Attached files
file | filename |
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EX-32.1 - CERTIFICATION - Attitude Drinks Inc. | f10q090932i_attitude.htm |
EX-31.1 - CERTIFICATION - Attitude Drinks Inc. | f10q0909ex31i_attitude.htm |
EX-4.6 - CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF DESIGNATION OF THE - Attitude Drinks Inc. | f10q0909ex4vi_attitude.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
Quarterly Period Ended September 30, 2009
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
Transition Period from _________ to _________
Commission
file number: 000-52904
ATTITUDE DRINKS INCORPORATED | ||
(Exact name of registrant as specified on its charter) |
Delaware
|
65-0109088
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
10415 Riverside Drive, #101,
Palm Beach Gardens, Florida 33410 USA
(Address
of principal executive offices)
(561)
799-5053
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO CORPORATE
ISSUERS:
State the
number of shares outstanding of each of the registrant's classes of common
equity, as of the latest practicable date: 44,882,231 shares issued and
outstanding as of November 23, 2009.
1
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
INDEX
PAGE(S)
|
||
PART
I
|
FINANCIAL
INFORMATION
|
|
Item
1 .
|
Condensed
Consolidated Financial Statements:
|
|
Balance Sheets – September 30, 2009 (unaudited) and March 31, 2009 | 3 | |
Statements of Operations – Three Months Ended September 30, 2009 and 2008, Six Months Ended September 30, 2009 and 2008 and the Periods from Inception (June 18, 2007) to September 30, 2009 (unaudited) | 4 | |
Statements of Cash Flows – Six Months Ended September 30, 2009 and 2008 and the Periods from Inception (June 18, 2007) to September 30, 2009 (unaudited) | 5 | |
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
6 | |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
35 |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
41 |
Item
4.
|
Controls
and Procedures
|
41 |
PART
II
|
OTHER
INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
42 |
Item
2.
|
Unregistered
Sales of Equity and Use of Proceeds
|
42 |
Item
3.
|
Defaults
upon Senior Securities
|
42 |
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
42 |
Item
5.
|
Other
Information/Subsequent Events
|
42 |
Item
6.
|
Exhibits
|
43 |
SIGNATURES
|
44
|
EXHIBITS
DOCUMENTS
INCORPORATED BY REFERENCE: See Exhibits
2
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
CONDENSED
CONSOLIDATED BALANCE SHEETS
September 30, 2009 | March 31, 2009 | |||||||
(Unaudited) | ||||||||
-
ASSETS -
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 2,866 | $ | 119,637 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $957 for September
30, 2009 and March 31, 2009
|
69 | 5,540 | ||||||
Inventories,
net of reserve for obsolescence of $119,511 and $43,102 for
September 30, 2009 and March 31, 2009, respectively
|
18,674 | 95,259 | ||||||
Deferred financing costs, net | 36,860 | 203,842 | ||||||
Prepaid
expenses and other current assets
|
125,769 | 111,343 | ||||||
TOTAL
CURRENT ASSETS
|
184,238 | 535,621 | ||||||
FIXED ASSETS, NET | 39,647 | 44,657 | ||||||
OTHER
ASSETS:
|
||||||||
Trademarks,
net
|
532,662 | 529,789 | ||||||
Deposits
and other
|
24,389 | 24,389 | ||||||
TOTAL
OTHER ASSETS
|
557,051 | 554,178 | ||||||
TOTAL
ASSETS
|
$ | 780,936 | $ | 1,134,456 | ||||
-
LIABILITIES AND STOCKHOLDERS' (DEFICIT) -
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts payable | $ | 1,237,225 | $ | 1,145,348 | ||||
Accrued liabilities | 3,367,921 | 2,667,557 | ||||||
Derivative liabilities | 232,753 | 123,279 | ||||||
Short-term bridge loans payable | 388,000 | 388,000 | ||||||
Convertible notes payable – current portion
|
3,470,531 | 3,041,727 | ||||||
Loans
payable to related parties
|
21,463 | 46,463 | ||||||
TOTAL
CURRENT LIABILITIES
|
8,717,893 | 7,412,374 | ||||||
STOCKHOLDERS' (DEFICIT):
|
||||||||
Series A convertible preferred stock, par value $0.001, 20,000,000 shares
authorized, 9,000,000
and
0 shares issued and outstanding at September 30, 2009 and March 31, 2009,
respectively
|
9,000 | - | ||||||
Common stock, par value $0.001, 100,000,000 shares
authorized, 34,482,231 and 14,400,121 shares issued and
outstanding at September 30, 2009
and March 31, 2009, respectively
|
34,482 | 14,400 | ||||||
Additional paid-in capital
|
4,087,992 | 2,081,458 | ||||||
Deficit accumulated during the development stage | (12,068,431 | ) | (8,373,776 | ) | ||||
TOTAL
STOCKHOLDERS' (DEFICIT)
|
(7,936,957 | ) | (6,277,918 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
|
$ | 780,936 | $ | 1,134,456 |
See
accompanying notes to consolidated financial statements
3
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three
Months Ended
September
30, 2009
|
Three
Months Ended
September
30, 2008
|
Six
Months Ended September 30, 2009
|
Six
Months Ended September 30, 2008
|
Development
Stage Period From Inception (June 18, 2007) to September 30,
2009
|
||||||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||||
REVENUES: | ||||||||||||||||||||
Net revenues | $ | 168 | $ | 10,826 | $ | (4,791 | ) | $ | 34,529 | $ | 19,806 | |||||||||
Product and shipping costs | (76,451 | ) | (10,656 | ) | (76,536 | ) | (29,526 | ) | (153,279 | ) | ||||||||||
GROSS
PROFIT
|
(76,283 | ) | 170 | (81,327 | ) | 5,003 | (133,473 | ) | ||||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||||||
Salaries,
taxes and employee benefits
|
1,852,681 | 339,030 | 2,187,941 | 991,161 | 4,827,314 | |||||||||||||||
Marketing and promotion | 88,939 | 477,247 | 190,716 | 956,622 | 1,975,154 | |||||||||||||||
Consulting fees | 16,731 | 82,915 | 16,731 | 85,973 | 459,009 | |||||||||||||||
Professional and legal fees | 109,641 | 80,189 | 161,907 | 137,073 | 600,338 | |||||||||||||||
Travel and entertainment | (1,362 | ) | 29,761 | 9,241 | 74,696 | 216,532 | ||||||||||||||
Product development costs | 1,500 | - | 9,000 | 950 | 103,950 | |||||||||||||||
Other
operating expenses
|
63,596 | 88,182 | 136,002 | 144,889 | 687,553 | |||||||||||||||
2,131,726 | 1,097,324 | 2,711,538 | 2,391,364 | 8,869,850 | ||||||||||||||||
LOSS
FROM OPERATIONS
|
(2,208,009 | ) | (1,097,154 | ) | (2,792,865 | ) | (2,386,361 | ) | (9,003,323 | ) | ||||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||||||
Derivative income (expense) | 102,593 | 15,446,395 | (148,294 | ) | 2,499,335 | 86,246 | ||||||||||||||
Loss on extinguishment of debt | - | (161,573 | ) | - | (592,020 | ) | (1,125,804 | ) | ||||||||||||
Interest and other financing costs | (229,210 | ) | 2,549,905 | (753,496 | ) | (453,269 | ) | (2,025,550 | ) | |||||||||||
(126,617 | ) | 17,834,727 | (901,790 | ) | 1,454,046 | (3,065,108 | ) | |||||||||||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | (2,334,626 | ) | 16,737,573 | (3,694,655 | ) | (932,315 | ) | (12,068,431 | ) | |||||||||||
Provision for income taxes | - | - | - | - | - | |||||||||||||||
NET
INCOME (LOSS)
|
$ | (2,334,626 | ) | $ | 16,737,573 | $ | (3,694,655 | ) | $ | (932,315 | ) | $ | (12,068,431 | ) | ||||||
Basic income/(loss) per common share | $ | (.11 | ) | $ | 1.69 | $ | (.20 | ) | $ | (.10 | ) | |||||||||
Diluted
income/(loss) per common share
|
$ | (.11 | ) | $ | 1.18 | $ | (.20 | ) | $ | (.10 | ) | |||||||||
Weighted
average common shares outstanding – basic
|
21,474,328 | 9,925,600 | 18,655,713 | 9,328,844 | ||||||||||||||||
Weighted
average common shares outstanding
– diluted
|
21,474,328 | 14,250,680 | 18,655,713 | 9,328,844 |
See
accompanying notes to consolidated financial statements.
4
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six
Months Ended September 30, 2009
|
Six
Months Ended September 30, 2008
|
Development
Stage Period From Inception
(June
18, 2007) to
September
30,
2009
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net loss
|
$ | (3,694,655 | ) | $ | (932,315 | ) | $ | (12,068,431 | ) | |||
Adjustment
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation and amortization | 5,657 | 19,580 | 25,289 | |||||||||
Amortization of deferred financing costs | 176,982 | 223,171 | 809,989 | |||||||||
Compensatory stock and warrants | 1,876,828 | 824,553 | 3,322,792 | |||||||||
Derivative expense/(income) | 148,294 | (2,499,335 | ) | (125,066 | ) | |||||||
Fair value adjustment of convertible note | 403,763 | (168,094 | ) | (111,148 | ) | |||||||
Loss on debt extinguishment | - | 592,020 | 1,125,804 | |||||||||
Amortization of debt discount | - | 273,736 | 547,359 | |||||||||
Loss on disposal of fixed assets | - | - | 3,914 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 5,471 | (3,653 | ) | (69 | ) | |||||||
Prepaid
expenses and other assets
|
(14,426 | ) | 22,625 | (150,157 | ) | |||||||
Inventories
|
76,585 | (39,744 | ) | (18,674 | ) | |||||||
Accounts
payable and accrued liabilities
|
718,583 | 1,221,401 | 4,275,960 | |||||||||
Net
cash used in operating activities
|
(296,918 | ) | (466,055 | ) | (2,362,438 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchase of equipment | - | (29,500 | ) | (29,300 | ) | |||||||
Trademarks | (3,520 | ) | (5,983 | ) | (64,712 | ) | ||||||
Net
cash used in investing activities
|
(3,520 | ) | (35,483 | ) | (94,012 | ) | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds from convertible notes payable | 145,000 | 100,000 | 1,630,000 | |||||||||
Proceeds from short-term bridge loans payable | - | 707,666 | 1,370,000 | |||||||||
Costs associated with financing | (10,000 | ) | (140,938 | ) | (331,851 | ) | ||||||
Default Redemption | 48,667 | - | 48,667 | |||||||||
Repayment of notes | - | - | (260,000 | ) | ||||||||
Capital contribution – common stock | - | - | 2,500 | |||||||||
Net
cash provided by financing activities
|
183,667 | 666,728 | 2,459,316 | |||||||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
(116,771 | ) | 165,190 | 2,866 | ||||||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
119,637 | 3,737 | - | |||||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 2,866 | $ | 168,927 | $ | 2,866 |
See
accompanying notes to consolidated financial statements.
5
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
1. Organization, Basis of Presentation and Significant
Accounting Policies
(a) Organization:
Attitude
Drinks Incorporated, a Delaware corporation, and subsidiary (“the Company”) is a
development stage company that is engaged in the development and sale of
functional beverages, primarily in the United States.
Attitude
Drinks Incorporated (“Attitude”, “We” or the “Company”) was formed in Delaware
on September 11, 1988 under the name of International Sportfest,
Inc. In January 1994, the Company acquired 100% of the issued and
outstanding common stock of Pride Management Services PLC
("PMS"). PMS was a holding company of six subsidiaries in the United
Kingdom engaged in the leasing of motor vehicles throughout the United
Kingdom. Simultaneously with the acquisition of PMS, we changed our
name to Pride, Inc. On October 1, 1999, the Company acquired all of
the issued and outstanding stock of Mason Hill & Co. and changed its name to
Mason Hill Holdings, Inc. During the quarter ended June 30, 2001, the operating
subsidiary, Mason Hill & Co., was liquidated by the Securities Investors
Protection Corporation. As a result, the Company became a shell
corporation whose principal business was to locate and consummate a merger with
an ongoing business.
On
September 19, 2007, the Company acquired Attitude Drink Company, Inc., a
Delaware corporation (“ADCI”), under an Agreement and Plan of Merger (“Merger
Agreement”) among Mason Hill Holdings, Inc. (“MHHI”) and
ADCI. Pursuant to the Merger Agreement, each share of ADCI common
stock was converted into 40 shares of Company common stock resulting in the
issuance of 4,000,000 shares of Company common stock. The acquisition
was accounted for as a reverse merger (recapitalization) with ADCI deemed to be
the accounting acquirer, and the Company deemed to be the legal
acquirer. Accordingly, the financial information presented in the
financial statements is that of ADCI as adjusted to give effect to any
difference in the par value of the issuer's and the accounting acquirer's stock
with an offset to capital in excess of par value. The basis of the assets,
liabilities and retained earnings of ADCI, the accounting acquirer, has been
carried over in the recapitalization. On September 30, 2007, the
Company changed its name to Attitude Drinks Incorporated. Its wholly
owned subsidiary, ADCI, was incorporated in Delaware on June 18,
2007.
The
Company is a development stage enterprise as defined by the Financial Accounting
Standards Codification. All losses accumulated since the inception of the
Company will be considered as part of the Company's development stage
activities. All activities of the Company to date relate to its
organization, history, merger of its subsidiary, fundings and product
development. The Company's fiscal year end is
March 31. Its plan of operation during the next twelve months is
to focus on the non-alcoholic single serving beverage business, developing and
marketing products in four fast growing segments: energy drinks, functional
water, liquid supplements and functional dairy.
