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EX-10.124 - EXHIBIT 10.124 - Attitude Drinks Inc.s101877_10-124.htm
EX-10.139 - EXHIBIT 10.139 - Attitude Drinks Inc.s101877_10-139.htm
EX-10.123 - EXHIBIT 10.123 - Attitude Drinks Inc.s101877_10-123.htm
EX-31.2 - EXHIBIT 31.2 - Attitude Drinks Inc.s101877_31-ii.htm
EX-10.122 - EXHIBIT 10.122 - Attitude Drinks Inc.s101877_10-122.htm
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EX-21 - EXHIBIT 21 - Attitude Drinks Inc.s101877_21.htm
EX-31.1 - EXHIBIT 31.1 - Attitude Drinks Inc.s101877_31-i.htm
EX-10.127 - EXHIBIT 10.127 - Attitude Drinks Inc.s101877_10-127.htm
EX-10.126 - EXHIBIT 10.126 - Attitude Drinks Inc.s101877_10-126.htm
EX-10.132 - EXHIBIT 10.132 - Attitude Drinks Inc.s101877_10-132.htm
EX-32.1 - EXHIBIT 32.1 - Attitude Drinks Inc.s101877_32-1.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2015

Commission File Number 000-52904

 

ATTITUDE DRINKS INCORPORATED

(Exact name of registrant as specified in its charter)

 

Delaware 65-0109088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

  11231U.S. Highway 1, #201, North Palm Beach, Florida 33408 USA  
  (Address of principal executive offices)          (Zip Code)  

Telephone number: (561) 227-2727

 

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act Common Stock, $.00001par value (Title of class)

  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
  Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
  Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐
 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-X (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
  Yes ☐ No ☒

  

The aggregate market value of the voting stock held by non-affiliates of the issuer on September 30, 2014, based upon the $.0003 per share close price of such stock on that date, was $207,074 based upon 690,246,659 shares held by non-affiliates of the issuer.  The total number of issuer's shares of common stock outstanding held by affiliates and non-affiliates as of September 25, 2015 was 2,330,565,835 shares. 

 

Transitional Small Business Disclosure Format (check one): Yes ☐ No ☒

 

Documents Incorporated By Reference: None

 

1
 

 

TABLE OF CONTENTS

 

    Page
PART I
     
ITEM 1 Description of Business 3
ITEM 2 Description of Property 10
ITEM 3 Legal Proceedings 10
ITEM 4 Mine Safety Disclosures 11
     
  PART II  
     

ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

11

ITEM 6 Selected Financial Data 13
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations  13
ITEM 8 Financial Statements 38
ITEM 9 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure  38
ITEM 9A Controls and Procedures 38
ITEM 9B Other Information 39
     
  PART III  
     

ITEM 10 Directors and Executive Officers of the Registrant 40
ITEM 11 Executive Compensation 41
ITEM 12 Security Ownership of Certain Beneficial Owners and Management 43
ITEM 13 Certain Relationships and Related Transactions and Director Independence 45
ITEM 14 Principal Accountant Fees and Services 46
     
  PART IV  
     

ITEM 15 Exhibits 47

 

2
 

 

FORWARD-LOOKING STATEMENTS

 

Statements that are not historical facts, including statements about our prospects and strategies and our expectations about growth contained in this report, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our present expectations or beliefs concerning future events. We caution that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the uncertainty as to our future profitability; the accuracy of our performance projections and our ability to obtain financing on acceptable terms to finance our operations until profitability. Unless the context requires otherwise, references to “we”, “us”, “our” and “Attitude” refer to the business of Attitude Drinks Incorporated and our subsidiaries.

 

PART I

 

ITEM 1 - DESCRIPTION OF BUSINESS

 

Overview

 

We are currently engaged in two segments of the beverage industry: (i) the functional beverage segment through our development and sale of non-alcoholic beverages to retail establishments and (ii) the craft brewing segment through our indirect interest in a World of Beer franchise restaurant that sells, among other items, beer to consumers. Our plan of operation during the next 12 months is to focus our management’s attention on the non-alcoholic single serving beverage business, developing and marketing milk based products in two fast growing segments: sports recovery and functional dairy. Our indirect subsidiary, Attitude Beer Holding Co. (“ABH”), which is now owned by our majority owned subsidiary Harrison, Vickers and Waterman Inc. (“HVWC”), is a 51% owner of a World of Beer franchise restaurant located in Connecticut and intends to establish additional franchise restaurants in other locations in Connecticut and the greater Boston area.

 

Recent Developments and Change in Business Model

 

On April 21, 2015, ABH and ABH’s other owners, Alpha Capital Anstalt, a company organized under the laws of Liechtenstein (“Alpha”) and Tarpon Bay Partners LLC, a Florida limited liability company (“Tarpon Bay”), (collectively all three companies as shareholders of ABH), entered into a Purchase Agreement with HVWC pursuant to which the shareholders of ABH sold to HVWC all of the outstanding shares of stock of ABH, and ABH thereupon became a wholly owned subsidiary of HVWC. In consideration for the purchase of the shares of common stock of ABH, HVWC issued: (i) to us 51 shares of a newly created HVWC Series B Preferred Stock (the “Series B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of HVWC’s common stock, par value $.0001 per share (the “HVWC’s Common Stock”), at an exercise price of $0.075 per share (subject to customary anti-dilution adjustments); (ii) to Alpha, a secured convertible note due April 20, 2017 (the “Secured Convertible Note”) in the principal amount of $1,619,375, a seven year warrant (the “Alpha Warrant”), to purchase 1,295,500,000 shares of HVWC’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an additional investment right (“AIR”) to purchase up to $3,750,000 in additional notes (the “AIR Note”) and corresponding warrants (“the “AIR Warrant”); and (iii) to Tarpon, a Secured Convertible Note in the principal amount of $554,791.67, a seven year warrant (the “Tarpon Warrant”) to purchase 443,833,333 shares of HVWC’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an AIR to purchase up to $1,250,000 in additional notes and corresponding AIR Warrants.  In addition, Alpha acquired 32,300 shares of the HVWC’s Series A Preferred Stock (convertible into 32,300,000 shares of HVWC’s Common Stock) from HVW Holdings LLC (an entity of which Mr. James Giordano, HVWC’s prior Chief Executive Officer and Chairman of the Board, is the managing member), subject to the terms of a Purchase Agreement (the “Series A Purchase Agreement”). We purchased 87,990,000 shares of HVWC’s Common Stock from HVW Holdings LLC at a price of $65,000, subject to the terms of a Purchase Agreement (the “Common Stock Purchase Agreement”) thereby making us the majority owner of HVWC. We will consolidate 100% of HVWC’s financial results after April 21, with the recording of applicable minority interest eliminations.

 

From the formation of ABH on December 1, 2014 until April 21, 2015, we were the majority holder of the outstanding equity of ABH (we held 87.5% of the outstanding common stock of ABH and Alpha and Tarpon Bay held 9.9% and 2.6%, respectively, of the outstanding common stock of ABH) and the active manager of ABH, accordingly for the year ended March 31, 2015, the financial results of ABH were consolidated into our overall financial statements with the recording of any minority interest related activities. 

 

3
 

 

The Functional Beverage Business. 

We currently sell a milk-based protein drink, branded as “Phase III® Recovery,” which is available in chocolate and vanilla flavors with expectation to produce a banana flavor in 2016. Phase III® Recovery is designed for the third phase of exercise, the “after phase” of before, during and after. This product is the first milk-based protein drink we believe ever to be produced in the U.S. and is shelf-stable with a twelve (12) months long shelf life. We completed development of our, “Phase III® Recovery” product, in 2010 and began selling this product in February 2010, which was introduced to address the growing need for sophisticated, exercise recovery solutions while offering a natural protein/carbohydrate ratio optimal for fitness recovery. This product contains 35 grams of protein that are naturally inherent in ultra-filtered milk. The product is packaged as a retort processed shelf stable dairy-based 100% milk based sports recovery drink, in a new state of the art, eco-friendly convenient re-sealable 14.5 ounce aluminum bottles. We began distribution of this product in early 2010. Storage, distribution and sale of this product can be done at room temperature while our current retail presence is predominantly in coolers. We do not directly manufacture our products but instead outsource the manufacturing process to a third party contract packer. Our co-packer for our dairy based product is O-AT-KA Milk Products Cooperative, Inc. in Batavia, New York and has the most advanced retort processor and know-how to produce this product with state-of-the-art milk filtration systems as well as the packaging of this product in new Ball Container aluminum eco-friendly re-sealable bottles. The primary target for Phase III Recovery® is active sports minded males and females from ages 15 to 35, but we will target active sports and exercise consumers at all levels. Gyms, sports teams, body builders and even high-endurance athletes are all beginning to focus on sports recovery drinks which we consider the “next generation” sports drink. We anticipate the development of other dairy based drink products in 2016, depending upon available capital As our company grows and matures, a disruption or delay in production of any of such products could significantly affect our revenues.

 

To date we have derived $53,196 in net revenue from the sale of our “Phase III® Recovery” product. Our ability to estimate demand for our products is imprecise and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials, we might not be able to satisfy demand on a short-term basis.

 

We developed our first product which was a “healthful” energy drink called VisViva™ in 2008. This particular product was formulated as a juice blend with our proprietary IQZOL™ energy formula in 12 ounce “slim” cans. This additive blend provided a unique energy boost with low calories, carbohydrates and caffeine levels, thereby revolutionizing the energy experience derived from energy drinks. Production began in January 2008 with the first generated sales in late March 2008. Our initial co-packer for the VisViva ™ product was Carolina Beer & Beverage LLC in Mooresville, North Carolina. We stopped the production and sale of the VisViva™ product during 2010 to focus on production of our “Phase III® Recovery” product. We do intend, however, to consider reintroducing this product as a “focus drink” when the market is favorable and when available capital is available, possibly in 2016.

 

Other products to be considered in the future will be Blenders™ ’Meal on the Move’ which is expected to be a lactose free milk based meal replacement in various flavors. This product is expected to be developed and marketed in 2016, depending on available capital.

 

We organized a Scientific Advisory Board of three well known experts that have extensive experience in sports nutrition. This board is helpful in communicating the scientific benefits of our sports recovery drink as well as new functional milk drinks. Their contacts in the world of sports will be very important in our sales efforts, especially in the early days.

 

Attitude Beer Holding Co. (World of Beer) 

On December 24, 2014, we entered into a joint venture agreement with New England WOB, LLC (“NEWOB”), ABH (“ABH”), Glenn E. Straub (“Straub”) and James D. Cecil (“Cecil”). NEWOB entered into an Area Development Agreement with World of Beer Franchising, Inc which is in the business of entering into franchise agreements with third parties to own and operate World of Beer themed bar/restaurants. NEWOB developed a World of Beer franchise in Stamford, Connecticut as well as West Hartford, Connecticut. Pursuant to the terms of the joint venture agreement, ABH was granted the right to participate in any World of Beer franchise that NEWOB proposes to develop. ABH has the option to become a 51% owner of any new World of Beer franchise if it contributes 100% of the budgeted development costs of developing such new World of Beer franchise locations. NEWOB manages the operations of each World of Beer franchise location. The financial results of each World of Beer franchise location will be consolidated into the overall results of ABH which in turn will be consolidated into the overall results of HVWC subsequent to its acquisition of ABH and our financial statements until such date. All applicable minority interest related items will be recorded for proper consolidations and reported results for Attitude’s consolidated financial statements.

 

Also on December 24, 2014, ABH acquired a 51% equity interest in the West Hartford, Connecticut World of Beer franchise location, which is a 4,000 sq. foot tavern that sells a selection of over 500 craft and imported beers along with tavern food and other spirits and cocktails. New England World of Beer holds franchise rights for the right to develop World of Beer franchise locations in all of Connecticut and Massachusetts. ABH also obtained an option for two years to purchase 51% of the Stamford, Connecticut World of Beer franchise location that was opened earlier in 2014. To date, the option has not been exercised.

 

4
 

 

ABH expects to actively pursue the development of other World of Beer franchise locations in the state of Connecticut and the greater Boson areas with our joint venture partner, New England WOB LLC. Since opening its first tavern in Tampa, Florida in 2007, World of Beer has grown to over 80 locations in 20 states. What began as a neighborhood tavern to sample great craft beers and swap beer-talk for co-founders Scott Zepp and Matt LaFon is becoming a unique cultural phenomenon celebrating the world of craft beers, great food and camaraderie. Centered on a diverse selection of local and global craft beers, delicious “tavern fare” and live music, World of Beer offers the best craft variety on the planet to the beer aficionado and casual beer fan alike. Additional information can be found by visiting the World Beer website at www.worldobeer.com

 

World of Beer restaurants feature a family friendly environment that offers over 500 imported and craft beers, 50 beers on tap plus a wide variety of menu items. The restaurant creates a welcoming neighborhood atmosphere that includes a multi-media system, a full beer and spirit bar and an open layout, which is designed to appeal to sports fans and families alike. We believe that the World of Beer restaurant differentiates its dining experience from those at other restaurants by appealing to a wide demographic base. First, for any beer aficionado, they can sample all sorts of brews not commonly found in a welcoming social environment. Second, for the sports fans, they can find their favorite event on a wide variety of televisions. Third, for any family group that is looking for a dining experience that is different from typical restaurants, the restaurant allows its guests to customize their experience to meet their time demands and experience requirements. The restaurant gains acceptance through other World of Beer locations throughout the country. The concept is further strengthened by the restaurant’s emphasis on operational excellence supported by operating guidelines and employee training.

 

The joint venture is expected to be a growth enterprise that tailors its restaurants to meet the needs of its target demographic base. To implement its strategy, the joint venture intends to

 

Identify, invest in and develop new locations;

Continuously develop and deliver unique guest experiences;

Create an inviting neighborhood atmosphere;

Focus on operational excellence;

Increase same-store sales, average unit volumes, and profitability.

  

ABH’s joint venture (JV) with NEWOB is expected to originally concentrate in the New England area where ABH believes its strategy is most likely to take hold. The JV has developed procedures for identifying new opportunities, determining its expansion strategy in those areas and developing sites for franchised restaurants and taverns. The current growth strategy is to continue to open franchised locations.

 

In New England, the JV plans to continue to open new restaurants and taverns until a market is penetrated to a point that enables it to gain marketing, operational, cost and other efficiencies. The JV intends to have a franchise system through the development of new locations.

 

Along with planned unit growth, the JV is focused on innovating its customer experience in order to enhance each visit to its establishment and strengthen brand loyalty by customizing its menu for specific events that it believes will draw a particular crowd (e.g. - Daytona 500) as well as combining foods with specific beer promotions (e.g. - Bavarian pretzels with German lager promotions).

 

The World of Beer menu is standard for most items throughout all locations, but there are typically some specialty items added for local tastes and preferences that vary based upon specific promotions or sporting events. The typical menu includes “Tavern shares” which are appetizers that include onion rings, shrimp and potatoes. Entrees include traditional bar fare such as hamburgers, salads and desserts.

 

The West Hartford restaurant and tavern features a full bar which offers an extensive selection of over 500 different local, regional and imported bottle beer selections and craft and favorite beer on 50 rotating taps as well as popular and craft wine and spirits. NEWOB periodically introduces new menu items in order to improve the experience. The strategy is to balance the established menu offerings that appeal to loyal guests with new menu items that increase guest frequency and attract new guests.

 

The restaurants and taverns are “open layouts” which provide for complete visibility for patrons. The open layout, combined with the detailed selection of beers, we believe makes for an excellent experience that combines a friendly atmosphere, sporting events and its outstanding beer selection. ABH strives to provide a high-energy atmosphere where friends can gather for camaraderie and to celebrate competition, as well as allow guests the flexibility to customize their dining experience. The inviting and energetic environment of the restaurant is designed using furnishings that can be easily rearranged to accommodate parties of various sizes. The restaurant and tavern also features distinct dining and bar areas.

 

The site selection process is integral to the successful execution of ABH’s growth strategy. Criteria examined include key demographics, population density and other measures. The JV examines site-specific details including visibility, signage, access to main roads and parking. New England WOB LLC’s managing directors have many years of commercial real estate development and broad business experience as entrepreneurs, operators as well as having managed numerous businesses and commercial real estate ventures.

 

5
 

 

All franchise agreements will be subject to approval of World of Beer Franchising Inc. and will require that each franchised location operate in accordance with their defined operating procedures, adhere to the established menus, meet applicable quality, service, health and cleanliness standards and comply with all applicable laws.

 

The West Hartford store utilizes a standard point-of-sale system which tabulates sales as well as items sold. The restaurant has daily reporting of revenues and expenses plus inventory on hand.

