UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2015
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from __________ to __________
Commission
File Number: 333-149158
LIVEWIRE
ERGOGENICS INC.
(Exact
name of small business issuer as specified in its charter)
Nevada |
|
26-1212244 |
(State
or other jurisdiction
of incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
24845
Corbit Place
Yorba
Linda, CA 92887
(Current
Address of Principal Executive Offices)
714-940-0155
(Issuer
Telephone Number)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.0001
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
[ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.:
Large
Accelerated Filer |
[ ] |
Accelerated
Filer |
[ ] |
Non-Accelerated
Filer |
[ ] |
Smaller Reporting
Company |
[X] |
(Do
not check of a smaller reporting company) |
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
At
November 20, 2015, there were 439,424,393 shares of $0.0001 par value common stock issued and outstanding.
TABLE
OF CONTENTS
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
LiveWire
Ergogenics, Inc.
Condensed
Consolidated Balance Sheets
| |
September
30, 2015 | | |
December
31, 2014 | |
| |
(unaudited)
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
CURRENT
ASSETS | |
| | | |
| | |
Cash
and cash equivalents | |
$ | - | | |
$ | 1,448 | |
Accounts
receivable, net | |
| - | | |
| 9,447 | |
Inventory,
net | |
| 35,672 | | |
| 47,128 | |
Prepaid
and other current assets | |
| 112,310 | | |
| 220,391 | |
Security
deposits | |
| 23,430 | | |
| - | |
Total
current assets | |
| 171,412 | | |
| 278,414 | |
| |
| | | |
| | |
Property
and equipment, net | |
| 4,553 | | |
| 7,799 | |
Security
deposits | |
| - | | |
| 23,430 | |
| |
| | | |
| | |
Total
assets | |
$ | 175,965 | | |
$ | 309,643 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
CURRENT
LIABILITIES | |
| | | |
| | |
Accounts
payable and accrued expenses | |
$ | 188,241 | | |
$ | 153,370 | |
Deferred
revenue | |
| 79,342 | | |
| 79,342 | |
Due
to others | |
| 24,615 | | |
| 23,015 | |
Notes
payable | |
| 251,700 | | |
| 235,700 | |
Notes
payable - related party | |
| 196,341 | | |
| 196,341 | |
Convertible
debentures, net | |
| 282,746 | | |
| 244,778 | |
Derivative
liability | |
| 64,606 | | |
| 61,030 | |
Total
Liabilities | |
| 1,087,591 | | |
| 993,576 | |
| |
| | | |
| | |
COMMITMENT
AND CONTINGENCIES (SEE NOTE 8) | |
| - | | |
| - | |
| |
| | | |
| | |
STOCKHOLDERS’
DEFICIT | |
| | | |
| | |
Preferred
stock, $0.0001 par value, 10,000,000 shares authorized | |
| | | |
| | |
Series
B convertible preferred stock, $0.0001 par value, 150,000 shares designated, 32,820 shares issued and outstanding at September
30, 2015 and December 31, 2014, liquidation preference is $1 per share |
|
|
3 |
|
|
|
3 |
|
Series
C convertible preferred stock, $0.0001 par value, 75 shares designated, 75 shares issued and outstanding at September 30,
2015 and December 31, 2014, liquidation preference is $200 per share |
|
|
- |
|
|
|
- |
|
Common
stock, $0.0001 par value, 1,500,000,000 and 200,000,000 shares authorized, respectively, 416,269,631 and 156,508,559 shares
issued and outstanding at September 30, 2015 and December 31, 2014, respectively |
|
|
41,627 |
|
|
|
15,651 |
|
Class
A convertible common stock, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at September 30,
2015 and December 31, 2014 |
|
|
- |
|
|
|
- |
|
Additional
paid-in-capital | |
| 7,715,640 | | |
| 7,434,862 | |
Accumulated
deficit | |
| (8,668,896 | ) | |
| (8,134,449 | ) |
Total
stockholders’ deficit | |
| (911,626 | ) | |
| (683,933 | ) |
| |
| | | |
| | |
Total
liabilities and stockholders’ deficit | |
$ | 175,965 | | |
$ | 309,643 | |
The
accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
LiveWire
Ergogenics, Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
| |
For
the Three Months Ended | | |
For
the Nine Months Ended | |
| |
September
30, | | |
September
30, | |
| |
2015
| | |
2014
| | |
2015
| | |
2014 | |
| |
| | |
| | |
| | |
| |
Income: | |
| | | |
| | | |
| | | |
| | |
Sales | |
$ | 4,980 | | |
$ | 22,087 | | |
$ | 32,915 | | |
$ | 203,887 | |
Cost
of goods sold | |
| 3,132 | | |
| 6,031 | | |
| 30,316 | | |
| 125,673 | |
Gross
Profit | |
| 1,848 | | |
| 16,056 | | |
| 2,599 | | |
| 78,214 | |
| |
| | | |
| | | |
| | | |
| | |
Operating
Expenses: | |
| | | |
| | | |
| | | |
| | |
Selling
costs | |
| 661 | | |
| (122 | ) | |
| 2,081 | | |
| 52,736 | |
General
and administrative costs | |
| 73,232 | | |
| 282,050 | | |
| 313,450 | | |
| 2,571,062 | |
Depreciation | |
| 1,094 | | |
| 1,245 | | |
| 3,246 | | |
| 3,513 | |
Total
Operating Expenses | |
| 74,987 | | |
| 283,173 | | |
| 318,777 | | |
| 2,627,311 | |
| |
| | | |
| | | |
| | | |
| | |
Loss
from operations | |
| (73,139 | ) | |
| (267,117 | ) | |
| (316,178 | ) | |
| (2,549,097 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other
Expenses (Income): | |
| | | |
| | | |
| | | |
| | |
Other
expense | |
| - | | |
| (44,523 | ) | |
| 27,323 | | |
| 172,040 | |
Loss
on change in fair value of derivative liability | |
| 64,606 | | |
| - | | |
| 62,960 | | |
| - | |
Loss
on settlement of debt | |
| - | | |
| 45,493 | | |
| - | | |
| 82,281 | |
Amortization
of beneficial conversion feature | |
| 13,845 | | |
| 63,446 | | |
| 93,218 | | |
| 179,214 | |
Interest
expense | |
| 9,920 | | |
| 4,921 | | |
| 34,768 | | |
| 644,677 | |
Total
other expenses | |
| 88,371 | | |
| 69,337 | | |
| 218,269 | | |
| 1,078,212 | |
| |
| | | |
| | | |
| | | |
| | |
Net
Loss Before Provision for Income Taxes | |
$ | (161,510 | ) | |
$ | (336,454 | ) | |
$ | (534,447 | ) | |
$ | (3,627,309 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision
for income tax | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net
Loss | |
$ | (161,510 | ) | |
$ | (336,454 | ) | |
$ | (534,447 | ) | |
$ | (3,627,309 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic
and diluted loss per share | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.03 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted
average shares outstanding - basic and diluted | |
| 301,003,741 | | |
| 142,431,535 | | |
| 225,911,274 | | |
| 125,788,803 | |
The
accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
LiveWire
Ergogenics, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| |
For
the Nine Months Ended | |
| |
September
30, | |
| |
2015
| | |
2014 | |
| |
| | |
| |
Cash
Flows From Operating Activities: | |
| | | |
| | |
Net
loss | |
$ | (534,447 | ) | |
$ | (3,627,309 | ) |
Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation
expense | |
| 3,246 | | |
| 3,513 | |
Net
loss on settlement of debt | |
| - | | |
| 82,281 | |
Change
in fair value of derivative liability | |
| 62,960 | | |
| - | |
Amortization
of beneficial conversion feature | |
| 93,218 | | |
| 179,214 | |
Amortization
of prepaid consulting fees | |
| 233,081 | | |
| 230,351 | |
Common
stock issued for services | |
| - | | |
| 140,000 | |
Common
stock issued for interest expense | |
| - | | |
| 614,200 | |
Default
penalty on convertible notes payable | |
| 26,725 | | |
| - | |
Stock
based compensation | |
| - | | |
| 1,751,184 | |
Write
off of subscription receivable | |
| - | | |
| 45,000 | |
Bad
debt provision | |
| 9,112 | | |
| 42,069 | |
Discount
on issuance of common stock | |
| - | | |
| 80,600 | |
Change
in operating assets and liabilities: | |
| | | |
| | |
Accounts
receivable, net | |
| 335 | | |
| (89,605 | ) |
Due
to others | |
| 1,600 | | |
| 200 | |
Inventory,
net | |
| 11,456 | | |
| (84,855 | ) |
Prepaid
and other current assets | |
| - | | |
| (91,387 | ) |
Accounts
payable and accrued expenses | |
| 37,266 | | |
| (9,874 | ) |
Accounts
payable - related party | |
| - | | |
| (30,000 | ) |
Deferred
revenue | |
| - | | |
| 89,342 | |
Net
cash used in operating activities | |
| (55,448 | ) | |
| (675,076 | ) |
| |
| | | |
| | |
Cash
Flows From Investing Activities | |
| | | |
| | |
Purchase
of equipment | |
| - | | |
| (5,001 | ) |
Cost
incurred in connection with Apple Rush transaction | |
| - | | |
| (64,549 | ) |
Payments
towards security deposits | |
| - | | |
| (23,430 | ) |
Net
cash used in investing activities | |
| - | | |
| (92,980 | ) |
| |
| | | |
| | |
Cash
Flows From Financing Activities | |
| | | |
| | |
Proceeds
from notes payable | |
| 16,000 | | |
| 160,000 | |
Repayment
of note payable | |
| - | | |
| (20,500 | ) |
Proceeds
from convertible notes payable | |
| 38,000 | | |
| 215,000 | |
Repayment
of notes payable - related party | |
| - | | |
| (10,000 | ) |
Proceeds
from issuance of common stock | |
| - | | |
| 424,300 | |
Net
cash provided by financing activities | |
| 54,000 | | |
| 768,800 | |
| |
| | | |
| | |
Net
(Decrease) Increase in Cash | |
| (1,448 | ) | |
| 744 | |
| |
| | | |
| | |
Cash
at Beginning of Period | |
| 1,448 | | |
| 8,342 | |
| |
| | | |
| | |
Cash
at End of Period | |
$ | - | | |
$ | 9,086 | |
| |
| | | |
| | |
Supplemental
Disclosure of Cash Flow Information | |
| | | |
| | |
Cash
paid for interest | |
$ | - | | |
$ | - | |
Cash
paid for income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Non
Cash Investing and Financing Activities | |
| | | |
| | |
Beneficial
