) if the Company is then a participant in such system
and either (A) there is an effective registration statement permitting the issuance of
the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant
is being exercised via cashless exercise and Rule 144 is available, and otherwise by
physical delivery to the address specified by the Holder in the Notice of Exercise by
the date that is three (3) Trading Days after the latest of (A) the delivery to the Company
of the Notice of Exercise, (B) surrender of this Warrant (if required) and (C) payment
of the aggregate Exercise Price as set forth above (including by cashless exercise, if
permitted) (such date, the “Warrant Share Delivery Date”). The Warrant
Shares shall be deemed to have been issued, and Holder or any other person so designated
to be named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised, with payment to the
Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required
to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance
of such shares, having been paid. The Company understands that a delay in the delivery
of the Warrant Shares after the Warrant Share Delivery Date could result in economic
loss to the Holder. As compensation to the Holder for such loss, the Company agrees to
pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Warrant
Shares upon exercise of this Warrant the proportionate amount of $10 per Trading Day
(increasing to $20 per Trading Day after the fifth (5th) Trading Day) after
the Warrant Share Delivery Date for each $1,000 of Exercise Price of Warrant Shares for
which this Warrant is exercised which are not timely delivered. The Company shall pay
any payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the Holder,
in the event that the Company fails for any reason to effect delivery of the Warrant
Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant
Warrant exercise by delivery of a notice to such effect to the Company, whereupon the
Company and the Holder shall each be restored to their respective positions immediately
prior to the exercise of the relevant portion of this Warrant, except that the liquidated
damages described above shall be payable through the date notice of revocation or rescission
is given to the Company. |
ii. Delivery
of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant
Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called
for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing
the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right, at any
time prior to issuance of such Warrant Shares, to rescind such exercise.
iv. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder,
if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required
by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases,
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving
upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by
which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver
to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase
obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number
of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to
the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares
of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No
Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.
vi. Charges,
Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall
be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed
by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other
than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto
duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse
it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of
any Notice of Exercise.
vii. Closing
of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of
this Warrant, pursuant to the terms hereof.
e) Holder’s
Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance
after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and
any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own
in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.
Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged
by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent
that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall
be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination
of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and
of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic
or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a
more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder
or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’
prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided
that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions
of this Section 2(e) shall continue to apply. Any such increase or decrease will not be effective until the 61st day
after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which
may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to
a successor holder of this Warrant.
Section
3. Certain Adjustments.
a) Stock
Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant or pursuant to any of the other Transaction Documents), (ii) subdivides outstanding shares of Common
Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain
unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
b) Subsequent
Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard
to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the
date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date
as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the
Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right
to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and
such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would
not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Pro
Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common
Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such
case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then
per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments
shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned above.
d) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets
in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant) the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all
cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental
Transaction involving a person or entity not traded on a national securities exchange or trading market (with such exchange or
market including, without limitation, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market,
The New York Stock Exchange, Inc., the NYSE or Amex), the Company or any Successor Entity (as defined below) shall, at the Holder’s
option, exercisable concurrently with the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by
paying to the Holder the higher of (i) an amount of cash equal to the Black Scholes Value of the remaining unexercised portion
of this Warrant on the date of the consummation of such Fundamental Transaction, or (ii) the positive difference between the cash
per share paid in such Fundamental Transaction minus the then in effect Exercise Price. “Black Scholes Value”
means the value of the unexercised portion of this Warrant based on the Black and Scholes Option Pricing Model obtained from the
“OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the
applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the
“HVT” function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable
Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being
offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and
(D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not
the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this
Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(d) pursuant to written agreements
in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security
of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is
exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise
of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder
to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental
Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being
for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction),
and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction,
the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead
to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the
Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named
as the Company herein.