 

The restaurant industry is intensely competitive. ABH competes on the basis of the taste, quality and price of food offered, guest service, ambience, location and overall guest experience. We believe that the restaurant’s attractive price-value relationship, the atmosphere of the restaurant, the sports viewing experience, the focus on guests and the quality and distinctive flavor of our food enable ABH to differentiate itself from its competitors. We believe ABH competes primarily with local and regional sports bars and national casual dining and quick casual establishments and to a lesser extent with quick service restaurants. Many of its direct and indirect competitors are well-established national, regional or local chains, and some have greater financial and marketing resources than ABH’s does.

 

In House Intellectual Property 

We have a trademark for Phase III® from the United States Patent and Trademark Office that was registered December 28, 2010.

 

While working on trademark and brand development for the dairy platform of functional drinks and protein delivery, we were approached by the owners of the entire intellectual property portfolio once developed and commercialized at Bravo Brands, Inc., a public company where Roy Warren (our CEO and director), Tommy Kee (our CFO) and Mike Edwards (our director) were previously employed. On August 8, 2008, we entered into an Asset Purchase Agreement with RFC BB Holdings, LLC (seller) and issued them a $507,500 secured convertible promissory note to purchase the right, title, trademarks and interest to this intellectual property portfolio, notably “Slammers” and “Blenders”. As these particular brands have been marketed and sold in the past, it is anticipated that these products can be reintroduced into the market much quicker and less expensive than developing a brand new product. The entire $507,500 note has been converted into shares of common stock.

 

Production Contracts/Administration 

Our operations are only in the United States and are run directly by our subsidiary, Attitude Drink Company, Inc. (“ADC”) which also is the operating company. On December 16, 2008, the ADC signed a manufacturing co-packing agreement with O-AT-KA Milk Products Cooperative, Inc. for the production of our latest product, Phase III® Recovery and future new dairy-based products. The manufacturer is obligated to manufacture, package and ship such products. ADC pays for all shipping of the products F.O.B., the facility, as title of the products is passed to the receiver once products are delivered and received on premise.

 

Industry Trends 

The Functional Beverage Market

  

Milk, while the second highest beverage consumed in America in terms of overall volume, is still under-represented in the American single serve ready-to-drink beverage industry. While known for generations by nutritionists and more recently identified by sports, hydration, metabolism and protein professionals and scientists as “mother nature’s most perfect food”, milk has yet to be successfully branded and commercialized.

  

We are an innovative beverage brand-development company that was formed to exploit the accelerating shift in beverage consumption patterns of Americans. Consumers are embracing two distinct trends which have redefined the ever-growing single serve beverage industry. First, consumers representing all demographics are purchasing fewer “empty-calorie”, sugar sweetened, carbonated beverages, a trend that has continued for the last ten years. Second, and according to the May, 2015 edition of Beverage World, in the Back-to-basics functionality section, “consumers are growing wary of some functional claims, and that is beginning to shape the functional drink market. Consumers are increasingly looking for beverages to deliver more than just taste and refreshment; namely some kind of functionality. Within functional drinks, the new “it” ingredient is “protein” We believe consumers are demanding drinks with functionality, delivering either nutritional or experiential impact. During recent years, we have seen beverage consumers demonstrate a growing willingness to pay significant premiums for these functional beverages, while exhibiting passionate brand loyalty to the chosen brands.

 

Management has extensive experience innovating functional products and helped pioneer the milk-based platform of this beverage “revolution” previously at Bravo! Brands Inc. During that time, management worked with Coca-Cola Enterprises to launch branded milk beverages nationwide. We enjoy strategic relationships, know-how, creativity and perspective in this space. We believe that the two platforms that we will address, sports recovery and functional dairy, represent the fastest growing, most innovative and highest priced drinks ever seen in the beverage industry.

 

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Craft Brewing Market

Craft brewing is indeed booming in the United States. The demand for more flavorful beers is much higher. The 2015 beer drinker is more knowledgeable, more adventurous and sophisticated and does not hesitate to pay premium prices for a premium product. The Brewers Association point out that on a per capital basis, the United States is still underserved by existing craft brewers. There are more beer drinkers than wine drinkers. The average craft beer drinker earns about $75,000 income and when they go out for the evening, they are seeking a pub with 50 beers on tap, supporting ABH’s decision to develop and manage World of Beer franchise taverns in the New England area which attracts millions of visitors each year who look to partake in the local flavors including craft beers. We believe that the World of Beer locations will have what these customers want, both major and craft brands.

 

Market Analysis:

 

Protein beverages

According to “Back-to-basics functionality” data from the Beverage World edition for May, 2015, “Ready-to-drink protein beverages are seeing strong growth and Euromonitor International puts the U.S. RTD protein beverage market at $550 million. The segment is forecast to see 50 percent growth through 2018, Euromonitor says.” Well-documented nutritional benefits bode well for protein’s continued growth. Energy shots have not fared as well and the segment seems to be already a mature one, with sales declines the past two years. “Sports drinks saw a slight uptick last year” at .2% volume growth (per May 2015 Beverage World). We believe there will be many more variations in flavor claims, packaging and messaging as ways for brands in this category to grow.

 

Jessica Jacobsen, editor of Beverage Industry released a research on May 12, 2015. In the research, she listed some interesting comments from other key analysts in the beverage industry. “Howard Telford, beverage analyst for Chicago-based Euromonitor International, notes that the U.S. sports drink market began to slow in 2012 and was essentially flat in 2013.” “The category has been subject to a confluence of external pressures with consumers open to exiting the category--- for other hydration-focused packaged beverages,” he says which we believe favor our Phase III® Recovery products. “Consumers have shied away from high-sugar, high-calorie packaged beverages over the past two years,” Telford says and continued “But despite the pressure they are facing from these outside categories, sports drinks still have opportunities to re-engage consumers. There is considerable opportunity for ’natural’ alternative recovery and hydration beverages,” Telford explains.

 

Jessica Jacobsen continued to present her findings on comments from Elizabeth Sisel, beverage analyst for Chicago-based Mintel. “When it comes to sports drinks, two brands are synonymous with the category: Gatorade and Powerade. According to Sisel, Purchase, N.Y.-based PepsiCo Inc’s Gatorade brand and Atlanta-based The Coco-Cola Co.’s Powerade brand accounted for 96 percent of the category for the 52 weeks ending Nov. 3, 2013. For the non-aseptic sports drink segment, the two accounted for 99 percent in IRI-measured channels ending March 23, 2014. Gatorade makes up nearly 78 percent of that share.”

 

Further reports from Jessica Jacobsen on “Protein, please” stated that “Sports drinks aren’t the only ready-to-drink (RTD) beverages that consumers are turning to in order to support their active, healthy lifestyles. According to Chicago-based The NPD Group’s “Protein Perceptions and Needs” report, 78 percent of U.S. consumers say that protein is important for a healthy diet. However, they are split on what the best sources of protein are, with half naming non-meat sources and the other half naming meat. Those non-meat sources included eggs, yogurt, nuts and seeds, but consumers also are finding favor in protein drinks. Smaller than the sports drinks category, nutritional drinks, including meal replacement beverages, accounted for less than half of the sales of sports drinks in 2013 at $3.2 billion, according to Mintel’s January report “Nutritional and Performance Drinks – US. Even smaller than that was protein drinks, with $2.1 billion in sales in 2013; however, this is a 51.2 percent increase from 2011 when sales were $1.4 billion the report notes. Protein RTDs within the sports nutrition category are growing strongly, says Euromonitor’s Chris Schmidt, consumer health analyst. Their push into mainstream retailers and an increasing focus on lifestyle and functional nutrition branding – as opposed to hardcore sports recovery – along with the glowing praise heaped on protein by the popular media, is driving growth in both relatively mature and emerging markets. Schmidt notes that Euromonitor defines protein drinks as beverages that contain 20 or more grams of protein and are positioned for sports performance and recovery.” In continuation, “Schmidt notes that although RTD protein drinks have gained a bigger following n the past few years, the segment appeals more to everyday consumers versus hard-core athletes because of the price difference compared with protein powders.”

 

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Craft Beer and World of Beer franchise restaurants and taverns

According to the May, 2015 edition of Beverage World, “craft beer may only hold 11% of the U.S. market in terms of volume, but craft brewers dominate when you look at the number of operating breweries in the U.S. Craft by the numbers: total retail dollar value, $19.6 billion; dollar share of beer, 19.3%; total number of craft breweries, 3418; number of breweries in planning as of December 31, 2014, 2,051; number of brewery openings in 2014, 615; number of brewery closings in 2014, 46; and increase in number of breweries 2013/14, +19%. The overall U.S. beer market posted modest growth of about 0.5% last year; now that craft commands 11% volume share (and 19.3% dollar share) of the total category, it’s starting to have an impact on the industry’s growth trajectory. Craft is playing a much larger role in keeping total beer volume in the black.” Additional statistics reflected in the same Beverage World edition are as follows:

 

2014 CRAFT BEER STYLES
RANKED BY U.S. $ SHARE
         
 Dollar share of       2014 
 top styles   Segment   growth 
           
 22.7%  India Pale Ale (IPA)   +46.9% 
 16.6%  Seasonal   +9.9% 
 10.6%  Pale ale   +10.1% 
 7.8%  Variety   +20.3% 
 5.7%  Amber ale   +5.7% 
 4.9%  Amber lager   +1.7% 
 4.0%  Bock   +5.4% 
 27.7%  All others     

 

We believe that the drinking age is more willing to pay more for something new and perceived as higher quality than what their parents drank. Brand loyalty is perceived to be replaced by style. World of Beer franchises are expected to meet that demand as well as providing a social and active lifestyle with its consumers. Beverage World even states that “the craft spirits segment isn’t slowing down; if it continues on its current trajectory expect the number of small distilleries in the U.S. to surpass 1,000 by the end of 2017.” We expect the improvement in economy to also improve the growth of this industry.

 

Market Segment Strategy 

Our future strategy will be to directly develop our products in the two fast growing segments: sports recovery and functional milk. We produced our first product, VisViva™ which is an energy drink; however, we are not currently producing that product as we have decided to focus our attention initially on our Phase III® Recovery product. Phase III® Recovery is our second product which is a protein sports recovery drink. We expect to develop two to three new products in the next two to three fiscal years, depending on available capital.

  

We know from experience that the largest retailers of milk products are demanding new and more diverse refreshment drinks, thus our response to consumer interest and demand with our dairy based product, “Phase III® Recovery” that was introduced in early 2010.

 

We also will continue to seek other territories for the development of additional World of Beer franchises.

 

Competition 

The beverage industry is highly competitive. The principal areas of competition are pricing, packaging, development of new products and flavors and marketing campaigns. Our products will compete with a wide range of drinks produced by a relatively large number of manufacturers, any of which have substantially greater financial, marketing and distribution resources than we do.

 

Important factors affecting our ability to compete successfully include taste and flavor of products, trade and consumer promotions, rapid and effective development of new, unique cutting edge products, attractive and different packaging, branded product advertising and pricing. We will also compete for distributors who will concentrate on marketing our products over those of our competitors, provide stable and reliable distribution and secure adequate shelf space in retail outlets. Competitive pressures in the sports beverage market could cause our products to be unable to gain market share, or we could experience price erosion, which could have a material adverse effect on our business and results.

 

We compete not only for customer acceptance but for maximum marketing efforts by multi-brand licensed bottlers, brokers and distributors, many of which have a principal affiliation with competing companies and brands. Certain large companies such as The Coca-Cola Company and Pepsico Inc. market and/or distribute products in that market segment such as Muscle Milk® and other protein beverages.

  

Our subsidiaries’ entry into development of new World of Beer franchises is new to us and is subject to the usual learning curve that is common among new developments. There is a large competition with other restaurant and/or bar establishments in the Northeast, specifically Connecticut and Boston, for customers and patrons. Our restaurants must outperform its competition, provide customers with the best value, service and satisfaction for their dining and drinking experiences.

 

8
 

 

Marketing

Management believes that the impact of the internet and the enhanced communication systems that it has enabled have dramatically changed the way we live our lives today. There is vastly improved access to information, and the public is bombarded with messages that have diminished the value and impact of traditional media advertising. There have been increases in interest in protein RTD “ready to drink” beverages.

 

Based on available capital, strong emphasis will be placed on public relations initiatives in an effort to capture and maintain consumer awareness. Validation of the advanced science behind each introduced brand will provide clear and reliable messaging behind each functional line. Carefully developed and executed focus groups will also be conducted, designed to raise awareness about the true functionality and lifestyle enhancement offered with each innovative line. We plan to focus on gorilla and grass roots marketing programs, investing in sponsorships and spokespeople in venues of competitive sports activities. This strategy allows promoters to develop brand essence, communicate directly with spectators and participants and promote trial with consumers directly. This marketing approach, best executed by the Red Bull energy drink brand, escapes the filters that consumers use to reduce messaging. When executed properly, as Red Bull has, this technique defines the brand image while consumers embrace the branding as trend setting entertainment. In addition, we intend to continue participating in nationwide events and programs supporting the unique causes.

 

Each World of Beer franchise store contributes funds to the overall marketing programs and campaigns of corporate World of Beer. These grouped marketing campaigns are expected to greatly spread the message about World of Beer stores over a much broader territory and increase brand awareness and value of the World of Beer name. In addition, we believe that social media will greatly aid efforts to attract customers to the restaurants as well as the promotion of local events and activities.

 

Government Regulation

The production, distribution and sale in the United States of many of our products are subject to the Federal Food, Drug and Cosmetic Act; the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products.

 

Measures have been enacted in various localities and states that require that a deposit be charged for certain non-refillable beverage containers. The precise requirements imposed by these measures vary. Other deposit, recycling or product stewardship proposals have been introduced in certain states and localities and in Congress, and we anticipate that similar legislation and regulations may be proposed in the future at the local, state and federal levels, both in the United States and elsewhere.

 

We do not expect that compliance with these provisions will have a material adverse effect upon our capital expenditures, net income or competitive position.

 

The World of Beer locations are governed by state and local government regulatory agencies for the sale of alcohol.

 

Our History

We were formed in Delaware on May 10, 1988 under the name of L.H.M. Corp which later became Mason Hill Holdings, Inc. On September 19, 2007, we acquired Attitude Drink Company, Inc., a Delaware corporation (“ADCI”), under an Agreement and Plan of Merger among Mason Hill Holdings, Inc., MH 09122007, Inc. and ADCI. Pursuant to the Merger Agreement, each share of ADCI common stock was converted into 40 shares of Company common stock, resulting in the issuance of 4,000,000 shares of our common stock. The acquisition was accounted for as a reverse merger (recapitalization) with ADCI deemed to be the accounting acquirer, and Attitude deemed to be the legal acquirer. On September 30, 2007, we changed our name to Attitude Drinks Incorporated. Our wholly owned subsidiary, ADCI, was incorporated in Delaware on June 18, 2007. Our principal executive offices are located at 11231 U.S. Highway 1, #201, North Palm Beach, Florida 33408. The telephone number is 561-227-2727. Our company’s common stock shares (PINX: ATTD) began trading in June 2008. Our fiscal year ends on March 31th.

 

Employees

As of March 31, 2015, we currently have forty-eight full time employees as four individuals are employed at our corporate office. In addition, 44 of the total full time employees are employed at the World of Beer franchise location in West Hartford, Connecticut.

 

Research and Development

 

Over the last two years, we spent approximately $6,600 and $5,205, respectively, on research and development activities related to the Phase III® Recovery products. All costs were borne by us.

 

 

9
 

 

ITEM 2 - DESCRIPTION OF PROPERTY 

 

Corporate office

 

On February 7, 2013, we moved to our current office at 712 U.S. Highway 1, Suite 200, North Palm Beach, Florida 33408 from our previous address at 10415 Riverside Drive, Suite 101, Palm Beach Gardens, Florida 33410. We entered into a three-year lease that began on February 1, 2013 with two (2) year renewable terms with a termination date of January 31, 2016. The total minimum monthly base rent including operating expense for March 31, 2015 is $4,370 (excluding certain variable operating expenses and taxes), and the lease provides for annual 3% increases throughout its term. The lease covers 3,333 square feet and includes our right of first refusal to contiguous space. During late 2014, we had a disagreement with our landlord as they filed a motion in the circuit court of Palm Beach County, Florida to enforce a settlement for past due fees. We contest some of the amounts as we were forced to vacate the premises in an unsatisfactory limited amount of time which we had to abandon some of our office furniture and inventory. We now have a new mailing address of 11231 U.S. Highway, #201, North Palm Beach, Florida 33408.

