LIVEWIRE ERGOGENICS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2014
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 the Company 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 (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 the financial statements presented are
those of LVWR, as if the Purchase Agreement had been in effect
retroactively for all periods presented. Immediately following
completion of the Purchase Agreement, LVWR and their
stockholders had effective control of SF Blu even though SF Blu had
acquired LVWR. For accounting purposes, LVWR will be deemed to be
the accounting acquirer in the transaction and, consequently, the
transaction will be treated as a recapitalization of LVWR
i.e. , a
capital transaction involving the issuance of shares by SF Blu for
the members’ interest in LVWR. Accordingly, the assets, liabilities
and results of operations of LVWR, became the historical
financial statements of SF Blu at the closing of the Purchase
Agreement, and SF Blu’s assets, liabilities and results of
operations have been consolidated with those of LVWR commencing as
of August 31, 2011, the date the Purchase Agreement closed. SF Blu
is considered the accounting acquiree, or legal acquirer, in this
transaction. No step-up in basis or intangible assets or goodwill
will be recorded in this transaction. As this transaction is being
accounted for as a reverse acquisition, all direct costs of the
transaction have been charged to additional paid-in capital. All
professional fees and other costs associated with transaction have
been charged to additional paid-in-capital.
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.
NOTE 1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS
(CONTINUED)
In
contemplation, and in connection with the Purchase Agreement, the
Company’s directors on July 19, 2011 adopted resolutions
determining the Designations, Rights and Preferences of the Series
A Preferred Stock (“Series A”) consisting of One Million
(1,000,000) shares. The Series A is senior to the common
stock and all other shares of Preferred Stock that may be later
authorized. Each outstanding share of Series A has One
Thousand (1,000) votes on all matters submitted to the stockholders
and votes with the common stock on all matters. The
Series A shares vote separately as a class has the right to elect
three persons to serve on the board of directors. The
shares of Series A (i) do not have a liquidation preference; (ii)
do not accrue, earn, or participate in any dividends; (iii) are not
subject to redemption by the Corporation; and (iv) each share
of Series A has one thousand (1,000) votes per share and votes with
the common stock on all matters. As such, the Series A
has voting control of the Company and may use its majority control
to affect the interests of the Company’s common
stockholders.
After
December 31, 2012, each outstanding share of Series A may be
converted, at the option of the owner, into fifty (50) shares of
the Company's common stock; provided however, that no conversion
shall be permitted unless (i) the Company's common stock is quoted
for public trading in the United States or other international
securities market and (ii) the Company's market capitalization
(i.e., the number of issued and outstanding shares of common stock
multiplied by the daily closing price) has exceeded Fifty Million
Dollars ($50,000,000) for 90 consecutive trading days. These
provisions, if executed by the holders of the Series A, may
significantly dilute the Company’s common stockholders after
December 31, 2012.
On
July 19, 2011, the Company issued 1,000,000 shares of the newly
created Series A to Weed & Co. LLP, (“Weed & Co”) or its
designee, in exchange for a $100,000 reduction of the outstanding
accounts payable, being the equivalent of One Cent ($0.1) per share
of Series A. Weed & Co., had provided legal services to SF Blu
as a shell prior to the Purchase Agreement, and to the Company
subsequent to the Purchase Agreement. Subsequent to the issuance of
the Series A, Weed & Co assigned the Series A to a third party.
On July 21, 2011 in connection with this Series A issuance, a
Contingent Option Agreement (“Contingent Option”) was entered into
between the two primary members of LVWR and the holder of the
issued Series A. Under the terms of this Contingent Option the
holder of the Series A is not allowed to transfer, sell or borrow
against the Series A shares. Under the Contingent Option
the two members of LVWR could purchase the issued Series A under
the following circumstances:
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Provided
that LVWR becomes a subsidiary of a public entity any time prior to
December 31, 2012, the two members of LVWR could purchase the
Series A for $400,000.
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Provided
that LVWR becomes a subsidiary of a public entity, and that entity
has not secured an investment of $350,000 prior to December 31,
2011 or March 31, 2012, the two members of LVWR could purchase the
Series A for $2.
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Provided
that LVWR becomes a subsidiary of a public entity, and that entity
has not secured an investment of $600,000 prior to June 30, 2012,
the two members of LVWR could purchase the Series A for
$2.