(b) Basis
of Presentation/Going Concern:
In the
opinion of management, the accompanying unaudited interim condensed consolidated
financial statements of the Company contain all adjustments necessary to present
fairly the Company’s financial position as of September 30, 2009 and 2008 and
the results of its operations and cash flows for the periods ended September 30,
2009 and 2008. The significant accounting policies followed by the
Company are set forth in Note 3 to the Company’s consolidated financial
statements included in its Annual Report on Form 10-K for the year ended March
31, 2009, which is incorporated herein by reference. Specific
reference is made to that report for a description of the Company’s securities
and the notes to consolidated financial statements included
therein. The accompanying unaudited interim financial statements have
been prepared in accordance with instructions to Form
6
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
1. Organization, Basis of Presentation and Significant
Accounting Policies (Continued):
(b) Basis
of Presentation/Going Concern (Continued):
10-Q and
therefore do not include all information and footnotes required by accounting
principles generally accepted in the United States of America ("U.S.
GAAP").
The
results of operations for the six months period ended September 30, 2009 are not
necessarily indicative of the results to be expected for the full
year.
The
Company’s consolidated financial statements include the accounts of Attitude
Drinks Incorporated and its wholly-owned subsidiary, Attitude Drink Company,
Inc. All material intercompany balances and transactions have been
eliminated.
The
accompanying financial statements have been prepared on a going concern basis,
which assumes the Company will realize its assets and discharge its liabilities
in the normal course of business. As reflected in the accompanying
financial statements, the Company had insignificant revenues for the six months
ended September 30, 2009, a working capital deficit of $8,533,655 as
of September 30, 2009 and has incurred losses to date resulting in an
accumulated deficit of $12,068,431, including derivative loss/expense. These
factors create substantial doubt about the Company’s ability to continue as a
going concern. The Company’s ability to continue as a going concern is dependent
upon its ability to generate future profitable operations and/or to obtain the
necessary financing to meet its obligations and pay its liabilities when they
come due. Management’s plan includes obtaining additional funds by
debt and/or equity financings; however, there is no assurance of additional
funding being available.
(c) Inventories:
Inventories,
as estimated by management, currently consist of raw materials and finished
goods and are stated at the lower of cost on the first in, first-out method or
market. The inventory is comprised of the following:
September
30, 2009 (unaudited)
|
March
31, 2009 (audited)
|
|||||||
Finished
goods
|
$ | 105,419 | $ | 105,595 | ||||
Reserve for obsolescence | (119,511 | ) | (43,102 | ) | ||||
Raw
materials
|
32,766 | 32,766 | ||||||
Total
inventories
|
$ | 18,674 | $ | 95,259 |
(d) Deferred
Financing Costs:
All costs
associated with debt financings are capitalized and amortized on a straight-line
basis over the life of the associated debt. Amortization of deferred
financing costs for the six months ended September 30, 2009 was
$176,982.
7
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
1. Organization, Basis of Presentation and Significant
Accounting Policies (Continued):
(e) Trademarks:
Trademarks
consist of costs associated with the acquisition and development of certain
trademarks. Trademarks, when acquired, will be amortized using the
straight-line method over 15 years, once the applicable trademarked products are
available for sale. Amortization of trademarks for the six months
ended September 30, 2009 was $647. On August 8, 2008, we acquired a
portfolio of intellectual properties with the issuance of a $507,500 convertible
note (see Note 4 f). We expect to place these trademarks in service
during the fiscal year ending March 31, 2012.
(f) Financial
Instruments:
Financial
instruments, as defined in the FASB Accounting Standards Codification, consist
of cash, evidence of ownership in an entity, and contracts that both (i) impose
on one entity a contractual obligation to deliver cash or another financial
instrument to a second entity, or to exchange other financial instruments on
potentially unfavorable terms with the second entity, and (ii) conveys to that
second entity a contractual right (a) to receive cash or another financial
instrument from the first entity, or (b) to exchange other financial instruments
on potentially favorable terms with the first entity. Accordingly, our financial
instruments consist of cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, notes payable, derivative financial instruments,
convertible debt and redeemable preferred stock that we have concluded is more
akin to debt than equity.
We carry
cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities at historical costs; their respective estimated fair values
approximate carrying values due to their current nature.
Derivative
financial instruments, as defined in the FASB Accounting Standards Codification,
consist of financial instruments or other contracts that contain a notional
amount and one or more underlying (e.g. interest rate, security price or other
variable), require no initial net investment and permit net settlement.
Derivative financial instruments may be free-standing or embedded in other
financial instruments. Further, derivative financial instruments are initially,
and subsequently, measured at fair value and recorded as liabilities or, in rare
instances, assets.
We
generally do not use derivative financial instruments to hedge exposures to
cash-flow, market or foreign-currency risks. However, we have entered into
certain other financial instruments and contracts, such as debt financing
arrangements and freestanding warrants with features that are either (i) not
afforded equity classification, (ii) embody risks not clearly and closely
related to host contracts, or (iii) may be net-cash settled by the counterparty.
As required by the FASB Accounting Standards Codification, these instruments are
required to be carried as derivative liabilities, at fair value, in our
financial statements. However, we are allowed to elect fair value measurement of
the hybrid financial instruments, on a case-by-case basis, rather than bifurcate
the derivative. We believe that fair value measurement of the hybrid convertible
promissory notes arising from our October 23, 2007, January 8, 2008, January 27,
2009, March 30, 2009 and July 15, 2009 financing arrangements provide a more
meaningful presentation of that financial instrument. The fair value of the
Company’s financial instruments at September 30, 2009 used valuation
approaches which utilize assumptions under the following fair value hierarchy in
accordance with the FASB Accounting Standards Codification:
8
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
1. Organization, Basis of Presentation and Significant Accounting
Policies (Continued):
(f) Financial
Instruments (Continued):
(1)
|
Level
1 inputs are quoted prices in active markets for identical assets and
liabilities, or derived there from. Our trading market values are level 1
inputs.
|
(2)
|
Level
2 inputs are inputs other than quoted prices that are observable. We use
the current published yields for zero-coupon US Treasury Securities, with
terms nearest the remaining term of the warrants for our risk free rate
and volatility based on a peer group with similar characteristics to our
Company.
|
(3)
|
Level
3 inputs are unobservable inputs. Inputs for which any parts are level 3
inputs are classified as level 3 in their entirety. The remaining term
used equals the remaining contractual term as our best estimate of the
expected term. The credit-risk adjusted yield utilizes publicly available
bond rates and the US Treasury Yields referred to above. However, we do
not have a credit-standing and, therefore, we estimate our standing among
various reported levels and grades. During all periods we estimated that
our standing was in the speculative to high-risk grades (lower C range in
the Standard and Poors Rating).
|
(g) Income
(Loss) Per Common Share:
The basic income (loss) per common share is
computed by dividing the income (loss) applicable to common stockholders by the
weighted average number of common shares outstanding during the reporting
period. Diluted loss per common share is computed similar to basic loss per
common share except that diluted loss per common share includes dilutive common
stock equivalents, using the treasury stock method, and assumes that the
convertible debt instruments were converted into common stock upon issuance, if
dilutive. For the six months ended September 30, 2009, potential common shares
arising from the Company’s stock warrants, stock options and convertible
debt and preferred stock amounting to 416,220,460 shares were not
included in the computation of diluted loss per share because their effect was
anti-dilutive.
(h) Subsequent
Events:
The
Company has evaluated subsequent events that occurred after September 30, 2009
through the date that the financial statements were issued on November 23,
2009.
(i) Recent
Accounting Pronouncements Applicable to the Company:
We have
reviewed accounting pronouncements and interpretations thereof that have
effectiveness dates during the periods reported and in future periods. We
believe that the following impending standards may have an impact on our future
filings. The applicability of any standard is subject to the formal review of
our financial management, and certain standards are under
consideration.
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards Codification (“Codification”). The Codification is the
single source for all authoritative Generally Accepted Accounting Principles
(“GAAP”) recognized by the FASB to be applied for financial statements issued
for periods ending after September 15, 2009. The implementation
of the Codification did not impact our financial statements or disclosures other
than references to authoritative accounting literature are now made in
accordance with the Codification.
In May
2009, the FASB issued guidance under ASC 855 “Subsequent Events” which
established general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. This guidance required the Company to disclose the
date through which the Company has evaluated subsequent events and the basis for
the date. The guidance was
9
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
1. Organization, Basis of Presentation and Significant
Accounting Policies (Continued):
(i)
|
Recent
Accounting Pronouncements Applicable to the Company
(Continued):
|
effective
for interim periods which ended after June 15, 2009. See Note 10,
“Subsequent Events,” for disclosure of the date to which subsequent events are
disclosed.
In June
2008, the FASB issued authoritative guidance as required by the “Derivative and
Hedging” ASC Topic 815-10-15-74 in Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. The
objective is to provide guidance for determining whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity’s own stock,
and it applies to any freestanding financial instrument or embedded feature that
has all the characteristics of a derivative, for purposes of determining whether
that instrument or embedded feature qualifies for the first part of the scope
exception. This Issue also applies to any freestanding financial instrument that
is potentially settled in an entity’s own stock, regardless of whether the
instrument has all the characteristics of a derivative. We currently have
warrants that embody terms and conditions that require the reset of their strike
prices upon our sale of shares or equity-indexed financial instruments at
amounts less than the conversion prices. These features will no longer be
treated as “equity” once it becomes effective. Rather, such instruments will
require classification as liabilities and measurement at fair value. Early
adoption is precluded. This standard did not have a material impact on the
financial statements due to the Company’s warrants previously requiring
liability classification. See Note 5 Derivative Liabilities of the
consolidated financial statements for additional disclosure data.
In March
2008, the FASB issued guidance under ASC 815 “Derivatives and Hedging”. The
guidance is intended to improve financial standards for derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity’s financial position, financial
performance and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments;
(b) how derivative instruments and related hedged items are accounted for
and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. It is effective for financial statements issued for
fiscal years beginning after November 15, 2008, with early adoption
encouraged. The Company has provided the required disclosures in the
accompanying Notes to Condensed Consolidated Financial Statements. See Note 5
Derivative Liabilities of the consolidated financial statements for additional
disclosure data.
In
December 2007, the FASB issued revised guidance under ASC 805 “Business
Combinations”, which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. ASC 805 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of ASC 805 did not have a material impact on the
Company’s financial position, results of operations or cash flows because the
Company has not been involved in any business combinations during the six months
ended September 30, 2009.
In
December 2007, the FASB issued guidance under ASC 810 “Consolidation” This
guidance establishes new accounting and reporting standards for the
Non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. This guidance will change the classification and reporting for
minority interest and non-controlling interests of variable interest entities.
The guidance requires the minority interest and non-controlling interest of
variable interest entities to be carried as a component of stockholders’ equity.
Accordingly we will reflect non-controlling interest in our consolidated
variable interest entities as a component of stockholders’ equity. This guidance
is effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008, and earlier adoption is
prohibited. The Company adopted this guidance beginning
March 31,
10
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
1. Organization, Basis of Presentation and Significant
Accounting Policies (Continued):
(i)
|
Recent
Accounting Pronouncements Applicable to the Company
(Continued):
|
2009.
Since we do not currently have minority interest or Variable Interest Entities
consolidated in our financial statements, adoption of this guidance has no
impact on the Company’s financial statements.
In July
2006, the FASB issued guidance under ASC 740 “Income Taxes”. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial. It prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken,
or expected to be taken, on a tax return. The adoption of this guidance did not
have any impact on our financial statements.
Note
2. Accrued Liabilities:
Accrued liabilities consist of the
following:
September
30, 2009
(unaudited)
|
March
31, 2009
(audited)
|
|||||||
Accrued
payroll and related taxes
|
$ | 2,108,683 | $ | 1,650,976 | ||||
Accrued
marketing program costs
|
580,000 | 580,000 | ||||||
Accrued
professional fees
|
128,538 | 81,300 | ||||||
Accrued
interest
|
359,472 | 201,776 | ||||||
Other
payables
|
191,228 | 153,505 | ||||||
Total
|
$ | 3,367,921 | $ | 2,667,557 |
Note
3. Short-term Bridge Loans:
April
2, 2008 financing:
On April
2, 2008, the Company entered into a financing arrangement that provided for the
issuance of $120,000 face value short term bridge loans, due June 30, 2008, plus
warrants to purchase (i) 200,000 shares of our common stock and (ii) additional
warrants to purchase 200,000 shares of our common stock, representing an
aggregate 400,000 shares.
We
determined that the warrants issued in this financing arrangement met the
conditions for equity classification. The Company accounts for debt issued with
stock purchase warrants in accordance with the FASB Accounting
Standards Codification. The proceeds of
the debt were allocated between the debt and the detachable warrants based on
the relative fair values of the debt security and the warrants. We allocated a
value of $98,864 to the warrants in accordance with the FASB Accounting
Standards Codification.
We
entered into the following Modification and Waiver Agreements related to this
financing:
Date
|
Terms
|
Consideration
|
||
June
2008
|
Extend
maturity to July 30, 2008
|
1)
100,000 shares of common stock
2)
Warrants indexed to 100,000 shares of common
stock
|
||
September
2008
|
Extend
maturity to December 15,2008
|
240,000 shares of restricted stock
|
||
January
2009
|
Extend
maturity date to July 1,2009
|
1)
240,000 shares of common stock
2)
240,000 shares of restricted stock
|
11
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
3. Short-term Bridge Loans (Continued):
The
modifications resulted in a loss on extinguishment of $294,646 in accordance
with the FASB Accounting Standards Codification. The notes were considered in
default on December 15, 2008 due to non-payment. Remedy for default was
acceleration of principal so the notes were recorded at face value as of
December 15, 2008.
