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AMERICAN BREWING COMPANY, INC.

BALANCE SHEETS

(UNAUDITED)

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

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The accompanying notes are an integral part of these unaudited condensed financial statements.

 

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AMERICAN BREWING COMPANY, INC.

 

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

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AMERICAN BREWING COMPANY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE A –Basis of Presentation

Concentrations

As of March 31, 2015 there were four customers that represented 92% of Accounts Receivable.  For the quarters ended March 31, 2015 and 2014, three customers represented approximately 56% and 57% of revenue, respectively.  For the quarters ended March 31, 2015 and 2014, two suppliers of grain and bottling services represented approximately 36% and 51% of the cost of goods sold, respectively.

 

NOTE B – Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.  The Company had an accumulated deficit of approximately $2,300,000 and $2,125,000 as of March 31, 2015 and December 31, 2014, respectively, has a history of recurring net losses and negative working capital.  These matters, among others, raise substantial doubt about our ability to continue as a going concern.

While the Company is attempting to increase sales and generate additional revenues, the Company's cash position may not be significant enough to support the Company's daily operations.  Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern.  While the Company believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate additional revenues.

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE C – Inventories

Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of hops, other brewing materials, are stated at the lower of cost, determined on the first-in, first-out basis, or market. Inventories are generally classified as current assets. The Company has yearly contracts with vendors to supply essential hop varieties on-hand in order to limit the risk of an unexpected reduction in supply or price fluctuations. The cost elements of work in process and finished goods inventory consist of raw materials, direct labor and direct overhead.

 

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AMERICAN BREWING COMPANY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Inventories consisted of the following as of:

NOTE D – Notes Payable and Capital Leases

Notes payable and capital leases consisted of the following as of:

Related Party Debt

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AMERICAN BREWING COMPANY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

On or about March 31, 2015 the Company entered into two promissory notes totaling $260,000 (including one from a related party employee for $60,000 described above) with an interest rate of 10% per annum due and payable beginning June 30, 2015 maturing on March 31, 2020.  Payments of interest are required quarterly.  Should the Company be successful in raising $2,000,000 or more in funding the entire balance of the note will be due immediately.  The notes were issued in conjunction with an equity payment totaling 229,807 shares of Series B preferred stock that was issued with the debt.  The Company has allocated the loan proceeds among the debt and the stock based upon relative fair value.  The relative fair value of the stock was determined to be $185,176 based upon the fair market value of the common stock on the dates of issuance at a ratio of 8 common shares of stock to every one share of preferred series B stock and it was recorded as a debt discount. As of March 31, 2015 no payments have been made on these notes and with $74,824 outstanding, net of discounts.  The discounts of $185,176 will be amortized over the life of the loans to interest expense.

 

Capital Leases

The Company has entered into various capital lease agreements to obtain property and equipment for operations. These agreements range from 2 to 3 years with interest rates ranging from 5% to 6%. These leases are secured by the underlying leased property and equipment.

 

NOTE E – Stockholders' Equity

Common and Preferred Stock

The Company issued 100,000 shares of common stock to Institutional Analyst, Inc for services rendered on or about February 20, 2015.  The Company estimated the fair market value to be $0.364 per share and as a result, recorded expenses of $36,400 under general and administrative expenses in the accompanying statements of operations as of March 31, 2015.

On or about March 26, 2015 the Company issued 230,000 shares of common stock in conjunction with three promissory notes.  As discussed in Note D the shares were valued based on the fair market value of the common stock and discounted based on the relative value of these shares to the debt resulting in a recorded value of $38,440 recognized as a debt discount.

During the period ended March 31, 2015, the Company authorized and issued 229,807 shares of non-voting preferred Series B stock, not eligible for dividends, with a par value of $0.001 per share and a conversion rate of 8 shares of common stock per share of Series B preferred stock and a rank equal to common stock and below Series A preferred stock. As discussed in Note D the shares were sold in conjunction with two promissory notes and valued based on the fair market value of the common stock and discounted based on the relative value of these shares to the debt resulting in a recorded value of $185,176.

Warrants

As of March 31, 2015, the Company has warrants to purchase 1,025,000 shares of common stock outstanding, with exercise prices between $0.50 and $1.00, expiration dates between September 2016 and October 2019. The intrinsic value of the warrants is $0 as of March 31, 2015.