 

World of Beer West Hartford, Connecticut

  

The West Hartford, Connecticut World of Beer property of 4,163 square feet of space is subject to a ten year lease that commenced May 16 2014 and provides an option to extend the lease for two (2) additional periods of five (5) years each. The minimum starting monthly base rent was $10,754 with 3% increases annually.

  

ITEM 3 - LEGAL PROCEEDINGS

  

On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the District Court of Denton County, Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008. This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Denton County, Texas for a total sum of $22,348. This claim has been recorded on the Company’s records. Due to the lack of adequate capital financing, we have not been able to make any payments. We will address this matter as soon as practical and once we have adequate financing.

 

On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the District Court of Mobile, Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services. The claim is for $2,106 plus interest and legal costs. This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095. On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount. Current outstanding balance due is $2,438. No other payments have been made.  

 

On October 1, 2013, Beanpot Broadcasting Corp. d/b/a WXRV-FM, commenced a lawsuit in the Commonwealth of Massachusetts District Court Department of the Trial Court Haverhill Division to recover past due amounts owed by us for rendered independent sales contracting services. The claim was for $15,500 for past due services, $4,169 in service charges, $363 for prejudgment interest and $200 court costs for a total of $20,232. The total $20,232 amount was already recorded on our records. On November 15, 2013, the Trial Court of Massachusetts entered a judgment for the plaintiff (“Beanpot”) for the total $20,232. Due to the lack of adequate capital financing, we have not been able to make any payments. We will address this matter as soon as practical and once we have adequate financing.

 

On November 27, 2013, we received an order of the court from The Trial Court of Massachusetts District Court Department, Small Claims Session in Plymouth, Massachusetts to attend a hearing on December 12 2013 about a small claims amount of $5,000 from Marshfield Broadcasting Company, Inc. to recover past due amounts. A total of $5,500 was already recorded our records. On December 31, 2013, a judgment in the amount of $5,238 was entered in favor of Marshfield Broadcasting Inc. No payments have been made as we expect to resolve this matter as soon as practical and once we have adequate financing.

 

On February 4, 2014, Philip Terrano commenced a lawsuit in the circuit court of the 15th Judicial Circuit and for Palm Beach County, Florida to recover past due amounts owed by us for past compensation in the amount of approximately $17,000. We disagree with this amount as our records reflect a total amount owed of $6,974. On May 28, 2014, we entered into a settlement agreement with Terrano to pay him a total of $11,000, to be remitted 60 days of the effective date of this agreement. Due to a lack of capital financing, we expect to address this matter as soon as we can.

 

On June 9, 2014, North Palm Beach Broadcasting Company d/b/a/ WSVU-AM Radio filed a lawsuit in the 15th Judicial Circuit in and for Palm Beach County, Florida to recover past due services owed by us in the amount of $22,000 that is due with interest. We do not agree with that amount as we did make various payments in 2013 that totaled $8,000. We are working with that party to arrive at a mutual agreeable outstanding amount if any. We do not have any other outstanding balance that is recorded on our records. On August 6, 2014, we received a Default Final Judgment from Palm Beach County Circuit Court in Florida for a total amount of $23, 411. We are still contesting that amount and will resolve the matter as soon as possible.

 

On June 26, 2014, Innerworkings, Inc. filed a lawsuit in the County Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida to recover past due services owed by us in the amount of $5,039 that is due with interest. This same amount has already been recorded on our records. We expect to address this issue as soon as practical and when we have adequate capital.

 

10
 

 

On November 11, 2014, C.A. Courtesy Demos, Inc. commenced a lawsuit in the County Court, Palm Beach County, Florida civil action to recover past due amounts owed by us for rendered services. The claim was for $5,803. We do not agree with this amount and have not recorded this amount on our records as services were supposed to be rendered, but a hurricane in the northeastern section of the United States occurred at that given time. We will address this matter as soon as practical and once we have adequate financing.

 

On November 20, 2014, Pavilion Law Center, LLC filed a motion in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida to enforce a settlement agreement for past due fees. We are contesting some of the amounts and will resolve this matter as soon as practical.

 

On April 22, 2015, Edgar Agents LLC filed a lawsuit in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida to recover past due amounts owned by us for rendered services. The claim was for $23,323.50 plus interest and costs. We have recorded $19,069.50 in our records as we have not received the backup for the $4,254.00 difference. On August 13, 2015, the court entered into a final judgment against us for a total amount of $24,215. We expect to resolve this matter as soon as practical and once we have adequate financing.

 

On August 26, 2015, Harrison, Vickers and Waterman Inc. (“HVW”) which we own the majority of the outstanding shares received a lawsuit from James Giordano, previous CEO of HVW that was filed in the State of Connecticut Superior Court in Stamford, Connecticut. The claim is approximately $220,833 for past salaries. HVW does not agree with this complaint and will address as soon as possible. HVW does have a recorded amount of $175,000 on its books.

 

ITEM 4- Mine Safety Disclosures – Not Applicable  

 

PART II

 

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 

 

Common stock market price 

The Company’s common stock began trading on the OTC Electronic Bulletin Board (ticker symbol PINK.OB) on June 19, 2008. The approximate number of record holders of the Company’s common stock at September 22, 2015 was 6,515.

 

The following quarterly quotations for common stock transactions on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions. Source is NASDAQ.COM: 

         
QUARTER   HIGH STOCK PRICE   LOW STOCK PRICE
         
Fiscal year – 2013/2014        
         
First Quarter   $0.10   $0.05
Second Quarter   $0.05   $0.002
Third Quarter   $0.0024   $0.0005
Fourth Quarter   $0.003   $0.0008
         
Fiscal year – 2014/2015        
         
First Quarter   $0.0019   $0.0004
Second Quarter   $0.0006   $0.0002
Third Quarter   $0.001   $0.0002
Fourth Quarter   $0.0012   $0.0001
         
Fiscal year – 2015/2016        
         
First Quarter   $0.0002   $0.0001

  

Dividends

  

The holders of common stock are entitled to receive, pro rata, such dividends and other distributions as and when declared by our board of directors out of the assets and funds legally available therefore. We have not paid dividends on our common stock and do not anticipate paying dividends to holders of our common stock in the foreseeable future. Management intends to retain future earnings, if any, to finance working capital and to expand our operations.

 

11
 

 

Securities Authorized for Issuance under Equity Compensation Plans 

                       
Plan Category     Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
    Weighted average exercise
price of outstanding options, warrants and rights
    Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
 
                       
2013 Equity Incentive Plan approved by stockholders (Filed on January 28, 2013 as a Definitive 14C Information Statement     1,060,000       Options have not been granted, thus no exercise price     1,060,000  
Equity compensation plan (Filed on May 25, 2010 a Form S-8)     7,500     $ 30.00     3,922  
Total     1,067,500     $ 30.00     1,063,922  

  

Sale of Unregistered Securities 

Quarter Ended March 31, 2015

 

Attitude Drinks Incorporated:

 

On January 14, 2015, we issued a convertible note to Southridge Partners II LP pursuant to which we received $13,500. The note is subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02. No conversions have been made for this note.

 

On January 14, 2015, we issued a convertible note to Alpha Capital Anstalt pursuant to which we received $13,500. The note is subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02. No conversions have been made for this note.

 

On January 14, 2015, we issued a convertible note to Whalehaven Capital Fund Ltd. pursuant to which we received $31,500. The note is subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02. No conversions have been made for this note.

 

All of the proceeds from the above new financings were used for working capital purposes.

 

12
 

 

Attitude Beer Holding Co.

 

From December 24, 2014 through March 24, 2015, ABH issued four installment convertible notes payable, the proceeds of which were used for the purchase and financing of the West Hartford World of Beer restaurant and tavern:  

                                 
DATE OF
NOTE
ISSUANCE
  ALPHA
CAPITAL
ANSTALDT
  TARPON
BAY
PARTNERS LLC
  TOTAL
NOTES
  MATURITY
DATE
  %
INTEREST
RATE
                                 
12/24/2014   $ 246,187   $ 91,063           12/24/2015     10 %
1/23/2015     225,000     75,000           12/24/2015     10 %
2/24/2015     225,000     75,000           12/24/2015     10 %
3/24/2015     200,437     66,813           12/24/2015     10 %
                                 
TOTAL   $ 896,624   $ 307,876   $ 1,204,500              

  

All of the above funds were used for building and opening the West Harford World of Beer. The conversion terms shall be either (i) if ABH’s common stock is traded on a trading market, the conversion price is 50% of the lowest bid price for the previous 50 days; (ii) if ABH’s common stock is not traded on a trading market, it is $0.40.

 

These securities were issued in reliance upon an exemption from registration under Section 4(a)(2) and/or Regulation D of the Securities Act of 1933, as amended. All of the investors were accredited investors and/or had preexisting relationships with the Company, there was no general solicitation or advertising in connection with the offer or sale of securities and the securities were issued with a restrictive legend.

 

During the three months ended March 31, 2015, the Company issued a total of 470,916,133 shares of common stock for the conversions of $94,750 of principal of convertible notes payable. No additional consideration was given for these conversions by the note holders. The shares of common stock issued upon conversion of these notes were issued pursuant to an exemption from the registration requirements of the Securities Act provided by Section 3(a)(9) thereof as the conversions were an exchange of securities with existing holders exclusively, and no commission or other remuneration was paid or given in connection with the exchange.

 

ITEM 6 - SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

  

EXECUTIVE LEVEL OVERVIEW

  

Our Business Model

  

Phase III

  

Our plan of operation during the next 12 months is to continue the implementation of market and sales promotion programs to gain awareness of our “Phase III® Recovery drink in new markets as well as to build a national sales campaign throughout key markets in the west coast, southwest, Midwest, southeast and northeast parts of the United States. We plan to build an aggressive and experienced sales team to bring the brand to discerning consumers. In addition, we intend to increase our efforts to sell our products online and through increased social media marketing. Our management will continue to focus on the non-alcoholic single serving beverage business, developing and marketing milk based products in two fast growing segments: sports recovery and functional dairy. We do not directly manufacture our products but instead outsource the manufacturing process to a third party contract packer.

  

The pricing and gross profit margin for the products will vary. Each product delivers different functionality and utilizes different types of packaging and package sizes. Without exception, these products are expected to command premium pricing due to the functionality and value-added formulation and will therefore be priced according to the nearest competitive brands in their respective spaces. The functional milk drinks are also expected to command approximately the same percentage margin due to the premium pricing commanded by the experiential functionality. Singles should obtain higher margin than multi-packs.

 

13
 

 

World of Beer

 

As already stated, ABH and its joint venture partners of New England WOB, LLC, anticipate developing new World of Beer franchise locations throughout its protected territories in Connecticut and greater Boston, Massachusetts. It is anticipated that ABH will provide the financing for construction of these stores, and New England WOB, LLC will provide the real estate location search and development as well as manage the operations of each store. 

 

World of Beer is an organization of over 80 company owned and franchised craft taverns and growing in 20 states. Most World of Beer locations provide a selection of over 500 unique craft and imported beers, modern tavern fare spirits and craft cocktails and a complete entertainment experience including live music, sports viewing, seasonal and local celebrations and highly trained servers with in-depth beer knowledge. ABH’s first World of Beer location is located in West Hartford, Connecticut which opened in late January, 2015. The West Hartford location is a 4,000 square foot tavern and serves lunch and dinner daily and hosts live music performances on Friday and Saturday nights. New England World of Beer, LLC opened its first store in Stamford, Connecticut in 2014 as ABH has an option with a 2 years life to purchase 51% of this store as that option has not been exercised.

 

Celebrating the popularity of craft beer and its culture, ABH and New England WOB, LLC plan to develop and build other World of Beer franchises in key market areas in the state of Connecticut and in certain areas in Massachusetts with primary emphasis in the greater Boston areas. Depending on available financing and market conditions, we will seek other territories to expand in the future as well. New England World of Beer, LLC is an expert in commercial real estate development and restaurant/bar operations and management and has broad business experience as entrepreneurs, operators and developers, having managed numerous businesses and commercial real estate ventures. The planned stores will be built in areas where we believe these operations will command premium pricing and respectable profit margins.

  

ABH’s future plan of operations for the World of Beer franchises is to continue the search, development and operations of World of Beer franchises throughout the state of Connecticut and the greater Boston areas over the next few years, especially in that we have these protected territories. Its joint venture partners are commercial real estate developer specialists and based on the availability of financing, plan to aggressively to build and open as many World of Beer locations as financing will allow. The West Hartford, Connecticut store which opened in late January, 2015 has exceeded expectations and budgets and is profitable since the opening date. Future new taverns are projected to be at least 4,000 square feet and have one of the world’s widest selections of craft beers, bottled and on tap with more than 500 bottles and 50 rotating taps. The stores will serve lunch and dinner daily with dishes inspired by international flavors such as Giant Bavarian Pretzels, Guinness Brat Sliders and the Chimay Burger. The taverns will host live music performances on Friday and Saturday nights each weekend. The taverns will also provide signature craft spirit cocktails, ciders, wine along with nonalcoholic beverages. ABH is expected to continue the World of Beer theme as being uncommon establishments where the experience is as essential as the products. 

  

Plan of Operations

 

We are continuing to seek other sources of financing to develop our business plan, implement our sales and marketing plan and to meet other operational expense requirements and to find and develop new World of Beer locations. Historically, we have had to rely on convertible debt financings to cover operating costs. Based on the available cash, we have no assurance that we will be able to obtain additional funding to sustain our limited operations. If we do not obtain additional funding, we may need to cease operations until we do so and, in that event, may consider a sale of the rights to our product line(s) and intangible assets such as our trademarks or a joint venture partner that will provide funding to the enterprise. We may also need to sell our interest in the World of Beer locations if we do not continue to obtain the proper financing for our needs. However, certain of our Attitude Drinks Incorporated convertible debt obligations totaling $6,208,842 and ABH convertible debt obligations for $1,204,500 are secured by Attitude’s assets. Failure to fulfill our obligations under these notes and related agreements could lead to the loss of these assets, which would be detrimental to our operations. 

 

Our future operations are totally dependent upon obtaining additional funding. Past fundings have been subject to defaults by the company’s inability to meet due dates for certain notes payable, thereby triggering anti-dilution rights which created the need to issue additional shares of common stock and/or additional warrants to purchase additional shares of common stock in order to extend the applicable due dates for certain notes payable. There can be no assurance that these defaults will not happen again in the future, thereby creating the potential need for additional issuances of shares of common stock and/or warrants, assuming the holders agree to further extensions.

 

We will consider equity and/or convertible debt financings, either or both of a private sale or a registered public offering of our common stock; however, at this time and with the current economy, it seems unlikely that we can obtain an underwriter.

  

We anticipate that, depending on market conditions and our plan of operations, we may incur operating losses in the future based mainly on the fact that we may not be able to generate enough gross profits from our sales to cover our operating expenses and to increase our sales and marketing efforts. Our “Phase III® Recovery” drink product was introduced in early 2010 and based on historical spending, we anticipate a need of funding in the range of $1,500,000 to $1,700,000 for the next twelve months to meet our business plan and operating needs only. This figure does not include any new product research and development activities.

 

14
 

 

This discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles that are generally accepted in the United States of America.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most critical estimates included in our financial statements are the following:

 

Financial Instrument Valuation 

 

In estimating the fair value of our derivative financial instruments that are required to be carried as liabilities at fair value pursuant to the FASB Accounting Standards Codification for the period ended March 31, 2015, we use all available information and appropriate techniques including outside consultants to develop our estimates. However, actual results could differ from our estimates.

 

Derivative Financial Instruments 

 

We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have and will frequently enter into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts or (iii) may be net-cash settled by the counterparty to a financing transaction. As required by the FASB Accounting Standards Codification, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements. However, in the past, we were allowed to elect fair value measurement of the hybrid financial instruments, on a case-by-case basis, rather than bifurcate the derivative for all of our previous convertible notes up to February 21, 2013 when we issued new consolidated exchange convertible notes under different terms and language. We believed that fair value measurement of the hybrid convertible promissory notes arising from our various financing arrangements provided a more meaningful presentation of that financial instrument; however, as just previously mentioned on February 21 2013, we consolidated all the past outstanding convertible notes into new consolidated exchange notes that contained different language and eliminated many of the toxic elements listed in the old convertible notes. 