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Provided
that LVWR becomes a subsidiary of a public entity, and that entity
has not secured an investment of $850,000 prior to December 31,
2012, the two members of LVWR could purchase the Series A for
$2.
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Provided
that LVWR becomes a subsidiary of a public entity, and that entity
reports cumulative gross revenue of $600,000 by June 30, 2012, the
two members of LVWR could purchase the Series A for
$2.
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Provided
that LVWR becomes a subsidiary of a public entity, and that entity
reports cumulative gross revenue of $1,500,000 by December 31,
2012, the two members of LVWR could purchase the Series A for
$2.
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Provided
that LVWR becomes a subsidiary of a public entity, and that entity
secures funding in excess of $200,000 through the efforts of the
two members, then the two members of LVWR could purchase the Series
A for $2.
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Based
on the above noted terms of the Contingent Option the Company
accounted for the issued Series A, similar to that of the
36,000,000 (30,000,000 shares pre stock split of 1
additional share for every five shares held) shares of common
stock issued with the Purchase Agreement, as the terms of the
Contingent Option are effectively made to ensure that the Series A,
and any benefit there under, would ultimately reside with the LVWR
members. Accordingly, the Series A are treated as having been
issued by the accounting acquirer, or LVWR, since inception for all
periods presented.
In
March 2012, Bill Hodson and Brad Nichols exercised their rights
under the Contingent Option Agreement dated July 21, 2011 with Rick
Darnell. Based upon the Agreement and fulfillment of contingencies
in the Agreement, Bill Hodson and Brad Nichols each acquired
500,000 shares of the Series A from Rick Darnell for
$2.00.
On
December 4, 2012, the Company reached an agreement with the holders
of the Company’s Series A Preferred Stock to surrender and cancel
all outstanding shares of the Company’s Series A Preferred
Stock. A copy of the Acknowledgement of Surrender and
Cancelation of the Series A Preferred Stock is attached as Exhibit
4.4 to the Form 8-k filed on December 4, 2012. The
surrender and cancelation of the Series A Preferred Stock improves
the Company’s capital structure because it eliminated the super
voting provisions and conversion features that, if exercised by the
holders, might dilute the common stockholders of the
Company.
NOTE 1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS
(CONTINUED)
Interim Financial Statements
These
unaudited condensed consolidated financial statements as of and for
the three months ended March 31, 2014 and 2013 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 the
accounting principles generally accepted in the United States of
America. All adjustments are of a normal recurring
nature.
These
interim unaudited condensed consolidated financial statements
should be read in conjunction with LVWR’s financial statements and
notes thereto for the years ended December 31, 2013 and 2012
included in the Company’s Form 10-K filed with the United States
Securities and Exchange Commission on April 14, 2014. 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
month period ended March 31, 2014 are not necessarily indicative of
results for the entire year ending December 31, 2014.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Advertising
Advertising
is expensed as incurred and is included in selling costs on the
accompanying statements of operations. Advertising and marketing
expense for the three months ended March 31, 2014 and 2013 was
approximately $19,000 and $14,000, 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 March 31, 2014 and
December 31, 2013, the Company has established, based on a review
of its outstanding balances, an allowance for doubtful accounts in
the amount of $28,098.
Basis of Accounting
These unaudited condensed consolidated financial statements have
been prepared using the basis of accounting generally accepted in
the United States of America for interim financial statements and
with Form 10-Q and article 8 of the Regulation S-X of the United
States Securities and Exchange Commission (“SEC”). Under this basis
of accounting, revenues are recorded as earned and expenses are
recorded at the time liabilities are incurred.
Cash and 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 March 31, 2014 and December 31,
2013.
Use of Estimates
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and 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 March 31, 2014, 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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:
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Level
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Observable
inputs such as quoted market prices in active markets for identical
assets or liabilities
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Level
2:
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Observable
market-based inputs or unobservable inputs that are corroborated by
market data
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Level
3:
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Unobservable
inputs for which there is little or no market data, which require
the use of the reporting entity’s own assumptions.