 

NOTE F – Commitments and Contingencies

Purchase Commitments

The Company entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 2018 and specify both the quantities and prices to which the Company is committed. As of March 31, 2015, hops purchase commitments outstanding was approximately $873,000.  As of March 31, 2015, projected cash outflows under hops purchase commitments for each of the remaining years under the contracts are as follows:

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AMERICAN BREWING COMPANY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

These commitments are not accrued in the balance of the Company as of March 31, 2015. In addition, the Company has elected not to recognize the purchase contracts as cash flow hedges in accordance with ASC Topic 815, Derivatives and Hedges.

Lease Commitments

On or about December 1 2013, the Company entered into a facilities lease with a third party. The lease term is 25 months. The monthly base rent of $4,709 increases annually based on the Consumer Price Index All Urban Consumers U.S. City Average. Monthly rent payments also include common area maintenance charges, taxes, and other charges. On or about December 24, 2014 the company amended this lease to add an additional 2,016 square feet of warehouse space. As of March 31, 2015, the minimum monthly lease payment was $5,424.  Rent expense was approximately $16,000 and $9,500 for quarter ended March 31, 2015 and 2014 respectively.

On or about September 28, 2011, the Company entered into a keg rental supply and services agreement with a third party. The initial rental period is a term of 36 months, and began on the date of delivery of the kegs. The agreement automatically extends on month-to-month basis for an additional 36 months, unless terminated by either party with a 30 day notice. Monthly keg rental fees are $512 and $476 for the initial and extended rental period, respectively. A deposit of $4,000 was made prior to delivery.  On or about January 31, 2015 the Company exercised the buyout option on this lease and paid $11,600 for the 200 1/6 barrel kegs no further payments will be made.

On or about October 21, 2011, the Company entered into a keg rental supply and services agreement with a third party. The initial rental period is a term of 36 months, and began on the date of delivery of the kegs. The agreement automatically extends on month-to-month basis for an additional 36 months. After the 72nd month, the Company can elect to enter into a final 24 month rental period. At the conclusion of the final rental period the Company can purchase the kegs between $40 to $50 each. Monthly keg rental fees are $670, $622, and $500 for the initial, extended and final rental period.  On or about January 31, 2015 the Company exercised the buyout option on this lease and paid $17,200 for the 200 ½ barrel kegs no further payments will be made.

On or about January 24, 2012, the Company entered into a keg rental supply and services agreement with a third party. The initial rental period is a term of 36 months, and began on the date of delivery of the kegs. The agreement automatically extends on month-to-month basis for an additional 36 months. After the 72nd month, the Company can elect to enter into a final 24 month rental period. At the conclusion of the final rental period the Company can purchase the kegs between $40 to $50 each. Monthly keg rental fees are $670, $622, and $500 for the initial, extended and final rental period. A deposit of $4,000 was made prior to delivery.  On or about January 31, 2015 the Company exercised the buyout option on this lease and paid $17,200 for the 200 ½ barrel kegs no further payments will be made.

Aggregate minimum annual rental payments for all operating lease agreements as of March 31, 2015, are as follows:

Keg lease expense was approximately $2,000 and $5,500 for the quarters ended March 31, 2015 and 2014 respectively.

Consulting Agreement

During the fiscal year ended December 31, 2014, the Company entered into various consulting agreements for services to be provided over terms from three to twelve months for a total of 1,302,500 shares of fully vested and non-forfeitable common stock.  The Company valued these shares at $726,800 (based on the estimated fair market value of the Company's stock on the date of grant) and recorded a prepaid expense to be amortized to general and administrative expense over the term of the agreement. $28,569 was amortized during the three months ended March 31, 2015 with the remaining balance of $43,531 as a prepaid expense asset on the accompanying balance sheet as of March 31, 2015.

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AMERICAN BREWING COMPANY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

On October 26, 2014, the Company entered into a consulting agreement in exchange for 25,000 warrants to purchase 25,000 shares of common stock. The Company valued the warrant at $0.06 per share (based on the Black-Scholes option pricing model on the date of grant) and recorded a prepaid expense to be amortized to general and administrative expense over the term of the agreement. $1,297 was amortized during the three months ended March 31, 2015 the remaining balance of $2,592 as a prepaid expense asset on the accompanying balance sheet as of March 31, 2015.

On or about March 2, 2015, the Company entered into consulting and professional services agreements with a third party for business consulting services. The agreements required the Company to issue to the third party 100,000 shares of common stock share for services to be performed or to be performed. The consulting agreement is for no stated duration and the shares vest immediately.  The Company valued these shares at $0.364 per share and recorded a $36,400 expense to general and administrative expenses in the accompanying results of operations during the three months ended March 31, 2015.