e)
Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding,
shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price
per share less than the Exercise Price then in effect, excluding Exempt Issuances as defined in the Purchase Agreement (such lower
price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood
and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation
of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at
an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than
the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation of
each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant
Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account
the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall
be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall
be made, paid or issued under this Section 3(e) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing,
no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject
to this Section 3(e), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion
price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether
or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(e), upon the occurrence of any Dilutive Issuance,
the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder
accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, despite
the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion or exercise price at which such securities may be converted or exercised. Notwithstanding the
foregoing, the issuance of any Common Stock or Common Stock Equivalents pursuant to the Purchase Agreement shall not be deemed
a Dilutive Issuance.
f) Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g) Notice
to Holder.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall
promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the
number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted
into other securities, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up
of the affairs of the Company, then, in each case, to the extent that such information constitutes material non-public information
(as determined in good faith by the Company) the Company shall follow the procedure described in Section 13 of the Subscription
Agreement and shall deliver to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at
least fifteen (15) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if
a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding
the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current
Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such
notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section
4. Transfer of Warrant.
a) Transferability.
Subject to compliance with any applicable securities laws and the provisions of the Purchase Agreement, this Warrant and all rights
hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially
in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified
in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised
by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New
Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of
the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial
issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.
c) Warrant
Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
Section
5. Miscellaneous.
a) No
Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(a).
b) Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case
of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c) Saturdays,
Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding
Trading Day.
d) Authorized
Shares.
The
Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers
who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation,
or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued,
fully paid and non-assessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except
and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above
the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may
be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform
its obligations under this Warrant.
Before
taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
f) Restrictions.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, or unless exercised
in a cashless exercise when Rule 144 is available, and the Holder does not utilize cashless exercise, will have restrictions upon
resale imposed by state and federal securities laws.
g) Non-waiver
and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision
of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant,
which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
h) Notices.
Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered
in accordance with the notice provisions of the Purchase Agreement.
i) Limitation
of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j) Remedies.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors
and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders
of not less than a majority of the outstanding Warrants issued pursuant to the Purchase Agreement.
m) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
n) Headings.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature
Page Follows)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first
above indicated.
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HARRISON VICKERS AND WATERMAN INC. |
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By: |
/s/ Roy G. Warren |
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Name:
Roy G. Warren |
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Title:
President and CEO |
NOTICE
OF EXERCISE
To: HARRISON
VICKERS AND WATERMAN INC.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes,
if any.
(2) Payment
shall take the form of (check applicable box):
☐ in
lawful money of the United States; or
☐ [if
permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).
(3) Please
issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is
specified below:
_______________________________
(4) After
giving effect to this Notice of Exercise, the undersigned will not have exceeded the Beneficial Ownership Limitation.
The
Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
| Name
of Investing Entity: |
|
| Signature of Authorized Signatory
of Investing Entity: |
|
| Name of Authorized Signatory: |
|
| Title of Authorized Signatory: |
|
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
HARRISON
VICKERS AND WATERMAN INC.
FOR
VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned
to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated:
______________, _______
Holder’s
Signature: _____________________________
Holder’s
Address: _____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE:
The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration
or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT (10)(132)
NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED
OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
ATTITUDE DRINKS INCORPORATED
PROMISSORY NOTE DUE DECEMBER 31, 2016
THIS Note is a duly authorized
issuance of up to $25,000.00 of ATTITUDE DRINKS INCORPORATED, a Delaware corporation and located at 712 U.S. Highway 1, Suite #200,
North Palm Beach, Florida 33408 (the “Company”) designated as its Note, pursuant to the Consulting Agreement entered
into by the Company and the Holder as of July 19, 2012.
FOR VALUE
RECEIVED, the Company promises to pay to SOUTHRIDGE PARTNERS II, LP, the registered holder hereof (the “Holder”), the
principal sum of twenty five thousand and 00/100 Dollars (US $25,000.00) on December 31, 2016 (the “Maturity Date”).
The principal of this Note is payable at the option of the Holder at any time after the Maturity Date, in shares of the Company’s
common stock, $.00001 par value per share (“Common Stock”) as set forth below, or in United States dollars, at the address
last appearing on the Note Register of the Company as designated in writing by the Holder. The Company will pay the outstanding
principal amount of this Note in cash on the Maturity Date to the registered holder of this Note. The forwarding of such wire transfer
shall constitute a payment hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of
the sum represented by such check or wire transfer plus any amounts so deducted.