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The
Company did not have any Level 2 or Level 3 assets or liabilities
as of March 31, 2014, with the exception of its convertible notes
payable. The carrying amounts of these liabilities at March 31,
2014 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 March
31, 2014 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
Shipping costs
Shipping
costs are included in cost of goods sold and totaled approximately
$4,400 and $2,900 for the three months ended March 31, 2014 and
2013, 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 March 31, 2014 and 2013 have
been excluded from the per share computations:
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For the Three Months Ended
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March 31,
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2014
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2013
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Convertible
Notes Payable
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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.
Recent Accounting Pronouncements
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, 2013 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 accounting principles generally
accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of
business. The Company has a net loss of $2,817,264 for
the three months ended March 31, 2014, and has an accumulated
deficit of $6,768,195 as of March 31, 2014. 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
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March
31,
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December
31,
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2014
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2013
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(Unaudited)
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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 $1,891 and $1,898 for the three months ended
March 31, 2014 and 2013, respectively. During the three months
ended March 31, 2014, the Company purchased equipment for cash
totaling $5,000.
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.
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March
31,
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December
31,
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2014
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2013
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(Unaudited)
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Packaging
materials and production supplies
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NOTE 6 – RELATED PARTY TRANSACTIONS AND LOANS FROM
STOCKHOLDERS
Included
in accounts payable – related parties as of March 31, 2014 and
December 31, 2013, $0 and $70,045, respectively, related to legal
fees payable to a related party Richard Weed and Weed & Co.
During the quarter ended March 31, 2014 the Company issued
1,500,000 shares of its common stock for conversion
of $24,300 and the balance of $45,745 was forgiven by the note
holder.
Also
included in accounts payable – related parties as of March 31, 2014
and December 31, 2013, $206,341 and $236,341, respectively, 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. During the
quarter ended March 31, 2014, the Company repaid $30,000 in
cash.
As
of March 31, 2014 and December 31, 2013 the Company, CEO and
President advanced $0 and $43,596, respectively. During the quarter
ended March 31, 2014, the Company repaid $23,000 in cash and issued
1,000,000 shares of Class A common stock to convert the balance of
$20,596 valued at $67,000. In addition, the $4,404 was recorded as
a stock based compensation and $42,000 was recorded as a loss on
settlement of debt.
NOTE 7 – 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 shares. 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 $1.00 per
year. All other details of employment agreements shall
remain in full effect.
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 8 – NOTES PAYABLE
During
the quarter ended March 31, 2014, the Company repaid $5,000 in cash
and issued 2,000,000 shares of common stock valued at $74,000 to
satisfy $50,000 of notes payable. The remaining $24,000 was
recorded as loss on settlement of debt. As of March 31, 2014, the
remaining balance for notes payable totaled $66,500.
As
of March 31, 2014 and December 31, 2013 the Company, CEO and
President advanced $0 and $43,596, respectively. During the quarter
ended March 31, 2014, the Company repaid $23,000 in cash and issued
1,000,000 shares of Class A common stock to convert the balance of
$20,596 valued at $67,000. In addition, the $4,404 was recorded as
a stock based compensation and $42,000 was recorded as a loss on
settlement of debt.
As
of March 31, 2014 and December 31, 2013, the Company had
accrued interest of $18,655 and $32,562 respectively, related to
notes payable.
NOTE 9 – CONVERTIBLE NOTES PAYABLE
At
March 31, 2014 and December 31, 2013 convertible debentures
consisted of the following:
| |
|
March 31,
2014
|
|
|
December 31,
2013
|
|
| |
|
(Unaudited)
|
|
|
|
|
Convertible
notes payable
|
|
|
|
|
|
|
|
|
Unamortized
debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
issued on January 8, 2013:
On
January 8, 2013 the Company entered three agreements with third
party non-affiliates to 6% interest bearing convertible debentures
totaling $50,000 due on July 31, 2013, with the conversion features
commencing immediately. The loans are convertible at 40% of the
lowest closing price during the five days immediately prior to the
date of the conversion notice. In connection with this debenture,
the Company recorded a $43,185 discount on debt, related to the
beneficial conversion features of the notes to be amortized over
the lives of the notes or until the notes are converted or repaid.
During the year ended December 31, 2013 one of the agreements was
repaid in full for $15,000, a second agreement valued at $20,000
was assigned to another debt holder and in October 2013 the
remaining note was restructured. During the quarter ended March 31,
2014, the Company converted the remaining balance of $15,000 to
925,926 shares of common stock.