The
warrants contain full-ratchet protection so the exercise price of the warrants
was reduced to $.165 when the Company issued additional convertible instruments
with a lower conversion rate on December 18, 2008. The exercise price of the
warrants was reduced again to $.05 when the Company issued additional
convertible instruments with a lower conversion rate on January 27,
2009.
April
9, 2008 and April 14, 2008 financing:
On April
9, 2008, the Company entered into a financing arrangement that provided for the
issuance of $120,000 face value short term bridge loans, due July 10, 2008, plus
warrants to purchase (i) 200,000 shares of our common stock and (ii) additional
warrants to purchase 200,000 shares of our common stock, representing an
aggregate 400,000 shares. On April 14, 2008, the Company entered into a
financing arrangement that provided for the issuance of $60,000 face value short
term bridge loan notes payable, due July 15, 2008, plus warrants to purchase
(i) 100,000 shares of our common stock and (ii) additional warrants
to purchase 100,000 shares of our common stock, representing an aggregate
200,000 shares.
We
determined that the warrants issued in these financing arrangements meet the
conditions for equity classification so we allocated the proceeds of the debt
between the debt and the detachable warrants based on the relative fair values
of the debt security and the warrants in accordance with the FASB
Accounting Standards Codification.
We
entered into the following Modification and Waiver Agreements related to the
April 9, 2008 financing:
Date
|
Terms
|
Consideration
|
||
June
2008
|
Extend
maturity to August 10, 2008
|
Warrants
indexed to 150,000 shares of
common stock
|
||
September
2008
|
Extend
maturity to December 15, 2008
|
240,000
shares of restricted stock
|
||
January
2009
|
Extend
maturity date to April 30, 2009
|
1)
240,000 shares of common stock
2)
240,000 shares of restricted stock
|
The
modifications resulted in a loss on extinguishment of $114,446 in accordance
with the Financial Accounting Standards Codification.
We
entered into the following Modification and Waiver Agreements related to the
April 14, 2008 financing:
Date
|
Terms
|
Consideration
|
||
June
2008
|
Extend
maturity to July 19, 2008
|
Warrants
indexed to 50,000 shares of common stock
|
||
September
2008
|
Extend
maturity to December 15, 2008
|
120,000
shares of restricted stock
|
||
January
2009
|
Extend
maturity date to April 30, 2009
|
1)
66,000 shares of common stock
2)
66,000 shares of restricted stock
|
The
modifications resulted in a loss on extinguishment of $171,622 in accordance
with the Financial Accounting Standards Codification.
12
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
3. Short-term Bridge Loans (Continued)
On
December 15, 2008, we were in default on the notes for non-payment of the
required principle payment. The remedy for event of default was
acceleration of principal and interest so they were recorded at face
value.
It was
determined that the extension warrants required liability accounting and are
being recorded at fair value with changes in fair value being recorded in
derivative (income) expense. The warrants contain full-ratchet protection so the
exercise price of the warrants was reduced to $.165 when the Company issued
additional convertible instruments with a lower conversion rate on December 18,
2008. The exercise price of the warrants was reduced again to $.05
when the Company issued additional convertible instruments with a lower
conversion rate on January 27, 2009.
May
19, 2008 financing:
On May
19, 2008, the Company entered into a financing arrangement that provided for the
issuance of $33,000 face value short term bridge loan notes payable, due June
19, 2008, plus warrants to purchase (i) 100,000 shares of our common stock and
(ii) additional warrants to purchase 100,000 shares of our common stock,
representing an aggregate 200,000 shares.
We
determined that the warrants issued in these financing arrangements met the
conditions for equity classification so we allocated the proceeds of the debt
between the debt and the detachable warrants based on the relative fair values
of the debt security and the warrants in accordance with the FASB Accounting
Standards Codification. The fair value of the warrants using the Black-Scholes
pricing model was $280,560, and we allocated a value of $29,569 to the warrants
in accordance with with the FASB Accounting Standards Codification.
We
entered into the following Modification and Waiver Agreements related to the May
19, 2008 financing:
Date
|
Terms
|
Consideration
|
||
June
2008
|
Extend
maturity to July 30, 2008
|
1)Warrants
indexed to 50,000 shares of common stock
2)
Additional warrants to purchase 50,000 shares of common
stock
|
||
September
2008
|
Extend
maturity to December 15, 2008
|
120,000
shares of restricted stock
|
||
January
2009
|
Extend
maturity date to July 1, 2009
|
1)
240,000 shares of common stock
2)
240,000 shares of restricted stock
|
We
recorded a loss on extinguishment of $140,550 in accordance with the FASB
Accounting Standards Codification related to these modifications.
On
December 15, 2008, we were in default on the notes for non-payment of the
required principle payment. The remedy for this event of default was
acceleration of principal and interest so they were recorded at face
value.
The
warrants contain full-ratchet protection so the exercise price of the warrants
was reduced to $.165 when the Company issued additional convertible instruments
with a lower conversion rate on December 18, 2008. The exercise price
of the warrants was reduced again to $.05 when the Company issued additional
convertible instruments with a lower conversion rate on January 27,
2009.
13
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
3. Short-term Bridge Loans (Continued):
Information
and significant assumptions as of September 30, 2009 and March 31, 2009 for the
extension warrants related to the April and May financings which are required to
be recorded at fair value each reporting period:
May
19, 2008 financing (Continued):
June
23, 2009
Extension
warrants
|
January
27, 2009
Extension
warrants
|
|||||||||||||||
September
30, 2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.029 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion
or strike price
|
$ | 0.050 | $ | 0.050 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer Group)
|
82.97 | % | 92.50 | % | 84.59 | % | 81.30 | % | ||||||||
Equivalent
term (years)
|
1.73 | 2.23 | 4.33 | 4.83 | ||||||||||||
Risk-free
rate
|
1.11 | % | 0.81 | % | 2.31 | % | 1.67 | % | ||||||||
Dividends
|
-- | -- | -- | -- |
August
5, 2008 financing:
On August
5, 2008, the Company entered into a financing arrangement that provided for the
issuance of $55,000 face value short term bridge loans, due September 5, 2008,
plus warrants to purchase (i) 100,000 shares of our common stock at an exercise
price of $0.50 and (ii) additional warrants to purchase 100,000 shares of our
common stock at an exercise price of $0.75, representing an aggregate 200,000
shares. The due date of the loan was extended to December 15, 2008
with 110,000 restricted shares of common stock issued as consideration. On
December 15, 2008, we were in default on the notes for non-payment of the
required principle payment. Remedies for an event of default are acceleration of
principle and interest. There were no incremental penalties for the
event of default; however, the notes were recorded at face value.
We also
evaluated the warrants to determine if they required liability or equity
accounting. The warrants issued in conjunction with the financing are redeemable
for cash upon the occurrence of acquisition, merger or sale of substantially all
assets of the Company in an all cash transaction; therefore, the FASB Accounting
Standards Codification requires that they be recorded as derivative liabilities
on our balance sheet and marked to fair value each reporting period. We
allocated the proceeds of the debt to the warrants, and the remaining portion
was allocated to the debt instrument. The fair value of the warrants using the
Black-Scholes pricing model was $62,700 and since the fair value of the warrants
exceeded the proceeds from the financing, we recorded a day-one derivative loss
of $12,700.
On
January 15, 2009, we extended the term on the note from December 15, 2008 to
July 1, 2009, and we issued investor warrants to purchase 240,000 shares of our
common stock and 240,000 shares of restricted common stock as consideration for
the extension. We recorded a loss on extinguishment of $2,112
in accordance with the FASB Accounting Standards Codification.
The
warrants contain full-ratchet protection so the exercise price of the warrants
was reduced to $.165 when the Company issued additional convertible instruments
with a lower conversion rate on December 18, 2008. The
14
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
3. Short-term Bridge Loans (Continued):
exercise
price of the warrants was reduced again to $.05 when the Company issued
additional convertible instruments with a lower conversion rate on January 27,
2009.
August
5, 2008 financing (Continued):
Information
and significant assumptions as of September 30, 2009 for warrants which are
required to be recorded at fair value each reporting period:
June
23, 2009
Extension
warrants
|
January
27, 2009
Extension
warrants
|
|||||||||||||||
September
30,
2009
|
March
31,
2009
|
September30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the Underlying
common share
|
$ | 0.029 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion
or strike price
|
$ | 0.050 | $ | 0.050 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer group)
|
81.43 | % | 91.70 | % | 84.59 | % | 81.30 | % | ||||||||
Equivalent
term (years)
|
1.84 | 2.35 | 4.33 | 4.83 | ||||||||||||
Risk-free
rate
|
.95 | % | 0.81 | % | 1.88 | % | 1.67 | % | ||||||||
Dividends
|
-- | -- | -- | -- |
15
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable
Convertible
debt carrying values consist of the following:
September
30, 2009
|
March
31,
2009
|
|||||||
$
312,000 Convertible Note Financing, due July 1,
2009 (a)
|
$ | 312,000 | $ | 312,000 | ||||
$
600,000 Convertible Note Financing, due July 1,
2009 (b)
|
641,946 | 657,757 | ||||||
$
500,000 Convertible Note Financing, due July 1,
2009 (b)
|
693,836 | 548,131 | ||||||
$
100,000 Convertible Note Financing, due July 1,
2009 (b)
|
136,411 | 109,626 | ||||||
$
243,333 Convertible Note Financing, due July 1,
2009 (c)
|
292,000 | 243,333 | ||||||
$ 60,833
Convertible Note Financing, due July 1,
2009 (d)
|
60,833 | 60,833 | ||||||
$ 20,000
Convertible Note Financing, due July 1, 2009 (c)
|
20,000 | 20,000 | ||||||
$
120,000 Convertible Note Financing, due July 27, 2009 (e)
|
149,819 | 151,300 | ||||||
$ 5,000
Convertible Note Financing, due July 27, 2009 e)
|
6,242 | 6,322 | ||||||
$ 5,000
Convertible Note Financing, due July 27, 2009 (e)
|
6,242 | 6,322 | ||||||
$ 60,000
Convertible Note Financing, due July 27, 2009 (e)
|
75,945 | 75,157 | ||||||
$ 70,834
Convertible Note Financing, due July 27, 2009 (e)
|
90,270 | 89,310 | ||||||
$507,500 Convertible
Note Financing, due August 7, 2009 (f)
|
507,500 | 507,500 | ||||||
$
200,000 Convertible Note Financing, due December 30, 2009
(e)
|
269,784 | 254,136 | ||||||
$161,112
Convertible Note Financing, due December 30, 2009
(e)
|
207,703 | -- | ||||||
Total
convertible notes payable:
|
3,470,531 | 3,041,727 | ||||||
Less
current maturities
|
3,470,531 | 3,041,727 | ||||||
Long-term
convertible notes payable
|
$ | -- | $ | -- |
As of
September 30, 2009, we did not have sufficient authorized shares to settle all
our equity indexed instruments which resulted in an event of default on the
notes listed above. The remedies for events of default include acceleration of
principal and interest and a portion of the notes also include redemption
provisions which allow the holders the options to redeem the notes for 120% of
the principal balance plus interest. The investors waived the default interest
provisions until June 30, 2009 so beginning July 1, 2009, default interest of
15% will begin accruing on these notes until we are able to obtain sufficient
authorized shares. Notes with the redemption provision were recorded at 120% of
face value.
(a) Short
term convertible notes payable
On
January 8, 2008, we executed secured convertible notes in the aggregate of
$520,000 with three lenders, all unrelated entities. We received a net amount of
$430,000 with the $90,000 discount being treated as interest. The
loans become payable on May 7, 2008, or we had the option of compelling the
holder to convert all, or a portion of, the outstanding principal and accrued
interest into Company common stock based on defined criteria. On
February 13, 2008, we repaid $260,000 of these loans.
We have
entered into the following Modification and Waiver Agreements related to this
financing:
Date
|
Terms
|
Consideration
|
||
June
2008
|
Extend
maturity to July 15, 2008
|
195,000
shares of common stock
|
||
September
2008
|
Extend
maturity to sooner of January 1, 2009 or closing of another
funding
|
Increase
principal by $52,000
|
||
January
27,2009
|
Extend
maturity date to July 1, 2009 and add a conversion option of
$0.05
|
2,800,000
shares of restricted stock
|
16
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible
Notes Payable (Continued):
The
addition of a conversion option and the issuance of restricted stock on January
27, resulted in an extinguishment loss of $56,000 under the FASB
Accounting Standards Codification.
(b) $1,200,000
convertible notes payable
On
October 23, 2007, we entered into a Subscription agreement with a group of
accredited investors. Under this agreement, we agreed to sell up to
$1,200,000 of our securities consisting of 10% convertible notes, shares or
common stock and Class A and Class B common stock purchase
warrants. The original subscription agreement required that we have
an effective registration statement in order for the second closing date to
occur. On February 15, 2008, we obtained a Waiver of Certain Conditions that
allowed us to waive the requirement for the Registration Statement to become
effective prior to the occurrence of the Second closing.
The
indexed shares and closing dates for the three tranches of the $1,200,000
financing are as follows:
Financing
|
Closing
date
|
Shares
indexed
to
note
|
Series
A
warrants
|
Series
B
warrants
|
|||||
$
600,000 Face Value Convertible
Note
Financing
|
October
23, 2007
|
1,818,182 | 2,818,182 | 2,818,182 | |||||
$
500,000 Face Value Convertible
Note
Financing
|
February
15, 2008
|
1,515,152 | 1,515,151 | 1,515,151 | |||||
$
100,000 Face Value Convertible
Note
Financing
|
June
26, 2008
|
303,030 | 303,030 | 303,030 | |||||
Total
|
3,636,364 | 4,636,363 | 4,636,363 |
(b)
|
$1,200,00
convertible notes payable
(continued):
|
The
convertible promissory notes are convertible into common shares based on a fixed
conversion price of $0.33, and are subject to full-ratchet anti-dilution
protection if we sell shares or share-indexed financing instruments at less than
those prices. The conversion feature was not afforded the exemption as
conventional convertible, and the notes require liability classification under
the FASB Accounting Standards Codification. We chose to value the entire hybrid
instrument at fair value. We estimate the fair value of the hybrid contract as a
common stock equivalent, enhanced by the forward elements (coupon, puts, and
calls), because that technique embodies all of the assumptions (including credit
risk, interest risk, stock price volatility and conversion behavior estimates)
that are necessary to fair value complex, hybrid contracts.