This Note is subject to the following additional provisions:
1. The Note is issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof,
provided that the number of shares to be issued upon conversion is a minimum of 3,000 (unless if at the time of election to convert
the number of shares of Common Stock issuable upon conversion is less than 3,000). The Note is exchangeable for an equal aggregate
principal amount of Note 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.
2. The
Holder of this Note is entitled any time after the Maturity Date, subject to the following provisions, to convert all or a
portion of the principal amount of this Note into shares of Common Stock at a conversion price for each share of Common Stock
equal to the Current Market Price multiplied by eighty percent (80%) (the “Conversion Price”). “Current Market
Price” means the average of the closing bid prices for the Common Stock as reported by Bloomberg, LP or, if not so
reported, as reported on the over-the-counter market, for the five (5) trading days ending on the trading day immediately
before the relevant Conversion Date (as defined below). The amount of shares issuable pursuant to a conversion shall equal
the principal amount (or portion thereof) of the Note to be converted, divided by the Conversion Price.
Conversion shall be
effectuated by surrendering the Note to the Company, accompanied by or preceded by facsimile or other delivery to the Company
of the form of conversion notice attached hereto as Exhibit A, executed by the Holder evidencing such Holder’s intention
to convert a specified portion hereof No fractional shares of Common Stock or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The date on which notice of conversion
is given (the “Conversion Date”) shall be deemed to be the date on which the Holder faxes or otherwise delivers the
conversion notice (“Notice of Conversion”), substantially in the form annexed hereto as Exhibit A, duly executed,
to the Company. Facsimile delivery of the Notice of Conversion shall be accepted by the Company at facsimile number ________ )
ATTN: Chief Financial Officer. Certificates representing Common Stock upon conversion will be delivered within three (3) business days from the Conversion Date. (“Delivery Date”)
The Company understands
that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date (as defined in this Section) could result in
economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay late payments to the Holder
for late issuance of Shares upon Conversion, unless the delay is due to causes beyond the reasonable control of the Company or
the Transfer Agent, in accordance with the following schedule (where “No. Business Days Late” refers to the number of
business days which is beyond three (3)) business days after the Delivery Date):’
|
|
| No. Business Days Late |
|
Late Payment For Each $10,000
of Note Principal or Interest
Amount Being Converted |
| |
|
| 1 |
$100 |
| 2 |
$200 |
| 3 |
$300 |
| 4 |
$400 |
| 5 |
$500 |
| 6 |
$600 |
| 7 |
$700 |
| 8 |
$800 |
| 9 |
$900 |
| 10 |
$1,000 |
| >10 |
$1,000+$200 for each Business Day Late beyond 10 days |
The Company shall pay
any payments incurred under this Section in immediately available funds upon demand as the Holder’s remedy for such delay. Furthermore,
in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect
delivery of such shares of Common Stock by close of business on the Delivery Date, unless such failure is due to causes beyond
the Company’s reasonable control or that of its Transfer Agent, the Holder will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion; provided, however, that an amount equal to any payments contemplated
by this Section which have accrued through the date of such revocation notice shall remain due and owing to the Converting Holder
notwithstanding such revocation.
If, by the relevant
Delivery Date, the Company fails, unless such failure is due to causes beyond the Company’s reasonable control or that of its Transfer
Agent, for any reason to deliver the Shares to be issued upon conversion of the Note and after such Delivery Date, the Holder of
the Note being converted (a “Converting Holder”) purchases, in an arm’s-length open market transaction or otherwise,
shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by
the Converting Holder (the “Sold Shares”), which delivery such Converting Holder anticipated to make using the Shares
to be issued upon such conversion (a “Buy-In”), the Converting Holder shall have the right, to require the Company to
pay to the Converting Holder, in addition to and not in lieu of the amounts due hereunder (but in addition to all other amounts
contemplated in other provisions of the Transaction Agreements, and not in lieu of any such other amounts), the Buy-In Adjustment
Amount (as defined below). The “Buy-hi Adjustment Amount” is the amount equal to the excess, if any, of (x) the Converting
Holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Company in immediately available funds immediately upon demand by the Converting Holder. By way of illustration
and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-1n with respect to shares of Common Stock it sold for net proceeds
of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000.