Note
issued on January 23, 2013:
On
January 23, 2013, the Company entered into an agreement with a
third party non-affiliate to a 6% interest bearing convertible
debentures for $25,000 due on July 31, 2013, with the conversion
features commencing immediately. The loan is convertible at 40% of
the lowest closing bid price during the five days immediately prior
to the date of the conversion notice. In connection with this
debenture, the Company recorded a $21,258 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 December 31, 2013 this note has not been converted. In
October 2013 this note was restructured. During the quarter ended
March 31, 2014, the Company converted the remaining balance of
$25,000 to 1,543,210 shares of common stock.
NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Note
issued on February 1, 2013:
On
February 1, 2013, the Company entered into an agreement with a
related party for conversion of accounts payable to a 6% interest
bearing convertible debentures for $90,045 due on July 31, 2013,
with the conversion features commencing immediately. The loan is
convertible at 40% of the lowest closing bid price during the five
days immediately prior to the date of the conversion notice. In
connection with this debenture, the Company recorded a $75,824
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 December 31, 2013 this note has
been partially converted into 2,604,167 shares of common stock
valued at $20,000. In October 2013 this note was restructured.
During the quarter ended March 31, 2014 the Company converted
$24,300 to 1,500,000 shares of common stock and the balance of
$45,745 was forgiven by the note holder and was recorded as a gain
on settlement of debt during the three months ended March 31,
2014.
Note
issued on April 29, 2013:
On
April 29, 2013, the Company entered into an agreement with a third
party non-affiliate to a 6% interest bearing convertible debentures
for $5,000 due on April 29, 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 $333
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 quarter ended March 31,
2014 the Company converted the balance of $5,000 to 46,296 shares.
In addition, the Company issued 153,704 shares of common stock
valued at $16,600 which was recorded as interest
expense.
During
the three months ended March 31, 2014, the Company fully amortized
and wrote off a total debt discount of $333 of which $95 was
recorded to current operation as interest expense.
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 March 31, 2014 this note has not
been converted.
During
the three months ended March 31, 2014, the Company amortized and
wrote off a total debt discount of $2,967 to current period
operations as interest expense. As of March 31, 2014, a net
discount of $1,187 remained.
NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Note
issued on May 23, 2013:
On
May 23, 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 22, 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 $5,200
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 quarter ended March 31,
2014 the Company converted the balance of $12,000 to 111,111
shares. In addition, the Company issued 288,889 shares of common
stock valued at $31,200 which was recorded as interest
expense.
During
the three months ended March 31, 2014, the Company fully amortized
and wrote off a total debt discount of $5,200 of which $2,029
was recorded to current operation as interest expense.
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 March 31, 2014 this note has not
been converted.
During
the quarter ended March 31, 2014, the Company amortized and wrote
off a total debt discount of $431 to current period operations
as interest expense. As of March 31, 2014, a net discount of $4,073
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 March 31, 2014 this note has not
been converted.
During
the quarter ended March 31, 2014, the Company amortized and wrote
off a total debt discount of $296 to current period operations
as interest expense. As of March 31, 2014, a net discount of $3,042
remained.
NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
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 March 31, 2014 this note has not
been converted.
During
the quarter ended March 31, 2014, the Company amortized and wrote
off a total debt discount of $296 to current period operations
as interest expense. As of March 31, 2014, a net discount of $3,042
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 March 31, 2014 this note has not
been converted.
During
the quarter ended March 31, 2014, the Company amortized and wrote
off a total debt discount of $218 to current period operations
as interest expense. As of March 31, 2014, a net discount of $2,314
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 8% interest bearing convertible
debentures for $53,000 due on July 27, 2014, with conversion
features commencing after 180 days following the date of this note.
The loan is convertible at 58% of 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. As of
March 31, 2014 this note has not been converted.
During
the quarter ended March 31, 2014, the Company amortized and wrote
off a total debt discount of $12,793 to current period
operations as interest expense. As of March 31, 2014, a net
discount of $16,773 remained.
Note
issued on December 17, 2013:
On
December 17, 2013, the Company entered into an agreement with a
third party non-affiliate to a 8% interest bearing convertible
debentures for $37,500 due on September 7, 2014, with conversion
features commencing after 180 days following the date of this note.