conversion feature on convertible notes | |
$ | 38,000 | | |
$ | 215,000 | |
Common
stock issued for payment of notes payable | |
$ | - | | |
$ | 50,000 | |
Common
stock issued for payment of convertible notes payable | |
$ | 206,975 | | |
$ | 250,300 | |
Conversion
of interest to note payable | |
$ | - | | |
$ | 6,760 | |
Conversion
of debt to Class A common stock | |
$ | - | | |
$ | 20,596 | |
Conversion
of Class A common stock to common stock | |
$ | - | | |
$ | 100 | |
Accounts
payable and accrued expenses settled by issuance of common stock | |
$ | - | | |
$ | 15,093 | |
Conversion
of accounts payable - related party to notes payable - related party | |
$ | - | | |
$ | 206,341 | |
Convertible
note issued for prepaid consulting services | |
$ | 125,000 | | |
$ | 364,560 | |
Conversion
of Series B preferred stock to common stock | |
$ | - | | |
$ | 10 | |
Common
stock issued for conversion of interest | |
$ | 2,395 | | |
$ | - | |
Extinguishment
of derivative liability | |
$ | 59,384 | | |
$ | - | |
The
accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
LIVEWIRE
ERGOGENICS INC.
NOTES
TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2015
NOTE
1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The
Company
LiveWire
MC2, LLC (“LVWR”) was organized under the laws of the State of California on January 7, 2008 as a limited liability
company. LVWR was formed for the purpose of developing and marketing consumable energy supplements. LVWR adopted December 31 as
the fiscal year end.
On
June 30, 2011, LVWR, together with its members, entered into a purchase agreement (the “Purchase Agreement”),
for a share exchange with SF Blu Vu, Inc., (“SF Blu”), a public Nevada shell corporation. SF Blu Vu Inc. was formed
in Nevada on October 9, 2007 under the name Semper Flowers, Inc. On May 15, 2009, Semper Flowers, Inc. changed its name to SF
Blu Vu, Inc. The Purchase Agreement was ultimately completed on August 31, 2011. Under the terms of the Purchase Agreement, SF
Blu issued 36,000,000 (30,000,000 shares pre stock split of 1 additional share for every five shares held) of their common shares
for 100% of the members’ interest in LVWR. Subsequent to the Purchase Agreement, the members of LVWR owned 60% of common
shares of SF Blu, effectively obtaining operational and management control of SF Blu. For accounting purposes, the transaction
has been accounted for as a reverse acquisition under the purchase method of business combinations, and accordingly the transaction
has been treated as a recapitalization of LVWR, the accounting acquirer in this transaction, with SF Blu (the shell) as the legal
acquirer.
Subsequent
to the Purchase Agreement being completed, SF Blu as the legal acquirer and surviving company, together with their controlling
stockholders from LVWR changed the name of SF Blu to LiveWire Ergogenics, Inc. (“LiveWire”) on September 20, 2011.
Hereafter, SF Blu, LVWR, or LiveWire are referred to as the “Company”, unless specific reference is made to an individual
entity.
Interim
Financial Statements
These
unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014
reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of
operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”). All adjustments are of a normal recurring nature.
These
interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated
financial statements and notes thereto for the years ended December 31, 2014 and 2013 included in the Company’s Form 10-K
filed with the United States Securities and Exchange Commission (“SEC”) on May 8, 2015. The Company assumes that the
users of the interim financial information herein have read, or have access to, the audited consolidated financial statements
for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that
context. The results of operations for the three and nine month period ended September 30, 2015 are not necessarily indicative
of results for the entire year ending December 31, 2015.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Advertising
Advertising
is expensed as incurred and is included in selling costs on the accompanying consolidated statements of operations. Advertising
and marketing expense for the nine months ended September 30, 2015 and 2014 was approximately $650 and $52,736, respectively and
for the three months ended September 30, 2015 and 2014 was approximately $350 and $(122), respectively.
Accounts
Receivable
Accounts
receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for
estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when
there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current
credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At September 30,
2015 and December 31, 2014, the Company has established, based on a review of its outstanding balances, an allowance for doubtful
accounts in the amount of $58,264 and $49,153, respectively.
Basis
of Accounting
These
unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial statements
and with Form 10-Q and article 8 of the Regulation S-X of the SEC. Under this basis of accounting, revenues are recorded as earned
and expenses are recorded at the time liabilities are incurred.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts
to be cash equivalents. There were no cash equivalents at September 30, 2015 and December 31, 2014.
Use
of Estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Derivative
Liabilities
The
Company assessed the classification of its derivative financial instruments as of September 30, 2015, which consist of convertible
instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for
liability classification under ASC 815.
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception
to this rule when the host instrument is deemed to be conventional, as described.
Inventory
Inventory
is stated at the lower of cost or market value using the FIFO method. Inventory consists primarily of finished goods and packaging
materials and production supplies, i.e. packaged consumable energy supplements, manufactured under contract, and the wrappers
and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to
maintain the optimum stock on hand available for immediate shipment.
Inventory
is shown on the balance sheet net of a reserve, which represents older packaging that may still be used as samples. The Company
does not anticipate taking additional inventory reserves in the future.
Fair
Value of Financial Instruments
Effective
January 1, 2008, the Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, or ASC 820, for assets and liabilities
measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing
generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring
fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s
financial position or operating results, but did expand certain disclosures.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level
1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level
2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level
3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own
assumptions.
The
Company did not have any Level 2 or Level 3 assets or liabilities as of September 30, 2015, with the exception of its convertible
notes payable and derivative liability. The carrying amounts of these liabilities at September 30, 2015 approximate their respective
fair value based on the Company’s incremental borrowing rate.
Cash
is considered to be highly liquid and easily tradable as of September 30, 2015 and therefore classified as Level 1 within our
fair value hierarchy.
In
addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities
to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and
certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional
standards for “Accounting for Derivative Instruments and Hedging Activities”.
Professional
standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the
host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional
Convertible Debt Instrument”.
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with
Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.”
Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary
deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note.
ASC
815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net
cash settlement, then the contract shall be classified as an asset or a liability.
Income
Taxes
Prior
to the Purchase Agreement LVWR was taxed as a limited liability company, which is a ‘pass through entity’ for tax
purposes. Taxable income flowed through to its members, and income taxes were not levied at the company level. Subsequent to the
reverse merger LVWR became a subsidiary of the SF Blu and is taxed at the Company’s marginal corporate rate. The Company
accounts for income taxes under the provisions of ASC Section 740-10-30, which is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized
in their consolidated financial statements or tax returns.
Stock
Based Compensation
The
Company accounts for the grant of stock options and restricted stock awards in accordance with ASC 718, “Compensation-Stock
Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock
options and other equity based compensation.