In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, provided the Company’s Transfer Agent is participating in the Depository
Trust Company (“DTC”) Fast Automated Securities Transfer program, upon request of the Holder and its compliance with
the provisions contained in this paragraph, so long as the certificates therefore do not bear a legend and the Holder thereof is
not obligated to return such certificate for the placement of a legend thereon, the Company shall use its best efforts to cause
its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account
of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
The
Holder of the Note shall be entitled to exercise its conversion privilege with respect to the Note notwithstanding the commencement
of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights
to relief it may have under 11 U. S .C. §362 in respect of such holder’s conversion privilege. The Company hereby waives,
to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the
Note.
3. This Note
has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only
in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and foreign securities
laws. In the event of any proposed transfer of this Note, the Company may require, prior to issuance of a new Note in the name
of such other person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Note
in such other name does not and will not cause a violation of the Act or any applicable state or foreign securities laws. Prior
to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this
Note is duly registered on the Company’s Note Register as the owner hereof for the purpose of receiving payment as herein provided
and for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
4. No provision
of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of
this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct obligation of the
Company.
5. The Holder
of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Note or the shares of Common Stock issuable upon conversion thereof except under circumstances
which will not result in a violation of the Act or any applicable state Blue Sky or foreign laws or similar laws relating to the
sale of securities.
6. This Note
shall be governed by and construed in accordance with the laws of the State of Connecticut. Each of the parties consents to the
jurisdiction of the federal or state courts whose districts encompass any part of the State of Connecticut in connection with any
dispute arising under this Note and hereby waives, to the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions.
Each of the parties hereby waives the right to a trial by jury in connection with any dispute arising under this Note.
7. The
following shall constitute an “Event of Default”:
| | a. | The Company shall default in the payment of principal and interest on this
Note and same shall continue for a period of five (5) days; or |
| b. | Any of the representations or warranties made by the Company herein, in
any certificate or financial or other written statements heretofore or hereafter furnished by the Company in connection with the
execution and delivery of this Note shall be false or misleading in any material respect at the time made; or |
| c. | The Company shall fail to perform or observe, in any material respect, any
other covenant, term, provision, condition, agreement or obligation of any Note and such failure shall continue uncured for a period
of thirty (30) days after written notice from the Holder of such failure; or |
| d. | The Company fails to authorize or to cause its Transfer Agent to issue shares
of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails
to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock issued to the Holder upon conversion
of this Note and when required by this Note, and such transfer is otherwise lawful, or fails to remove any restrictive legend on
any certificate or fails to cause its Transfer Agent to remove such restricted legend, in each case where such removal is lawful,
as and when required by this Note, the Agreement, and any such failure shall continue uncured for ten (10) business days; or |
| e. | The Company shall (1) admit in writing its inability to pay its debts generally
as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for
or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business;
or |
| f. | A trustee, liquidator or receiver shall be appointed for the Company or
for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after
such appointment; or |
| g. | Any governmental agency or any court of competent jurisdiction at the instance
of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within sixty (60) days thereafter; or |
| h. | Any money judgment, writ or warrant of attachment, or similar process in excess
of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any
event later than five (5) days prior to the date of any proposed sale thereunder; or |
| | | |
| | | Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action or answer approve of; consent to, or acquiesce in any such proceedings or admit
the material allegations of, or default in answering a petition filed in any such proceeding; or |
| | | |
| | | The Company shall have its Common
Stock suspended or delisted from an exchange or over-the-counter market from trading for in excess of five trading days. |
Then, or at any time
thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holders sole discretion,
the Holder may consider all obligations under this Note immediately due and payable within five (5) days of notice, without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately enforce any and all of the Holders rights and remedies
provided herein or any other rights or remedies afforded by law.