The loan is convertible at 58% of 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 $37,500 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. As of
March 31, 2014 this note has not been converted.
During
the quarter ended March 31, 2014, the Company amortized and wrote
off a total debt discount of $11,373 to current period
operations as interest expense. As of March 31, 2014, a net
discount of $20,218 remained.
Note
issued on February 19, 2014:
On
February 19, 2014, the Company entered into an agreement with a
third party non-affiliate to a 8% interest bearing convertible
debentures for $78,500 due on November 16, 2014, with conversion
features commencing after 180 days following the date of this note.
The loan is convertible at 58% of 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 $78,500 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. As of
March 31, 2014 this note has not been converted.
During
the quarter ended March 31, 2014, the Company amortized and wrote
off a total debt discount of $11,630 to current period
operations as interest expense. As of March 31, 2014, a net
discount of $66,870 remained.
NOTE 10 – STOCKHOLDERS’ DEFICIT
Common Stock
As
a result of the reverse merger, the shares of the Company
outstanding prior to the closing of the Purchase Agreement are
treated as having been issued as of that date, whereas the shares
issued in connection with the purchase Agreement are treated as
having been issued since inception for all periods
presented.
On
January 8, 2014, the Company issued
6,100,000 shares of the Company’s common stock. The Company issued
the 6,100,000 shares as follows: (i) 3,969,136 shares of common
stock at $0.0162 per share for conversion of two convertible
debentures totaling $64,300 and 130,864 shares of common stock at
$0.0162 per share for conversion of accrued interest totaling
$2,120; (ii) 2,000,000 shares at $0.037 per share for conversion of
a note payable totaling $50,000 and excess was recorded as a loss
on settlement of debt totaling $24,000.
On
January 21, 2014, the Company issued 400,000 shares of common stock
pursuant to a stock purchase agreement at approximately $0.02 per
share for a total of $8,050.
On
January 23, 2014, the Company issued 5,600,000 shares of common
stock at $0.032 per share to two professional advisors for services
rendered totaling $140,000 and additional compensation of $39,200
recorded as a loss on settlement of debt.
On
January 31, 2014, the Company issued 1,200,000 shares of common
stock pursuant to a stock purchase agreement at approximately $0.03
per share for a total of $30,000.
On
February 3, 2014, the Company issued 96,000 shares of common stock
pursuant to a stock purchase agreement at approximately $0.05 per
share for a total of $4,800.
On
February 4, 2014, the Company issued 500,000 shares of common stock
pursuant to a stock purchase agreement at approximately $0.05 per
share for a total of $25,000.
On
February 6, 2014, the Company converted 1,000,000 shares of Class A
convertible Common Stock into 1,000,000 shares of restricted Common
Stock.
On
February 10, 2014, the Company issued 2,000,000 bonus shares of
common stock to an investor valued at $4,800 ($0.0024 per share).
These shares have been recorded as interest expense.
NOTE 10 – STOCKHOLDERS’ DEFICIT (CONTINUED)
On
February 11, 2014, the Company issued 1,000,000 shares of common
stock pursuant to a stock purchase agreement at approximately $0.07
per share for a total of $70,000.
On
February 14, 2014, the Company issued 3,000,000 shares of common
stock pursuant to a stock purchase agreement at approximately $0.05
per share for a total of $150,000.
On
February 25, 2014, the Company issued 1,000,000 shares of common
stock pursuant to a stock purchase agreement at approximately $0.07
per share for a total of $70,000.
On
February 28, 2014, the Company issued 150,000 shares of common
stock pursuant to a stock purchase agreement at approximately $0.07
per share for a total of $10,500.
On
March 13, 2014, the Company issued
22,266,428 shares of the Company’s common stock. The Company issued
the 22,266,428 shares as follows: (i) 16,035,000 shares of common
stock at $0.108 per share to twelve employees and eight
professional advisors for compensation totaling $1,731,780; (ii)
5,200,000 bonus shares to two investors valued at $0.108 per share
totaling $561,600 (iii) 157,407 shares of common stock at $0.108
per share for conversion of two notes payable totaling $17,000 and
442,593 additional shares of common stock at $0.108 per share for
recorded as interest expense totaling $47,800; (iv) 431,428
shares of common stock at $0.108 per share to a professional
advisor for accrued services totaling $12,973 and additional
compensation of $33,621 recorded as a loss on settlement of
debt.