Recognition
of Revenue
Sales
are recorded at the time title of goods sold passes to customers, which based on shipping terms which generally occurs when the
product is shipped to the customer and collectability is reasonably assured. Based on prior experience, the Company reasonably
estimates its sales returns and warranty reserves. Sales are presented net of discounts and allowances. Discounts and allowances
are determined when a sale is negotiated. The Company does not grant price adjustments after a sale is complete. The Company warrants
its products sold on the internet with a right of exchange by means of an approved Return Merchandise Authorization (RMA). Returns
of unused merchandise are similarly authorized. Warranty and return policy for product sold through retail distribution channels
is negotiated with each customer.
The
Company’s revenue is primarily derived from sales of their consumable energy supplement products through distributors who
distribute their products to retailers. The Company also sells their products directly to consumers; this is normally done through
internet sales. This portion of their sales is minimal.
Deferred
revenue is comprised of advances from customers, which will be applied toward future invoices within one year. As of September
30, 2015 and December 31, 2014, the balance was $79,342.
Shipping
costs
Shipping
costs are included in cost of goods sold and totaled approximately $3,575 and $25,425 for the nine months ended September 30,
2015 and 2014, respectively and approximately $1,075 and $6,979 for the three months ended September 30, 2015 and 2014, respectively.
Earnings
(loss) per common share
The
Company utilizes the guidance per FASB Codification ASC 260 “Earnings Per Share”. Basic earnings per share
is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available
to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated
by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings
per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities
outstanding, is not presented separately as it is anti-dilutive. Such securities, shown below, presented on a common share equivalent
basis and outstanding as of September 30, 2015 and 2014 have been excluded from the per share computations:
| |
For
the Nine Months Ended | |
| |
September
30, | |
| |
2015 | | |
2014 | |
Convertible
Notes Payable | |
| 298,156,359 | | |
| 2,810,234 | |
Warrants | |
| 6,680,002 | | |
| 6,680,002 | |
Series
B Preferred Stock | |
| 32,820 | | |
| 32,820 | |
Series
C Preferred Stock | |
| 600,000 | | |
| 600,000 | |
Long
Lived Assets
The
Company follows Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC
360-10 requires those long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating
to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability
to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets
based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets
will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.
ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs
to sell.
Reclassification
Certain
reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no
effect on reported net loss.
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements for the nine months ended September 30, 2015, include the accounts
of the Company and its wholly-owned subsidiary LiveWire MC2, LLC (“LVWR”). All significant intercompany balances and
transactions have been eliminated in consolidation.
Recent
Accounting Pronouncements
ASU
2015-03
In
April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments
in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance
for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements
issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are
to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the
period-specific effects of applying the new guidance. We do not expect the adoption of ASU 2015-03 to have a material effect on
our financial position, results of operations or cash flows.
ASU
2015-02
In
February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is
intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability
corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed
security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate
whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to
two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis
on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party
guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation
conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted,
including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial
position, results of operations or cash flows.
ASU
2015-01
In
January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying
Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the
concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01
to have a material effect on our financial position, results of operations or cash flows.
ASU
2014-17
In
November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU
provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of
an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown
accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual
change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17
did not have any effect on our financial position, results of operations or cash flows.
ASU
2014-16
In
November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the
host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently
have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16
to have any effect on our financial position, results of operations or cash flows.
ASU
2014-15
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”.
ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective
for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted.
We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash
flows.
ASU
2014-12
In
June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.”
This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position,
results of operations or cash flows.
ASU
2014-09
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects
any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts
for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts
or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. We are still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted to propose
to defer the effective date of the new revenue recognition standard by one year.
ASU
2014-08
In
April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU
2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending
the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any
effect on our financial position, results of operations or cash flows.
A
variety of accounting standards have been issued or proposed by FASB that do not require adoption until a future date. We regularly
review all new pronouncements that have been issued since the filing of our Form 10-K for the year ended December 31, 2014 to
determine their impact, if any, on our consolidated financial statements. The Company does not expect the adoption of any of these
standards to have a material impact once adopted.
NOTE
3 – GOING CONCERN
The
Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern,
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has
a net loss of $534,447 for the nine months ended September 30, 2015, and has an accumulated deficit of $8,668,896 and our current
liabilities exceeded our current assets by $916,179 as of September 30, 2015. The Company has not yet established an adequate
ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses
until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.
In
order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the
Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include
raising additional capital through increased sales of product and by sale of common shares. However, management cannot provide
any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as
a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
4 – PROPERTY AND EQUIPMENT
| |
September
30, 2015 | | |
December
31,2014 | |
| |
(Unaudited) | | |
| |
Equipment | |
$ | 27,780 | | |
$ | 27,780 | |
Accumulated
depreciation | |
| (23,227 | ) | |
| (19,981 | ) |
Total | |
$ | 4,553 | | |
$ | 7,799 | |
Property
and equipment is stated at cost less accumulated depreciation and depreciated using straight line methods over the estimated useful
lives of the related assets ranging from three to five years. Maintenance and repairs are expensed currently. The cost of normal
maintenance and repairs is charged to operations as incurred. Major overhaul that extends the useful life of existing assets is
capitalized. When equipment is retired or disposed, the costs and related accumulated depreciation are eliminated and the resulting
profit or loss is recognized in income.
Depreciation
expense amounted to $3,246 and $3,513 for the nine months ended September 30, 2015 and 2014, respectively and $1,094 and $1,245
for the three months ended September 30, 2015 and 2014, respectively.
NOTE
5 – INVENTORY
The
Company outsources the manufacturing of their consumable energy supplements. The wife of the Company’s CEO owns approximately
8% of this food outsource producer. The Company believes that they are a minor customer of this outsource producer and that production
terms with this outsourcer are conducted on an arms-length basis.
| |
September
30, 2015 | | |
December
31, 2014 | |
| |
(Unaudited) | | |
| |
Finished
goods | |
$ | 43,364 | | |
$ | 117,376 | |
Packaging
materials and production supplies | |
| 26,192 | | |
| 26,192 | |
| |
| 69,556 | | |
| 143,568 | |
Reserve
on inventory | |
| (33,884 | ) | |
| (96,440 | ) |
| |
$ | 35,672 | | |
$ | 47,128 | |
NOTE
6 – PREPAID AND OTHER CURRENT ASSETS
Prepaid
and other current assets balance primarily consists of approximately $82,000 related to advances made to suppliers for inventory
and approximately $30,000 related to prepaid consulting fees.
NOTE
7 – RELATED PARTY TRANSACTIONS AND LOANS FROM STOCKHOLDERS
Included
in notes payable – related party as of September 30, 2015 and December 31, 2014, is $196,341, payable to an entity owned
by the controlling shareholders of the Company. The related entity provides marketing and product development costs and general
and administrative expenses to the Company.
NOTE
8 – COMMITMENTS AND CONTINGENCIES
Employment
Agreements
On
July 20, 2011, the Company entered into two employment agreements. The agreements have a five year term and may be terminated
upon mutual agreement. The salary associated with each of the agreements is $260,000 annually, a portion of which will be paid
in cash and a portion of which will be deferred until the Company achieves certain levels of sales and or enters into a merger,
purchase or sale agreement and or if the Company is sold.
During
the year ended December 31, 2012, a total of $209,448, due under these employment agreements, were converted into 1,256,688 (1,047,240
shares pre stock split of 1 additional share for every five shares held) shares of the Company’s common stock and Class
A warrants to purchase 1,256,688 (1,047,240 Class A warrants pre stock split of 1 additional share for every five shares held)
shares of the Company’s common stock at $1 per share. These warrants expire on January 31, 2016.
On
September 3, 2013, Bill Hodson, the chief executive officer, and Brad Nichols, the president of the Company, agreed to forgive
their deferred salaries to date, the total amount of which is $460,667, and shall no longer hold the Company responsible for payment
of that amount. This has been recorded as a capital contribution. In addition, Mr. Hodson and Mr. Nichols agreed to change the
terms of their employment agreements to a salary of $1 per year. All other details of the employment agreements shall remain in
full effect.
On
February 20, 2015, Brad Nichols submitted his resignation as an executive officer and a director of the Board of Directors of
the Company effective as of the Board’s acceptance of his resignation on March 2, 2015. Mr. Nichols is no longer a member
of the Board or any of its committees. As a result of the resignation of Mr. Nichols, the Board will consist of one director.
The Board does not intend to appoint new directors to replace Mr. Nichols, and has determined that the Board will consist of one
director going forward.
Litigation
The
Company is subject to certain legal proceedings and claims, which arise in the ordinary course of its business. Although occasional
adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a
material adverse effect on its financial position, results of operations or liquidity.
NOTE
9 – NOTES PAYABLE
On
April 22, 2014, the Company issued a non-interest bearing promissory note for $206,341 to a related party as settlement of the
accounts payable- related party. The principal is payable every 90 days beginning on September 30, 2014 at the rate of $25,000
per quarter until the balance is zero. As of September 30, 2015, the remaining balance of this note payable is $196,341. This
note is technically in default but the Company has an understanding with the note holder that payments will be made when the Company
is able to do so.