8. The
Holder may not convert this Note to the extent such conversion would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder)
in excess of 9.999% of the then issued and outstanding shares of Common Stock held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of
a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999%
of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder
or an affiliate thereof; the Holder shall have the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained
in this Section applies, the determination of which portion of the principal amount of Note are convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a Conversion Notice for a principal amount of Note that would result
in the issuance of in excess of the permitted amount hereunder, without regard to any other shares that the Holder or its affiliates
may beneficially own, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal
amount permitted to be converted on such Conversion Date and, at the option of the Holder, either retain any principal amount
tendered for conversion in excess of the permitted amount hereunder for future conversions or return such excess principal amount
to the Holder. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.
9. Nothing
contained in this Note shall be construed as conferring upon the Holder the right to vote or to receive dividends or to consent
or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a shareholder of the
Company, unless and to the extent converted in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.
Dated:
August 1, 2015
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ATTITUDE DRINKS INCORPORATED |
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/s/ Roy G. Warren |
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By: Roy G. Warren |
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Title President and CEO |
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| ATTESTOR |
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| By |
:/s/ Tommy E. Kee |
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| Name: Tommy E. Kee |
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EXHIBIT (10)(139)
NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED
UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
ATTITUDE
DRINKS INCORPORATED
PROMISSORY NOTE DUE JANUARY1, 2017
THIS Note is a duly authorized
issuance of up to $25,000.00 of ATTITUDE DRINKS INCORPORATED, a Delaware corporation and located at 712 U.S. Highway 1, Suite #200,
North Palm Beach, Florida 33408 (the “Company”) designated as its Note, pursuant to the Consulting Agreement entered
into by the Company and the Holder as of July 19, 2012.
FOR VALUE
RECEIVED, the Company promises to pay to SOUTHRIDGE PARTNERS II, LP, the registered holder hereof (the “Holder”), the
principal sum of twenty five thousand and 00/100 Dollars (US $25,000.00) on January 1, 2017 (the “Maturity Date”). The
principal of this Note is payable at the option of the Holder at any time after the Maturity Date, in shares of the Company’s common
stock, $.00001 par value per share (“Common Stock”) as set forth below, or in United States dollars, at the address last
appearing on the Note Register of the Company as designated in writing by the Holder. The Company will pay the outstanding principal
amount of this Note in cash on the Maturity Date to the registered holder of this Note. The forwarding of such wire transfer shall
constitute a payment hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum
represented by such check or wire transfer plus any amounts so deducted.
This Note is subject to the following additional provisions:
1. The
Note is issuable in denominations of Ten Thousand Dollars (US$10,000) and integral multiples thereof, provided that the
number of shares to be issued upon conversion is a minimum of 3,000 (unless if at the time of election to convert the number
of shares of Common Stock issuable upon conversion is less than 3,000). The Note is exchangeable for an equal aggregate
principal amount of Note 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.
2. The
Holder of this Note is entitled any time after the Maturity Date, subject to the following provisions, to convert all or a
portion of the principal amount of this Note into shares of Common Stock at a conversion price for each share of Common Stock
equal to the Current Market Price multiplied by eighty percent (80%) (the “Conversion Price”). “Current Market
Price” means the average of the closing bid prices for the Common Stock as reported by Bloomberg, LP or, if not so
reported, as reported on the over-the-counter market, for the five (5) trading days ending on the trading day immediately
before the relevant Conversion Date (as defined below). The amount of shares issuable pursuant to a conversion shall equal
the principal amount (or portion thereof) of the Note to be converted, divided by the Conversion Price.
Conversion shall
be effectuated by surrendering the Note to the Company, accompanied by or preceded by facsimile or other delivery to the
Company of the form of conversion notice attached hereto as Exhibit A, executed by the Holder evidencing such Holder’s
intention to convert a specified portion hereof No fractional shares of Common Stock or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The date
on which notice of conversion is given (the “Conversion Date”) shall be deemed to be the date on which the Holder
faxes or otherwise delivers the conversion notice (“Notice of Conversion”), substantially in the form annexed
hereto as Exhibit A, duly executed, to the Company. Facsimile delivery of the Notice of Conversion shall be accepted by the
Company at facsimile number ________ ) ATTN: Chief Financial Officer. Certificates representing Common Stock
upon conversion will be delivered within three (3) business days from the Conversion Date. (“Delivery
Date”)
The Company understands
that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date (as defined in this Section) could result in
economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay late payments to the Holder
for late issuance of Shares upon Conversion, unless the delay is due to causes beyond the reasonable control of the Company or
the Transfer Agent, in accordance with the following schedule (where “No. Business Days Late” refers to the number of
business days which is beyond three (3)) business days after the Delivery Date):’
|
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| No.