 

We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring of fair values. In selecting the appropriate technique(s), we consider, among other factors, the nature of the instrument, the market risks that such instruments embody and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes-Merton option valuation technique, since it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. For complex hybrid instruments, such as convertible promissory notes that include embedded conversion options, puts and redemption features embedded in them, we generally use techniques that embody all of the requisite assumptions (including credit risk, interest-rate risk, dilution and exercise/conversion behaviors) that are necessary to fair value these more complex instruments. For forward contracts that contingently require net-cash settlement as the principal means of settlement, we project and discount future cash flows applying probability-weightage to multiple possible outcomes. After consulting with a new outside valuation firm, we found that many companies are using other valuation models, primarily the lattice model to bifurcate the derivative and record the derivatives at fair value. We elected to use this new valuation model for the new consolidated notes because that model would value all convertible notes based on a probability weighted scenario model and future projections of the various potential outcomes on all assumptions, observable inputs and inherent valuation of risk, The embedded derivatives that were analyzed and incorporated into our model included the conversion feature with the variable market based conversion and the default provisions. This lattice model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur and the specific terms that would be in effect at the time (i.e. interest rates, stock price, conversion price, etc.). Projections were then made on these underlying factors which led to a set of potential scenarios. Probabilities were assigned to each of these scenarios based on management projections. This led to a cash flow projection and a probability associated with that cash flow. A discounted weighted average cash flow over the various scenarios was completed, and it was compared to the discounted cash flow of the 2 year 4% instrument without the embedded derivatives, thus determining a value for the compound embedded derivatives at the point of issue. These derivative liabilities need to be marked-to-market each reporting period with the change in fair value to be recorded in the profit/loss statement. Fair value is defined as the amount for which an asset (or liability) could be exchanged in a current transaction between knowledgeable, unrelated willing parties when neither party is acting under compulsion.

 

15
 

 

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility.

  

Impairment of Long-Lived Assets

  

Our long-lived assets consist principally of intangible assets, and to a much lesser extent, furniture and equipment. We evaluate the carrying value and recoverability of our long-lived assets when circumstances warrant such evaluation by applying the provisions of the FASB Accounting Standards Codification which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. We did note record any impairment expense for the years ended March 31, 2015 and March 31, 2014,

  

Recent accounting pronouncements

 

In August, 2014, the Financial Accounting Standards Board issued an ASU that contained guidance for the disclosure of uncertainties about an entity’s ability to continue as a going concern. There is no impact on the Company through the adoption of this update as the Company has always provided such required disclosures on doubt about the entity’s ability to continue as a going concern for one year.

 

In November, 2014, the Financial Accounting Standards Board issued an ASU that contained guidance about derivatives and hedging and determining whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. There are predominantly two methods used in current practice by issuers and investors in evaluating whether the nature of the host contract within a hybrid instrument issued in the form of a share is more akin to debt or to equity. This ASU is to eliminate the use of different methods in practice. As the Company utilizes the services of an outside professional specialty firm for such valuations, the Company believes there is no change needed for this update.

 

In February, 2015, the Financial Accounting Standards Board issued an ASU that contained guidance about Consolidation (Topic 810) and amendments to the consolidation analysis. These provisions provide amendments to limited partnerships and similar legal entities. As the Company owns the 51% majority of the World of Beer location in West Hartford which is an LLC corporation, the Company believes there is no change needed for this update.

 

16
 

 

RESULTS OF OPERATIONS

  

Revenues and Gross Margin               

                          
Revenues  3/31/2015   3/31/2014   $ Change    % Change 
                  
Phase III                 
  Revenues $70,905  $202,994  $(132,089)   -65.1%
  Less slotting expense     (875)  875    -100.0%
  Less returns and allowance  (15,826)  (11,535)  (4,291)   37.2%
  Less Sales Discounts  (1,201)  (8,002)  6,801    -85.0%
    Net Revenues  53,878   182,582   (128,704)   -70.5%
  Less cost of sales  154,999   164,639   (9,640)   -5.9%
    Gross profit/(loss)  (101,121)  17,943   (119,064)   -663.6%
                  
World of Beer                 
  Revenues  754,895      754,895    N/M 
  Less sales discounts  (681)     (681)   N/M 
  Less comps  (11,372)     (11,372)   N/M 
  Less promotions  (4,377)     (4,377)   N/M 
    Net revenues  738,465      738,465    N/M 
  Less costs of sales  209,908      209,908    N/M 
    Gross profit/(loss) $528,557  $  $528,557    N/M 
                  
Total Net Revenues $792,343  $182,582   609,761    334.0%
Total costs of sales  364,907   164,639   200,268    121.6%
    Total gross profit/(loss) $427,436  $17,943  $409,493    2282.2%

  

All revenues were generated in the United States. The increase in our revenues for the year ended March 31, 2015 as compared to the prior year ended March 31, 2014 is the result of opening the first World of Beer tavern in late January, 2015. Phase III revenues were lower for the year ended March 31, 2015 by 65.1% mainly due to the fact that we no longer sell our products in the Florida Walgreens’ stores.

  

Slotting fees are common in the large store channels and represent cash payments made for rights to place our products on customer retail shelves for a stipulated period of time. A component of our growth plan includes increasing penetration in the large store channel which may be subject to future slotting fees. We recorded a total of $875 for slotting fees for the year ended March 31, 2014 only. As part of opening and operating a new World of Beer location, we provided certain free complimentary drinks and services to customers in the amount of $15,749 for the reporting period from late January, 2015 through March 31, 2015.

  

Based on available capital, we, on our own or through our subsidiaries, plan to increase our revenues during the next twelve months by implementing marketing and sales promotion programs to introduce our “Phase III® Recovery” drink to new markets in the 2015 calendar year, developing a sales force, securing additional national distributors, expanding our products offering, developing and opening new World of Beer taverns, increasing our volume per outlet and implementing new grass roots marketing and sample programs.

  

The computation of the percentage of expenses to revenues is not meaningful at this time and is not representative of expected future operations.

  

Product and shipping costs for the Phase III products for the year ended March 31, 2015 were less than the year ended March 31, 2014 mainly due to the lower sales of the Phase III® Recovery products.

 

17
 

 

Operating Expenses

                          
Revenues  3/31/2015   3/31/2014   $ Change    % Change 
                  
Attitude Drink Company Inc. and Attitude Drinks Incorporated                 
  Salaries, taxes and employee benefit costs $695,336  $883,306  $(187,970)   -21.3%
  Consulting fees  322,462   312,500   9,962    3.2%
  Other administrative and general expenses  129,634   280,935   (151,301)   -53.9%
  Marketing and promotion expenses  25,555   52,659   (27,104)   -51.5%
  Professional and legal fees  17,251   196,071   (178,820)   -91.2%
  Product development costs  6,600   5,205   1,395    26.8%
  Stock compensation expense  84   26,997   (26,913)   -99.7%
  Depreciation and amortization  7,401   7,687   (286)   -3.7%
                  
    Total operating expenses  1,204,323   1,765,360   (561,037)   -31.8%
                  
Attitude Beer Holding Co.                 
  Restaurant/tavern  salaries, taxes and employee benefit costs  215,676      215,676    N/M 
  Restaurant/tavern other administrative and general expenses  221,949      221,949    N/M 
  Depreciation and amortization  29,753      29,753    N/M 
                  
    Total operating expenses  467,378      467,378    N/M 
                  
    Consolidated operating expenses $1,671,701  $1,765,360  $(93,659)   -5.3%

  

Attitude Drink Company Inc. and Attitude Drinks Incorporated:

  

Administrative salaries, taxes and employee benefit costs

For the year ended March 31, 2015, total expenses of $695,336 were lower by $187,970 (21.3%) over last year’s comparable figures of $883,306 mainly due to fewer employees caused by a lack of financing

  

Administrative consulting fees

Consulting fees of $322,462 for the year ended March 31, 2015 were $9,962 or 3.2% higher than last year’s figures. These fees relate to the use of an outside financial services consulting firm.

  

Other administrative and general expenses

For the year ended March 31, 2015, total expenses of $129,634 were $151,301 (53.9%) less than last year’s comparable figures of $280,935 mainly due to decreased activities from a lack of financing. These expenses mainly relate to rent expense for $54,951, board of directors accrued fees of $36,000, filing fees for $16,022 and telephone costs for $13,583.

  

Administrative marketing and promotion expenses

For the year ended March 31, 2015, we incurred total administrative marketing and promotion expenses of $25,555 as compared to $52,659 for the year ended March 31, 2014 for a decrease of $27,104 or (51.5%). This decrease was due primarily to the decision to spend fewer marketing dollars for the year ended March 31, 2015 due to limited resources and capital.

  

Administrative professional and legal fees

These costs related to the use of outside legal, accounting and auditing firms. Total costs for the year ended March 31, 2015 of $17,251 were $178,820 (91.2%) lower than the previous year’s comparable costs of $196,071 mainly due to lower legal requirement costs and lower audit fees accruals due to reduced financial activities.

  

Stock compensation expense

For the year ended March 31, 2015, we recorded stock compensation expense of $84 due to the issuance of warrants for Attitude Beer Holding Co. as compared to $26,997 for the issuance of 10,000,000 fully vested non-qualified common stock options for the year ended March 31, 2014.

 

18
 

 

ABH (World of Beer):

 

Restaurant/tavern salaries, taxes and employee benefit costs

As this location was opened in late January, 2015, there are no comparable costs for 2014. These costs relate to all of the payroll and tax expenses for operating the West Hartford World of Beer location.

  

Restaurant/tavern other administrative and general expenses

These costs relate to the new World of Beer franchise location in West Hartford, Connecticut that opened in late January, 2015. The key expenses relate to: rent expense for $31,850, royalties to corporate World of Beer for $36,540, management fees for $29,232, utility costs for $13,414, credit card processing fees for $14,949, disposal fees for $10,083, marketing fees for $10,962, music and entertainment costs for $9,865, personal property taxes for $9,000 and the rest for restaurant cleaning costs plus, travel expense from our joint venture partners for $8,671 for the initial setup of the location. There are no comparable costs for 2014.

  

Depreciation and amortization

For the year ended March 31, 2015, we recorded depreciation and amortization expense for $37,154 as compared to $7,687 for the year ended March 31, 2014 for a difference of $29,467. The increase is due to the new World of Beer location that opened in late January, 2015 in West Hartford, Connecticut for the depreciable fixed assets and amortized deferred pre-opening expenses.

  

Other Income (Expense)

 

Interest income/(expense)

The following table summarizes the effects on our income (expense) associated with changes in the fair values of our financial instruments that are carried at fair value from the twelve months ended March 31, 2015 and the twelve months ended March 31, 2014:

         
   Twelve  Months   Twelve  Months 
   ended   ended 
   March 31, 2015   March 31, 2015 
Our financing arrangements giving ris to derivative financial instruments and the income effects:          
           
Total interest income/(expense) arising from fair value adjustments  $185,817   $3,426,344 
Amortization of debt expense/accretion   (3,512,756)   (1,492,964)
Other interest expense   (432,444)   (397,978)
   $(3,759,383)  $1,535,402 

  

Our financial instruments that are recorded at fair value will change in future periods based upon changes in our trading market price and changes in other assumptions and market indicators used in the valuation techniques.

  

Interest and Other Financing Costs:

We recorded interest expense for the fiscal year ended March 31, 2015 for $3,759,383 and interest income for $1,535,402 for the year ended March 31, 2014 in connection with our debt obligations at interest rates from 10% to 15%. The change of ($5,294,785) over the prior fiscal year was attributed to the recording of debt instruments at fair value (debt discount expense) due to the changes in the stock price. We recorded the amortization of debt discounts for $3,512,756 and $1,492,964 for the years ended March 31, 2015 and March 31, 2014, respectively.

  

Minority Interest

For the fiscal year ended March 31, 2015, we recorded minority interest in the amount of $21,596 which represents the elimination of 49% profit of the West Hartford World of Beer location as well as 12.5% for the expense of Attitude Beer Holding Co. as these percentages represent minority ownership interests in both companies.

  

Net Loss

We reported a net loss for the year ended March 31, 2015 of ($5,030,873) and a net loss of $212,015 for the year ended March 31, 2014. The majority of the expenses for the year ended March 31, 2015 related to salary related costs, consulting fees, general and administrative fees and recognition of interest income reflecting the changes in the fair value of the convertible debts. Most of the costs incurred in the prior year ended March 31, 2014 related to salary related costs, consulting fees, professional and legal fee and recognition of interest income reflecting changes in the fair value of the convertible debts.

  

19
 

 

Loss per Common Share Applicable to Common Stockholders  

The Company’s basic and diluted loss per common share applicable to common stockholders for the period ended March 31, 2015 was $(0.01), and the basic and diluted loss per common share for the period ended March 31, 2014 was $(0.00). Because the Company experienced a net loss for the period ended March 31, 2015, all potential common share conversions existing in our financial instruments would have an anti-dilutive impact on earnings per share; therefore, diluted loss per common share equals basic loss per common share for this period. The weighted average common shares outstanding for the period ended March 31, 2015 and 2014 were 625,605,503 and 102,827,957, respectively for the basic and diluted loss calculation.

  

LIQUIDITY AND CAPITAL RESOURCES

  

We have yet to achieve any substantial revenues or profitability, and our ability to continue as a going concern will be dependent upon us receiving additional third party financings to fund our business at least throughout the next twelve months in our new fiscal year. Ultimately, our ability to continue is dependent upon the achievement of profitable operations. We anticipate that, depending on market conditions and our plan of operations, we may incur operating losses in the future based mainly based on the fact that we may not be able to generate enough gross profits from our sales to cover our operating expenses and to increase our sales and marketing efforts. There is no assurance that further funding will be available at acceptable terms, if at all, or that we will be able to achieve profitability or receive adequate funding for new product research and development activities. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not reflect any adjustments that may result from the outcome of this uncertainty.

 

Working Capital Needs and Major Cash Expenditures

 

We currently have monthly working capital needs of approximately $125,000 to $150,000. This amount is, however, expected to increase in the next fiscal year, primarily due to the following factors:

   
Increased employees, sales consultant and related travel costs
Required interest payments on our convertible promissory notes payable
Increased product development costs for new products, packaging and marketing materials

 

External Sources of Liquidity-External Debt Financing and Use of Common Stock for the last two years:

  

External Debt Financing: 

 

On April 11, 2013, we executed a $71,500 allonge #8 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $65,000 as $6,500 was paid as a finder’s fee.

 

June 5, 2013, we executed an $88,000 allonge #9 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $80,000 as $8,000 was paid as a finder’s fee.

 

On June 7, 2013, we entered into a promissory note with conversion rights with outside legal counsel (Jeffrey Stein) for past due services in the amount of $37,000. This note is not subject to any interest rate and is payable on June 7, 2014. The note maybe converted into shares of common stock after a six month holding period at a conversion price to equal the current market price multiplied by eighty percent (80%). Current market price means the average of the closing bid prices for the common stock for the five (5) trading days ending on the trading day immediately before the relevant conversion date. No conversions have been made on this convertible note payable.

 

On June 21, 2013, we executed an $88,000 allonge #10 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $80,000 as $8,000 was paid as a finder’s fee.

 

On July 23, 2013, we executed an $82,500 allonge #11 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $75,000 as $7,500 was paid as a finder’s fee.

 

On August 8, 2013, we executed an $110,000 allonge #12 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $100,000 as $10,000 was paid as a finder’s fee.

 

On September 18, 2013, we executed an $110,000 allonge #13 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $100,000 as $10,000 was paid as a finder’s fee.

 

On October 28, 2013, we executed a $55,000 allonge #14 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $50,000 as $5,000 was paid as a finder’s fee.

 

On November 15, 2013, we executed a $55,000 allonge #15 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $50,000 as $5,000 was paid as a finder’s fee.

 

20
 

 

From December 19, 2013 through December 24, 2013, we entered into four non-convertible promissory notes with the following accredited investors: Centaurian Fund - $12,500; Alpha Capital - $15,005; Tarpon Bay Partners - $5,000; and Whalehaven Capital - $13,000. These amounts were due December 31, 2014 and are not subject to any interest rates. These notes are exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holders surrendering the same. No service charge will be made for such registration or transfer or exchange. The notes are in default.

 

On February 11, 2014, we executed a $55,000 allonge #16 with Alpha Capital Anstalt to a secured convertible note for $175,000 dated February 22, 2012 in which we received $50,000 as $5,000 was paid as a finder’s fee.

 

On March 24, 2014, we entered into three non-convertible promissory notes with the following accredited investors: Centaurian Fund - $15,000; Southridge Partners II LP - $20,000; and Whalehaven Capital - $15,000. These amounts were due February 28, 2015 and are not subject to any interest rates. These notes are exchangeable for equal aggregate amounts of notes of different authorized denominations, as requested by the holders surrendering the same. No service charge will be made for such registration or transfer or exchange. The notes are in default.

 

On April 30, 2014, we issued a promissory note to Southridge Partners II LP pursuant to which we received $12,000.