On
April 22, 2014, the Company issued a promissory note for $150,000 to a third party for cash, which is due on October 22, 2014.
Interest accrued at a rate of 12% per annum. Monthly interest payments of $1,500 is payable every 30 days beginning on May 22,
2014. This note is technically in default but the Company has an understanding with the note holder that payments will be made
when the Company is able to do so.
On
August 13, 2014, the Company issued a promissory note for $10,000 to a third party for cash, which is due on August 13, 2015.
Annual compounded interest accrues at a rate of 6%, per annum. This note is technically in default but the Company has an understanding
with the note holder that payments will be made when the Company is able to do so.
On
December 31, 2014, the Company issued a promissory note for $10,000 to a third party for cash, which is due on June 30, 2015.
Annual compounded interest accrues at a rate of 8%, per annum. This note is technically in default but the Company has an understanding
with the note holder that payments will be made when the Company is able to do so.
On
February 23, 2015, the Company issued a promissory note for $5,000 to a third party for cash, which is due on August 30, 2015.
Annual compounded interest accrues at a rate of 8%, per annum. This note is technically in default but the Company has an understanding
with the note holder that payments will be made when the Company is able to do so.
On
March 19, 2015, the Company issued a promissory note for $5,000 to a third party for cash, which is due on September 30, 2015.
Annual compounded interest accrues at a rate of 8%, per annum. This note is technically in default but the Company has an understanding
with the note holder that payments will be made when the Company is able to do so.
On
April 3, 2015, the Company issued a promissory note for $6,000 to a third party for cash, which is due on October 30, 2015. Annual
compounded interest accrues at a rate of 8%, per annum.
As
of September 30, 2015, the remaining balance for notes payable totaled $251,700.
As
of September 30, 2015 and December 31, 2014, the Company had accrued interest of $46,767 and $30,192 respectively, related to
notes payable, which is included in accounts payable and accrued expenses on the condensed consolidated balance sheets.
NOTE
10 – CONVERTIBLE NOTES PAYABLE
At
September 30, 2015 and December 31, 2014 convertible debentures consisted of the following:
| |
September
30, 2015 | | |
December
31, 2014 | |
| |
(Unaudited) | | |
| |
Convertible
notes payable | |
$ | 306,250 | | |
$ | 323,500 | |
Unamortized
debt discount | |
| (23,504 | ) | |
| (78,722 | ) |
Total | |
$ | 282,746 | | |
$ | 244,778 | |
Note
issued on May 7, 2013:
On
May 7, 2013, the Company entered into an agreement with a third party non-affiliate to a 6% interest bearing convertible debentures
for $12,000 due on May 6, 2014, along with redemption premium of 110% of principal amount and conversion features commencing immediately.
The loan is convertible at $0.03 per share. In connection with this debenture, the Company recorded a $12,000 discount on debt,
related to the beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted
or repaid. As of September 30, 2015 this note has not been converted.
During
the year ended December 31, 2014, the Company fully amortized the remaining debt discount balance of $4,154 as amortization of
beneficial conversion feature.
Note
issued on August 16, 2013:
On
August 16, 2013, the Company entered into an agreement with a third party non-affiliate to a 10% interest bearing convertible
debentures for $100,000 due on August 16, 2016. The loan is convertible immediately at $0.25 per share. In connection with this
debenture, the note holder was issued 500,000 warrants and recorded a $5,167 discount, related to the beneficial conversion feature
of the note to be amortized over the life of the note or until the note is converted or repaid. As of September 30, 2015 this
note has not been converted.
As
of December 31, 2014, a net discount of $2,756 remained. During the nine months ended September 30, 2015, the Company amortized
a total debt discount of $1,308 as amortization of beneficial conversion feature. As of September 30, 2015, a net discount of
$1,448 remained.
Note
issued on October 3, 2013:
On
October 3, 2013, the Company entered into an agreement with a third party non-affiliate to a 10% interest bearing convertible
debentures for $25,000 due on October 2, 2016. The loan is convertible immediately at $0.25 per share. In connection with this
debenture, the note holder was issued 125,000 warrants and recorded a $3,637 discount, related to the beneficial conversion feature
of the note to be amortized over the life of the note or until the note is converted or repaid. As of September 30, 2015 this
note has not been converted.
As
of December 31, 2014, a net discount of $2,138 remained. During the nine months ended September 30, 2015, the Company amortized
a total debt discount of $898 as amortization of beneficial conversion feature. As of September 30, 2015, a net discount of $1,239
remained.
Note
issued on October 3, 2013:
On
October 3, 2013, the Company entered into an agreement with a third party non-affiliate to a 10% interest bearing convertible
debentures for $25,000 due on October 2, 2016. The loan is convertible immediately at $0.25 per share. In connection with this
debenture, the note holder was issued 125,000 warrants and recorded a $3,637 discount, related to the beneficial conversion feature
of the note to be amortized over the life of the note or until the note is converted or repaid. As of September 30, 2015 this
note has not been converted.
As
of December 31, 2014, a net discount of $2,138 remained. During the nine months ended September 30, 2015, the Company amortized
a total debt discount of $898 as amortization of beneficial conversion feature. As of September 30, 2015, a net discount of $1,239
remained.
Note
issued on October 30, 2013:
On
October 30, 2013, the Company entered into an agreement with a third party non-affiliate to a 10% interest bearing convertible
debentures for $25,000 due on October 29, 2016. The loan is convertible immediately at $0.25 per share. In connection with this
debenture, the note holder was issued 125,000 warrants and recorded a $2,687 discount, related to the beneficial conversion feature
of the note to be amortized over the life of the note or until the note is converted or repaid. As of September 30, 2015 this
note has not been converted.
As
of December 31, 2014, a net discount of $1,648 remained. During the six months ended September 30, 2015, the Company amortized
a total debt discount of $661 as amortization of beneficial conversion feature. As of September 30, 2015, a net discount of $987
remained.
Note
issued on July 21, 2014:
On
July 21, 2014, the Company entered into an agreement with a third party non-affiliate to a 8% interest bearing convertible debentures
for $53,000 due on April 24, 2015, with conversion features commencing after 180 days following the date of this note. The loan
is convertible at 58% of the average of the lowest three trading prices for the common stock during the ten trading day prior
to the conversion date. In connection with this debenture, the Company recorded a $53,000 discount on debt, related to the beneficial
conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. During the
nine months ended September 30, 2015, the Company converted the principal balance of $53,000 and accrued interest of $2,120 into
16,308,772 shares of common stock.
As
of December 31, 2014, a net discount of $21,812 remained. During the nine months ended September 30, 2015, the Company fully amortized
and wrote off a total debt discount of $21,812 to current period operations as amortization of beneficial conversion feature.
Note
issued on September 5, 2014:
On
September 5, 2014, the Company entered into an agreement with a third party non-affiliate to a 8% interest bearing convertible
debentures for $83,500 due on June 9, 2015, with conversion features commencing after 180 days following the date of this note.
The loan is convertible at 58% of the average of the lowest three trading prices for the common stock during the ten trading day
prior to the conversion date. In connection with this debenture, the Company recorded a $83,500 discount on debt, related to the
beneficial conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid.
This note was bifurcated with the embedded conversion option recorded as a derivative liability at fair value (See Note 11). On
April 15, 2015, pursuant to a notice of default received from the note holder demanding immediate payment of 150% of the remaining
outstanding principal balances of the note, the Company recognized a default penalty of $26,725 as additional principal on this
note. During the nine months ended September 30, 2015, the Company converted $110,500 of the principal and interest balance into
225,952,300 shares of common stock. As of September 30, 2015, the principal balance was fully converted and an accrued interest
balance of $3,065 remained.
As
of December 31, 2014, a net discount of $48,231 remained. During the nine months ended September 30, 2015, the Company fully amortized
the remaining debt discount balance of $48,231 to current period operations as amortization of beneficial conversion feature.
Note
issued on March 30, 2015:
On
March 30, 2015, the Company entered into a six month consulting agreement and as compensation, issued a convertible promissory
note for $125,000. The note bears 4% interest per annum and matures at April 1, 2017. The note is convertible at any time into
shares of the Company’s common stock at a rate of $0.0025 per share. During the nine months ended September 30, 2015, the
Company converted $43,750 of the principal balance into 17,500,000 shares of common stock. As of September 30, 2015, a principal
balance of $81,250 remained.
Note
issued on May 12, 2015:
On
May 12, 2015, the Company entered into an agreement with a third party non-affiliate to a 12% interest bearing convertible debentures
for $38,000 due on February 14, 2016, with conversion features commencing after 180 days following the date of this note. The
loan is convertible at 51% of the average of the lowest three trading prices for the common stock during the ten trading day prior
to the conversion date. In connection with this debenture, the Company recorded a $38,000 discount on debt, related to the beneficial
conversion feature of the note to be amortized over the life of the note or until the note is converted or repaid. This note was
bifurcated with the embedded conversion option recorded as a derivative liability at fair value (See Note 11). As of September
30, 2015, a principal balance of $38,000 remained.