The
warrants issued in this financing arrangement did not meet the conditions for
equity classification and are also required to be carried as a derivative
liability, at fair value. We estimate the fair value of the warrants on the
inception dates, and subsequently, using the Black-Scholes valuation technique,
adjusted for dilution, because that technique embodies all of the assumptions
(including, volatility, expected terms, dilution and risk free rates) that are
necessary to fair value freestanding warrants. See also Note 5 –
Derivative Liabilities.
The
warrants and the convertible note contain full-ratchet protection so the
exercise price of the warrants and the conversion price of the notes were
reduced to $.165 when the Company issued additional convertible instruments with
this conversion rate on December 18, 2008. On January 27, 2009, we
entered into a modification of the agreement which reduced the maturity date
from October 23, 2009 to July 1, 2009 and changed from a periodic debt payment
schedule to full payment of principal and interest on July 1,
2009. In exchange for this modification, we issued 1,250,000 shares
of restricted stock, and we agreed to reduce the conversion price of
the
17
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable (Continued):
notes and
related warrants to $.05. This modification resulted in a loss on
extinguishment of $379,183. During the quarter ended June 30, 2009, $147,664 of
the principal balance on the note and $11,124 of interest was converted into
shares of stock at a price of $.05.
Information
and significant assumptions embodied in our valuations (including ranges for
certain assumptions during the subject periods that instruments were
outstanding) as of September 30, 2009 and March 31, 2009 for this financing are
illustrated in the following tables:
(b)
|
$1,200,00
convertible notes payable
(continued):
|
$600,000
Convertible Promissory Note Financing (Initial Closing):
|
Hybrid
Note
|
Warrants
|
||||||||||||||
September
30,
2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.029 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion/exercise
price
|
$ | 0.050 | $ | 0.050 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer Group)
|
-- | -- | 82.45 | % | 86.70 | % | ||||||||||
Term
(years)
|
-- | .25 | 3.06 | 3.56 | ||||||||||||
Risk-free
rate
|
-- | -- | 1.64 | % | 1.15 | % | ||||||||||
Credit-risk
adjusted yield
|
15.51 | % | 16.32 | % | -- | -- | ||||||||||
Dividends
|
-- | -- | -- | -- |
$500,000
Convertible Promissory Note Financing (Second
Closing):
|
Hybrid
Note
|
Warrants
|
||||||||||||||
September
30,
2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.029 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion/exercise
price
|
$ | 0.050 | $ | 0.05 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer Group)
|
-- | -- | 80.12 | % | 86.70 | % | ||||||||||
Term
(years)
|
-- | .25 | 3.39 | 3.89 | ||||||||||||
Risk-free
rate
|
-- | -- | 1.45 | % | 1.67 | % | ||||||||||
Credit-risk
adjusted yield
|
15.51 | % | 16.32 | % | -- | -- | ||||||||||
Dividends
|
-- | -- | -- | -- |
18
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable (Continued):
$100,000
Convertible Promissory Note Financing (Third Closing):
|
Hybrid
Note
|
Warrants
|
||||||||||||||
September
30,
2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.029 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion/exercise
price
|
$ | 0.050 | $ | 0.050 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer Group)
|
-- | -- | 87.59 | % | 84.90 | % | ||||||||||
Term
(years)
|
-- | .25 | 3.74 | 4.24 | ||||||||||||
Risk-free
rate
|
-- | -- | 1.88 | % | 1.55 | % | ||||||||||
Credit-risk
adjusted yield
|
15.51 | % | 16.32 | % | -- | -- | ||||||||||
Dividends
|
-- | -- | -- | -- |
(c) $243,333
convertible notes payable
On
September 29, 2008, we entered into a financing arrangement that provided for
the issuance of $243,333 face value convertible notes, due March 29, 2009, plus
warrants to purchase (i) 567,667 shares of our common stock at an exercise price
of $0.50 and (ii) additional warrants to purchase 567,667 shares of our common
stock at an exercise price of $0.75, representing an aggregate 1,135,334
shares. The note is convertible, only at the Company’s option, into
Common Stock at $.165 and is subject to full-ratchet anti-dilution protection if
we sell shares or share-indexed financing instruments at less than that price.
The notice of conversion must be given to the Holder on the first day following
the twenty consecutive trading days during which the stock price is greater than
$5.00 per share each trading day and the daily trading volume is greater than
100,000 shares. The Holder of the note does not have an option to
convert the instrument. The note is secured by a security interest in all the
tangible and intangible assets of the Company. According to the original terms
of the note, 50% of the interest was due on December 28, 2008 and fifty percent
due and payable on March 29, 2009; however we modified the agreement on January
27, 2009 to require full payment of principal and interest on July 1, 2009 in
exchange for a reduction of the conversion price of the note and exercise price
of the warrants to $.05. The change in cash flows resulting from this
modification was less than 10%, so extinguishment accounting did not apply. On
January 27, 2009, the warrants (1,135,334 warrant shares) were redeemed in
exchange for a convertible note in the amount of $70,834. The exchange resulted
in an extinguishment loss of $82,484. See Note (e).
We
received the following proceeds from the financing transactions:
Gross
proceeds
|
Finance
costs
|
Net
proceeds
|
||||||||||
September
29, 2008 Financing:
|
||||||||||||
$243,333
Face Value Convertible Note Financing
|
$ | 200,000 | $ | 7,500 | $ | 192,500 |
In
originally evaluating the financing transaction, we concluded that the
conversion feature was not clearly and closely related to the debt instrument
since the risks are those of an equity security; however, we determined that the
conversion feature met the paragraph 11(a) exemption and did not require
liability classification under the FASB Accounting Standards
Codification. Since the embedded conversion feature did not require
liability classification, we were required to consider if the contract embodied
a beneficial conversion feature (“BCF”). The
19
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable (Continued):
conversion
option is contingent on a future stock price so under the guidance of The FASB
Accounting Standards Codification, the beneficial conversion feature was
calculated at inception but will not be recognized until the contingency is
resolved. The aggregate BCF at its intrinsic value amounted to
$192,739. This amount gives effect to the (i) the trading market price on the
contract date and (ii) the effective conversion price after allocation of
proceeds to the warrants. Notwithstanding, BCF was limited to the value ascribed
to the note (using the relative fair value approach).
We also
evaluated the warrants to determine if they required liability or equity
accounting. The warrants issued in conjunction with the financing are redeemable
for cash upon the occurrence of acquisition, merger or sale of substantially all
assets of the Company in an all cash transaction; therefore, the FASB
Accounting Standards Codification requires that they be recorded as derivative
liabilities on our balance sheet and marked to fair value each reporting
period.
(c)
|
$243,333
convertible notes payable
(Continued):
|
The
warrants and the convertible note contain full-ratchet protection so the
exercise price of the warrants and the conversion price of the notes were
reduced to $.165 when the Company issued additional convertible instruments with
a lower conversion rate on December 18, 2008.
In
addition, we incurred a 10% finders’ fee note payable in the amount of $20,000
which is under the same terms as the $243,333 note but did not include
warrants.
(d) $60,833
convertible notes payable
On
December 18, 2008, we entered into a financing arrangement that provided for the
issuance of $60,833.33 face value convertible notes with a purchase price of
$50,000, due March 29, 2009, plus warrants to purchase (i) 141,667 shares of our
common stock at an exercise price of $0.50 and (ii) additional warrants to
purchase 141,667 shares of our common stock at an exercise price of $0.75,
representing an aggregate 283,334 shares. The note is convertible,
only at the Company’s option, into $.165 and is subject to full-ratchet
anti-dilution protection if we sell shares or share-indexed financing
instruments at less than that price. The notice of conversion must be given to
the Holder on the first day following the twenty consecutive trading days during
which the stock price is greater than $5.00 per share each trading day and the
daily trading volume is greater than 100,000 shares. The Holder of
the note does not have an option to convert the instrument. The note is secured
by a security interest in all the tangible and intangible assets of the
Company. According to the original terms of the note, fifty percent
of the note was due on December 28, 2008 and fifty percent due and payable on
March 29, 2009 and if the note was not paid by its maturity date; a default rate
of 15% applied. The note was considered in default as of December 28, 2008 due
to non-payment of the required principle payment, therefore, it is recorded at
face value and default interest of 15% is being accrued. We modified the note
agreement on January 27, 2009 to require full payment of principal and interest
on July 1, 2009 in exchange for a reduction of the conversion price of the note
and exercise price of the warrants to $.05. The change in cash flows
resulting from this modification was less than 10%, so extinguishment accounting
did not apply. On January 27, 2009, the warrants (283,334 warrant
shares) were redeemed in exchange for a convertible note in the amount of
$70,834. The exchange resulted in an extinguishment loss of $82,484. See Note
(e).
In
originally evaluating the financing transaction, we concluded that the
conversion feature was not clearly and closely related to the debt instrument;
however, it did meet the paragraph 11(a) exemption and did not require liability
classification. We considered if the contract embodied a beneficial conversion
feature (“BCF”) however
20
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable (Continued):
there was
no beneficial conversion feature present, since the effective conversion price
was greater than the market value of the stock.
We also
evaluated the warrants to determine if they required liability or equity
accounting. The warrants issued in conjunction with the financing are redeemable
for cash upon the occurrence of acquisition, merger or sale of substantially all
assets of the Company in an all cash transaction; therefore, the FASB Accounting
Standards Codification requires that they be recorded as derivative
liabilities on our balance sheet and marked to fair value each reporting
period.
(d)
|
$60,833
convertible notes payable
(Continued):
|
We
received the following proceeds from the financing transactions:
Gross
proceeds
|
Finance
costs
|
Net
proceeds
|
||||||||||
December
18, 2008 Financing:
|
||||||||||||
$60,833
Face Value Convertible Note Financing
|
$ | 50,000 | $ | -- | $ | 50,000 |
(e) $621,945
convertible notes payable
On
January 27, 2009 , March 30, 2009 and Ju;ly 15, 2009, we entered into
Subscription agreements with a group of accredited investors that provided for
the sale of an aggregate $621,945 face value secured convertible notes and
warrants to purchase an aggregate 14,211,112 shares of our common
stock. The notes and warrants are based on a fixed conversion price
of $0.05 and are subject to full-ratchet anti-dilution protection if we sell
shares or share-indexed financing instruments at less than those
prices. The following table provides the details of each of the
financings:
Face
Value
|
Closing
date
|
Maturity
date
|
Shares
indexed
to
note
|
Shares
indexed
to
warrants
|
||||||
$ | 130,000 | (1) |
January
27, 2009
|
July
27, 2009
|
8,666,666 | 2,400,000 | ||||
70,834 | (2) |
January
27, 2009
|
July
27, 2009
|
4,722,267 | -- | |||||
60,000 |
February
17, 2009
|
July
27, 2009
|
4,000,000 | 1,200,000 | ||||||
200,000 |
March
30, 2009
|
December
30, 2009
|
13,333,333 | 8,333,334 | ||||||
161,111 |
July
15, 2009
|
December
30, 2009
|
5,555,552 | 1,611,112 | ||||||
$ | 621,945 | 36,277,818 | 13,544,446 |
(1)
|
The
$130,000 convertible notes payable includes two $5,000 face value
convertible notes issued as payment for finder’s
fees.
|
(2)
|
The
$70,834 convertible notes payable was issued in exchange for the
redemption of 1,135,334 warrants shares issued in connection with the
September 29, 2008 convertible note financing and 283,334 warrant shares
issued in connection with the December 18, 2008 convertible note
financing. The exchange resulted in an extinguishment loss of
$82,484.
|
21
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable (Continued):
(e)
$460,834 convertible notes payable (Continued):
We
received the following proceeds from the financing transactions:
Gross
proceeds
|
Debt
discount &
finance
costs
|
Net
proceeds
|
||||||||||
$
130,000 Face Value Convertible
Note
Financing
|
$ | 120,000 | $ | 23,750 | $ | 96,250 | ||||||
$ 60,000
Face Value Convertible Note
Financing
|
60,000 | 10,000 | 50,000 | |||||||||
$
200,000 Face Value Convertible Note
Financing
|
200,000 | 41,900 | 158,100 | |||||||||
$161.111
Face Value Convertible Note
Financing
|
161,111 | 16,111 | 145,000 | |||||||||
Total
|
$ | 541,111 | $ | 91,761 | $ | 449,350 |
:
The
holder has the option to redeem the convertible notes payable for cash in the
event of defaults and certain other contingent events, including events related
to the common stock into which the instrument was convertible, registration and
listing (and maintenance thereof) of our common stock and filing of reports with
the Securities and Exchange Commission (the “Default Put”). The conversion
feature was not afforded the exemption as conventional convertible and the notes
require liability classification under the FASB Accounting Standards
Codification. We chose to value the entire hybrid instrument at fair
value. We estimate the fair value of the hybrid contract as a common stock
equivalent, enhanced by the forward elements (coupon, puts, and calls), because
that technique embodies all of the assumptions (including credit risk, interest
risk, stock price volatility and conversion behavior estimates) that are
necessary to fair value complex, hybrid contracts.