 

On May 2, 2014, we executed a $27,600 allonge #17 with Alpha Capital Anstalt to an original secured convertible note for $175,000 dated February 22, 2012 in which we received $25,000 as $2,500 was paid as a finder’s fee.

 

On May 13, 2014, we issued a convertible promissory note to LG Capital Funding, LLC in we received $35,200.

 

On June 11, 2014, we issued four promissory notes ($10,000 for each note) for a total receipt of $40,000 to Southridge Partners II LP, Alpha Capital Anstalt, Centaurian Fund LP and Whalehaven Capital Fund Ltd.

 

On July 11, 2014, we executed a $25,000 allonge #18 with Alpha Capital Anstalt to an original secured convertible note for $175,000 dated February 22, 2012 in which we received $25,000.

 

On July 31, 2014, we issued a promissory note with no interest to Southridge Partners II LP in which we received $15,000.

 

On August 21, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $10,000.

 

On August 29, 2014, we issued a promissory note with no interest to Tarpon Bay Partners LLC in which we received $10,000.

 

On September 17, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $10,000.

 

On September 30, 2014, we issued a promissory note with no interest to Southridge Partners II LP in which we received $15,000.

 

On September 30, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $15,000.

 

On November 19, 2014, we issued a promissory note with no interest to Alpha Capital Anstalt in which we received $10,000.

 

On December 19, 2014, we issued a promissory note with no interest to Centaurian Fund in which we received $31,500.

 

On December 24, 2014, ABH issued two promissory notes, one for $246,188 to Alpha Capital Anstalt and the other for $91,063 to Tarpon Bay Partners LLC, for a total of $337,250. Both notes have an interest rate of 10% and a maturity date of December 24, 2015.

 

On January 14, 2015, we issued a convertible note to Southridge Partners II LP pursuant to which we received $13,500. The note is subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02.

 

On January 14, 2015, we issued a convertible note to Alpha Capital Anstalt pursuant to which we received $13,500. The note is subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02. .

 

On January 14, 2015, wee issued a convertible note to Whalehaven Capital Fund Ltd. pursuant to which we received $31,500. The note is subject to an interest rate of ten percent (10%) and has a maturity date of January 14 2017. The note is subject conversion terms of 75% of the average of the three lowest closing bid prices for the Common Stock for the ten trading days preceding a conversion date but in no event greater than $.02.

 

 21 

 

 

All of the proceeds from the above new financings were used for working capital purposes.

 

Attitude Beer Holding Co.

 

From December 24, 2014 through March 24, 2015, Attitude Beer Holding Co. issued four installment convertible notes payable each to Alpha Capital Anstalt and Tarpon Bay Partners LLC that were used for the purchase and financing of the West Hartford World of Beer tavern:

 

DATE OF     ALPHA     TARPON                 %  
NOTE     CAPITAL     BAY     TOTAL     MATURITY     INTEREST  
ISSUANCE     ANSTALDT     PARTNERS LLC     NOTES     DATE     RATE  
                                 
12/24/2014   $ 246,187   $ 91,063           12/24/2015     10 %
1/23/2015     225,000     75,000           12/24/2015     10 %
2/24/2015     225,000     75,000           12/24/2015     10 %
3/24/2015     200,437     66,813           12/24/2015     10 %
                                 
TOTAL   $ 896,624   $ 307,876   $ 1,204,500              

 

All of the above funds were used for building and opening the West Hartford World of Beer. The conversion terms are either (i) if ABH’s common stock is traded on a trading market, the conversion price is 50% of the lowest bid price for the previous 50 days; (ii) if ABH’s common stock is not traded on a trading market, the conversion price is $0.40.

 

Information about our cash flows

 

   For The Year Ended 
   March 31,   March 31, 
   2015   2014 
Cash provided by (used in):          
           
Operating activities  $1,076,364   $(732,940)
           
Investing activities  $(1,256,355)  $(4,365)
           
Financing activities  $392,967   $750,505 

 

For the year ended March 31, 2015, we reported a net loss of $5,030,873 which was affected by recording the fair value adjustment of the convertible notes for $185,817, offset by the amortization of debt discount for $3,512,756 as well as changes in accounts payable and accrued expenses for $2,489,463. Cash flows generated from our operating activities were inadequate to cover our cash disbursement needs as we had to rely on new convertible debt financings and bridge loans to cover operating costs. Cash used by investing activities were attributed mainly to the purchase of equipment and operating expenses related to the opening of the World of Beer restaurant and tavern. Cash provided by financing activities increased due to the proceeds from the issuance of additional convertible debt financings and short-term bridge loans payable for net proceeds of $392,967.

 

For the year ended March 31, 2014, we reported a net loss of $212,015 which was affected by recording the fair value adjustment of the convertible notes for $3,359,968, offset by the amortization of debt discount for $990,842 as well as changes in accounts payable and accrued expenses for $1,426,981. Cash flows generated from our operating activities were inadequate to cover our cash disbursement needs as we had to rely on new convertible debt financings and bridge loans to cover operating costs. Cash used by investing activities were attributed mainly to the purchase of a company vehicle. Cash provided by financing activities increased due to the proceeds from the issuance of additional convertible debt financings and short-term bridge loans payable for net proceeds of $750,505.

 

 22 

 

 

Defaults for Short-Term Non-Convertible Loans for the Year Ended March 31, 2015:

 

At March 31, 2015, two short-term bridge notes for a total of $115,000 were past due. One of these notes is held by one of our Board of Directors and will extend the due date once we locate the other debt holder.

 

Debt restructuring program after 3/31/15 reporting date

 

Our subsequent events section reflects reductions of our liabilities of $10,052.591. The restructuring relates to a reduction of overall notes and loans payables of $5,079,480, total salaries payable of $3,546,669, accrued interest payable for $1,288,483 and accounts payable of $137,959. Total gains to our statement of operations from this restructuring program will be $5,834,709. These results will be reflected in the Form 10-Q for June 30, 2015 and September 30, 2015.

 

 23 

 

 

RECAP ANALYSIS OF ALL CONVERTIBLE NOTES PAYABLE
AND SHORT-TERM BRIDGE NON-CONVERTIBLE LOANS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2015

 

The following table sets forth various details of all convertible notes and short-term bridge loans including applicable interest and default rates for the period ended March 31, 2015:

 

Outstanding                   (c)         Default     Accrued    
Convertible     Issue       Default     $ Amount   Interest     Interest     Default    
Note Amounts     Date   Due Date   Yes/No   Past Due   Rate     Rate     Interest    
                                           
$ 5,452,892   (a) February, 2013   2/21/2015   Yes (b)     5,452,892   4 %   20 %      
$ 5,250     March, 2013   12/31/2014   Yes (b)     5,250   None     None        
$ 25,000     April, 2013   12/31/2014   Yes (b)     25,000   None     None        
$ 25,000     May, 2013   12/31/2014   Yes (b)     25,000   None     None        
$ 25,000     June, 2013   12/31/2014   Yes (b)     25,000   None     None        
$ 37,000     June, 2013   6/7/2014   Yes (b)     37,000   None     None        
$ 25,000     July, 2013   12/31/2014   Yes (b)     25,000   None     None        
$ 25,000     August, 2013   12/31/2014   Yes (b)     25,000   None     None        
$ 25,000     September, 2013   1/31/2015   Yes (b)     25,000   None     None        
$ 25,000     October, 2013   2/28/2015   Yes (b)     25,000   None     None        
$ 25,000     November, 2013   3/31/2015   Yes (b)     25,000   None     None        
$ 25,000     December, 2013   4/30/2015   No       None     None        
$ 25,000     January, 2014   5/31/2015   No       None     None        
$ 25,000     February, 2014   6/30/2015   No       None     None        
$ 25,000     March, 2014   7/31/2015   No       None     None        
$ 25,000     April, 2014   8/31/2015   No       None     None        
$ 25,000     May, 2014   9/30/2015   No       None     None        
$ 35,200     May, 2014   5/13/2015   No       4 %   20 %      
$ 25,000     June, 2014   10/31/2015   No       None     None        
$ 25,000     July, 2014   11/30/2015   No       None     None        
$ 25,000     August, 2014   12/31/2015   No       None     None        
$ 25,000     September, 2014   1/31/2016   No       None     None        
$ 25,000     October, 2014   2/28/2016   No       None     None        
$ 25,000     November, 2014   3/31/2016   No       None     None        
$ 25,000     December, 2014   4/30/2016   No       None     None        
$ 20,000     December, 2014   12/22/2016   No       10 %   20 %      
$ 246,187     December, 2014   12/24/2015   No       10 %   15 %      
$ 91,063     December, 2014   12/24/2015   No       10 %   15 %      
$ 25,000     January, 2015   5/31/2016   No       None     None        
$ 13,500     January, 2015   1/14/2017   No       10 %   20 %      
$ 13,500     January, 2015   1/14/2017   No       10 %   20 %      
$ 31,500     January, 2015   1/14/2017   No       10 %   20 %      
$ 225,000     January, 2015   12/24/2015   No       10 %   15 %      
$ 75,000     January, 2015   12/24/2015   No       10 %   15 %      
$ 25,000     February, 2015   6/30/2016   No       None     None        
$ 225,000     February, 2015   12/24/2015   No       10 %   15 %      
$ 75,000     February, 2015   12/24/2015   No       10 %   15 %      
$ 25,000     March, 2015   7/31/2016   No       None     None        
$ 200,437     March, 2015   12/24/2015   No       10 %   15 %      
$ 66,813     March, 2015   12/24/2015   No       10 %   15 %      
                                           
$ 7,413,342                 $ 5,695,142                    
                                           
(a) Total amount includes total consolidated notes plus additional issued allonges.  
(b) The Company is implementing a restructuring program and is working with the debt holders to extend the maturity dates.
No presentation of defaults to the Company from the debt holders has occurred, thus no recording of default interest rates.
 
(c) Notes indicated in default are in default only because they are past due.  
     
SHORT—TERM BRIDGE LOANS (d)  
   
$ 60,000     April 14, 2008   Past due   Yes   $ 60,000         15%   $ 52,857    
$ 55,000     August 5, 2008   Past due   Yes   $ 55,000         15%   $ 65,096    
$ 115,000     Total amount past due           $ 115,000             $ 117,953    

 

(d)Notes indicated in default are in default because they are past due. One of the debt holders is a Board Director and will extend the maturity date as soon as we can locate the other debt holder.

 

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During August, 2015, approximately $3.3 million of the above debt that was in default was exchanged for Series C Convertible Preferred Stock.

 

CERTAIN BUSINESS RISKS:

 

Investing in our securities involves a high degree of risk. You should carefully consider the risk factors discussed below, together with all the other information contained or incorporated by reference in this report and in our filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act, before deciding whether to purchase any of our securities. Each of the risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our securities, and the occurrence of any of these risks might cause you to lose all or part of your investment.

 

Risks Relating to Our Business

 

We have a history of operating losses. If we continue to incur operating losses, we eventually may have insufficient working capital to maintain or expand operations according to our business plan.

 

As of March 31, 2015, we had a total shareholders’ deficit of $16,942,378 and a working capital deficit of $17,997,151, compared to a total shareholders’ deficit of $12,335,519 and a working capital deficit of $12,266,740 at March 31, 2014. Cash and cash equivalents were $233,591 as of March 31, 2015 as compared to $20,615 at March 31, 2014. The main contributing factor to the working capital deficit was primarily attributable to the changes in the fair value calculations for the valuation of our convertible notes payable as well as changes in the derivative liabilities.

 

Our auditors have expressed doubt as to our ability to continue as a going concern.

 

Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.. Our auditor’s report reflects substantial doubt about our ability to continue as a going concern. For the foreseeable future, we will have to fund all of our operations and capital expenditures from the net proceeds of equity or debt offerings we may have and cash on hand.  Although we plan to pursue additional financing, there can be no assurance that we will be able to secure financing when needed or obtain such financing on terms satisfactory to us, if at all, or that any additional funding we do obtain will be sufficient to meet our needs in the long term. Obtaining additional financing may be more difficult because of the uncertainty regarding our ability to continue as a going concern.  If we are unable to secure additional financing in the future on acceptable terms, or at all, we may be unable to complete planned development of certain products.

 

To date, we have generated no material product revenues. Our operating losses have negatively impacted our liquidity, and we are continuing our efforts to develop new products, while focusing on increasing net sales. However, changes may occur that would consume our existing capital at a faster rate than projected, including, among others, the progress of our research and development efforts and hiring of additional key employees. If we continue to suffer losses from operations, our working capital may be insufficient to support our ability to expand our business operations as rapidly as we would deem necessary at any time, unless we are able to obtain additional financing. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to pursue our business objectives and would be required to reduce our level of operations, including reducing infrastructure, promotions, personnel and other operating expenses. These events could adversely affect our business, results of operations and financial condition. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund the growth of our operations, take advantage of opportunities, develop products or services or otherwise respond to competitive pressures, could be curtailed or significantly limited. Any additional sources of financing will likely involve the sale of our equity securities, which will have a dilutive effect on our stockholders. If we are unable to achieve profitability, the market value of our common stock will decline, and there would be a material adverse effect on our financial condition.

 

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At March 31, 2015, we were in default on certain of our short-term bridge loans and convertible note payables.

 

At March 31, 2015, we were in default on short term bridge notes totaling $115,000 in principal. One of the two note holders is on our Board of Directors and will extend the due date once we locate the other note holder which we have been doing for some time. The remedy for default under the notes is acceleration of principal and interest due thereunder. In addition, we were in default on certain convertible note payables in the total amount of $5,695,142. Further, we have other secured convertible notes outstanding totaling $1,718,200 in principal face value at March 31, 2015. We are implementing a restructuring program and working with our investors to extend these maturity dates. There is no assurance that we will be able to continue to extend these obligations. Penalties for default under our convertible notes include but are not limited to acceleration of principal and interest and default interest rates from 15% up to 20%.

 

Defaults on these obligations could materially adversely affect our business operating results and financial condition to such extent that we may be forced to restructure, file for bankruptcy, sell assets or cease operation. Further, certain of these obligations are secured by our assets. Failure to fulfill our obligations under these notes and related agreements could lead to the loss of these assets, which would be detrimental to our operations. Our main assets relate to ABH’s assets in the World of Beer location in West Hartford, Connecticut. If we lose those assets, we would have a very difficult time conducting our business..

 

We may not be able to develop successful new beverage products which are important to our growth.

 

An important part of our strategy is to increase our sales through the development of new beverage products. We cannot assure you that we will be able to continue to develop, market and distribute future beverage products that will have market acceptance. The failure to continue to develop new beverage products that gain market acceptance could have an adverse impact on our growth and materially adversely affect our financial condition. Further, we may have higher obsolescent product expense if new products fail to perform as expected due to the need to write off excess inventory of the new products.

 

Our results of operations may be impacted in various ways by the introduction of new products, even if they are successful, including the following:

 

  sales of new products could adversely impact sales of existing products;
     
  we may incur higher cost of goods sold and selling, general and administrative expenses in the periods when we introduce new products due to increased costs associated with the introduction and marketing of new products, most of which are expensed as incurred; and
     
  when we introduce new platforms and bottle sizes, we may experience increased freight and logistics costs as our co-packers adjust their facilities for the new products.

 

The beverage business is highly competitive.

 

The premium and functional beverage drink industries are highly competitive. Many of our competitors have substantially greater financial, marketing, personnel and other resources than we do. Competitors in these industries include bottlers and distributors of nationally advertised and marketed products, as well as chain store and private label drinks. The principal methods of competition include brand recognition, price and price promotion, retail space management, service to the retail trade, new product introductions, packaging changes, distribution methods and advertising. We also compete for distributors, shelf space and customers primarily with other premium beverage companies. As additional competitors enter the field, our market share may fail to increase or may decrease.

 

The growth of our revenues is dependent on acceptance of our products by mainstream consumers.

 

We have limited resources to introduce our products to the mainstream consumer. As such, we will need to increase our sales force and execute agreements with distributors who, in turn, distribute to mainstream consumers at grocery stores, club stores and other retailers. If our products are not accepted by the mainstream consumer, our business could suffer.

 

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Our failure to accurately estimate demand for our products could adversely affect our business and financial results.

 

We may not correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials including, but not limited to, containers, labels, flavors or packing arrangements, we might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain ingredients have been and could, from time to time in the future, be experienced, which could interfere with and/or delay production of certain of our products and could have a material adverse effect on our business and financial results. We do not use hedging agreements or alternative instruments to manage this risk.

 

The loss of our third-party distributors could impair our operations and substantially reduce our financial results.

 

We continually seek to expand distribution of our products by entering into distribution arrangements with regional bottlers or other direct store delivery distributors having established sales, marketing and distribution organizations. Many distributors are affiliated with and manufacture and/or distribute other beverage products. In many cases, such products compete directly with our products.