During
the nine months ended September 30, 2015, the Company amortized a total debt discount of $19,410 as amortization of beneficial
conversion feature. As of September 30, 2015, a net discount of $18,590 remained.
NOTE
11 – DERIVATIVE FINANCIAL INSTRUMENTS
The
Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”),
under which convertible instruments, which contain terms that protect holders from declines in the stock price (reset provisions),
may not be exempt from derivative accounting treatment. As a result, embedded conversion options in convertible debt are recorded
as a liability and are revalued at fair value at each reporting date. If the fair value of the warrants exceeds the face value
of the related debt, the excess is recorded as change in fair value in operations on the issuance date. The Company has $38,000
of convertible debt with variable conversion pricing outstanding at September 30, 2015.
The
Company calculates the estimated fair values of the liabilities for derivative instruments using the Black Scholes (“BSM”)
option pricing model. The closing price of the Company’s common stock at September 30, 2015 was $0.0003. Volatility, expected
remaining term and risk free interest rates used to estimate the fair value of derivative liabilities at September 30, 2015, are
indicated in the table that follows. The volatility for the valuation was based on the historical volatility of the closing price
of the Company’s common stock at September 30, 2015, the expected term is equal to the remaining term of the note, and the
risk free rate is based upon rates for treasury securities with the same term.
At
September 30, 2015, the Company valued the conversion features using the assumptions specified in the below table and determined
that, during the nine months ended September 30, 2015, the Company’s derivative liability amounted to $64,606. The Company
recognized a corresponding gain of $1,646 on derivative liability in conjunction with this revaluation during the nine months
ended September 30, 2015, which combined with derivative liability expenses in excess of debt discount of $64,606 resulted in
a total derivative liability loss of $62,960 for the nine months ended September 30, 2015. The Company recognized a corresponding
loss of $62,960 and $64,606 on derivative liability in conjunction with this valuation during the three and nine months ended
September 30, 2015, respectively.
| |
Valuation
at September 30, 2015 | |
Volatility | |
| 289 | % |
Expected
remaining term | |
| .33 | |
Risk-free
interest rate | |
| 0.25 | % |
Expected
dividend yield | |
| None | |
| |
| | |
The
following table provides a summary of changes in fair value of the Company’s Level 3 derivative liabilities for the nine
months ended September 30, 2015:
| |
September
30, 2015 | |
Balance,
beginning of year | |
$ | 61,030 | |
Additions | |
| 64,606 | |
Change
in fair value of derivative liabilities | |
| (1,646 | ) |
Extinguished
liability reclassified to additional paid in capital | |
| (59,384 | ) |
| |
$ | 64,606 | |
NOTE
12 – STOCKHOLDERS’ DEFICIT
Common
Stock
On
February 3, 2015, the Company issued 2,448,980 shares of common stock valued at $0.0049 per share totaling $12,000 for partial
conversion of a $53,000 convertible note.
On
February 20, 2015, the Company issued 7,703,125 shares of common stock valued at $0.0032 per share totaling $24,650 for partial
conversion of a $53,000 convertible note.
On
February 26, 2015, the Company issued 6,156,667 shares of common stock valued at $0.0030 per share totaling $16,350 in principal
and $2,120 in accrued interest for the remaining conversion of a $53,000 convertible note.
On
March 13, 2015, the Company issued 7,705,000 shares of common stock valued at $0.0020 per share totaling $15,410 for partial conversion
of a $83,500 convertible note.
On
March 19, 2015, the Company issued 7,705,263 shares of common stock valued at $0.0019 per share totaling $14,640 for partial conversion
of a $83,500 convertible note.
On
April 10, 2015, the Company issued 8,000,000 shares of common stock valued at $0.0025 per share totaling $20,000 for partial conversion
of a $125,000 convertible note.
On
April 21, 2015, the Company issued 9,500,000 shares of common stock valued at $0.0025 per share totaling $23,750 for partial conversion
of a $125,000 convertible note.
On
May 11, 2015, the Company issued 10,214,706 shares of common stock valued at $0.0017 per share totaling $17,365 for partial conversion
of a $83,500 convertible note.
On
June 23, 2015, the Company issued 10,189,873 shares of common stock valued at $0.0008 per share totaling $8,050 for partial conversion
of a $83,500 convertible note.
On
July 16, 2015, the Company issued 10,214,286 shares of common stock valued at $0.0007 per share totaling $7,150 for partial conversion
of a $83,500 convertible note.
On
July 20, 2015, the Company issued 10,214,286 shares of common stock valued at $0.0007 per share totaling $7,150 for partial conversion
of a $83,500 convertible note.
On
July 23, 2015, the Company issued 10,211,538 shares of common stock valued at $0.0005 per share totaling $5,310 for partial conversion
of a $83,500 convertible note.
On
July 28, 2015, the Company issued 10,204,545 shares of common stock valued at $0.0004 per share totaling $4,490 for partial conversion
of a $83,500 convertible note.
On
August 3, 2015, the Company issued 10,202,703 shares of common stock valued at $0.0004 per share totaling $3,775 for partial conversion
of a $83,500 convertible note.
On
August 10, 2015, the Company issued 10,206,897 shares of common stock valued at $0.0003 per share totaling $2,960 for partial
conversion of a $83,500 convertible note.
On
August 19, 2015, the Company issued 14,304,348 shares of common stock valued at $0.0002 per share totaling $3,290 for partial
conversion of a $83,500 convertible note.
On
August 25, 2015, the Company issued 14,304,348 shares of common stock valued at $0.0002 per share totaling $3,290 for partial
conversion of a $83,500 convertible note.
On
August 31, 2015, the Company issued 14,333,333 shares of common stock valued at $0.0002 per share totaling $3,010 for partial
conversion of a $83,500 convertible note.
On
September 2, 2015, the Company issued 14,323,529 shares of common stock valued at $0.0002 per share totaling $2,435 for partial
conversion of a $83,500 convertible note.
On
September 9, 2015, the Company issued 14,323,529 shares of common stock valued at $0.0002 per share totaling $2,435 for partial
conversion of a $83,500 convertible note.
On
September 15, 2015, the Company issued 14,323,529 shares of common stock valued at $0.0002 per share totaling $2,435 for partial
conversion of a $83,500 convertible note.
On
September 16, 2015, the Company issued 14,323,529 shares of common stock valued at $0.0002 per share totaling $2,435 for partial
conversion of a $83,500 convertible note.
On
September 18, 2015, the Company issued 14,323,529 shares of common stock valued at $0.0002 per share totaling $2,435 for partial
conversion of a $83,500 convertible note.
On
September 25, 2015, the Company issued 14,323,529 shares of common stock valued at $0.0002 per share totaling $2,435 for partial
conversion of a $83,500 convertible note.
2013
Stock Incentive Plan
On
May 1, 2013, the Board of Directors of the Company adopted and approved the 2013 Stock Incentive Plan (“2013 Plan”)
whereby it reserved for issuance up to 7,500,000 shares of its common stock. The purpose of the Plan is to provide directors,
officers and employees of, and consultants, to the Company with additional incentives by increasing their ownership in the Company.
Directors, officers, employees and consultants of the Company are eligible to participate in the 2013 Plan. Incentive stock options
may be granted only to employees of the Company. Options in the form of Non-Statutory Stock Options (“NSO”) may be
granted under the 2013 Plan. Restricted Stock may also be granted under the 2013 Plan. On May 3, 2013, the Company filed Form
S-8 with the SEC to register those 7,500,000 shares of common stock. On May 24, 2014, the Company filed Form S-8 with the SEC
to register an additional 10,000,000 shares of common stock under the 2013 Plan. On May 24, 2014, the Company filed Form S-8 with
the SEC to register an additional 10,000,000 shares of common stock under the 2013 Plan. On April 10, 2015, the Company filed
Form S-8 with the SEC to register an additional 135,000,000 shares of common stock under the 2013 Plan.
Series
B Convertible Preferred Stock
Designation
and Rank
On
October 17, 2013, the Company created its new Series B preferred class of stock. The series of Preferred Stock shall be designated
the “Series B Preferred Stock” and shall consist of 150,000 shares. The Series B Preferred Stock shall be senior to
the common stock and all other shares of Preferred Stock that may be later authorized. Each share of Series B Preferred Stock
shall have a Stated Value of $1.00 per share.
Voting,
Liquidation, Dividends, and Redemption
Each
outstanding share of Series B Preferred Stock shall vote with the common stock on all matters. The shares of Series B Preferred
Stock shall (i) have a liquidation preference of $1.00 per share; (ii) accrue, earn, or participate in any dividends on the common
stock; and (iii) were subject to redemption by the Corporation prior to December 31, 2014 at a fixed redemption price of $1.10
per share.