We also
evaluated the warrants to determine if they required liability or equity
accounting. The warrants issued in conjunction with the financing are redeemable
for cash upon the occurrence of acquisition, merger or sale of substantially all
assets of the Company in an all cash transaction; therefore, the FASB Accounting
Standards Codification requires that they be recorded as derivative liabilities
on our balance sheet and marked to fair value each reporting
period.
Information
and significant assumptions embodied in our valuations (including ranges for
certain assumptions during the subject periods that instruments were
outstanding) as of September 30, 2009 and March 31, 2009 for this financing are
illustrated in the following tables:
22
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable (Continued):
(e) $621,945
convertible notes payable (Continued):
$130,000
and $70,834 Convertible Promissory Note Financing:
|
Hybrid
Note
|
Warrants
|
||||||||||||||
September
30,
2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.029 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion/exercise
price
|
$ | 0.050 | $ | 0.050 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer Group)
|
-- | -- | 85.12 | % | 81.30 | % | ||||||||||
Term
(years)
|
0.25 | 0.32 | 4.33 | 4.83 | ||||||||||||
Risk-free
rate
|
-- | -- | 1.88 | % | 1.67 | % | ||||||||||
Credit-risk
adjusted yield
|
15.6 | % | 16.32 | % | -- | -- | ||||||||||
Dividends
|
-- | -- | -- | -- |
$60,000
Convertible Promissory Note Financing:
|
Hybrid
Note
|
Warrants
|
||||||||||||||
September
30,
2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.025 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion/exercise
price
|
$ | 0.050 | $ | 0.050 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer Group)
|
-- | -- | 85.12 | % | 81.30 | % | ||||||||||
Term
(years)
|
0.25 | 0.32 | 4.33 | 4.83 | ||||||||||||
Risk-free
rate
|
-- | -- | 1.88 | % | 1.67 | % | ||||||||||
Credit-risk
adjusted yield
|
15.6 | % | 16.32 | % | -- | -- | ||||||||||
Dividends
|
-- | -- | -- | -- |
$200,000
Convertible Promissory Note Financing:
|
Hybrid
Note
|
Warrants
|
||||||||||||||
September
30,
2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.015 | $ | 0.015 | $ | 0.029 | $ | 0.015 | ||||||||
Conversion/exercise
price
|
$ | 0.050 | $ | 0.050 | $ | 0.050 | $ | 0.050 | ||||||||
Volatility
(based upon Peer Group)
|
-- | 80.29 | % | 84.20 | % | 80.29 | % | |||||||||
Term
(years)
|
0.25 | 5.00 | 4.50 | 5.00 | ||||||||||||
Risk-free
rate
|
-- | 1.72 | % | 2.31 | % | 1.72 | % | |||||||||
Credit-risk
adjusted yield
|
16.32 | % | -- | -- | -- | |||||||||||
Dividends
|
-- | -- | -- | -- |
23
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
4. Convertible Notes Payable (Continued):
(e)
$621,945 convertible notes payable (Continued):
$161,111
Convertible Promissory Note Financing:
|
Hybrid
Note
|
Warrants
|
||||||||||||||
September
30,
2009
|
March
31,
2009
|
September
30,
2009
|
March
31,
2009
|
|||||||||||||
Estimate
fair value of the underlying common
share
|
$ | 0.029 | -- | $ | 0.029 | -- | ||||||||||
Conversion/exercise
price
|
$ | 0.050 | -- | $ | 0.050 | -- | ||||||||||
Volatility
(based upon Peer Group)
|
-- | -- | 83.38 | % | -- | |||||||||||
Term
(years)
|
0.50 | -- | 4.79 | -- | ||||||||||||
Risk-free
rate
|
-- | -- | 2.31 | % | -- | |||||||||||
Credit-risk
adjusted yield
|
15.56 | % | -- | -- | -- | |||||||||||
Dividends
|
-- | -- | -- | -- |
(f) $507,500
convertible note payable:
On August
8, 2008, the Company executed a secured convertible promissory note in the
aggregate amount of $507,500 with one lender, an unrelated
entity. The note becomes payable on August 7, 2009 with interest on
the outstanding principal to accrue at 10%. This note was entered
into pursuant to the terms of a Secured Promissory Note and Security Agreement,
Asset Purchase Agreement and Registration Rights Agreement to purchase certain
trademarks, notably “Slammers” and “Blenders” from a company that previously
acquired such trademarks through a foreclosure sale of certain assets of Bravo!
Brands, Inc. The holder of this note payable has the right but not
the obligation to convert all or any portion of the then aggregate outstanding
principal amount together with interest at the fixed conversion price of
$1.00.
Note
5. Derivative Liabilities:
|
The
following table summarizes the components of derivative liabilities as of
September 30, 2009 and March 31,
2009:
|
Our
financing arrangement giving rise to derivative
financial instruments:
|
September
30, 2009
|
March
31,
2009
|
||||||
$
600,000 Face Value Convertible Note Financing
|
$ | (41,697 | ) | $ | (31,565 | ) | ||
$
500,000 Face Value Convertible Note Financing
|
(23,524 | ) | (19,394 | ) | ||||
$
100,000 Face Value Convertible Note Financing
|
(6,122 | ) | (4,121 | ) | ||||
$
120,000 Face Value Short Term Bridge Loan Note Financing
|
(2,544 | ) | (1,088 | ) | ||||
$
120,000 Face Value Short Term Bridge Loan Note Financing
|
(2,526 | ) | (1,088 | ) | ||||
$ 60,000
Face Value Short Term Bridge Loan Note Financing
|
(1,263 | ) | (544 | ) | ||||
$ 33,000
Face Value Short Term Bridge Loan Note Financing
|
(856 | ) | (452 | ) | ||||
$ 55,000
Face Value Short Term Bridge Loan Note Financing
|
(1,623 | ) | (947 | ) | ||||
$
120,000 Face Value Convertible Note Financing
|
(26,291 | ) | (12,720 | ) | ||||
$ 60,000
Face Value Convertible Note Financing
|
(13,145 | ) | (6,360 | ) | ||||
$
200,000 Face Value Convertible Note Financing
|
(94,322 | ) | (45,000 | ) | ||||
$
161,111 Face Value Convertible Note Financing
|
(18,840 | ) | - | |||||
Total
derivative liabilities
|
$ | (232,753 | ) | $ | (123,279 | ) |
24
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
5. Derivative Liabilities (Continued):
We
estimate fair values of derivative financial instruments using various
techniques (and combinations thereof) that are considered to be consistent with
the objective measuring fair values. In selecting the appropriate technique, we
consider, among other factors, the nature of the instrument, the market risks
that it embodies and the
expected means of settlement. For less complex derivative instruments, such as
free-standing warrants, we generally use the Black-Scholes-Merton option
valuation technique because it embodies all of the requisite assumptions
(including trading volatility, estimated terms, dilution and risk free rates)
necessary to fair value these instruments. For complex hybrid instruments, such
as convertible promissory notes that include embedded conversion options, puts
and redemption features embedded in, we generally use techniques that embody all
of the requisite assumptions (including credit risk, interest-rate risk,
dilution and exercise/conversion behaviors) that are necessary to fair value
these more complex instruments. For forward contracts that contingently require
net-cash settlement as the principal means of settlement, we project and
discount future cash flows applying probability-weightage to multiple possible
outcomes. Estimating fair values of derivative financial instruments requires
the development of significant and subjective estimates that may, and are likely
to, change over the duration of the instrument with related changes in internal
and external market factors. In addition, option-based techniques are highly
volatile and sensitive to changes in the trading market price of our common
stock, which has a high-historical volatility. Since derivative financial
instruments are initially and subsequently carried at fair values, our income
will reflect the volatility in these estimate and assumption
changes.
25
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
5. Derivative Liabilities (Continued):
The
following table summarizes the effects on our income (expense) associated with
changes in the fair values of our financial instruments that are carried at fair
value from inception through September 30, 2009:
Our
financing arrangements giving rise to
derivative
financial instruments and the income effects:
|
Inception
through September
30, 2009
|
|||
Day-one
derivative losses:
|
||||
$
600,000 Face Value Convertible Note Financing
|
$ | (2,534,178 | ) | |
$
500,000 Face Value Convertible Note Financing
|
(899,305 | ) | ||
$
100,000 Face Value Convertible Note Financing
|
(1,285,570 | ) | ||
$ 55,000
Face Value Short Term Bridge Loan Note Financing
|
(12,700 | ) | ||
$
120,000 Face Value Convertible Note Financing
|
(72,251 | ) | ||
$ 60,000
Face Value Convertible Note Financing
|
(38,542 | ) | ||
$
200,000 Face Value Convertible Note Financing
|
(119,136 | ) | ||
$
161,111 Face Value Convertible Note Financing
|
(45,846 | ) | ||
Total
day-one derivative losses:
|
$ | (5,007,528 | ) |
|
||||
Derivative
income (expense):
|
||||
$
600,000 Face Value Convertible Note Financing
|
$ | 2,398,286 | ||
$
500,000 Face Value Convertible Note Financing
|
898,305 | |||
$
100,000 Face Value Convertible Note Financing
|
1,285,570 | |||
$
120,000 Face Value Short Term Bridge Loan Financing
|
277,463 | |||
$
120,000 Face Value Short Term Bridge Loan Financing
|
109,182 | |||
$ 60,000
Face Value Short Term Bridge Loan Financing
|
54,591 | |||
$ 33,000
Face Value Short Term Bridge Loan Financing
|
138,922 | |||
$ 55,000
Face Value Short Term Bridge Loan Financing
|
61,539 | |||
$
243,333 Face Value Convertible Note Financing
|
134,424 | |||
$ 60,833
Face Value Convertible Note Financing
|
6,602 | |||
$
120,000 Face Value Convertible Note Financing
|
(5,171 | ) | ||
$ 60,000
Face Value Convertible Note Financing
|
295 | |||
$
200,000 Face Value Convertible Note Financing
|
(49,322 | ) | ||
$
161,111 Face Value Convertible Note Financing
|
(11,813 | ) | ||
Total
income (expense) arising from fair value adjustments
|
$ | 5,298,873 |
Interest
income (expense) from instruments recorded at fair
value:
|
||||
$
600,000 Face Value Convertible Note Financing
|
(59,416 | ) | ||
$
500,000 Face Value Convertible Note Financing
|
(193,753 | ) | ||
$
100,000 Face Value Convertible Note Financing
|
206,688 | |||
$
120,000 Face Value Convertible Note Financing
|
1,312 | |||
$ 5,000
Face Value Convertible Note Financing
|
55 | |||
$ 5,000
Face Value Convertible Note Financing
|
55 | |||
$ 60,000
Face Value Convertible Note Financing
|
(843 | ) | ||
$ 70,834
Face Value Convertible Note Financing
|
(1,060 | ) | ||
$
200,000 Face Value Convertible Note Financing
|
(15,648 | ) | ||
$
161,111 Face Value Convertible Note Financing
|
(7,772 | ) | ||
$ | (70,382 | ) |
26
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
5. Derivative Liabilities (Continued):
The
following tables summarize the effects on our income (expense) associated with
changes in the fair values of our financial instruments that are carried at fair
value from three months ended September 30, 2009 and the year ended March 31,
2009.
Our
financing arrangements giving rise to
derivative
financial instruments and the income effects:
|
Six
Months Ended
September
30, 2009
|
Year
Ended
March
31,
2009
|
||||||
Derivative
income (expense):
|
||||||||
$
600,000 Face Value Convertible Note Financing
|
$ | (10,133 | ) | $ | 1,690,346 | |||
$
500,000 Face Value Convertible Note Financing
|
(4,130 | ) | 926,364 | |||||
$
100,000 Face Value Convertible Note Financing
|
(2,001 | ) | 1,052,484 | |||||
$
120,000 Face Value Short Term Bridge Loan Financing
|
(1,456 | ) | 278,920 | |||||
$
120,000 Face Value Short Term Bridge Loan Financing
|
(1,438 | ) | 110,620 | |||||
$ 60,000
Face Value Short Term Bridge Loan Financing
|
(719 | ) | 55,310 | |||||
$ 33,000
Face Value Short Term Bridge Loan Financing
|
(403 | ) | 139,325 | |||||
$ 55,000
Face Value Short Term Bridge Loan Financing
|
(676 | ) | 62,215 | |||||
$
243,333 Face Value Convertible Note Financing
|
-- | 134,424 | ||||||
$ 60,833 Face
Value Convertible Note Financing
|
-- | 6,602 | ||||||
$
120,000 Face Value Convertible Note Financing
|
(13,571 | ) | 8,400 | |||||
$ 60,000
Face Value Convertible Note Financing
|
(6,785 | ) | 7,080 | |||||
$
200,000 Face Value Convertible Note Financing
|
(49,323 | ) | -- | |||||
$
161,111 Face Value Convertible Note Financing
|
(57,659 | ) | -- | |||||
Total
derivative income (expense) arising from fair value
adjustments
|
$ | (148,294 | ) | $ | 4,472,090 |
Six
Months Ended
September
30, 2009
|
Year
Ended
March
31,
2009
|
|||||||
Interest
income (expense) from instruments recorded at Fair
value:
|
||||||||
$
600,000 Face Value Convertible Note Financing
|
$ | (188,100 | ) | $ | (11,490 | ) | ||
$
500,000 Face Value Convertible Note Financing
|
(183,308 | ) | (9,576 | ) | ||||
$
100,000 Face Value Convertible Note Financing
|
(34,306 | ) | 240,994 | |||||
$
120,000 Face Value Convertible Note Financing
|
1,481 | (169 | ) | |||||
$ 5,000
Face Value Convertible Note Financing
|
80 | (25 | ) | |||||
$ 5,000
Face Value Convertible Note Financing
|
80 | (25 | ) | |||||
$ 60,000
Face Value Convertible Note Financing
|
(788 | ) | (55 | ) | ||||
$ 70,834
Face Value Convertible Note Financing
|
(960 | ) | (100 | ) | ||||
$
200,000 Face Value Convertible Note Financing
|
(15,648 | ) | -- | |||||
$
161,111 Face Value Convertible Note Financing
|
(7,772 | ) | ||||||
$ | (429,241 | ) | $ | 219,554 |
27
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
5. Derivative Liabilities (Continued):
Our
derivative liabilities as of September 30, 2009, and our derivative income
during the six months ended September 30, 2009 and from inception through
September 30, 2009 are significant to our consolidated financial statements. The
magnitude of derivative income (expense) reflects the following:
|
In
connection with our accounting for the $600,000, $500,000, $100,000 face
value convertible promissory notes and warrant financings for the October
23, 2007 financing arrangement, the $55,000 face value short term bridge
loan and warrant financing dated August 5, 2008, the $120,000 face value
convertible note and warrant financing dated January 27, 2009, the $60,000
face value convertible note and warrant financing dated February 17, 2009,
the $200,000 face value convertible note and warrant financing dated March
30, 2009 and the $161,111 face value convertible note and warrant
financing dated July 15, 2009, we encountered the unusual circumstance of
a day-one derivative loss related to the recognition of (i) the hybrid
notes and (ii) the derivative instruments arising from the arrangement at
fair values. That means that the fair value of the hybrid notes and
warrants exceeded the proceeds that we received from the arrangement and
we were required to record a loss to record the derivative financial
instruments at fair value. We did not enter into any other financing
arrangements during the periods reported that reflected day-one
loss.
|
·
|
In
addition, our financial instruments that are recorded at fair value will
change in future periods based upon changes in our trading market price
and changes in other assumptions and market indicators used in the
valuation techniques.
|
Generally,
the FASB Accounting Standards Codification provides for the exclusion of
registration payment arrangements, such as the liquidated damage provisions that
are included in the financing contracts underlying the convertible debt
financing arrangements, from the consideration of classification of financial
instruments. Rather, such registration payments will require recognition when
they are both probable and reasonably estimable. As of September 30, 2009, our
management concluded that registration payments are not probable.