 

NOTE G – Segment Information

The Company's operations are classified into the sale of alcohol to retail customers through the Company's tasting room, and wholesale sales to distributors. Our retail division is located in the greater Seattle, Washington area and serves walk-in customers seven days a week. Our wholesale division sells to distributors primarily in the greater Seattle, Washington area. Although both segments are involved in the sale and distribution of alcohol, they serve different customers and are managed separately, requiring specialized expertise. We determined our operating segments in accordance with FASB ASC Topic 280, Segment Reporting.

Results of the operating segments are as follows:

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AMERICAN BREWING COMPANY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE H – Subsequent Events

On April 1, 2015 the Company, entered into an Asset Purchase Agreement whereby the Company acquired substantially all of the operating assets of B&R Liquid Adventure, LLC a California Limited Liability Company ("B&R"), a company engaged in the manufacture of Bucha Live Kombucha, a gluten free, organic certified, sparkling kombucha tea. On April 1, 2015, the parties executed all documents related to the Acquisition. The Company has placed $50,000 in escrow as of March 31, 2015 related to the purchase.

Upon the closing of the Acquisition, the Company received substantially all of the operating assets of B&R, consisting of inventory, fixed assets and intellectual property valued at $275,000 in exchange for 1,479,290 shares of common stock valued at $500,000, a cash payment of $260,000, and a secured promissory note in an amount of $140,000. See Form 8-k filed with the SEC on April 2, 2015 for more detailed information.

On or about April 20, 2015 the Company and two officers agreed to forgive $500,000 of the $600,000 in accrued officer compensation included on the accompanying balance sheet for the period ending March 31, 2015 under accrued expenses and other current liabilities.

On or about April 27, 2015 the Company issued 120,181 common shares to three employees as bonus compensation.  The Company estimated the fair market value of these shares at $0.44 per share totaling approximately $52,880 that will be recorded as compensation expense.

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The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth herein and in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the Report on Form 10-K, Form 10-Q and any Current Reports on Form 8-K.

Overview and History

 

The Company practices the "Northwest Style" of brewing, which is a style that utilizes generous amounts of hops.  Currently, the Company's four main beer products are: (1) Flying Monkey Dogfight Pale Ale, (2) Breakaway IPA, (3) American Blonde, and (4) Caboose Oatmeal Stout.

In addition to its beer brewing operations, the Company also is engaged in the production and sale of Bucha Live Kombucha, which is a gluten free, organic certified, sparkling kombucha tea.  The company acquired the assets related to the production and sale of its kombucha product pursuant to an Asset Purchase Agreement dated April 1, 2015.

Revenue Model and Distribution methods of the products or services

Our revenue model is based on selling our current products, creating additional products and customer development.  We produce our micro-brew and kombucha products and sell them to consumers through third party distributors.  We also sell our products directly to consumers in our brewery tasting room.  We generate revenue through the sale of our products to consumers at our onsite tasting room as well as through our distributors.  Through the period ended March 31, 2015, we generated most of our revenue through the sale of our four main beer products.  We plan on expanding our product line to additional long term beer products that we will create consistently, as well as beer products that we will make on a seasonal basis.

 

We are currently focusing our attention on the distribution of our beer products in Washington, North Carolina and Canada, but expect to expand to Idaho, Oregon, Michigan, Nevada, New Jersey and Montana, with a view to distribute nationwide  in the near future.

Due to the acquisition of Bucha Live Kombucha on April 1, 2015, we have also begun selling our kombucha products.

 

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Results of Operations

For the Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014, in Aggregate

The Company generated $248,308 in revenue for the three month period ended March 31, 2015, which compares to revenue of $241,003 for the three month period ended March 31, 2014. Our revenues increased during the three month period ended March 31, 2015 due to increased sales of our products.   As our Company has now been in operation for several years, we have begun to generate new consumers that become aware of our products either through word of mouth, new restaurant or bar placements, advertising or self placements in grocery stores. While our overall capacity was fixed, we simply had more consumer demand, including more customers who purchased our beer products and merchandise in our tasting room.  In addition, during the three months ended March 31, 2014, our brewery was shut down on several occasions during our expansion and remodel project, meaning that our sales and operations were limited to the periods in which the brewery was open and functioning during our remodel.  Now that our remodel has been completed, we do not foresee any additional shut down periods.