Business Days Late |
Late
Payment For Each $10,000
of Note Principal or Interest
Amount Being Converted
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| |
|
| 1 |
$100 |
| 2 |
$200 |
| 3 |
$300 |
| 4 |
$400 |
| 5 |
$500 |
| 6 |
$600 |
| 7 |
$700 |
| 8 |
$800 |
| 9 |
$900 |
| 10 |
$1,000 |
| >10 |
$1,000+$200
for each Business Day Late beyond 10 days |
The Company shall pay
any payments incurred under this Section in immediately available funds upon demand as the Holder’s remedy for such delay. Furthermore,
in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect
delivery of such shares of Common Stock by close of business on the Delivery Date, unless such failure is due to causes beyond
the Company’s reasonable control or that of its Transfer Agent, the Holder will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion; provided, however, that an amount equal to any payments contemplated
by this Section which have accrued through the date of such revocation notice shall remain due and owing to the Converting Holder
notwithstanding such revocation.
If, by the relevant
Delivery Date, the Company fails, unless such failure is due to causes beyond the Company’s reasonable control or that of its Transfer
Agent, for any reason to deliver the Shares to be issued upon conversion of the Note and after such Delivery Date, the Holder of
the Note being converted (a “Converting Holder”) purchases, in an arm’s-length open market transaction or otherwise,
shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by
the Converting Holder (the “Sold Shares”), which delivery such Converting Holder anticipated to make using the Shares
to be issued upon such conversion (a “Buy-In”), the Converting Holder shall have the right, to require the Company to
pay to the Converting Holder, in addition to and not in lieu of the amounts due hereunder (but in addition to all other amounts
contemplated in other provisions of the Transaction Agreements, and not in lieu of any such other amounts), the Buy-In Adjustment
Amount (as defined below). The “Buy-hi Adjustment Amount” is the amount equal to the excess, if any, of (x) the Converting
Holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Company in immediately available funds immediately upon demand by the Converting Holder. By way of illustration
and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-1n with respect to shares of Common Stock it sold for net proceeds
of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000.
In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, provided the Company’s
Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
upon request of the Holder and its compliance with the provisions contained in this paragraph, so long as the certificates
therefore do not bear a legend and the Holder thereof is not obligated to return such certificate for the placement of a
legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
The
Holder of the Note shall be entitled to exercise its conversion privilege with respect to the Note notwithstanding the commencement
of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”). In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights
to relief it may have under 11 U. S .C. §362 in respect of such holder’s conversion privilege. The Company hereby waives,
to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of the
Note.
3. This Note
has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only
in compliance with the Securities Act of 1933, as amended (the “Act”), and other applicable state and foreign securities
laws. In the event of any proposed transfer of this Note, the Company may require, prior to issuance of a new Note in the name
of such other person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Note
in such other name does not and will not cause a violation of the Act or any applicable state or foreign securities laws. Prior
to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this
Note is duly registered on the Company’s Note Register as the owner hereof for the purpose of receiving payment as herein provided
and for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
4. No provision
of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of
this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct obligation of the
Company.
5. The Holder
of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Note or the shares of Common Stock issuable upon conversion thereof except under circumstances
which will not result in a violation of the Act or any applicable state Blue Sky or foreign laws or similar laws relating to the
sale of securities.
6. This Note
shall be governed by and construed in accordance with the laws of the State of Connecticut. Each of the parties consents to the
jurisdiction of the federal or state courts whose districts encompass any part of the State of Connecticut in connection with any
dispute arising under this Note and hereby waives, to the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions.
Each
of the parties hereby waives the right to a trial by jury in connection with any dispute arising under this Note.