Note
6. Loans Payable – Related Parties:
In
connection with the reverse merger (see Note 1), the Company assumed $46,463 in
advances payable to the officers of MHHI. These advances are
non-interest bearing and payable upon demand. The Company issued
500,000 shares of common stock valued at $.05 or $25,000 in
September, 2009 which reduced the above amount to
$21,463.
In
addition, the Company issued aggregate notes of $100,000 to Roy Warren, the
Company’s CEO, an accredited investor with whom the Company entered into
subscription agreements for 10% convertible notes (see Note 4). During
September, 2009, Roy Warren assigned the $100,000 notes to another
party.
Note
7. Stockholders’ Deficit:
(a) Series
A Preferred Stock:
The
Company’s articles of incorporation authorize the issuance of 20,000,000 shares
of convertible preferred stock which the Company has designated as Series A
Preferred (“Series A”), $.001 par value. Each share of Series A is
convertible into six shares of the Company’s common stock for a period of five
years from the date of issue. The conversion basis is not adjusted
for any stock split or combination of the common stock. The Company
must at all times have sufficient common shares reserved to effect the
conversion of all of the outstanding A. The holders of the Series A shall be
entitled to receive common stock dividends when, as, if and in the amount
declared by the directors of the Company to be in cash or in market value of the
Company’s common stock. The Company is restricted from paying
dividends or making distributions on its
28
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
7. Stockholders’ Deficit (Continued):
(a) Series A Preferred Stock
(continued):
common
stock without the approval of a majority of the Series A
holders. During the quarter ended September 30, 2008, all 75,000
shares of Series A were converted into 450,000 shares of common
stock. During the quarter ended September 30, 2009, 9,000,000 shares
of Series A were granted to Roy Warren. We recorded a non-cash expense for
$1,620,000 which is based on the then market price of $.03 per common share
times the convertible stock equivalents (9,000,000 preferred shares x 6 =
54,000,000 common stock equivalents). The Board of Directors on September 4,
2009 approved an amendment whereas Section 2(A) of the Certificate of
Designation is hereby deleted in its entirety and the following shall be
substituted in lieu thereof- Rights, Powers and Preferences: The
Series A shall have the voting powers, preferences and relative, participating,
optional and other special rights, qualifications, limitations and restrictions
as follows:
Designation
and Amount- Out of the Twenty Million (20,000,000) shares of the $.001 par value
authorized preferred stock, all Twenty Million (20,000,000) shares shall be
designated as shares of “Series A.”
(b)
Common Stock Warrants:
As of
September 30, 2009, the Company had the following outstanding
warrants:
Issued
Class A Warrants
|
Grant
date
|
Expiration
date
|
Warrants/
Options Granted
|
Exercise
Price
|
||||||
October,
2007 Convertible Notes Financing
|
10/23/2007
|
10/22/2012
|
2,818,181
|
$
|
0.05
|
|||||
January,
2008 Investment Banker Agreement
|
1/1/2008
|
12/31/2012
|
125,000
|
0.05
|
||||||
February,
2008 Convertible Note Financing
|
2/15/2008
|
2/14/2013
|
1,515,151
|
0.05
|
||||||
April,
2008 Supply Agreement
|
4/16/2008
|
4/15/2013
|
100,000
|
0.75
|
||||||
April,
2008 Financing
|
4/2-9-14/08
|
4/1-8-13/2011
|
500,000
|
0.05
|
||||||
April,
2008 Finder’s Fees
|
4/14//2008
|
4/13/2008
|
62,500
|
0.05
|
||||||
May,
2008 Financing
|
5/19/2008
|
5/18/2011
|
100,000
|
0.05
|
||||||
May,
2008 Finder’s Fees
|
5/19/2008
|
5/18/2013
|
37,500
|
0.05
|
||||||
June,
2008 Debt Extension
|
6/23/2008
|
6/22/2011
|
150,000
|
0.05
|
||||||
June,
2008 Convertible Note Financing
|
6/26/2008
|
6/25/2013
|
303,030
|
0.05
|
||||||
July,
2008 Debt Extensions
|
7/14/2008
|
7/13/2011
|
150,000
|
0.05
|
||||||
August,
2008 Financing
|
8/5/2008
|
8/4/2011
|
100,000
|
0.05
|
||||||
January,
2009 Convertible Note Financing
|
1/27/2009
|
1/26/2014
|
2,400,000
|
0.05
|
||||||
January,
2009 Debt Extensions
|
1/27/2009
|
1/26/2014
|
776,000
|
0.05
|
||||||
February,
2009 Convertible Note Financing
|
1/27/2009
|
1/26/2014
|
1,200,000
|
0.05
|
||||||
March,
2009 Convertible Note Financing
|
3/30/2009
|
3/29/2014
|
8,333,334
|
0.05
|
||||||
July,
2009 Convertible Note Financing
|
7/15/2009
|
7/14/2014
|
1,611,112
|
0.05
|
||||||
Total
issued Class A warrants
|
20,281,808
|
29
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
7. Stockholders’ Deficit (Continued):
(b)
Common Stock Warrants (Continued):
Unissued Class
B warrants (b):
|
|||||
October,
2007 Convertible Notes Financing
|
2,818,181
|
0.75
|
|||
January,
2008 Investment Banker Agreement
|
125,000
|
0.75
|
|||
February,
2008 Convertible Notes Financing
|
1,515,151
|
0.75
|
|||
April,
2008 Financing
|
500,000
|
0.75
|
|||
April,
2008 Finder’s Fees
|
62,500
|
0.75
|
|||
May,
2008 Financing
|
100,000
|
0.75
|
|||
May,
2008 Finder’s Fees
|
37,500
|
0.75
|
|||
June,
2008 Debt Extension
|
150,000
|
0.75
|
|||
June,
2008 Convertible Note Financing
|
303,030
|
0.75
|
|||
July,
2008 Debt Extensions
|
150,000
|
0.75
|
|||
August,
2008 Financing
|
100,000
|
0.75
|
|||
Total
unissued Class B warrants
|
5,861,362
|
||||
Total
Warrants
|
26,143,170
|
No
warrants were exercised for the six months ended September 30,
2009.
(c)
Common Stock Issued During the Six Months Ended September 30, 2009:
At
September 30, 2009, we had issued and outstanding 34,482,231 shares of common
stock of which 3,871,014 shares are owned by one of our
officers. Holders of shares of common stock are entitled to one vote
for each share on all matters to be voted on by the
shareholders. Holders of common stock have no cumulative voting
rights. In the event of liquidation, dissolution or winding down of
the Company, the holders of shares of common stock are entitled to share, pro
rata, all assets remaining after payment in full of all
liabilities. Holders of common stock have no preemptive rights to
purchase our common stock. There are no conversion rights or
redemption or sinking fund provisions with respect to the common
stock. All of the outstanding shares of common stock are validly
issued, fully paid and non-assessable.
On April
17, 2009, we issued 689,817 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes for $30,000 plus accrued interest of
$4,491.
On April
22, 2009, we issued 600,800 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes for $30,000 plus accrued interest of
$40.
On April
23, 2009, we issued 100,000 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes for $5,000.
On April
30, 2009, we issued 200,000 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes of $10,000.
30
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
7. Stockholders’ Deficit (Continued):
(c)
Common Stock Issued During the Six Months Ended September 30, 2009
(Continued):
On May
18, 2009, we issued 212,060 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes of $10,000 and accrued interest of
$603.
On June
26, 2009, we issued 583,836 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes of $25,000 and accrued interest of
$4,192.
On June
29, 2009, we issued 766,104 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes of $12,664.
On June
29, 2009, we issued 535,972 shares of common stock pursuant to a conversion of
its October, 2007 convertible notes of $2,500 and accrued interest of
$1,799.
On
September 12, 2009, we issued 15,893,521 shares of common stock as payment for
past due services.
On
September 12, 2009, we issued 500,000 shares of common stock to reduce a loan
payable to an officer of the previous parent company (see Note 6
above).
d)
Warrants Issued During the Six Months Ended September 30, 2009:
On July
15, 2009, we issued 1,611,112 class A warrants for five years at an exercise
price of $.05. These warrants related to the July, 2009 $161,111 convertible
notes financing.
(e)
Options Issued During the Six Months Ended September 30,
2009:
None
Note
8 Fair Value Measurements:
The FASB
Accounting Standards Codification clarifies the definition of fair value,
prescribes methods for measuring fair value, and establishes a fair value
hierarchy to classify the inputs used in measuring fair value as
follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The
following tables present our assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy.
The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value.
31
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note 8
Fair Value Measurements (Continued):
Fair
Value Measurements at Reporting Date Using
|
||||||||||||||||
Description
|
September
30, 2009
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
||||||||||||
Assets
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Total
Assets
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Liabilities:
|
||||||||||||||||
Derivative
Instrument (See Note 5)
|
$ | 232,753 | $ | - | $ | - | $ | 232,753 | ||||||||
Total
Liabilities
|
$ | 232,753 | $ | - | $ | - | $ | 232,753 |
Fair Value
Measurements Using
Significant Unobservable Inputs
(Level
3)
|
||||
Beginning Balance
|
$ | 123,279 | ||
Total gains or (losses) (realized/unrealized):
|
||||
Included in earnings
|
148,294 | |||
Included in other comprehensive income
|
(38,820 | ) | ||
Purchases, issuances and settlements
|
- | |||
Transfer in and/or out of Level 3
|
- | |||
Ending Balance
|
$ | 232,753 |
Note
9. Commitments and Contingencies:
In
December 2007, the Company entered into a five year agreement for office space
in Palm Beach Gardens, Florida with a commencement date of June 1,
2008. The minimum monthly base rent is $7,415, and the lease provides
for annual 4% increases throughout its term. As of September 30,
2009, the future minimum rental payments for the new office lease, which exclude
variable common area maintenance charges, are as follows:
Years
ending March 31,
|
Amount
|
|||
2010
|
$ | 23,133 | ||
2011
|
95,620 | |||
2012
|
99,444 | |||
2013
|
103,422 | |||
2014
|
17,348 | |||
$ | 338,967 |
Rental
expense, which also includes maintenance and parking fees, for the six months
period ended September 30, 2009 was $62,828.
32
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
9. Commitments and Contingencies (Continued):
Production
and Supply Agreements
Due to
the current small size of our company, no formalized production agreement has
been signed with Carolina Beer & Beverage LLC, our current
co-packer. Production runs are based on purchase orders issued to
this co-packer. As our company grows, we intend to enter into a
formal signed production agreement with Carolina Beer & Beverage LLC as well
as any other co-packers as needed.
On
December 16, 2008, the company signed a manufacturing co-packing agreement with
O-AT-KA Milk Products Cooperative, Inc. for the production of future new
products that are in the development stage. The manufacturer shall
manufacture, package and ship such products. All products shall be
purchased F.O.B, the facility by the company. Costs of such
production and expected time lines are still in the planning stages and also are
related to the final sign-offs of the final formulas for such
products.
Royalties
On August
19, 2008, we signed a “Sublicense Agreement” with Nutraceutical Discoveries,
Inc. for the use of exclusive rights to certain intellectual property which will
permit unique structure-function metabolic health and weight management claims
for dairy functional beverages. We plan to develop, market and sell
to the public dairy functional beverage products based on the Licensed
Technology. The agreement will terminate on December 31, 2011, unless
earlier terminated. The initial term may be extended for consecutive
one (1) year terms upon the mutual written consent between the two
companies. The contract calls for payment of royalties equal to 5.75%
of the Net Sales (as defined) of any such developed products which are expected
to occur in 2009. Upon the sooner of raising sufficient capital to
bring such product(s) to market or October 31, 2008, we shall pay to
Nutraceutical Discoveries, Inc. in cash the sum of $55,000 of which $34,000 have
not been paid. Minimum royalties to pay in calendar year 2009 will be
$462,500 (represents $18,000 per month x 10 months in 2009 plus start up payment
of $55,000 plus cost of the stock options of $227,500) and for calendar year
2010 and thereafter, an amount equal to the greater of the total minimum monthly
cash amount for the preceding calendar year or 6.6125% of the annual net sales
for the sales of developed product for the immediately preceding calendar year.