Cost of goods sold for the three month period ended March 31, 2015 was $228,806, which compares to cost of goods sold of $184,862 for the three months ended March 31, 2014.  Our revenue increased during the three month period ended March 31, 2015, and as our revenue increased, our cost of goods sold correspondingly increased.

Operating expenses, which consisted of advertising, promotional and selling costs, as well as amortization of stock based compensation and general and administrative expenses, for the three month period ended March 31, 2015, were $185,624.  This compares with operating expenses for the three month period ended March 31, 2014 of $709,550.  The decrease in our operating expenses is primarily related to a substantial decrease in our non-cash stock based consulting expenses.

For the Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014, retail sales

The Company generated $82,225 in revenue related to retail sales for the three months ended March 31, 2015, which compares to revenue related to retail sales of $69,834 for the three months ended March 31, 2014. The increase was attributed to purchases in our tasting room, which was reopened upon completion of our remodel and expansion project.

Cost of Goods Sold for the three months ended March 31, 2015 related to our retail sales was $75,506, which compares with cost of goods sold related to our retail sales for the three months ended March 31, 2014 of $53,610. Our revenue related to retail sales increased during the period ended March 31, 2015, and as our revenue increased, our cost of goods sold correspondingly increased.  Due to the increase in sales and revenue, we were required to purchase additional raw materials used in the production of our products, which had a direct effect on the increase in our cost of goods sold. 

For the Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014, wholesale sales

The Company generated $166,083 in revenue related to wholesale sales for the three months ended March 31, 2015, which compares to $171,169 in revenue related to wholesale sales for the three months ended March 31, 2014.  During the three months ended March 31, 2015, our wholesale revenue decreased slightly, but remained similar to the prior period due to the fact that we did not increase our sales to wholesale accounts.

 

Cost of Goods Sold related to wholesale sales for the three months ended March 31, 2015 was $153,300, which compares with cost of goods sold related to wholesale sales for the three months ended March 31, 2014 of $131,252.  The increase in cost of goods sold during the period ended March 31, 2015 is due to the Company having to dump several batches of beer during the three months ended March 31, 2015, and then repurchase the same materials used to brew the beer and brew replacement batches.  Therefore, our Cost of Goods Sold related to wholesale sales has increased even though our revenue for wholesale sales decreased during the period. 

 

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As a result of the foregoing, we had a net loss of $175,423 for the three month period ended March 31, 2015. This compares with a net loss for the three month period ended March 31, 2014 of $656,120.

Going Concern

In its audited financial statements as of December 31, 2014, the Company was issued an opinion by its auditors that raised substantial doubt about the ability to continue as a going concern based on the Company's current financial position.  Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully develop and market our products and our ability to generate revenues.

Liquidity and Capital Resources

 

As of March 31, 2015 we had cash of $458,135.  As of December 31, 2014, we had cash of $98,898.

We believe that with our existing cash flows, and assuming our current level of operations, we have sufficient cash to meet our operating requirements for the next twelve months due to the fact that our revenues are increasing, and due to our expansion, we believe our revenues will continue to increase.  While our expansion product has affected our liquidity in the past, due to the fact that we used revenue generated by our sales to fund a majority of the expansion, we believe that as our revenue increases, we will be able to fund our operations without the need for additional capital, other than our future revenue and sales of our common stock.  Our current source of liquidity is the revenue generated by our operations, as well as any proceeds received from the sale of our common stock.  We believe that the amount of revenue we are generating will allow us to meet our operating requirements during the next twelve months, again due to the fact that our revenues have increased during the period described in this report.  If our revenue is not sufficient to allow us to meet our cash requirements during the next twelve months, the Company may need to raise additional funds through the sale of its equity securities.  Our principal source of liquidity on a long term (greater than 12 months) basis will continue to be the revenue generated from our operations.  If our revenue is not sufficient for us to continue business operations on a long term basis, we may need to sell our common stock in order to continue operations and reach our expansion goals.  

Net cash used in operating activities was $60,656 for the three months ended March 31, 2015.  This compares to net cash provided by operating activities of $7,412 for the three months ended March 31, 2014.  

Cash flows used in investing activities was $97,142 for the three months ended March 31, 2015.  This compares to net cash used in investing activities of $297,434 for the three months ended March 31, 2014.  We anticipate significant cash outlays for investing activities over the next twelve months due to geographical expansion and additional acquisitions.  We plan to use our revenue and the proceeds from the sale of our common stock to pay for costs associated with our geographical and operational expansion plans and additional acquisitions.