Conversion
After
March 31, 2014, each outstanding share of Series B Preferred Stock may be converted, at the option of the owner, into common stock
using a conversion formula that delivers common stock worth $1.25 for every $1.00 of Series B converted. The owner shall provide
a written Notice of Conversion that specifies the amount of Series B Preferred Stock to be converted into common stock and the
lowest closing bid price of the Corporation’s common stock during the preceding 10 trading days.
Limitation
on Conversion
In
no event (except while there is outstanding a tender offer for any or all of the shares of the Company’s Common Stock) shall
the owner be entitled to convert any shares of Series B Preferred Stock to the extent that, after such conversion the sum of (1)
the number of shares of Common Stock then beneficially owned by the owner and its affiliates, and (2) the number of shares of
Common Stock issuable upon the conversion of the shares of Series B Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the owner and its affiliates of more than 9.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the owner upon such conversion). For purposes of
the proviso to the preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Nothing herein shall preclude the owner
from disposing of a sufficient number of other shares of Common Stock beneficially owned by the owner so as to thereafter permit
the continued conversion of shares of Series B Preferred Stock.
Equity
Designation and Issuances:
Effective
January 29, 2014 the Company amended its Series B Preferred Stock designation in order to permit the issuance of junior Preferred
Stock which have enhanced or “super-majority” voting rights. The amendment was approved by the holders of the Series
B Preferred Stock. The amended Series B Preferred Stock designation is attached as Exhibit 10.1 in Form 8-K filed with the SEC
on February 6, 2014.
On
October 17, 2013, the Company issued 134,724 shares of Series B convertible preferred stock as the result of the conversion of
debt and accrued liabilities totaling $134,724, valued at $1 per share.
On
August 27, 2014, three unrelated parties converted a total of 101,904 shares of Series B preferred stock into 3,112,955 of common
stock at the conversion rate of $0.03288.
Series
C Convertible Preferred Stock
Effective
January 29, 2014 the Board of Directors authorized the creation of 75 shares of a new Series C convertible preferred stock. Each
share of Series C Preferred has the right to convert into 8,000 shares of the Company’s common stock and have a liquidation
preference of $200. Additionally, the Series C Preferred is allowed to cast a vote, on all matters that the Company’s shareholders
are permitted to vote upon, equal to .7% of all outstanding securities that are eligible to vote at the time of such shareholder
action for each share of Series C Preferred (.7% X 75 shares = 52.5% of total vote).
On
January 31, 2014 the Company issued 75 shares of Series C Preferred Stock valued at $24,000 to its Chief Executive Officer, Bill
Hodson in exchange for a $15,000 as stock based compensation to the Executive by the Company. In addition the remaining $9,000
was recorded as a loss on settlement of debt.
Class
A Common Stock
Effective
February 3, 2014 the Board of Directors recommended, and the Company’s shareholders approved by written consent, the creation
of 1,000,000 shares of Class A Common Stock. Each share of Class A Common Stock is entitled to convert into one (1) share of regular
common stock at any time at the option of the holder and to cast two hundred (200) votes on all matters as to which holders of
the common stock, voting together as a class, are entitled to vote.
On
February 3, 2014 the Company issued 1,000,000 shares of Class A Common Stock valued at $67,000 to its Chief Executive Officer,
Bill Hodson in exchange for $20,596 owed to the Executive by the Company. In addition, the $4,404 was recorded as a stock based
compensation and $42,000 was recorded as a loss on settlement of debt.
On
February 6, 2014 Bill Hodson converted his 1,000,000 shares of Class A Common Stock into 1,000,000 shares of regular Common Stock.
Following the conversion the Class A Common Stock is no longer outstanding.
Amendment
of Articles of Incorporation
Effective
February 3, 2014, following the enactment of the First Amendment, Article Eight of the Company’s Articles of Incorporation
was amended to (i) increase the authorized common stock from 100,000,000 shares to 150,000,000 shares, and (ii) to permit the
holders of the Company’s outstanding Preferred Stock voting together as a class to effect a change in the number of authorized
shares of regular Common Stock or Series A Common Stock by amending the Articles of Incorporation without the affirmative vote,
either separately or as a class, of the holders of regular Common Stock and Series A Common Stock.
Effective
July 24, 2014, Article Eight of the Company’s Articles of Incorporation was amended to increase the authorized common stock
from 150,000,000 shares to 200,000,000 shares.
Effective
April 6, 2015, Article Eight of the Company’s Articles of Incorporation was amended to increase the authorized common stock
from 200,000,000 shares to 1,500,000,000 shares.
As
of September 30, 2015 and December 31, 2014, the Company had 416,269,631 and 156,508,559 shares of its common stock issued and
outstanding, respectively.
As
of September 30, 2015 and December 31, 2014, the Company had 0 shares of its Class A common stock issued and outstanding.
As
of September 30, 2015 and December 31, 2014, the Company had 32,820 shares of its series B preferred stock issued and outstanding.
As
of September 30, 2015 and December 31, 2014, the Company had 75 of its series C preferred stock issued and outstanding.
Warrants
The
following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common
stock issued to shareholders at September 30, 2015:
Exercise
Price |
|
|
Number
Outstanding |
|
|
Warrants
Outstanding
Weighted Average
Remaining
Contractual
Life (years) |
|
|
Weighted
Average
Exercise price |
|
|
Number
Exercisable |
|
|
Warrants
Exercisable
Weighted
Average
Exercise Price |
|
$ |
0.20
– 1.00 |
|
|
|
6,680,002 |
|
|
|
.42 |
|
|
$ |
0.90 |
|
|
|
6,680,002 |
|
|
$ |
0.90 |
|
Transactions
involving the Company’s warrant issuance are summarized as follows:
| |
Number
of Shares | | |
Weighted Average Price
Per Share | |
Outstanding
at December 31, 2013 | |
| 6,680,002 | | |
$ | 0.90 | |
Issued | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Expired | |
| - | | |
| - | |
Outstanding
at December 31, 2014 | |
| 6,680,002 | | |
$ | 0.90 | |
Issued | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Expired | |
| - | | |
| - | |
Outstanding
at September 30, 2015 | |
| 6,680,002 | | |
$ | 0.90 | |
NOTE
13 – CONCENTRATIONS
The
following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for
the nine months ended September 30, 2015 and 2014. At September 30, 2015, three customers accounted for 71% of the Company’s
total revenue. At September 30, 2014, three customers accounted for 46% of the Company’s total revenue.
Customer | |
Nine
Months Ended September 30, 2015 | | |
Nine
Months Ended September 30, 2014 | |
A | |
| 27 | % | |
| 22 | % |
B | |
| 13 | % | |
| 13 | % |
C | |
| 31 | % | |
| 11 | % |
For
the nine months ended September 30, 2015, the Company had no purchases used for production. For the nine months ended September
30, 2014, the Company had two suppliers who accounted for approximately $150,175 of their purchases used for production, or approximately
84% of total purchases for the nine months then ended.
NOTE
14 – SUBSEQUENT EVENTS
The
Company evaluated subsequent events through the date the unaudited condensed consolidated financial statements were available
to be issued as follows:
Conversions:
On
October 1, 2015, the Company converted $2,005 of debt into 14,321,429 shares of common stock valued at $0.00014 per share for
partial conversion of accrued interest of a $83,500 convertible note.
On
October 22, 2015, the Company converted $1,060 of debt into 8,833,333 shares of common stock valued at $0.00012 per share for
remaining conversion of accrued interest of a $83,500 convertible note.
On
November 17, 2015, the Company issued a promissory note for $30,000 to a third party for cash, which is due on May 17, 2016 (“Maturity
Date”). Annual simple interest accrues at a rate of 20%, per annum. In addition, the Company issued restricted shares of
common stock equal to $50,000,that will be convertible to freely tradeable shares at Maturity Date.
Item
2 – Management’s Discussion and Analysis of Financial Condition and Results of Operation
The
following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial
statements and related notes included elsewhere in this report. It contains forward-looking statements that reflect our future
plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties
that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements.
Factors
that could cause or contribute to such differences include, but are not limited to, market prices for natural gas and oil, economic
and competitive conditions, capital expenditures and other uncertainties, as well as those factors discussed below, all of which
are difficult to predict and which expressly qualify all subsequent oral and written forward-looking statements attributable to
us or persons acting on our behalf. In light of these risks, uncertainties and assumptions, the forward-looking events discussed
may not occur. We do not have any intention or obligation to update forward-looking statements included in this report after the
date of this report, except as required by law.
INTRODUCTION
The
following discussion and analysis summarizes the significant factors affecting: (i) our plan of operations for the nine months
ended September 30, 2015. This discussion and analysis should be read in conjunction with our consolidated financial statements
and notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.