We issued 350,000 stock options at an exercise price of $.65 per option. We
recorded $63,277 in royalty expense for the six months ended September 30, 2009.
Due to the delay in developing products under this license, we are in
negotiations to modify this “Sublicense Agreement” in which the above terms
could change. Nutraceutical Discoveries, Inc. sent a letter dated on
August 14, 2009 to advise that we breached the Sublicense Agreement with
them. This letter represented written notice that Nutraceutical
Discoveries, Inc. intended to terminate this agreement from 30 days of August
14, 2009 which was done. They have exercised their right that this
agreement is non-exclusive and available for other licensees.
Note
10. Subsequent Events:
The
Company has evaluated subsequent events that occurred after September 30,
2009 through the date that the financial statements were issued on
November 23, 2009.
As noted
in Notes 3 and ,4 the company is in default with most of its debt financing as
the company is negotiating with these debt holders to extend the due dates of
these debts.
Our
obligations with Nutraceutical Discoveries, Inc. ceased at the end of October,
2009. The agreement and exclusivity with them were terminated at
October 31, 2009. We will still need to pay the remaining $34,000
that is referenced in Note 9.
33
ATTITUDE
DRINKS INCORPORATED AND SUBSIDIARY
A
Development Stage Company
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX
MONTHS ENDED SEPTEMBER 30, 2009
Note
10. Subsequent Events (Continued):
On
November 11, 2009, the Company issued 400,000 shares of common stock from the
Company’s 2007 Stock
Compensation
and Incentive Plan that were registered on a Form S-8 registration statement
filed and declared effective on May 16, 2208 to a consultant to complete the
valuations on the company’s debt instruments for the quarter ended September 30,
2009.
On
November 13, 2009, the Company entered into a financing agreement in which one
of the October 23, 2007 debt holders assigned $80,000 worth of its ownership
interest in this note to other parties. The other parties then
converted the total $80,000 debt into 10,000,000 shares of the Company’s common
stock. These shares were then swapped for an equivalent value of
other freely tradable stock in which the Company will receive approximately
$80,000. As such, the Company entered into a new convertible note
payable with the original debt holder for a purchase price of $100,000 with a
principal amount of $111,111.
.
34
ITEM
2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
Statements
that are not historical facts, including statements about our prospects and
strategies and our expectations about growth contained in this report, are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent our present
expectations or beliefs concerning future events. We caution that
such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the uncertainty as to our future
profitability; the uncertainty as to whether our new business model can be
implemented successfully; the accuracy of our performance projections; and our
ability to obtain financing on acceptable terms to finance our operations until
we become profitable.
OVERVIEW
Since
2001, we had been a shell corporation, whose principal business was to locate
and consummate a merger with an ongoing business which occurred in September
2007. Our efforts and resources have been focused primarily to
develop beverage brands in the non-alcoholic functional beverage category, raise
capital and recruit personnel. We are a development stage company with
negligible product sales to date. Our major sources of working
capital have been from the October 23, 2007 financing and other short-term
bridge loans. Our efforts to date have been focused primarily in
developing our first energy drink which is called VisViva™ in which sales began
in late March 2008. Along with this energy drink, we will launch
fortified and experiential beverage brands utilizing platforms of milk, tea,
juice and water. We have developed a proprietary blend which will
become our base energy ingredient for use in all platforms trademarked
IQZOL™. This additive blend will provide a unique energy boost with
low calories, carbohydrates and caffeine levels, thereby revolutionizing the
energy experience derived from energy drinks.
We intend
to focus on the fifteen largest markets for beverages in the United State and
will pre-sell in four sales channels: grocery, convenience, drug and
sports and gym specialty. We intend to develop key working
partnerships with regional direct store delivery (DSD) beverage distributors in
these fifteen prime markets. Certain national accounts like chained
convenience stores, grocery and drug stores will require warehouse
distribution. To accommodate this business, we will employ national
beverage brokers and work with the “tobacco and candy” and food service
warehouse distributors for this business.
The pricing and gross profit margin for
the products will vary. Each product delivers different functionality and
utilizes different types of packaging and package sizes. Without
exception, these products will command premium pricing due to the functionality
and value-added formulation and will therefore be priced according to the
nearest competitive brands in their respective spaces. The energy
drink is expected to command gross margins of approximately 50%. The
functional milk drinks (once produced) are also expected to command
approximately the same percentage margin due to the premium pricing commanded by
the experiential functionality. We expect that the average gross
margin for our shots will be 55%-60% depending upon the consumer response and
sales channel mix; clearly singles will command higher margin than
multi-packs.
CRITICAL
ACCOUNTING POLICIES
A
“critical accounting policy” is one which is both important to the portrayal of
our financial condition and results and requires our management’s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain. We use all available information and appropriate
techniques to develop our estimates. However, actual results could differ from
our estimates.
.
35
ITEM
2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS (CONTINUED)
CRITICAL
ACCOUNTING POLICIES (Continued):
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most critical estimates included in our
financial statements are the following:
-
Estimating the fair value of our hybrid financial instruments that are required
to be carried as liabilities at fair value (pursuant to the FASB Accounting
Standards Codification,
especially with only a limited number of months of active public trading
of the Company’s common stock for the period ended September 30, 2009
We use
all available information and appropriate techniques including outside
consultants to develop our estimates. However, actual results could differ from
our estimates.
Derivative
Financial Instruments
We
generally do not use derivative financial instruments to hedge exposures to
cash-flow, market or foreign-currency risks. However, we have and
will frequently enter into certain other financial instruments and contracts,
such as debt financing arrangements and freestanding warrants with features that
are either (i) not afforded equity classification, (ii) embody risks not clearly
and closely related to host contracts or (iii) may be net-cash settled by the
counterparty to a financing transaction. As required
by the FASB Accounting Standards Codification, these instruments are
to be carried as derivative liabilities, at fair value, in our financial
statements. However, we are allowed to elect fair value measurement
of the hybrid financial instruments, on a case-by-case basis, rather than
bifurcate the derivative. We believe that fair value measurement of
the hybrid convertible promissory notes arising from our October 23, 2007
financing arrangement provides a more meaningful presentation of that financial
instrument.
We
estimate fair values of derivative financial instruments using various
techniques (and combinations thereof) that are considered to be consistent with
the objective measuring of fair values. In selecting the appropriate
technique(s), we consider, among other factors, the nature of the instrument,
the market risks that such instruments embody and the expected means of
settlement. For less complex derivative instruments, such as
free-standing warrants, we generally use the Black-Scholes-Merton option
valuation technique, since it embodies all of the requisite assumptions
(including trading volatility, estimated terms and risk free rates) necessary to
fair value these instruments. For complex hybrid instruments, such as
convertible promissory notes that include embedded conversion options, puts and
redemption features embedded in, we generally use techniques that embody all of
the requisite assumptions (including credit risk, interest-rate risk and
exercise/conversion behaviors) that are necessary to fair value these more
complex instruments. For forward contracts that contingently require
net-cash settlement as the principal means of settlement, we project and
discount future cash flows applying probability-weightage to multiple possible
outcomes. Estimating fair values of derivative financial instruments
requires the development of significant and subjective estimates that may, and
are likely to, change over the duration of the instrument with related changes
in internal and external market factors. In addition, option-based
techniques are highly volatile and sensitive to changes in the trading market
price of our common stock, which has a high-historical
volatility. Since derivative financial instruments are initially and
subsequently carried at fair values, our income will reflect the volatility in
these estimate and assumption changes.
.
36
ITEM
2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS (CONTINUED)
GOING
CONCERN
Our
operating losses since inception and negative working capital raise substantial
doubt about our ability to continue as a going concern. Our financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts or
classification of liabilities that might be necessary should we be unable to
continue as a going concern. For the foreseeable future, we will have
to fund all our operations and capital expenditures from the net proceeds of
equity or debt offerings we may have, cash on hand, etc. Although we
plan to pursue additional financing, there can be no assurance that we will be
able to secure financing when needed or to obtain such financing on terms
satisfactory to us, if at all. If we are unable to secure additional
financing in the future on acceptable terms, or at all, we may be unable to
complete the development of our new products. In addition, we could
be forced to reduce or discontinue product development, reduce or forego sales
and marketing efforts and forego attractive business opportunities in order to
improve our liquidity to enable us to continue operations.
RESULTS
OF OPERATIONS
Since we
are a development company, negligible revenues have been reported for the period
ended September 30, 2009 and 2008. As such, there is no meaningful
comparison with prior periods.
Six
Months Ended September 30, 2009 Compared to Six Months Ended
September 30, 2008:
The
majority of the Company’s expenses relate to salaries and related payroll taxes,
marketing and promotion and professional fees. Total operating
expenses for the six months ended September 30, 2009 were
$2,711,538. The total loss for this period was $3,694,655 which
includes the recognition of derivative expense for $ 148,294 and $753,496 net
interest expense. Basic and diluted loss per common share was $.20
based on a weighted average number of common shares outstanding for
18,655,713.
Total
loss for the six months period ended September 30, 2008 was $932,315 which
included operating expenses of $2,391,364, the recognition of derivative income
of $2,499,335, a loss on the extinguishment of debt for $592,020 and $453,268
net interest expense. Basic and diluted loss per common share is
$0.10 based on a weighted average number of common shares outstanding for
9,328,844.
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008:
Most of
the Company’s expenses relate to various general and administrative expenses
that were incurred for setting up the Company for the future development of
various beverage brands. Total operating expenses incurred for the
three months ended September 30, 2009 were $2,131,726. As a result of
the foregoing plus the recognition of derivative income for $102,593 and
$229,210 net interest expense, we reported a net loss for the three month period
ended September 30, 2009 of $2,334,626. Basic and diluted loss per
common share was $0.11 based on a weighted average number of common shares
outstanding for 21,474,328.
For the
three months ended September 30, 2008, total operating expenses were $1,097,324,
derivative income was $15,446,395, loss on extinguishment of debt was $161,573
and net interest income was $2,549,905, resulting in a net income of
$16,737,573. The basic and diluted income per common share was $1.69
and $1.18, respectively, based on a weighted average number of common shares
outstanding for 9,925,600 and 14,250,680, respectively.
37
ITEM
2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY
AND CAPITAL RESOURCES
We have
not yet begun to generate significant revenues, and our ability to continue as a
going concern will be dependent upon receiving additional third party financings
to fund our business for at least the next twelve months.
As a
development stage company with less than two years of operations, we do not have
any meaningful comparable financial information with prior
periods. The net cash used in operating activities is due to a number
of factors. For the six months ended September 30, 2009, we reported a net loss
of $3,694,655 which includes such non-cash items as derivative expense of
$109,474 and fair value adjustment loss of convertible notes for $442,583. Net
cash flows generated by our operating activities were inadequate to cover our
working capital needs for the period ended September 30, 2009, and we had to
rely on new convertible debt financings to cover operating
expenses.
Cash used
in the period ended September 30, 2009 for investing activities was $3,520 for
trademark costs.
Net cash
provided by our financing activities for the period ended September 30, 2009 was
$183,667. This is primarily attributed to recognizing a default
redemption amount of 20% for certain convertible debts plus the July 2009
financing for $145,000.
For the
period ended September 30, 2008, we reported a net loss of $932,315 that
included such non-cash items as derivative income of $2,499,335 and $592,020 for
the recognition of a loss on debt extinguishment. Other non-cash
items included the recording of $824,553 in costs for the issuance of common
stock and warrants.
Cash used
in the period ended September 30, 2008 for investing activities was $35,483 for
equipment purchases and trademark costs.
Net cash
provided by our financing activities for the period ended September 30, 2008 was
$666,728. This is primarily attributed to proceeds received from the
short-term bridge loans for $707,666 and the receipt of $100,000 for the last
tranche of the October, 2007 subscription.
External Sources of
Liquidity:
For
the six months ended September 30, 2009:
On July
14, 2009, we entered into another Modification, Waiver and Consent Agreement
whereas the subscribers to the March, 2009 agreement agreed to invest an
additional $145,000 at substantially the same terms as the March, 2009
funding. The total principal amount to pay will be $161,112 with
these two investors. In addition, we issued each investor a total of
805,556 warrants for a total of 1,611,112 warrants. The issuance of
common stock pursuant to the conversion features of the convertible notes is a
transaction exempt from registration under the Securities Act of 1933 and the
Securities Act Rules.
For
the six months ended September 30, 2008:
Beginning
April 2, 2008 and through April 14, 2008, we borrowed $300,000 from four
investors, initially repayable starting June 30, 2008 through July 15,
2008. The investors subsequently agreed to extend the due dates until
July 30, 2008. We received net proceeds of $237,500 after deducting an
original issue discount of $50,000 and due diligence fees of
$12,500. In addition, 500,000 class A warrants at an exercise price
of $.50 were issued, and we
38
ITEM
2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY
AND CAPITAL RESOURCES (Continued):
are
required to issue 500,000 class B warrants ($.75 exercise price) upon exercise
of the class A warrants for a total of 1,000,000 warrants. These
borrowings were guaranteed by the Company’s CEO. We also issued to
our
investment
banker 62,500 class A warrants ($.50 exercise price), and we are required to
issue 62,500 class B warrants ($.75 exercise price) upon exercise of the class A
warrants for a total of 125,000 warrants as a finders’ fee.