Subscription Receivable
The
Company issued 216,000 (180,000 shares pre stock split of 1 share
for every five shares held) shares (valued at $54,000) for the year
ended December 31, 2012 of the Company’s restricted common
stock. In April 2012, $9,000
was paid and the balance at December 31, 2012 is $45,000. These
shares were not issued as of March 31, 2014.
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 Par 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) shall be 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 the 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.
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.
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.
NOTE 10 – STOCKHOLDERS’ DEFICIT (CONTINUED)
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 C onvertible
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 Convertible Common Stock. Each share of
Class A Convertible 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
Convertible 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 Convertible Common Stock into 1,000,000 shares of regular
Common Stock. Following the conversion the Class A Convertible
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 Corporation’s outstanding Preferred Stock voting
together as a class to effect a change in the number of authorized
shares of regular Common Stock or Class A Convertible 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 Class A Convertible Common Stock.
As
of March 31, 2014 and December 31, 2013, the Company had
131,120,297 and 86,807,868 shares of its common stock issued and
outstanding, respectively.
As
of March 31, 2014 and December 31, 2013, the Company had 0 shares
of its Class A convertible common stock issued and
outstanding.
As
of March 31, 2014 and December 31, 2013, the Company had 134,724
shares of its series B convertible preferred stock issued and
outstanding.
As
of March 31, 2014 and December 31, 2013, the Company had 75 and 0
shares of its series C convertible preferred stock issued and
outstanding, respectively.
NOTE 10 – STOCKHOLDERS’ DEFICIT (CONTINUED)
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 March 31, 2014:
|
Exercise
Price
|
|
Number
Outstanding
|
Warrants Outstanding
Weighted Average
Remaining Contractual
Life (years)
|
|
Weighted
Average
Exercise price
|
|
Number
Exercisable
|
|
Warrants Exercisable
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
involving the Company’s warrant issuance are summarized as
follows:
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Price Per Share
|
|
Outstanding
at December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2014
|
|
|
|
|
|
|
|
|
NOTE 11 - CONCENTRATIONS
The following table sets forth information as to each customer that
accounted for 10% or more of the Company’s revenues for the three
months ended March 31, 2014 and 2013. At March 31, 2014, four
customers accounted for 86% of the Company’s total revenue. At
March 31, 2013, two customers accounted for 95% of the Company’s
total revenue.
|
Customer
|
|
|
Three
Months Ended
March
31, 2014
|
|
|
Three
Months Ended
March
31, 2013
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2014, the Company had one
supplier who accounted for approximately $3,077 of their purchases
used for production or approximately 17% of total purchases for the
three months then ended. For the three months March 31, 2013, the
Company had one supplier who accounted for approximately $40,000 of
their purchases used for production or approximately 89% of total
purchases for the three months then
ended.
NOTE 12 - SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date the
unaudited condensed consolidated financial statements were
available to be issued as follows:
Acquisition
On May 13, 2014 the Company completed the acquisition of a majority
stake of Apple Rush Company, Inc. (“APRU”), pursuant to a
Memorandum of Understanding which the Company had disclosed on Form
8K filed on March 10, 2014.
Under the final terms of the transaction, the Company acquired from
Robert Corr, the former CEO of APRU, and members of Mr. Corr’s
family, 10,000,000 shares of super-majority convertible preferred
stock (the “Preferred Stock”) for a purchase price of $50,000 and 4
million restricted shares of the Company’s common stock. Each share
of Preferred Stock has a face value of $1.00 and is convertible
into APRU common stock at a conversion price equal to the average
closing price of APRU for the ten (10) trading days immediately
prior to a notice of conversion, less a discount of twenty percent
(20%). As of May 13, 2014, the Preferred Stock was convertible into
18,115,942,028 shares of APRU and as of that date the Company
provided to APRU a notice of conversion for 5,000,000 shares of the
Preferred Stock convertible into 9,057,971,014 restricted shares of
APRU. The Company also reached an agreement with APRU on May 13,
2014, to acquire from APRU 7,252,034,443 newly issued restricted
shares of APRU common stock (the “Common Stock”) in exchange for
1,000,000 restricted shares of the Company’s common stock. As a
result of the conversion of the Preferred Stock and the acquisition
of the Common Stock the Company owns 16,310,005,457 shares of APRU
common stock representing approximately 77% of the outstanding
common stock of APRU.