 

The marketing efforts of our distributors are important for our success. If our brands prove to be less attractive to our existing distributors and/or if we fail to attract additional distributors and/or our distributors do not market and promote our products above the products of our competitors, our business, financial condition and results of operations could be adversely affected.

 

Inability to secure co-packers for our products could impair our operations and substantially reduce our financial results.

 

We rely on third parties, called co-packers in our industry, to produce our products.  We currently have only one co-packing agreement for our products and at this time have only one milk-based product commercially available (Phase III® Recovery). Our co-packing agreement with our principal co-packer was signed on December 16, 2008 and had an initial term of three (3) years which has now expired. This agreement is automatically renewed for consecutive one (1) year periods (next renewal date of December 16, 2015) unless either party provides notice of cancellation at least one hundred twenty (120) calendar days prior to the end of the initial term or subsequent extension period. Our dependence on one co-packer puts us at substantial risk in our operations. If we lose this relationship and/or require new co-packing relationships for other products, we may be unable to establish such relationships on favorable terms, if at all. Further, co-packing arrangements with potential new companies may be on a short term basis, and such co-packers may discontinue their relationship with us on short notice.  Our dependence on co-packing arrangements exposes us to various risks, including:

 

  if any of those co-packers were to terminate our co-packing arrangement or have difficulties in producing beverages for us, our ability to produce our beverages would be adversely affected until we were able to make alternative arrangements; and
     
  our business reputation would be adversely affected if any of the co-packers were to produce inferior quality products.

 

We compete in an industry that is brand-conscious so brand name recognition and acceptance of our products are critical to our success.

 

Our business is substantially dependent upon awareness and market acceptance of our products and brands by our targeted consumers. In addition, our business depends on acceptance by our independent distributors of our brands as beverage brands that have the potential to provide incremental sales growth rather than reduce distributors’ existing beverage sales. We believe that the success of our product name brands will also be substantially dependent upon acceptance of our product name brands. Accordingly, any failure of our brands to maintain or increase acceptance or market penetration would likely have a material adverse affect on our revenues and financial results.

 

We compete in an industry characterized by rapid changes in consumer preferences and public perception so our ability to continue to market our existing products and develop new products to satisfy our consumers’ changing preferences will determine our long-term success.

 

Consumers are seeking greater variety in their beverages. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of quality and health, although there can be no assurance of our ability to do so. There is no assurance that consumers will continue to purchase our products in the future. Additionally, many of our products are considered premium products and to maintain market share during recessionary periods, we may have to reduce profit margins, which would adversely affect our results of operations. Product lifecycles for some beverage brands and/or products and/or packages may be limited to a few years before consumers’ preferences change. The beverages we currently market are in their early lifecycles, and there can be no assurance that such beverages will become or remain profitable for us. The beverage industry is subject to changing consumer preferences, and shifts in consumer preferences may adversely affect us if we misjudge such preferences. We may be unable to achieve volume growth through product and packaging initiatives. We also may be unable to penetrate new markets. If our revenues decline, our business, financial condition and results of operations will be materially and adversely affected.

 

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Our quarterly operating results may fluctuate significantly because of the seasonality of our business.

 

As our products are relatively new, there may be seasonality issues that could cause our financial performance to fluctuate. In addition, beverage sales can be adversely affected by sustained periods of bad weather.

 

Our business is subject to many regulations, and noncompliance is costly.

 

The production, marketing and sale of our unique beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be stopped, thus adversely affecting our financial conditions and operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we have no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.

 

We face risks associated with product liability claims and product recalls.

 

Other companies in the beverage industry have experienced product liability litigation and product recalls arising primarily from defectively manufactured products or packaging. Our co-packer maintains product liability insurance insuring our operations from any claims associated with product liability. This insurance may or may not be sufficient to protect us. We do not maintain product recall insurance. In the event we were to experience additional product liability or product recall claim, our business operations and financial condition could be materially and adversely affected.

 

We have identified material weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.

 

If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price. Our most recent evaluation of our internal controls resulted in our conclusion that our disclosure controls and procedures and that our internal controls over financial reporting were not effective. Effective internal controls are necessary for us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. In our case, our failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could in turn have a material adverse effect on our stock price.

 

Our intellectual property rights are critical to our success; the loss of such rights could materially, adversely affect our business.

 

We regard the protection of our trademarks, trade dress and trade secrets as critical to our future success. We have registered our trademarks in the United States that are very important to our business. We also own the copyright in and to portions of the content on the packaging of our products. We regard our trademarks, copyrights and similar intellectual property as critical to our success and attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to prevent infringement. Product packages, mechanical designs and artwork are important to our success, and we would take action to protect against imitation of our packaging and trade dress and to protect our trademarks and copyrights, as necessary. We also rely on a combination of laws and contractual restrictions, such as confidentiality agreements, to establish and protect our proprietary rights, trade dress and trade secrets. However, laws and contractual restrictions may not be sufficient to protect the exclusivity of our intellectual property rights, trade dress or trade secrets. Furthermore, enforcing our rights to our intellectual property could involve the expenditure of significant management and financial resources. There can be no assurance that other third parties will not infringe or misappropriate our trademarks and similar proprietary rights. If we lose some or all of our intellectual property rights, our business may be materially and adversely affected.

 

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If we are not able to retain the full time services of our management team, including Roy G. Warren, it will be more difficult for us to manage our operations and our operating performance could suffer.

 

Our business is dependent, to a large extent, upon the services of our management team, including Roy G. Warren, our founder and Chief Executive Officer and Chairman of the Board. We depend on our management team, but especially on Mr. Warren’s creativity and leadership in running or supervising virtually all aspects of our day-to-day operations. We do not have a written employment agreement with any member of our management team or Mr. Warren. In addition, we do not maintain key person life insurance on any of our management team or Mr. Warren. Therefore, in the event of the loss or unavailability of any member of the management team to us, there can be no assurance that we would be able to locate in a timely manner or employ qualified personnel to replace him. The loss of the services of any member of our management team or our failure to attract and retain other key personnel over time would jeopardize our ability to execute our business plan and could have a material adverse effect on our business, results of operations and financial condition.

 

We need to manage our growth and implement and maintain procedures and controls during a time of rapid expansion in our business.

 

If we are to expand our operations, such expansion would place a significant strain on our management, operational and financial resources.  Such expansion would also require improvements in our operational, accounting and information systems, procedures and controls.  If we fail to manage this anticipated expansion properly, it could divert our limited management, cash, personnel, and other resources from other responsibilities and could adversely affect our financial performance.

 

Our business may be negatively impacted by a slowing economy or by unfavorable economic conditions or developments in the United States and/or in other countries in which we may operate.

 

A general slowdown in the economy in the United States or unfavorable economic conditions or other developments may result in decreased consumer demand, business disruption, supply constraints, foreign currency devaluation, inflation or deflation. A slowdown in the economy or unstable economic conditions in the United States or in the countries in which we operate could have an adverse impact on our business results or financial condition. Currently we do not have any international operations.

 

The beneficial ownership of a significant percentage of our common stock gives Roy Warren and members of his family effective control of us and limits the influence of other shareholders on important policy and management issues.

 

Roy Warren, our Chief Executive Officer and Chairman of our Board, through his control of 51% of our voting stock, has control over our company and important matters relating to us. As a result he can control the outcome of all matters submitted to our shareholders for approval, including the election of our directors, our business strategy, our day-to-day operations and any proposed merger, consolidation or sale of all or substantially all of our assets. This control of our company could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, preventing a change in control of our company that might be otherwise beneficial to our shareholders, and possibly depressing the trading price of our common stock. There can be no assurance that conflicts of interest will not arise with respect to Roy Warren’s ownership and control of our company or that any conflicts will be resolved in a manner favorable to the other shareholders of our company.

 

Certain provisions of the General Corporation Law of the State of Delaware, our Amended and Restated Certificate of Incorporation, as amended, and our bylaws may have anti-takeover effects which may make an acquisition of our company by another company more difficult.

 

We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The operation of Section 203 may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.

 

Our Amended and Restated Certificate of Incorporation and bylaws contain provisions that permit us to issue, without any further vote or action by the stockholders, up to 20,000,000 shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series, and the preferences and relative, participating, optional and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of such series.

 

These provisions on our Amended and Restated Certificate of Incorporation may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.

 

Certain of our officers may have a conflict of interest and lack of availability.

 

Some of our officers, including our Chief Executive Officer and our Chief Financial Officer, are currently working for the Company on a part-time basis and are the Chief Executive Officer and Chief Financial Officer of Harrison Vickers and Waterman Inc. These officers have discretion to decide what time they devote to our activities, which may result in a lack of availability when needed due to responsibilities at other jobs. 

 

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We do not have an audit committee.

 

While not being legally obligated to have an audit committee or independent audit committee financial expert, we currently do not have an audit committee or independent audit committee financial expert which is an important entity-level control over the Company’s financial statements.

 

Risks Related to the World of Beer operations

 

If ABH is unable to identify and obtain suitable new franchises sites and successfully open new franchises, our revenue will suffer and profits may be reduced.

 

ABH requires that all proposed franchise sites meet certain site selection criteria. ABH may make errors in selecting these criteria or applying these criteria to a particular site, or there may be an insignificant number of new sites meeting these criteria that would enable us to achieve our planned expansion in future periods. ABH faces significant competition from other restaurant companies and retailers for sites that meet its criteria, and the supply of sites may be limited in some markets. Further, ABH may be precluded from acquiring an otherwise suitable site due to an exclusivity restriction held by another tenant. As a result of these factors, costs to obtain and lease sites may increase, or ABH may not be able to obtain certain sites due to unacceptable costs. ABH’s inability to obtain suitable sites at reasonable costs may reduce our income growth.

 

To successfully expand its business, ABH must open new World of Beer restaurants on schedule and in a profitable manner. In the past, World of Beer franchisees have experienced delays in restaurant openings, and may experience similar delays in the future. Delays in opening new sites could hurt ABH’s ability to meet its growth objectives, which may affect our results of operations and thus our stock price. We cannot guarantee that ABH or any future franchisees will be able to achieve its expansion goals. Further, any sites that it opens may not achieve operating results similar or better than the existing restaurant. If ABH is unable to generate positive cash flow from a new site, it may be required to recognize an impairment loss with respect to the assets for that restaurant. ABH’s ability to expand successfully will depend on a number of factors, many of which are beyond its control. These factors include:

 

·Negotiating acceptable lease or purchase terms for new sites;
·Cost effective and timely planning, design and build-out of sites;
·Creating Guest awareness of our restaurants and taverns in new markets;
·Competition in new and existing markets;
·General economic conditions.

 

The restaurants and taverns may not achieve market acceptance in the new regions ABH enters.

 

ABH’s expansion plans depend on opening restaurants and taverns in markets starting with New England where it has little or no operating experience. ABH may not be successful in operating in locations in new markets on a profitable basis. The success of these new locations will be affected by the different competitive conditions, consumer tastes and discretionary spending patterns of the new markets as well as ABH’s ability to generate market awareness of its brands. Sales at locations opening in new markets may take longer to reach profitable levels, if at all.

 

New restaurants added to existing markets may take sales from existing restaurants.

 

ABH intends to open new restaurants and taverns in its existing market, which may reduce sales performance and guest visits for existing location. In addition, new locations added in existing markets may not achieve sales and operating performance at the same level as established restaurants in the market.

 

A security failure in ABH’s information technology systems could expose us to potential liability and loss of revenues.

 

ABH accepts credit and debit card payments at our restaurant. A number of retailers have recently experienced actual or potential security breaches in which credit and debit card information may have been stolen, including a number of highly publicized incidents with well-known retailers. The intentional, inadvertent or negligent release or disclosure of data by ABH or its service providers could result in theft, loss, fraudulent or unlawful use of customer data which could harm its and our reputation and result in remedial and other costs, fines or lawsuits.

 

Shortages or interruptions in the availability and delivery of food and other supplies may increase costs or reduce revenues.

 

Possible shortages or interruptions in the supply of food items and other supplies to a location(s) caused by inclement weather, terrorist attacks, natural disasters such as floods, drought and hurricanes, pandemics, the inability of vendors to obtain credit in a tightened credit market, food safety warnings or advisories or the prospect of such pronouncements, or other conditions beyond ABH’s control could adversely affect the availability, quality and cost of items it buys and the operations of its restaurants. ABH’s inability to effectively manage supply chain risk could increase costs and limit the availability of products critical to the restaurant operations.

 

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There are general risks associated with the restaurant and bar/tavern industry.

 

Restaurants are a very cyclical business. Specific factors that impact economic recessions can negatively influence discretionary consumer spending in restaurants and bars and result in lower customer counts as consumers become more price conscientious, tending to conserve their cash amid unemployment and other economic uncertainty. The effects of higher gasoline prices can also negatively affect discretionary consumer spending in restaurants and bars. Increasing costs for energy can affect profit margins in many other ways. Petroleum based material is often used to package certain products for distribution. In addition, suppliers may add fuel surcharges to their invoices. The cost to transport products from the distributors to restaurant operations will rise with each increase in fuel prices. Higher costs for electricity and natural gas result in higher costs to a) heat and cool restaurant facilities, b) refrigerate and cook food and c) manufacture and store food at ABH’s locations.

 

Inflationary pressure, particularly on food costs, labor costs (especially associated with increases in the minimum wage) and health care benefits, can negatively affect the operation of the business. Shortages of qualified labor are sometimes experienced in certain local economies. In addition, the loss of any key executives could pose a significant adverse effect on ABH and us.

 

If consumer confidence in the business deteriorates, our business, financial condition and results of operations could be adversely affected.

 

The restaurants are built on consumers’ confidence in the World of Beer brand. As a consumer business, the strength of the brand and reputation are of paramount importance to ABH and us. A number of factors could adversely affect consumer confidence in the brand, many of which are beyond ABH’s control and could have an adverse impact on its and our results of operations. These factors include:

 

    any regulatory action or investigation against it or us;
       
    any negative publicity about a restaurant in the World Of Beer franchise; and
       
   

any negative publicity about our restaurants. 

       

In addition, ABH is largely dependent on the other World of Beer franchisees to maintain the reputation of its brand. Despite the measures that it puts in place to ensure their compliance with its performance standards, ABH’s lack of control over its operations may result in the low quality of service being attributed to the brand, negatively affecting its and our overall reputation. Any event that hurts its or our brand and reputation among consumers as a reliable services provider could have a material adverse effect on its and our business, financial condition and results of operations.

 

ABH faces substantial competition in our target markets

 

The restaurant industry is highly competitive, and many of the competitors are substantially larger and possess greater financial resources than ABH and us. Our restaurant(s) have numerous competitors, including national chains, regional and local chains, as well as independent operators. None of these competitors, in the opinion of our management, is dominant in the family-style sector of the restaurant industry. In addition, competition continues to increase from non-traditional competitors such as supermarkets that not only offer home meal replacement but also have in-store dining space trends that continue to grow in popularity.

 

The principal methods of competition in the restaurant industry are brand name recognition and advertising; menu selection and prices; food quality and customer perceptions of value, speed and quality of service; cleanliness and fresh, attractive facilities in convenient locations. In addition to competition for customers, sharp competition exists for qualified restaurant managers, hourly restaurant workers and quality sites on which to build new locations.

 

The restaurant and bar industry is very competitive, and ABH faces competition from large national chains as well as individually owned restaurants. Large chains such as Buffalo Wild Wings have a similar open style that appeals to sports fan and family demographics. There are additional restaurants that feature custom beers. Many of these competitors have substantially more resources than ABH and us which allow them to have economies of scale allowing them price points which compare favorably to ABH’s price points. They also have the ability to market their restaurants given their sheer size which ABH does not possess. All of these factors may make it difficult for ABH and us to succeed.

 

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Unfavorable publicity could harm ABH’s and our business.

 

Multi-unit restaurant businesses such as ABH’s business can be adversely affected by publicity resulting from complaints or litigation or general publicity regarding poor food quality, food-borne illness, personal injury, food tampering, adverse health effects of consumption of various food products or high-calorie foods (including obesity), or other concerns. Negative publicity from traditional media or on-line social network postings may also result from actual or alleged incidents or events taking place in ABH’s restaurants. Regardless of whether the allegations or complaints are valid, unfavorable publicity relating to a number of our restaurants, or only to a single restaurant, could adversely affect public perception of the entire brand. Adverse publicity and its effect on overall consumer perceptions of food safety, or ABH’s failure to respond effectively to adverse publicity, could have a material adverse effect on its and our business.

 

Changes in employment laws or regulation could harm ABH’s performance.