Cash flows provided by financing activities was $517,035 for the three months ended March 31, 2015, which compares to cash flows provided by financing activities of $77,077 for the three months ended March 31, 2014.

As of March 31, 2015, our total assets were $1,653,945 and our total liabilities were $1,024,802.  As of December 31, 2014, our total assets were $1,305,068 and our total liabilities were $760,518.  

Off-Balance Sheet Arrangements

The Company entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 2018 and specify both the quantities and prices to which the Company is committed. As of March 31, 2015, hops purchase commitments outstanding was approximately $873,000.  As of March 31, 2015, projected cash outflows under hops purchase commitments for each of the remaining years under the contracts are as follows:

 

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The Company entered into keg rental supply and services agreements with third parties.  Aggregate minimum annual rental payments for all operating lease agreements as of March 31, 2015, are as follows:

 

These commitments are not accrued in the balance sheet of the Company at March 31, 2015 or December 31, 2014.

The Company records revenue on the accrual basis when all goods and services have been performed and delivered, the amounts are readily determinable, and collection is reasonably assured.  

 

 

On April 1, 2015 the Company, entered into an Asset Purchase Agreement whereby the Company acquired substantially all of the operating assets of B&R Liquid Adventure, LLC a California Limited Liability Company ("B&R"), a company engaged in the manufacture of Bucha Live Kombucha, a gluten free, organic certified, sparkling kombucha tea. On April 1, 2015, the parties executed all documents related to the Acquisition.

Upon the closing of the Acquisition, the Company received substantially all of the operating assets of B&R, consisting of inventory, fixed assets and intellectual property valued at $275,000 in exchange for 1,479,290 shares of common stock valued at $500,000, a cash payment of $260,000, and a secured promissory note in an amount of $140,000. See Form 8-k filed with the SEC on April 2, 2015 for more detailed information.

 

Continuing Plan of Operation (0-12 months):

 

  

Recently Issued Accounting Pronouncements

We have  reviewed  all  recently issued, but not yet effective,  accounting pronouncements and do not believe the future adoption of any such  pronouncements  may be expected to cause a material impact on our financial condition or the results of our operations.

Seasonality

The Company's business is subject to substantial seasonal fluctuations.  Historically, a significant portion of the Company's net sales and net earnings have been realized during the period from April through December, and levels of net sales and net earnings have generally been significantly lower during the period from January through March.  

As a "smaller  reporting  company" as defined by Item 10 of Regulation  S-K, the Company is not required to provide information required by this Item.

 

Not applicable.

The Company's management conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the 1934 Act) pursuant to Rule 13a-15 under the 1934 Act.  The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported on a timely basis and that such information is communicated to management and the Company's board of directors to allow timely decisions regarding required disclosure.

Based on this evaluation, it has been concluded that the design and operation of our disclosure controls and procedures are not effective since the following material weaknesses exist:

·	Since inception our chief executive officer also functions as our chief financial officer.  As a result, our officers may not be able to identify errors and irregularities in the financial statements and reports.

·

We were unable to maintain full segregation of duties within our financial operations due to our reliance on limited personnel in the finance function.  While this control deficiency did not result in any material adjustments to our financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties.

·	Documentation of all proper accounting procedures is not yet complete.

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To the extent reasonably possible given our limited resources, as financial resources become available we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, the following:

·	Increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no legal proceedings, to which we are a party, which could have a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

There have been no changes to our Risk Factors included in our Registration Statement on Form S-1 that became effective with the Securities and Exchange Commission on April 18, 2014.  

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Upon the closing of the Acquisition of B&R Liquid Adventure, LLC, the Company received substantially all of the operating assets of B&R, consisting of inventory, fixed assets and intellectual property valued at $275,000 in exchange for 1,479,290 shares of common stock valued at $500,000, a cash payment of $260,000, and a secured promissory note in an amount of $140,000. See Form 8-k filed with the SEC on April 2, 2015 for more detailed information.

On or about April 27, 2015 the Company issued 120,181 common shares to three employees as bonus compensation.  The Company estimated the fair market value of these shares at $0.44 per share totaling approximately $52,880 that will be recorded as compensation expense.

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ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.  OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

EXHIBITS. The following exhibits required by Item 601 to be filed herewith are incorporated by reference to previously filed documents:

 

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Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 14, 2015.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed   below by the following person on behalf of the Registrant and in the capacity and on the date indicated.