On May
19, 2008, we borrowed $33,000 from one investor receiving net proceeds of
$30,000. We agreed to repay these notes on June 19, 2008 if not
retired sooner upon the occurrence of certain specific events. The
Company and the investor agreed to extend the maturity date until July 30, 2008
for an additional 50,000 warrants with the same terms as the initial warrant
grant on this note. In addition, 100,000 class A warrants at an
exercise price of $.50 for three years were issued, and we are required to issue
100,000 class B warrants ($.75 exercise price for three years) upon exercise of
the class A warrants for a total of 200,000 warrants. In addition, we
issued 37,500 class A warrants at an exercise price of $.50 for five years to
our investment banker for this financing as well an additional issue of 37,500
class B warrants at $.75 exercise price for three years if the class A warrants
are exercised.
On June
26, 2008, we received the remaining $100,000 less $8,000 for due diligence fees
from the second tranche of the October 23, 2007 Securities Purchase Agreement
which completes the receipt of all applicable financings. This latest
financing is subject to the same terms as the other financings. We
issued an additional 303,030 class A warrants at an exercise price of
$.50.
On August
5, 2008, we borrowed $55,000 from one investor, receiving net proceeds of
$50,000. We agreed to repay this note on September 5, 2008 and issued
additional 100,000 class A warrants at an exercise price of $.50. We
extended the due date of this note to December 15, 2008 for 110,000 additional
restricted shares of the company’s common stock.
On
September 29, 2008, we signed a subscription agreement to receive $365,000 in
additional financing, $300,000 as the purchase price and $365,000 as the notes
principal. We did receive on the same date a net of $192,500
($200,000 purchase price less legal fees of $7,500). The principal
amount to pay in 90 days is $243,333. We anticipate receiving the
remaining amount sometime during the next quarter. We agreed to repay
this note and interest as follows: fifty percent (50%) on December
28, 2008 and fifty percent (50%) on March 29, 2009. We agreed to
issue 566,667 class A warrants at an exercise price of $.50. Not
later than 90 days after the issue date of these warrants, the Company will have
the option of either (1) redeeming these warrants at a per share price of $.10,
or (2) electing to immediately reduce the purchase price to $.01. In
addition and on the same date, we entered into a similar note payable for the
finders’ fees for this financing at 10% or $20,000 as the purchase price and
$24,333 as the principal price.
Recent Accounting
Pronouncements:
See Note
1 "Recent Accounting Pronouncements Applicable to the Company” in the Notes to
Condensed Consolidated Financial Statements in Item 1 for a full
description of recent accounting pronouncements, including the expected dates of
adoption and estimated effects on results of operations and financial condition,
which is incorporated herein.
CURRENT
AND FUTURE FINANCING NEEDS
We will
require additional capital to finance our future operations. We can
provide no assurance that we will obtain additional financing sufficient to meet
our future needs on commercially reasonable terms or otherwise. If we
are unable to obtain the necessary financing, our business, operating results
and financial condition will be materially and adversely
affected. See also Note 10 regarding subsequent events.
39
ITEM
2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS (CONTINUED)
OFF-BALANCE
SHEET ARRANGEMENTS
We do not
have any off-balance sheet arrangements.
CERTAIN BUSINESS
RISKS:
We
currently have no product revenues and will need to raise additional capital to
operate our business.
To date,
we have generated no significant product revenues. However, changes may occur
that would consume our existing capital at a faster rate than projected,
including, among others, the progress of our research and development efforts
and hiring of additional key employees. These funds may not be
available on favorable terms, if at all. If we are unable to secure additional
financing in the future on acceptable terms, or at all, we may be unable to
complete our product research and development activities. In
addition, we may be forced to reduce or
discontinue product development or product licensing, reduce or forego sales and
marketing efforts and forego attractive business opportunities in order to
improve our liquidity to enable us to continue operations. Any
additional sources of financing will likely involve the sale of our equity
securities, which will have a dilutive effect on our stockholders.
We
are not currently profitable and may never become profitable.
We have
generated negligible revenues to date from product sales. Our accumulated
deficit as of September 30, 2009 is $12,068,431.
We also
expect to continue to experience negative cash flow for the foreseeable future
as we fund our operating losses and capital expenditures. As a result, we will
need to generate significant revenues in order to achieve and maintain
profitability. We may not be able to generate these revenues or
achieve profitability in the future. Our failure to achieve or
maintain profitability could negatively impact the value of our common
stock.
We
have a limited operating history upon which to base an investment
decision.
Our
subsidiary, ADCI, which is the operating entity, was incorporated in June 2007,
and as such our operating history is short. We expect to incur additional
operating losses for the immediate near future. These factors, among
others, raise significant doubt about our ability to continue as a going
concern. If we are unable to generate sufficient revenue from our
operations to pay expenses or we are unable to obtain additional financing on
commercially reasonable terms, our business, financial condition and results of
operations will be materially and adversely affected.
Ability
to continue as a going concern.
Our
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that might be necessary should we be unable to
continue as a going concern.
For the
foreseeable future, we will have to fund all of our operations and capital
expenditures from the net proceeds of equity and/or debt offerings we may have
and cash on hand. Although we plan to pursue additional financing,
there can be no assurance that we will be able to secure financing when needed
or obtain such financing on terms satisfactory to us, if at all, or that any
additional funding we do obtain will be sufficient to meet our needs in the long
term. Obtaining additional financing may be more difficult because of
the uncertainty regarding our ability to continue as a going
concern. If we are unable to secure additional financing in the
future on acceptable terms, or at all, we may be unable to complete planned
development of certain products.
40
Not
applicable
ITEM
4. – CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports, filed under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and financial
consultant, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable and not absolute
assurance of achieving the desired control objectives. In reaching a
reasonable level of assurance, management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. In addition, the design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, a
control may become inadequate because of changes in conditions or the degree of
compliance with policies or procedures may deteriorate. Because of
the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
As
required by the Securities and Exchange Commission Rule 13a-15(b), we
carried out an evaluation under the supervision and with the participation of
our management, including our chief executive officer and financial consultant,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based
on the foregoing, our chief executive officer and financial consultant concluded
that our disclosure controls and procedures were effective at the reasonable
assurance level.
There has
been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
41
Item
1. Legal Proceedings
Mr.
Warren, Mr. Kee and Mr. Edwards all served as executive officers of Bravo!
Brands Inc. (“Bravo!”). On September 21, 2007, Bravo! Brands Inc.,
reported that it filed a voluntary petition in the United States Bankruptcy
Court for the Southern District of Florida pursuant to Chapter 7 of Title 11 of
the United States Code, Case No. 07-17840-PGH. The filing occurred
after Mr. Warren, Mr, Kee and Mr. Edwards ended their relationship with
Bravo!. The bankruptcy trustee has named Mr. Warren and Mr. Kee as
defendants in an Adversary Complaint for damages based upon certain
allegations. The proceeding does not involve Attitude and is pending
in the United States Bankruptcy Court for the Southern District of Florida as
part of the Chapter 7 proceedings of Bravo!.
On May
18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas
to recover the balance owed by us under a Sales Agent Agreement entered by the
parties on November 1, 2008. This agreement requires us to pay $5,000
per month and a 5% commission on all net sales. Their claim is for
$21,079 plus legal costs whereas our recorded amount is $16,079, resulting in
the disagreement of one month of consulting fees. Due to the lack of
adequate capital financing, we have not been able to make any payments, and we
recorded the additional $5,000 to equal the total claim. We expect to
resolve this matter as soon as practical.
On June
5, 2009, Tuttle Motor Sports, Inc. commenced a lawsuit in the state of Florida
to recover the balance owed by us under a Letter of Agreement to sponsor a Top
Fuel Dragster for the 2008 NHRA racing season in the amount of
$803,750. Out of this total amount, only $300,000 is required to be
paid in cash with the remainder to be paid in shares of
common stock. This amount had already been recorded in our
records. Due to the lack of adequate capital financing, we have not
been able to make any cash payments. We expect to resolve this matter
as soon as practical.
On August
21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of
Alabama to recover past due amounts owed by us under a contract to provide
shipping and fulfillment services. The claim is for $2,106.14 plus
interest and legal costs. This amount had already been recorded in
our records as well as projected interest costs of $681.76 and estimated court
costs of $307.49. A total of $656.78 has been paid towards this total
claim.
On
November 9, 2009, Nationwide Distribution Services, Inc. filed a lawsuit in the
state of Florida to recover past due amounts owed by us under a contract to
provide storage and warehouse fees. The claim is for $3,033.45 as we
have already recorded a similar amount in our records.
The
Company signed a Modification, Waiver and Consent Agreement on July 14, 2009 for
a new note payable in the amount of $145,000 as substantially the same terms as
the March, 2009 funding. The total principal amount to pay will be
$161,112. In addition, a total of 6,713,000 warrants were
issued.
Item
3. Defaults on Senior Securities
As of
September 30, 2009, the Company was in default in paying the October-2007,
January-2008, February-2008, September-2008 and December-2008 debt obligations
in which the debt holders agreed in January, 2009 to extend the due dates to
July 1, 2009. The company is working on the extensions of the due dates for
these debts.
As of
September 30, 2009, the Company was in default in paying the April-2008,
May-2008 and August-2008 debt obligations in which the debt holders agreed in
January, 2009 to extend the due dates to April 30, 2009. The company
is working on the extension of the due dates for these debts.
As of
September 30, 2009, the Company was in default in paying the January-2009 and
February-2009 debt obligations. The company is working on the
extension of the due dates for these debts.
Item
4. Submission of Matters to a Vote of Security Holders
No
matters were submitted to a vote of the security holders during the period
covered by this report.
Item
5. Other Information/Subsequent Events
See Note
10 of Notes to Condensed Consolidated Financial Statements
42
Item
6. Exhibits
Exhibit
No.
|
Document
Description
|
Incorporated
by
Reference
|
Filed
Herewith
|
(2)(1)
|
Agreement
and Plan of Merger dated September 14, 2007
|
*
|
|
(3)(1)
|
Restated
Certificate of Incorporation
|
*
|
|
(3)(2)
|
Amended
and Restated Bylaws
|
*
|
|
(4)(1)
|
Certificate
of Designation of the Series A Convertible Preferred
|
*
|
|
(4)(2)
|
Form
of Common Stock Certificate
|
*
|
|
(4)(3)
|
Form
of Class A and B Common Stock Purchase Warrant with Schedule of other
documents omitted
|
*
|
|
(4)(4)
|
Form
of 10% Convertible Note with Schedule of other documents
omitted
|
*
|
|
(4)(5)
|
Form
of Secured Convertible Note with Schedule of other documents
omitted
|
*
|
|
(4)(6)
|
Certificate
of Amendment to the Certificate of Designation of the Series
A Convertible Preferred Stock
|
X
|
|
(10)(1)
|
Subscription
Agreement for Securities dated October 23, 2007
|
*
|
|
(10)(2)
|
2007
Stock Compensation and Incentive Plan
|
*
|
|
(10)(3)
|
Escrow
Agreement dated October 23, 2007
|
*
|
|
(10)(4)
|
Security
Agreement dated October 23, 2007
|
*
|
|
(10)(5)
|
Subsidiary
Guaranty dated October 23, 2007
|
*
|
|
(10)(6)
|
Collateral
Agent Agreement dated October 23, 2007
|
*
|
|
(10)(7)
|
Office
Lease Agreement dated December 15, 2007
|
**
|
|
(10)(8)
|
Subscription
Agreement dated January 8, 2008
|
*
|
|
(10)(9)
|
Funds
Escrow Agreement dated January 8, 2008
|
*
|
|
(10)(10)
|
Waiver
and Consent dated January 8, 2008
|
*
|
|
(10)(11)
|
Notice
of Waiver of Certain Conditions effective February 15,
2008
|
*
|
|
(10)(12)
|
Notice
of Waiver effective February 15, 2008
|
*
|
|
(10)(13)
|
Notice
of Waiver of Conditions
|
*
|
|
(10)(14)
|
Form
of Modification, Waiver and Consent Agreement, September
2008
|
***
|
|
(10)(15)
|
Subscription
Agreement, September 2008
|
***
|
|
(10)(16)
|
Form
of Note, September 2008
|
***
|
|
(10)(17)
|
Form
of Class A Warrant, September 2008
|
***
|
|
(10)(18) |
Manufacturing
Agreement dated December 16, 2008 with O-AT-KA Milk Products
Cooperative, Inc.
|
**** | |
(14) | Code of Ethics | ***** | |
(21)
|
Subsidiaries of Registrant | * |
* previously
filed with the Commission on April 11, 2008 as exhibits to Form S-1/A (SEC
Accession Number 0001144204-08-021783)
**
previously filed with the Commission on February 14, 2008 as Exhibit 10.3 to
Form 10-Q (SEC Accession Number 0001144204-08-008934)
*** filed
with the Commission on November 19, 2008 as Exhibits 10.14-10.17 to Form 10-Q
(SEC Accession Number 0001144204-08-0063995)
**** filed
with the Commission on March 5, 2009 as Exhibit 10.18 to Form 10-Q (SEC
Accession Number 0001213900-09-000385)
***** filed with the
Commission on August 14, 2009 as Exhibit 14.1 to Form 10-K (SEC Accession Number
0001213900-09-002104)
43
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
Attitude Drinks Incorporated has caused this report to be signed on its behalf
by the undersigned, thereunder duly authorized.
ATTITUDE
DRINKS INCORPORATED
(Registrant)
Date:
November 23, 2009
/s/Roy G. Warren | |
President | |
In
accordance with the Securities Exchange Act of 1934, Attitude Drinks
Incorporated has caused this report to be signed on its behalf by the
undersigned in the capacities and on the dates stated.
Signature | Title | Date | |||
/S/Roy G. Warren | President and Acting CFO | November 23, 2009 | |||
Roy G. Warren |
44