EXECUTIVE
SUMMARY
We
are engaged in the sale and marketing of energy chew products. Our product delivers a blend of ingredients that provides an energy
boost similar to an energy drink, such as Red Bull or 5-Hour Energy, but is about the size of a Starburst candy. The product is
not a gum; it dissolves quickly and is an alternative to drinks or shots.
Results
of Operations
The
financial information with respect to the three and nine months ended September 30, 2015 and 2014 that is discussed below is unaudited.
In the opinion of management, such information contains all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the results for such periods. The results of operations for interim periods are not necessarily indicative
of the results of operations for the full fiscal years.
Company
Overview for the nine months ended September 30, 2015 and 2014
During
the nine months ended September 30, 2015 and 2014, we incurred net losses of $534,447 and $3,627,309, respectively.
Comparison
of the results of operations for the nine months ended September 30, 2015 and 2014
Sales. During
the nine months ended September 30, 2015 and 2014, sales of our products amounted to $32,915 and $203,887, respectively. Our sales
decreased by $170,972 or 84% primarily because of the greater restrictions we placed on the credit worthiness of our distributors,
which has resulted in us requiring 50% minimum payments prior to shipping. Additionally, the decrease is also a result of lower
than expected re-orders from private label customers.
Cost
of goods sold. For the nine months ended September 30, 2015, cost of goods sold was $30,316 compared to $125,673 for the nine
months ended September 30, 2014. Our decrease of $95,357 or 76% in cost of goods is a direct result of our decrease in sales during
the nine months ended September 30, 2015.
Gross
profit. For the nine months ended September 30, 2015, our gross profit was $2,599 (8% of revenue) compared to gross profit
of $78,214 (38% of revenue) for the nine months ended September 30, 2014. The decrease in gross profit dollar amount and in gross
profit percentage in 2015 from 2014, is a direct result of lower sales volume.
Costs
and Expenses
General
and Administrative. During the nine months ended September 30, 2015, general and administrative expenses amounted to
$313,450 as compared to $2,571,062 for the nine months ended September 30, 2014, a decrease of $2,257,612 or 88%. The decrease
in general and administrative expenses was primarily due to $1,751,184 of stock based compensation during the nine months ended
September 30, 2014 compared to $0 in the corresponding period in 2015.
Selling
Costs. During the nine months ended September 30, 2015 and 2014, selling costs amounted to $2,081 or 6% of sales and
$52,736 or 26% of sales, respectively. The decrease in selling costs is attributable to reduced sales volume.
Depreciation. During
the nine months ended September 30, 2015 and 2014, depreciation expense amounted to $3,246 and $3,513, respectively.
Interest
expense. During the nine months ended September 30, 2015 interest expense decreased to $34,768 from $644,677 during the nine
months ended September 30, 2014, a decrease of $609,909. The primary reason for the decrease is due to the issuance of shares
recorded as interest totaling $614,200 in the first quarter of 2014.
Loss
on settlement of debt. During the nine months ended September 30, 2015 loss on settlement of debt totaled $0 compared to $82,281
loss on settlement of debt for the nine months ended September, 2014. The decrease relates to the Company settling debts by issuing
shares of common and preferred stock as well as the forgiveness of approximately $45,000 in convertible debt during the first
quarter of 2014.
Loss
on change in fair value of derivative liability. As described in our accompanying unaudited condensed consolidated financial
statements, we issued convertible notes with certain conversion features that have certain reset provisions. All of which, we
are required to bifurcate from the host financial instrument and mark to market each reporting period. We recorded the initial
fair value of the reset provision as a liability with an offset to equity or debt discount and subsequently mark to market the
reset provision liability at each reporting cycle.
For
the nine months ended September 30, 2015, we recorded a loss of $62,960 in change in fair value of the derivative liability including
initial non-cash interest as compared to a gain of $0 for the nine months ended September 30, 2014. Also, the Company amortized
beneficial conversion feature expense on convertible notes of $93,218 during the nine months ended September 30, 2015 as compared
to $179,214 for the same period in the previous year.
Company
Overview for the three months ended September 30, 2015 and 2014
During
the three months ended September 30, 2015 and 2014, we incurred net losses of $161,510 and $336,454, respectively.
Comparison
of the results of operations for the three months ended September 30, 2015 and 2014
Sales. During
the three months ended September 30, 2015 and 2014, sales of our products amounted to $4,980 and $22,087, respectively. Our sales
decreased by $17,107 or 77% primarily because of the greater restrictions we placed on the credit worthiness of our distributors,
which has resulted in us requiring 50% minimum payments prior to shipping. Additionally, the decrease is also a result of lower
than expected re-orders from private label customers.
Cost
of goods sold. For the three months ended September 30, 2015, cost of goods sold was $3,132 compared to $6,031 for the three
months ended September 30, 2014. Our decrease of $2,899 or 48% is a direct result of our decrease in sales during the three months
ended September 30, 2015.
Gross
profit. For the three months ended September 30, 2015, our gross profit was $1,848 (37% of revenue) compared to gross profit
of $16,056 (73% of revenue) for the three months ended September 30, 2014. The decrease in gross profit dollar amount and in gross
profit percentage in 2015 from 2014, is a direct result of lower sales volume.
Costs
and Expenses
General
and Administrative. During the three months ended September 30, 2015, general and administrative expenses amounted to
$73,232, as compared to $282,050 for the three months ended September 30, 2014, a decrease of $208,818 or 74%. The decrease in
general and administrative expenses was primarily due to a decrease in consulting fees during the three months ended September
30, 2015 compared to the corresponding period in 2014.
Selling
Costs. During the three months ended September 30, 2015 and 2014, selling costs amounted to $661 or 13% of sales and
$(122) or -1% of sales, respectively. Selling costs were relatively unchanged compared to the corresponding period in 2014.
Depreciation. During
the three months ended September 30, 2015 and 2014, depreciation expense amounted to $1,094 and $1,245, respectively.
Interest
expense. During the three months ended September 30, 2015 interest expense increased to $9,920 from $4,921 during the three
months ended September 30, 2014, an increase of $4,999. The primary reason for the increase is due to an increase in interest
expense from our subsidiary during the three months ended September 30, 2015 compared to the corresponding period in 2014.
Loss
on settlement of debt. During the three months ended September 30, 2015 loss on settlement of debt totaled $0 compared to
$45,493 loss on settlement of debt for the three months ended September 30, 2014. The decrease relates to the Company settling
debts by issuing shares of common and preferred stock during the three months ended September 30, 2014. There was no settlement
of debt during the three months ended September 30, 2015.
Loss
on change in fair value of derivative liability. As described in our accompanying unaudited condensed consolidated financial
statements, we issued convertible notes with certain conversion features that have certain reset provisions. All of which, we
are required to bifurcate from the host financial instrument and mark to market each reporting period. We recorded the initial
fair value of the reset provision as a liability with an offset to equity or debt discount and subsequently mark to market the
reset provision liability at each reporting cycle.
For
the three months ended September 30, 2015, we recorded a loss of $64,606 in change in fair value of the derivative liability including
initial non-cash interest as compared to a gain of $0 for the three months ended September 30, 2014. Also, the Company amortized
beneficial conversion feature expense on convertible notes of $13,845 during the three months ended September 30, 2015 as compared
to $63,446 for the same period in the previous year.
Going
Concern
The
Company’s unaudited condensed consolidated financial statements are prepared using U.S. GAAP applicable to a going concern,
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have a net
loss of $534,447 for the nine months ended September 30, 2015, an accumulated deficit of $8,668,896 and our current liabilities
exceeded our current assets by $916,179 as of September 30, 2015. We have not yet established an adequate ongoing source of revenues
sufficient to cover our operating costs and to allow us to continue as a going concern. Our ability to continue as a going concern
is dependent on obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain
adequate capital, we could be forced to cease development of operations.
In
order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the
Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include
raising additional capital through increased sales of product and by sale of common shares. However, management cannot provide
any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as
a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Liquidity
and Capital Resources
During
the nine months ended September 30, 2015, our cash flows from operations were not sufficient for us to meet our operating commitments.
Our cash flows from operations continue to be, and are expected to continue to be, insufficient to meet our operating commitments.
Working
Capital. As of September 30, 2015, we had a working capital deficit of $916,179 and cash of $0, while at December 31, 2014
we had a working capital deficit of $715,162 and cash of $1,448. The increase in our working capital deficit is primarily attributable
to an increase in current liabilities in the current year versus the prior year. We do not expect our working capital deficit
to increase in the near future.