 

Various federal and state labor laws govern ABH’s relationship with its employees and affect operating costs. These laws include minimum wage requirements, overtime pay, healthcare reform and the implementation of the Patient Protection and Affordable Care Act, unemployment tax rates, workers’ compensation rates, citizenship requirements, union membership and sales taxes. A number of factors could adversely affect ABH’s operating results, including additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, mandated training for employees, increased tax reporting and tax payment requirements for employees who receive tips, a reduction in the number of states that allow tips to be credited toward minimum wage requirements, changing regulations from the National Labor Relations Board and increased employee litigation including claims relating to the Fair Labor Standards Act.

 

The Americans with Disabilities Act is a federal law that prohibits discrimination on the basis of disability in public accommodations and employment. Although ABH’s restaurants are designed to be accessible to the disabled, ABH could be required to make modifications to its restaurants to provide service to, or make reasonable accommodations for disabled persons.

 

Economic conditions could have a material adverse impact on ABH’s landlords or other tenants in retail centers in which it or its franchisees are located, which in turn could negatively affect its financial results.

 

ABH’s landlords may be unable to obtain financing or remain in good standing under their existing financing arrangements, resulting in failures to pay required construction contributions or satisfy other lease covenants to ABH. In addition other tenants at retail centers in which ABH or its franchisees are located or have executed leases may fail to open or may cease operations. If any landlords fail to satisfy required co-tenancies, such failures may result in ABH or its franchisees terminating leases or delaying openings in these locations. Also, decreases in total tenant occupancy in retail centers in which ABH are located may affect guest traffic at its restaurants. All of these factors could have a material adverse impact on its and our operations.

 

ABH may experience higher-than-anticipated costs associated with the opening of new locations or with the closing, relocating and remodeling of existing restaurants, which may adversely affect its and our results of operations.

 

ABH’s and our revenues and expenses can be impacted significantly by the location, number and timing of the opening of new restaurants and the closing, relocating, and remodeling of existing restaurants. ABH incurs substantial pre-opening expenses each time it opens a new restaurant and incurs other expenses when it closes, relocates or remodels existing restaurants. These expenses are generally higher when it opens restaurants in new markets, but the costs of opening, closing, relocating or remodeling any of our restaurants may be higher than anticipated. An increase in such expenses could have an adverse effect on ABH’s and our results of operations.

 

ABH’s and our success depends substantially on the value of ABH’s brands and its reputation for offering guests an unparalleled Guest experience.

 

We believe that ABH has built a strong reputation for the quality and breadth of its menu items as part of the total experience that guests enjoy in its restaurants. We believe ABH must protect and grow the value of its brands to continue to be successful in the future. Any incident that erodes consumer trust in or affinity for its brands could significantly reduce their value. If consumers perceive or experience a reduction in food quality, service, or ambiance, or in any way believe ABH failed to deliver a consistently positive experience, its and our brand value could suffer.

 

ABH’s inability to successfully and sufficiently raise menu prices could result in a decline in profitability.

 

ABH utilizes menu price increases to help offset cost increases, including increased cost for commodities, minimum wages, employee benefits, insurance arrangements, construction, utilities and other key operating costs.  If its selection and amount of menu price increases are not accepted by consumers and reduce guest traffic, or are insufficient to counter increased costs, its and our financial results could be harmed.

 

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Our quarterly operating results may fluctuate due to the timing of special events and other factors, including the recognition of impairment losses.

 

Our quarterly operating results depend, in part, on revenue that ABH derived from special events, such as the Super Bowl® and other sporting events viewed by our guests in our World of Beer franchised locations such as the NFL, MLB, NBA, NHL and NCAA. Interruptions in the viewing of these professional and collegiate sporting league events due to strikes, lockouts or labor disputes may impact our results. Additionally, ABH’s and thus indirectly our results are subject to fluctuations based on the dates of sporting events and their availability for viewing through broadcast, satellite and cable networks. Historically, sales in most of World of Beer restaurants have been higher during fall and winter months based on the relative popularity and extent of national, regional and local sporting and other events. Further, quarterly operating results may fluctuate significantly because of other factors, including:

 

·Fluctuations in food costs, particularly chicken wings;
·The timing of new restaurant openings which may impact margins due to the related preopening costs and initially higher restaurant level operating expense ratios;
·Potential distraction or unusual expenses associated with expansion into other geographical territories;
·ABH’s ability to operate effectively in new markets in which it has limited operating experience;
·Labor availability and costs for hourly and management personnel;
·Changes in competitive factors;
·Disruption in supplies;
·General economic conditions, consumer confidence and fluctuations in discretionary spending;
·Claims experience for self-insurance programs;
·Increases or decreases in labor or other variable expenses;
·The impact of inclement weather, natural disasters and other calamities;
·Fluctuations in interest rates;
·The timing and amount of asset impairment loss and restaurant closing charges; and
·Tax expenses and other non-operating costs.

 

ABH may not be able to attract and retain qualified team members and key executives to operate and manage our business.

 

ABH”s success and the success of its individual restaurant(s) and business depends on its ability to attract, motivate, develop and retain a sufficient number of qualified key executives and restaurant employees, including restaurant managers and hourly team members. The inability to recruit, develop and retain these individuals may delay the planned openings of new restaurant and tavern locations or result in high employee turnover in existing locations, thus increasing the cost to efficiently operate our restaurants. This could inhibit expansion plans and business performance and, to the extent that a labor shortage may force ABH to pay higher wages, harm its profitability. The loss of any of its key executive officers could jeopardize its ability to meet its financial targets.

 

The sale of alcoholic beverages at ABH’s locations subjects it to additional regulations and potential liability.

 

Because ABH’s locations sell alcoholic beverages, it is required to comply with the alcohol licensing requirements of the federal government, states and municipalities where its restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, the licenses are renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants and bars, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If ABH fails to comply with federal, state or local regulations, its licenses may be revoked, and it may be forced to terminate the sale of alcoholic beverages at one or more of its locations. Further, growing movements to change laws relating to alcohol may result in a decline in alcohol consumption at its facilities or increase the number of dram shop claims made against it, either of which may negatively impact operations or result in the loss of liquor licenses.

 

In certain states ABH is subject to “dram shop” statutes, which generally allow a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some dram shop litigation against restaurant companies has resulted in significant judgments, including punitive damages.

 

Changes in consumer preferences or discretionary consumer spending could harm ABH’s and our performance.

 

The success of ABH’s World of Beer franchises depends, in part, upon the continued popularity of the overall World of Beer system locations throughout the United States as well as ABH’s unique food and beverage items and appeal of sports bars and casual dining restaurants. ABH also depends on trends toward consumers eating away from home. Shifts in these consumer preferences could negatively affect its future profitability. Such shifts could be based on health concerns related to the cholesterol, carbohydrate, fat, calorie or salt content of certain food items, including items featured on its menu. Negative publicity over the health aspects of such food items may adversely affect consumer demand for its menu items and could result in a decrease in guest traffic to its restaurants, which could materially harm its business. In addition, ABH will be required to disclose calorie counts for all food items on its menus, due to federal regulations, and this may have an effect on consumers’ eating habits. Other federal regulations could follow this pattern. In addition, ABH’s success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. A decline in consumer spending or in economic conditions could reduce guest traffic or impose practical limits on pricing, either of which could harm its business, financial condition, operating results or cash flow.

 

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A regional or global health pandemic could severely affect ABH’s business.

 

A health pandemic is a disease outbreak that spreads rapidly and widely by infection and affects many individuals in an area or population at the same time. If a regional or global health pandemic was to occur, depending upon its duration and severity, ABH’s and our business could be severely affected. ABH has positioned its brand as a place where people can gather together.

 

Customers might avoid public gathering places in the event of a health pandemic, and local, regional or national governments might limit or ban public gatherings to halt or delay the spread of disease. A regional or global health pandemic might also adversely impact our business by disrupting or delaying production and delivery of materials and products in its supply chain and by causing staffing shortages in ABH’s restaurants. The impact of a health pandemic might be disproportionately greater than on other companies that depend less on the gathering of people together for the sale or use of their products and services.

 

As a result of the factors discussed above, ABH’s and our quarterly and annual operating results may fluctuate significantly. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year. These fluctuations may cause future operating results to fall below the expectations of securities analysts and shareholders. In that event, the price of our common stock would likely decrease.

 

ABH may be subject to increased labor and insurance costs.

 

ABH’s restaurant operations are subject to federal and state laws governing such matters as minimum wages, working conditions, overtime, and tip credits. As federal and state minimum wage rates increase, ABH may need to increase not only the wages of our minimum wage employees, but also the wages paid to employees at wage rates that are above minimum wage. Labor shortages, increased employee turnover, and health care mandates could also increase its labor costs. This, in turn, could lead it to increase prices which could impact its sales. Conversely, if competitive pressures or other factors prevent ABH from offsetting increased labor costs by increases in prices, its profitability may decline. In addition, the current premiums that ABH pays for its insurance (including workers’ compensation, general liability, property, health, and directors’ and officers’ liability) may increase at any time, thereby further increasing our costs. The dollar amount of claims that ABH actually experiences under its workers’ compensation and general liability insurance, for which it carries high per-claim deductibles, may also increase at any time, thereby further increasing its costs. Also, the decreased availability of property and liability insurance has the potential to negatively impact the cost of premiums and the magnitude of uninsured losses.

 

ABH’s current insurance may not provide adequate levels of coverage against claims.

 

ABH currently maintains insurance customary for businesses of its size and type. However, there are types of losses it may incur that cannot be insured against or that it believed are not economically reasonable to insure, such as losses due to natural disasters. Such damages could have a material adverse effect on its and our business and results of operations. 

 

ABH is dependent on information technology and any material failure of that technology could impair its ability to efficiently operate its business.

 

ABH relies on information systems across its operations, including, for example, point-of-sale processing in its locations, management of its supply chain, collection of cash and credit and debit card payments, payment of obligations and various other processes and procedures. ABH’s ability to efficiently manage its business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with maintenance, upgrading or transitioning to replacement systems, or a breach in security of these systems could cause delays in customer service, reduce efficiency in its operations, require significant investment to remediate the issue or cause negative publicity that could damage its and our brand. Significant capital investments might be required to remediate any problems.

 

If ABH is unable to maintain its rights to use key technologies of third parties, its and our business may be harmed.

 

ABH relies on certain technology licensed from third parties and may be required to license additional technology in the future for use in managing its internet sites and providing related services to users and customers. These third-party technology licenses may not continue to be available to it on acceptable commercial terms or at all. The inability to enter into and maintain any of these technology licenses could significantly harm its and our business, financial condition and operating results.

 

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ABH’s future growth may require it to raise additional capital in the future, but that capital may not be available when it is needed or may be available only at an excessive cost.

 

In order to build out ABH’s business plan and to be ultimately successful, it will need ample capital to purchase/rent new properties, build new locations, hire personnel and market its locations. ABH may not generate sufficient cash from its existing operations in order to do so. Therefore, it or we may at some point choose to raise additional capital to support its continued growth. ABH’s and our ability to raise additional capital will depend, in part, on conditions in the capital markets at that time which are outside of its control. Accordingly, it or we may be unable to raise additional capital, if and when needed, on terms acceptable to it or us, or at all. If ABH or we cannot raise additional capital when needed, its ability to further expand operations through internal growth and acquisitions could be materially impacted. In the event of a material decrease in our stock price, future issuances of equity securities could result in dilution of existing shareholder interests.

 

The occurrence of any failure, breach or interruption in service involving ABH’s systems or those of its service providers could damage its reputation, cause losses, increase its expenses, and result in a loss of customers, an increase in regulatory scrutiny or expose ABH to civil litigation and possibly financial liability, any of which could adversely impact its and our financial condition, results of operations and the market price of our stock.

 

Communications and information systems are essential to the conduct of ABH’s business, as it uses such systems to manage its customer relationships, its general ledger, its deposits and its loans. ABH’s operations rely on the secure processing, storage and transmission of confidential and other information in its computer systems and networks. Although ABH takes protective measures and endeavor to modify them as circumstances warrant, the security of its computer systems, software and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and cyber attacks that could have a security impact. In addition, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to its confidential or other information or the confidential or other information of our customers, clients or counterparties. If one or more of such events was to occur, the confidential and other information processed and stored in and transmitted through its computer systems and networks could potentially be jeopardized or could otherwise cause interruptions or malfunctions in its operations or the operations of its customers, clients or counterparties. This could cause ABH significant reputational damage or result in its experiencing significant losses.

 

Furthermore, ABH may be required to expend significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. ABH also may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance it maintains. In addition, ABH routinely transmits and receives personal, confidential and proprietary information by e-mail and other electronic means. It has discussed and worked with its customers, clients and counterparties to develop secure transmission capabilities, but it does not have, and may be unable to put in place, secure capabilities with all of these constituents, and it may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of such information.

 

While ABH has established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, ABH outsources certain aspects of its data processing to certain third-party providers. If its third-party providers encounter difficulties, or if it has difficulty in communication with them, its ability to adequately process and account for customer transactions could be affected, and its business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

 

Risks Relating to Our Securities

 

There has been a very limited public trading market for our securities, and the market for our securities may continue to be limited and be sporadic and highly volatile.

 

There is currently a limited public market for our common stock. Our common stock has been listed for trading on the OTC Pink. We cannot assure you that an active market for our shares will be established or maintained in the future. Holders of our common stock may, therefore, have difficulty selling their shares, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares, which may be purchased, may be sold without incurring a loss. Any such market price of our shares may not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value and may not be indicative of the market price for the shares in the future.

 

In addition, the market price of our common stock may be volatile, which could cause the value of our common stock to decline. Securities markets experience significant price and volume fluctuations. This market volatility, as well as general economic conditions, could cause the market price of our common stock to fluctuate substantially. Many factors that are beyond our control may significantly affect the market price of our shares. These factors include:

 

  price and volume fluctuations in the stock markets;
     
  changes in our revenues and earnings or other variations in operating results;
     
  any shortfall in revenue or increase in losses from levels expected by us or securities analysts;

 

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  changes in regulatory policies or law;
     
  operating performance of companies comparable to us; and
     
  general economic trends and other external factors.

 

Even if an active market for our common stock is established, stockholders may have to sell their shares at prices substantially lower than the price they paid for it or might otherwise receive than if a broad public market existed.

 

Future financings could adversely affect common stock ownership interest and rights in comparison with those of other security holders.

 

Our board of directors has the power to issue additional shares of common or preferred stock without stockholder approval. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. In addition, as of September 22, 2015, we had issued and outstanding options and warrants that may be exercised into 14,599,204 shares of common stock, 9,000,000 shares of Series A Convertible Preferred Stock and 51 shares of Series A-1 Convertible Preferred Stock that may be converted into 54,000,306 shares of common stock, outstanding principal convertible notes totaling $1,488,487 (excludes ABH’s convertible notes of $2,371,545 which are not convertible into our common stock) and accrued interest payable of $417,338 (excludes accrued interest for ABH convertible notes) which together may be converted into shares of common stock (subject to 4.99-9.99% beneficial ownership limitations and a limit of a total of 20,000,000 authorized shares) at a maximum conversion cap rate of $.02 per share. Actual conversion prices are subject to certain discounts from market prices as the stock prices change daily and have been significantly less than the $.02 price, resulting in a possible calculation to reach the maximum authorized amount of 20,000,000,000 common shares. The Series A and A-1 Preferred Stock vote with the common stock on an as converted basis. Pursuant to the terms and conditions of our outstanding Series A and Series A-1 Preferred Stock, the conversion rate and the voting rights of the Series A and A-1 will not adjust as a result of any reverse stock split. Further, the authorized but unissued Series A will not adjust as a result of any reverse split. As a result, in the event of a reverse split of our common stock, the voting power would be concentrated with the Series A holder. 

 

Further, if we issue any additional common stock or securities convertible into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder diluting each stockholder. In addition, such stock issuances might result in a reduction of the book value of our common stock.

 

Because we do not have an audit or compensation committee, shareholders will have to rely on our President, who is not independent, to perform these functions.

 

We do not have an audit or compensation committee comprised of independent directors. Indeed, we do not have any audit or compensation committee. These functions are performed by our Chief Executive Officer and Chief Financial Officer. An independent audit committee plays a crucial role in the corporate governance process, assessing our processes relating to our risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the Board from being independent from our management in their judgments and decisions and their ability to pursue the responsibilities of an audit committee without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised. Our lack of an independent compensation committee presents the risk that our executive officers on the Board may have influence over his personal compensation and benefits levels that may not be commensurate with our financial performance.