The Company intends to treat the acquisition of the Preferred Stock
and the Common Stock as an acquisition of property and APRU will
continue to operate and trade as a separate public
company.
Equity
Issuance
In
April 2014, the Company issued 519,751 shares of common stock
valued at $0.048 per share totalling $25,000 for partial conversion
of a $53,000 convertible note.
In
April 2014, the Company entered in to a consulting agreement and
issued 2,000,000 shares pursuant to the agreement.
In May 2014, the Company issued 784,375 shares of common stock
valued at $0.0384 per share totalling $28,000 in principal and
$2,120 in accrued interest for the remaining conversion of a
$53,000 convertible note.
Promissory
Note:
On April 22, 2014, the Company entered into an agreement with a
third party non-affiliate to a 12% interest bearing promissory note
for $150,000 due on October 22, 2014. Monthly interest payments of
$1,500 in interest shall be payable every 30 days beginning on May
22, 2014.
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.
The
following discussion and analysis summarizes the significant
factors affecting: (i) our plan of operations for the three months
ended March 31, 2014. 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, 2013.
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 a large cup of coffee, 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.
The
financial information with respect to the three months ended March
31, 2014 and 2013 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 three months ended March 31, 2014 and
2013
During
the three months ended March 31, 2014, we incurred a net loss of
$2,817,264. During the three months ended March 31,
2013, we incurred a net loss of $280,876. The increase in 2014 is
primarily attributable to an increase of $1,891,000 in stock based
compensation as well as an increase of $618,310 in interest
expense.
Comparison of the results of operations for the three months ended
March 31, 2014 and 2013
Sales. During the three months ended March 31,
2014, sales of our products amounted to $63,034, as compared to
$17,788 in the corresponding 2013 period. The increase is primarily
attributable to finalizing the education process with new
distributors. The company signed several new distributors in the
fourth quarter of 2013, but due to the amount of time required for
new distributors to become fully educated on the product line, it
can take up to 30 days before the company will start receiving
purchase orders. The first quarter of 2014, the Company received
purchase orders from several of the aforementioned distributors
that are now offering LiveWire product in five new
territories.
Cost of goods sold. For the three months ended March
31, 2014, cost of goods sold was $18,449 compared to $8,297 for the
three months ended March 31, 2013. The increase in revenue had a
direct effect on the cost of sales for the three month period ended
March 31, 2014.
Gross profit. For the three months ended March 31,
2104, our gross profit was $44,585 (71% of revenue) compared to a
gross profit of $9,491 (53% of revenue) for the three months ended
March31, 2013. The increase in our gross profit relates to the
streamlining of manufacturing and production as well as the
Company’s concentration on bulk sales which requires less packaging
and in turn increases gross profit.
General and Administrative. During the three months
ended March 31, 2014, general and administrative expenses amounted
to $2,075,380, as compared to $233,165 in the corresponding 2013
period. The increase in general and administrative expenses
resulted from approximately $1,891,000 charged to stock based
compensation in 2014 compared to $0 in the corresponding period in
2013.
Selling Costs. During the three months ended March 31,
2014 and 2013, selling costs amounted to $19,252 and $13,751,
respectively. The increase in selling costs is attributed to
developing packaging and sales materials for all sales channels as
well as an increase in advertising and promotions to stimulate
sales growth.
Depreciation. During the three months ended March 31,
2014 and 2013, depreciation expense amounted to $1,891 and $1,898,
respectively.
Financing expenses. During the three months ended
March 31, 2014 and 2013, finance expenses were $623,210
and $4,900, respectively. The primary increase is due to the
issuance of shares recorded as interest totaling
$614,200.
Loss on settlement of debt. During the three months ended
March 31, 2014 and 2013, loss on settlement of debt totaled $99,988
and $0 respectively. The increase 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.
Gain 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 March 31, 2014 and 2013, we recorded a gain
of $0 in change in fair value of the derivative liability including
initial non-cash interest as compared to $42,767 for the same
period in the previous year. Also, the Company amortized beneficial
conversion feature expense on convertible notes of $42,128 during
the three months ended March 31, 2014 as compared to $79,420 for
the same period in the previous year.