Cash
Flow. Net cash used in or provided by operating, investing and financing activities for the nine months ended September 30,
2015 and 2014 were as follows:
|
|
Nine
Months Ended
September
30, |
|
|
2015 |
|
2014 |
|
|
|
|
|
Net
cash used in operating activities |
|
$ |
(55,448 |
) |
|
$ |
(675,076 |
) |
Net cash used
in investing activities |
|
$ |
-
|
|
|
$ |
(92,980 |
) |
Net cash provided
by financing activities |
|
$ |
54,000 |
|
|
$ |
768,800 |
|
Net
Cash Used in Operating Activities. The changes in net cash used in operating activities are attributable to our net loss adjusted
for non-cash charges as presented in the condensed consolidated statements of cash flows and changes in working capital as discussed
above.
Net
Cash Used in Investing Activities. There were no capital expenditures for the nine months ended September 30, 2015. Net cash
used in investing activities for the nine months ended September 30, 2014 was related to purchases of equipment as well as payments
towards security deposits.
Net
Cash Provided by Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2015
relates primarily to cash received from issuance of our notes payable and convertible notes payable. Net cash provided by financing
activities for the nine months ended September 30, 2014 relates primarily to cash received from issuance of note payable and convertible
notes payable and cash received from the issuance of our common stock offset by the repayments of our notes payable and shareholder
loans.
Off-Balance
Sheet Arrangements
We do not
have off-balance sheet arrangements.
Inflation
The effect
of inflation on the Company’s revenue and operating results was not significant.
Contractual
Obligations
None.
Recently
Issued Accounting Pronouncements
ASU
2015-03
In
April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments
in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance
for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements
issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are
to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the
period-specific effects of applying the new guidance. We do not expect the adoption of ASU 2015-03 to have a material effect on
our financial position, results of operations or cash flows.
ASU
2015-02
In
February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is
intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability
corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed
security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate
whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to
two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis
on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party
guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation
conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted,
including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial
position, results of operations or cash flows.
ASU
2015-01
In
January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying
Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the
concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01
to have a material effect on our financial position, results of operations or cash flows.
ASU
2014-17
In
November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU
provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of
an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown
accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual
change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17
did not have any effect on our financial position, results of operations or cash flows.
ASU
2014-16
In
November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the
host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently
have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16
to have any effect on our financial position, results of operations or cash flows.
ASU
2014-15
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”.
ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective
for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted.
We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash
flows.
ASU
2014-12
In
June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.”
This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period
be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position,
results of operations or cash flows.
ASU
2014-09
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects
any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts
for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts
or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. We are still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted to propose
to defer the effective date of the new revenue recognition standard by one year.
ASU
2014-08
In
April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU
2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending
the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any
effect on our financial position, results of operations or cash flows.
The
Company has evaluated recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA
and the SEC and we have not identified any that would have a material impact on the Company’s financial position, or statements.
Item
3 – Quantitative and Qualitative Disclosures About Market Risk
The
Company is a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and is not required to provide the information
required under this item.
Item
4 – Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Our
Principal Executive Officer and Principal Accounting Officer have carried out an evaluation of the effectiveness of our disclosure,
controls and procedures. Based upon that evaluation, our Principal Executive Officer and Principal Accounting Officer concluded
that as of the end of the period covered by this report, our disclosures, controls and procedures are not effective to ensure
that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During
the most recently completed nine months ended September 30, 2015, there has been no significant change in the Company’s
internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
We
do not have an independent body to oversee our internal control over financial reporting and lack segregation of duties due to
the limited nature and resources of the Company.
In
light of these material weaknesses, we performed additional analysis and procedures in order to conclude that our financial statements
included in this report were fairly stated in accordance with accounting principles generally accepted in the United States. Accordingly,
we believe that despite our material weaknesses, our financial statements included in this report are fairly stated, in all material
respects, in accordance with United States generally accepted accounting principles.
We
plan to rectify these weaknesses by implementing an independent board of directors and hiring additional accounting personnel
once we have additional resources to do so.
Changes
in Internal Control over Financial Reporting
Our
management, with the participation of the Principal Executive Officer and Principal Accounting Officer performed an evaluation
as to whether any change in our internal controls over financial reporting occurred during the nine months ended September 30,
2015. Based on that evaluation, the Company’s Principal Executive Officer and Principal Accounting Officer concluded that
no change occurred in the Company’s internal control over financial reporting during the nine months ended September 30,
2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial
reporting.
PART
II-OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
1A. RISK FACTORS.
As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information
required by this Item.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
No. |
|
Description |
2.1 |
|
Purchase
Agreement dated June 30 , 2011 incorporated by reference from Form 8-K filed September 2, 2011 (SEC Accession No. 0001013762-11-002422) |
3.1(i) |
|
Articles
of Incorporation incorporated by reference from Form S-1 filed February 11, 2008 (SEC Accession No. 0001013762-08-000306) |
3.1(ii) |
|
Certificate
of Amendment on Name Change to SF Blu Vu, Inc. incorporated by reference from Form 8-K filed October 16, 2009 (SEC Accession
No. 0001013762-09-001684) |
3.1(iii) |
|
Certificate
of Amendment on Name Change to LiveWire Ergogenics, Inc. incorporated by reference from Form 8-K filed November 14, 2011 (SEC
Accession No. 0001013762-11-003020) |
3.2 |
|
Bylaws
incorporated by reference from Form S-1 filed February 11, 2008 (SEC Accession No. 0001013762-08-000306) |
4.1 |
|
Certificate
of Designation of the Series A Preferred Stock |
10.1 |
|
Purchase
Agreement dated June 30 , 2011 incorporated by reference from Form 8-K filed September 2, 2011 (SEC Accession No. 0001013762-11-002422) |
10.2 |
|
Fee
Agreement with Weed & Co. LLP dated July 1, 2011 incorporated by reference from Form 8-K/A filed November 28, 2011 (SEC
Accession No. 0001013762-11-003194) |
10.3 |
|
Executive
Employment Agreement – Brad Nichols dated July 20, 2011 incorporated by reference from Form 8-K/A filed November 28,
2011 (SEC Accession No. 0001013762-11-003194) |
10.4 |
|
Executive
Employment Agreement – Bill Hodson dated July 20, 2011 incorporated by reference from Form 8-K/A filed November 28,
2011 (SEC Accession No. 0001013762-11-003194) |
10.5 |
|
Contingent
Option Agreement dated July 21, 2011 incorporated by reference from Form 8-K/A filed November 28, 2011 (SEC Accession No.
0001013762-11-003194) |
21.1 |
|
Subsidiaries
of the Registrant. |
31.1 |
|
Rule
13a-14(a)/15(d)-14(a) Certificate of Chief Executive Officer filed herewith. |
31.2 |
|
Rule
13a-14(a)/15(d)-14(a) Certificate of Chief Accounting Officer filed herewith. |
32.1 |
|
Chief
Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 filed herewith. |
32.2 |
|
Chief
Accounting Officer Certification Pursuant to 18 U.S.C. Section 1350 filed herewith. |
101.INS |
|
XBRL
Instance Document * |
101.SCH |
|
XBRL
Taxonomy Extension Schema Document * |
101.CAL |
|
XBRL
Taxonomy Calculation Linkbase Document * |
101.LAB |
|
XBRL
Taxonomy Labels Linkbase Document * |
101.PRE |
|
XBRL
Taxonomy Presentation Linkbase Document * |
101.DEF |
|
XBRL
Definition Linkbase Document * |
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 hereunto duly authorized.
|
LIVEWIRE
ERGOGENICS INC. |
|
|
|
Dated: November
23, 2015 |
By: |
/s/
Bill J. Hodson |
|
|
Bill
J. Hodson |
|
|
Chief Executive
Officer |
|
|
Chief Accounting
Officer |
Exhibit
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT
OF 2002
I,
Bill Hodson, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of LiveWire Ergogenics Inc. for the period ended September 30, 2015;
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 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 controls 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;
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 that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s
ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material
weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
November
23, 2015 |
|
|
|
/s/
Bill Hodson |
|
Bill
Hodson |
|
Principal
Executive Office |
|
Exhibit
31.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Bill Hodson, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of LiveWire Ergogenics Inc. for the period ended September 30, 2015;
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 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 controls 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;
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 that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s
ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material
weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
November
23, 2015 |
|
|
|
/s/
Bill Hodson |
|
Bill
Hodson |
|
Principal
Financial Officer |
|
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 annual report of LiveWire Ergogenics, Inc. (the “Company”) on Form 10-Q for the quarter ended
September 30, 2015, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal
executive and financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date:
November 23, 2015
/s/
Bill Hodson |
|
Bill
J. Hodson, Chief Executive Officer |
|
(Principal
Executive Officer) |
|
Exhibit
32.2
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 annual report of LiveWire Ergogenics, Inc. (the “Company”) on Form 10-Q for the quarter ended
September 30, 2015, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal
executive and financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date:
November 23, 2015 |
|
|
|
/s/
Bill Hodson |
|
Bill
J. Hodson, Chief Financial Officer |
|
(Principal
Financial Officer) |
|
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