7. The following shall constitute an “Event
of Default”:
| a. | The Company shall default in the payment of principal and interest on this
Note and same shall continue for a period of five (5) days; or |
| b. | Any of the representations or warranties made by the Company herein, in
any certificate or financial or other written statements heretofore or hereafter furnished by the Company in connection with the
execution and delivery of this Note shall be false or misleading in any material respect at the time made; or |
| c. | The Company shall fail to perform or observe, in any material respect, any
other covenant, term, provision, condition, agreement or obligation of any Note and such failure shall continue uncured for a period
of thirty (30) days after written notice from the Holder of such failure; or |
| d. | The Company fails to authorize or to cause its Transfer Agent to issue shares
of Common Stock upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails
to transfer or to cause its Transfer Agent to transfer any certificate for shares of Common Stock issued to the Holder upon conversion
of this Note and when required by this Note, and such transfer is otherwise lawful, or fails to remove any restrictive legend on
any certificate or fails to cause its Transfer Agent to remove such restricted legend, in each case where such removal is lawful,
as and when required by this Note, the Agreement, and any such failure shall continue uncured for ten (10) business days; or |
| e. | The Company shall (1) admit in writing its inability to pay its debts generally
as they mature; (2) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (3) apply for
or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business;
or |
| f. | A trustee, liquidator or receiver shall be appointed for the Company or
for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after
such appointment; or |
| g. | Any governmental agency or any court of competent jurisdiction at the instance
of any governmental agency shall assume custody or control of the whole or any substantial portion
of the properties or assets of the Company and shall not be dismissed within sixty (60) days thereafter; or |
| h. | Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets and
shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than five (5) days prior
to the date of any proposed sale thereunder; or |
Bankruptcy, reorganization, insolvency
or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action or answer approve of; consent to, or acquiesce in any such proceedings or admit
the material allegations of, or default in answering a petition filed in any such proceeding; or
The Company shall have its Common
Stock suspended or delisted from an exchange or over-the-counter market from trading for in excess of five trading days.
Then, or at any time
thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holders sole discretion,
the Holder may consider all obligations under this Note immediately due and payable within five (5) days of notice, without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately enforce any and all of the Holders rights and remedies
provided herein or any other rights or remedies afforded by law.
8. The
Holder may not convert this Note to the extent such conversion would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock held by such Holder after
application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common
Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of
shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof; the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the
principal amount of Note are convertible shall be the responsibility and obligation of the Holder. If the Holder has
delivered a Conversion Notice for a principal amount of Note that would result in the issuance of in excess of the permitted
amount hereunder, without regard to any other shares that the Holder or its affiliates may beneficially own, the Company
shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date and, at the option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future conversions or return such excess principal amount to the
Holder. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not
less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.
9. Nothing
contained in this Note shall be construed as conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of shareholders or any rights whatsoever as a
shareholder of the Company, unless and to the extent converted in accordance with the terms hereof.
IN
WITNES S WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized.
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| Dated: September 1, 2015 |
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ATTITUDE DRINKS INCORPORATED |
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/s/ Roy G. Warren |
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By: Roy G. Warren |
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Title President and CEO |
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|
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| ATTESTOR |
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| By: |
/s/ Tommy E. Kee |
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| Name: Tommy E. Kee |
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EXHIBIT
21
Subsidiaries
of Registrant
| |
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| Attitude Drink Company, Inc. |
A Delaware corporation |
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| Attitude Beer Holding Co. |
A Delaware corporation |
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 annual report on Form 10-K 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 |
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President and Chief Executive Officer |
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Principal Executive Officer |
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Dated: September 28, 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 annual report on Form 10-K 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.
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/s/ Tommy E. Kee |
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Tommy E. Kee |
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Chief
Financial Officer and Principal Accounting Officer |
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Dated:
September 28, 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-K for the period ending March
31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roy G. Warren,
President and 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 |
| |
Principal
Executive Officer |
September
28, 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-K for the period ending March
31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tommy E. Kee,
Chief Financial Officer and Principal Accounting 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 |
September
28, 2015