We
have an accumulated deficit of $6,768,195 and our current
liabilities exceeded our current assets by $326,265 as of March 31,
2014. We may require additional funding to sustain our operations
and satisfy our contractual obligations for our planned operations.
Our ability to establish the Company as a going concern is may be
dependent upon our ability to obtain additional funding in order to
finance our planned operations.
For
the remainder of fiscal 2014, we will focus on attempting to
continue increase our revenue through the sale of our products
which we hope to achieve through increased market
penetration. We have managed both
the financial structure and sales of the Company to maximize value
for our shareholders. We have seen increases in revenues in
each of our last four quarters and have added a couple of new
distribution deals that will give us additional traction in key
parts of the country. We expect revenues to continue in a
strong growth pattern as sales create excitement for our brand and
inquiry's increase on a daily basis. We are expanding our
national distribution network and with continued growth over the
next couple of quarters we can achieve positive cash flow and begin
generating operating profits during the current year. We have
shored up our balance sheet by converting much of the unfavorable
debt to long term financing with several accredited investors with
notes convertible at .20/share, eliminating debt of two founders,
reducing salaries of key executives to $1/year and paying off debt
convertible below the market. These business decisions
confirm our commitment to the long term viability of the Company
and our desire to become a household name in the
future.
Liquidity and Capital Resources
During
the three months ended March 31, 2014, 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 throughout the remainder of the fiscal year
ending December 31, 2014.
Working Capital. As of March 31, 2014, we had a
working capital deficit of $326,265 and cash of $67,458, while at
December 31, 2013 we had a working capital deficit of $772,935 and
cash of $8,342. The decrease in our working capital deficit is
primarily attributable to the decrease in accounts payable, related
party payables, convertible debentures and notes
payable.
Cash Flow. Net cash used in or provided by operating,
investing and financing activities for the three months ended March
31, 2014 and 2013 were as follows:
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Three Months Ended
March 31,
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2014
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|
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2013
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|
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|
|
|
|
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Net
cash used in operating activities
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$
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(354,734)
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$
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(139,468)
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Net
cash used in investing activities
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$
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(5,000)
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|
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$
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-
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|
|
Net
cash provided by financing activities
|
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$
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418,850
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|
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$
|
137,358
|
|
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 unaudited
condensed consolidated statements of cash flows and changes in
working capital as discussed above.
Net Cash Provided by Investing Activities . Net
cash provided by investing activities relates to the purchase of
equipment.
Net Cash Provided by Financing Activities . Net
cash provided by financing activities relates primarily to cash
received from the issuance of convertible notes payable and cash
received from the issuance of shares offset by the repayment of
shareholder loan and a partial payment of a note
payable.
Off-Balance Sheet Arrangements
We
do not have off-balance sheet arrangements.
Table of Contents
Critical Accounting Policies and Estimates
Our
unaudited condensed consolidated financial statements have been
prepared by management in accordance with U.S. GAAP.
Inflation
The
effect of inflation on the Company's revenue and operating results
was not significant.
Recently Issued Accounting Pronouncements
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.
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.
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 three months
ended March 31, 2014, 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. We have also hired a new
financial consultant who possesses additional financial reporting
experience to assist the Company in future fillings.
Changes in Internal Control over Financial Reporting
Our
management, with the participation 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 three months ended March 31, 2014.
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 three months ended March 31, 2014 that has materially affected,
or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
PART II-OTHER INFORMATION
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.
Not
applicable.
None.
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Exhibit
No.
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Description
of Exhibits
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| |
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101.INS
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XBRL
Instance Document *
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101.SCH
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XBRL
Taxonomy Extension Schema Document *
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101.CAL
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|
XBRL
Taxonomy Calculation Linkbase Document *
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101.LAB
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|
XBRL
Taxonomy Labels Linkbase Document *
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101.PRE
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XBRL
Taxonomy Presentation Linkbase Document *
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101.DEF
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XBRL
Definition Linkbase Document *
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+filed
herewith
*
submitted herewith
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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LIVEWIRE ERGOGENICS, INC.
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May
20, 2014
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By:
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/s/ Bill
Hodson
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Bill
Hodson
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Chief
Executive Officer, Treasurer, Principal Accounting
Officer
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