 

Our common shares are subject to the “Penny Stock” Rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

 

The Securities and Exchange Commission has adopted Rule 15g-9, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

·      that a broker or dealer approve a person’s account for transactions in penny stocks; and

·      the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

·      In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

o      obtain financial information and investment experience objectives of the person; and

o      make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

 

·         sets forth the basis on which the broker or dealer made the suitability determination; and

·         that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

  

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our shares of common stock and cause a decline in the market value of our stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

If an active market develops for our shares, sales of our shares relying upon Rule 144 may depress prices in that market by a material amount.

 

The majority of the outstanding shares of our common stock held by present stockholders are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended. The SEC has recently adopted amendments to Rule 144, which became effective on February 15, 2008 and applies to securities acquired both before and after that date. Under these amendments, a person who has beneficially owned restricted shares of our common stock or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we have been current with the Exchange Act periodic reporting requirements for at least twelve months before the sale.

 

Persons who have beneficially owned restricted shares of our common stock or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed 1% of the total number of shares of our common stock then outstanding, which would equal 1,263,374 shares of our common stock immediately after this offering, for a company trading on the pink sheets or Over-the-Counter Bulletin Board such as us.

 

The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.

 

We believe that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:

 

·      Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

·      Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

·      “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

·      Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

·      The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

  

We do not expect to pay dividends to holders of our common stock in the foreseeable future. As a result, holders of our common stock must rely on stock appreciation for any return on their investment.

 

There are no restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends. The Nevada General Corporation Law, however, does prohibit us from declaring dividends where, after giving effect to the distribution of the dividend, we would not be able to pay our debts as they become due in the usual course of business, or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. We have not declared any dividends since our inception, and we do not plan to declare any dividends on our common stock in the foreseeable future. Accordingly, holders of our common stock will have to rely on capital appreciation, if any, to earn a return on their investment in our common stock.

  

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We may issue shares of preferred stock in the future that may adversely impact the right of holders of our common stock.

 

As of the date of this Report, our Articles of Incorporation authorizes us to issue up to 20,000,000 shares of preferred stock, of which 14,999,949 shares have been designated as shares of Series A, 51 shares have been designated as Series A-1 and 100,000 shares have been designated as Series C. Accordingly, our Board of directors will have the authority to fix and determine the relative rights and preferences of preferred shares, as well as the authority to issue such shares, without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock. To the extent that we do issue such additional shares of preferred stock, the rights of holders of common stock could be impaired thereby, including, without limitation, dilution of their ownership interests in us. In addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult, which may not be in the interest of holders of common stock. To date, our investors in the Series A Preferred Convertible Preferred Stock have waived their dividends which we were obligated to pay to them. There is no guarantee going forward that they will waive these dividends in the future. If so, the number of shares issued may be materially dilute your investment.

 

A substantial number of our shares are available for sale in the public market, and sales of those shares could adversely affect our stock price and our ability to obtain financing.

 

Sales of a substantial number of shares of common stock into the public market, or the perception that such sales could occur, could substantially reduce our stock price in the public market for our common stock and could impair our ability to obtain capital through a subsequent financing of our securities. We have 1,161,193,362 shares of common stock outstanding as of March 31, 2015 of which 1,161,162,792 shares are held by non-affiliates. Further, we have outstanding convertible notes in the face value of $6,208,842 (excludes ABH notes) which may be converted into 388,227,593 shares of common stock at a maximum conversion price of $.02. Generally, the holders of the securities convertible or exercisable into our common stock may be able to sell the common stock issued upon conversion or exercise after a six month holding period under Rule 144 adopted under the Securities Act of 1933 (as amended, the “Securities Act”). As such, you should expect a significant number of such shares of common stock to be sold. Depending upon market liquidity at the time our common stock is resold by the holders thereof, such re-sales could cause the trading price of our common stock to decline. In addition, the sale of a substantial number of shares of our common stock, an anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

 

EFFECTS OF INFLATION

 

We believe that inflation has not had any material effect on our net sales and results of operations.

 

ITEM 8 – FINANCIAL STATEMENTS

 

The consolidated financial statements for the years ended March 31, 2015 and 2014 are contained on Pages F-1 to F-36 which follows.

  

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A - CONTROLS AND PROCEDURES

  

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2015. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

 

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Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using framework similar to criteria referenced in the initial steps of the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of the year ended March 31, 2015.

 

A material weakness is a significant deficiency (as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 2), or a combination of significant deficiencies, that results in reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of our internal controls over financial reporting, management determined that there were control deficiencies as of the year ended March 31, 2015 that constituted material weaknesses, as described below.

 

* We have noted that there may be an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

 

* We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management’s view that to have an audit committee, comprised of independent board members and an independent audit committee financial expert, is an important entity-level control over the Company’s financial statements. Currently, the Board does not have sufficient independent directors to form such an audit committee. Also, the Board of Directors does not have an independent director with sufficient financial expertise to serve as an independent financial expert.

 

* Due to the complex nature of recording derivatives and similar financial instruments, we noted a need for increased coordination and review of techniques and assumptions used in recording derivatives to ensure accounting in conformity with generally accepted accounting principles.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.

 

Remediation Efforts to Address Deficiencies in Internal Control over Financial Reporting

 

As a result of the findings from the evaluation conducted of the effectiveness of our internal control over financing reporting as set forth above, we intend to take practical, cost-effective steps in implementing internal controls, including the following remedial measures, some of which have already been taken:

 

* Interviewing and potentially hiring outside consultants that are experts in designing internal controls over financial reporting based on criteria established in Internal Control-Integrated Framework issued by COSO.

 

* we have hired an outside consultant to assist with controls over the review and application of derivatives to ensure accounting in conformity with generally accepted accounting principles.

 

* The Board of Directors to consider nominating an audit committee and audit committee financial expert, which may or may not consist of independent members as funds allow.

 

Due to inadequate financing, we have not hired any outside experts to design additional internal controls over financial reporting or recommended a new board director that is a financial expert.

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting

 

No change in our internal control over financial reporting occurred during the quarter ended March 31, 2015, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

 

ITEM 9B - OTHER INFORMATION

 

None

  

 

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PART III

 

ITEM 10 – DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

The directors and executive officers as of March 31, 2014 are as follows. Our directors serve until their successors are elected and qualified.

 

Name of Officer and Age   Position with the Company Year Appointed
Roy Warren 59 Chairman, Chief Executive Officer and President 2007
Michael Edwards 55 Director 2007
H. John Buckman 69 Director 2007
Tommy Kee 66 Chief Financial Officer 2007/ 2010*

* Mr. Kee resigned as CFO in July 2009 but rejoined the Company in April 2010. 

  

The experience and background of the Company’s directors, executive officers and significant employees follow:

 

Mr. Roy Warren – Chairman, Chief Executive Officer and President since September, 2007

 

Mr. Warren serves as our Chairman of the Board, Chief Executive Officer and President.  As Chief Executive Officer, Mr. Warren provides overall company leadership and strategy.  Mr. Warren also serves as a director of our wholly owned subsidiary, Attitude Drink Company, Inc.  For 15 years from 1981 through 1996, Mr. Warren was in the securities brokerage industry.  During those years, Mr. Warren acted as executive officer, principal, securities broker and partner with brokerage firms in Florida, most notably Kemper Financial Companies, Alex Brown & Sons and Laffer Warren & Company.  From 1999 to 2007, Mr. Warren was Chief Executive Officer of Bravo! Brands, Inc, in Florida, a public company which was a beverage brand-development company, similar to Attitude Drinks Incorporated. This experience in the beverage industry as well as with a public company led to the conclusion that he should serve as a director of the Company. Mr. Warren is also the Chief Executive Officer and a director of HVWC.

  

Mr. Michael Edwards – Director since 2007

 

Mr. Edwards has served on the Board of Directors since 2007.  He currently is the sole proprietor of a chain of automobile car washes in Martin County, Florida which he has owned over seven years.  Prior to this, he served as Chief Revenue Officer for Bravo! Brands, Inc. for over five years in which he led the sales team force for introduction and sales of the company’s various developed beverage brands and products. This expertise in the development and sales of beverage products led to the conclusion that he should serve as a director of the Company.  Prior to that time, he worked for 5 years in beverage marketing research for Message Factors, Inc., a Memphis, Tennessee marketing research firm.  Mr. Edwards has a BS degree from Florida State University in Management and Marketing and spent 13 years in the banking industry, leaving CitiBank to join Message Factors in 1995.

  

Mr. H. John Buckman – Director since 2007

 

Mr. Buckman has served on the Board of Directors since 2007.  He is a principal and majority shareholder of Buckman, Buckman and Reid, a licensed broker-dealer co-founded by Mr. Buckman in 1988.  Mr. Buckman also joined the Board of Center for Vocational Rehabilitation (CVR) in 1994 and was a member for ten years.  Presently, Mr. Buckman is President of the Board of Directors for Asian Youth Ministries in New Jersey. His many years of broker-dealer experience, which provide valuable direction in the Company’s interactions in the securities market as well as his management and director experience, supports his role as director of the Company.

  

Mr. Tommy Kee –Chief Financial Officer since 2007

 

Tommy Kee joined our company in November, 2007 as Chief Financial Officer.  Mr. Kee was previously the Chief Accounting Officer of Bravo! Brands, Inc.  He graduated with an MBA from the University of Memphis and a BS degree in accounting from the University of Tennessee.  Before joining us, he served for several years as CFO for Allied Interstate, Inc. in the West Palm Beach area.  Prior to that, Mr. Kee served as CFO and Treasurer for Hearx Ltd. a West Palm Beach, Florida public company.  He also served 18 years as International Controller and Financial Director with the Holiday Inns Inc. organization in Memphis and Orlando.  Mr. Kee gave his letter of resignation as CFO, effective July 10, 2009 but rejoined the Company in April, 2010. Mr. Kee also serves as the Chief Financial Officer of HVWC. 

 

Section 16(a) Beneficial Ownership Reporting Compliance

  

Based solely on a review of the appropriate Forms 3, 4 and 5 and any amendments to such forms filed pursuant to Section 16(a) during the most recent fiscal year, there are no late filings.

 

  40 

 

 

Code of Ethics

 

On May 14, 2009, the Board of Directors approved and ratified a Code of Ethics that is applicable to all directors, officers and employees.  A copy of the Code of Ethics was attached an Exhibit 14 in the Form 10-K/A-2 that was filed for the fiscal year that ended March 31, 2009. The Code of Ethics is also available for review on our website at www.attitudedrinks.com.  Furthermore, a copy of the code is available to any person free of charge upon request by writing to our company at 11231 U.S. Highway 1, #201, North Palm Beach, Florida 33408.

 

Committees

 

Although we have a majority of independent directors, we do not have a separately designated audit committee, nominating committee, compensation committee or a person designated as an audit committee member financial expert.  We do not have a separately designated audit committee or an audit committee member financial expert because the cost of identifying, interviewing, appointing, educating, and compensating such persons would outweigh the benefits to our stockholders at the present time.  If we are successful in our efforts to secure additional capital, the resources may be available to appoint additional directors, have a separately designated audit committee, nominating committee, compensation committee and a person designated as an audit committee member financial expert. All directors participate in nominations of directors, and there is no formal nomination charter or policy in regard to recommendation of directors by shareholders due to the Company’s size and operations.

 

ITEM 11 - EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth the compensation earned during the last two fiscal years by our executive officers as well as any unpaid compensation for the applicable years with the company.  Please note that the company did not have sufficient capital to make regular compensation payments to these officers, and unpaid amounts have been accrued and reflected as expense:

 

                               
                        Change in      
                        Pension      
                        Value &      
                     Non-equity  Nonqualified      
         Earned        (e)  Incentive  Deferred  (g)   
   Principal     Salary /     Stock  Option  Plan Comp.  Comp.  All Other   
Name  Position  Year  Consulting $  Bonus $  Awards $  Awards $  $  Earnings $  Comp. $  Total $
Roy Warren (f)   CEO    2015 (a)   $220,373   $—     $—     $—     $—     $—     $5,981   $226,354 
Roy Warren (f)   CEO    2014 (b)   $220,373   $—     $—     $1,350   $—     $—     $13,459   $235,182 
                                                   
Tommy Kee (f)   CFO    2015 (c)   $173,644   $—     $—     $—     $—     $—     $1,685   $175,329 
Tommy Kee (f)   CFO    2014 (d)   $173,644   $—     $—     $4,877   $—     $—     $6,760   $185,281 

 

(a) For the year ended March 31, 2015, Roy Warren, CEO, earned a salary of $208,373 plus annual director’s fees of $12,000 for a total of $220,373. His base salary is accrued at the same $208,373 amount, although there is no assurance the Company will have sufficient capital to pay this amount. Of the total $220,373 amount, a total amount of $95,252 has not been paid.

 

(b) For the year ended March 31, 2014, Roy Warren, CEO, earned an income of $208,373 plus annual director’s fees of $12,000 for a total of $220,373. His base salary is accrued at the same $208,373 amount, although there is no assurance the Company will have sufficient capital to pay this amount. Of the total $220,373 amount, a total amount of $71,079 has not been paid.

 

(c) For the year ended March 31, 2015, Tommy Kee, CFO, earned an annual base salary of $173,644 which is the same amount that is used for his accrual. There is no assurance the Company will have sufficient capital to pay this amount. Of the total earned amount of $173,644, a total amount of $130,519 has not been paid.

 

(d) For the year ended March 31, 2014, Tommy Kee, CFO, earned an annual base salary of $173,644 which is the same amount that is used for his accrual. There is no assurance the Company will have sufficient capital to pay this amount. Of the total earned amount of $173,644, a total of $125,289 has not been paid.

 

(e) This amount represents the aggregate grant date fair value that was computed in accordance with FASB Topic 718 for the grant of non-qualified stock options to Roy Warren, CEO and Tommy Kee, CFO. These options were granted in September, 2013 and have an exercise price of $.004 and vest immediately with an expiration life of five (5) years. The stock options were valued at $.0027 per stock option for Roy Warren (500,000 stock options at $.0027 = $1,350) and the same value of $.0027 per stock option for Tommy Kee (1,806,426 stock options at $.0027 = $4,877).

 

41
 

 

(f) Neither executive has an employment or a consulting agreement. The Company intends to pay accrued but unpaid amounts either by conversions of certain past due amounts into the Company’s common stock and/or cash once the Company’s fundings and financial position will allow such payments. Since we were not able to consistently make salary payments to these two named executives, we had to treat some of these payments as consulting fees.

 

(g) All other compensation figures represent company paid medical insurance for the above named executives.

 

Outstanding Equity Awards at March 31, 2015:

 

                           Option Awards       Stock  Awards  
                  Equity
                Equity Incentive
                Incentive   Plan  Awards:
      Equity         Plan Awards: Market or
      Incentive Plan       Market  Number Payout Value
      Plan Awards:     Number of Value of of Unearned of Unearned
  Number of  Number of   Number of      Shares or Shares of Shares, Units Shares
  Securities Securities Securities     Units of Units of or Other Units or
  Underlying Underlying Underlying     Stock That Stock That Rights That Other Rights
  Unexercised Unexercised Unexercised Option Option Have Not Have Not Have Not That Have
  Options # Options # Unearned Exercise Expiration Vested Vested Vested Not Vested
Name Exercisable Unexercisable Options # Price $ Date # $ # $
Roy Warren, CEO (a) (c)       500,000      500,000                    —     (d)  (d)             —     $      —                   —     $          —   
Tommy Kee, CFO (b)   1,817,739   1,817,739                    —     (e)  (e)             —     $      —                   —     $          —   
                   
  Total   2,317,739   2,317,739                    —                    —     $      —                   —     

 

(a) All 500,000 stock options were granted during September, 2013. 

(b) Stock options were granted as follows: 11,313 stock options during December, 2011 and 1,806,426 stock options during September, 2013. 

(c) Roy Warren was issued 51 shares of Series A-1 Preferred Stock during the year ended March 31, 2013. 

(d) During September 2013. Roy Warren was granted 500,000 non-qualified stock options at an exercise price of $.004 with an expiration date of September 16, 2018. 

(e) On March 2009, Tommy Kee was granted 11,313 non-qualified stock options at an exercise price of $10.00 with an expiration date of December 31, 2016 and 1,806,426 non-qualified stock options at an exercise price of $.004 with an expiration date of September 16, 2018.

 

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Director Compensation Table

 

    (a)            
    Fees     Non-equity Nonqualified    
    Earned or     Incentive Deferred    
    Paid In Stock Option Plan Comp. Comp. All Other  
Name Year Cash $ Awards $ Awards $ $ Earnings $ Comp. $ Total $
H. John Buckman (b ) 2015  $        12,000  $               —  $          —  $             —  $                 —  $         —  $        12,000
  2014  $        12,000  $          1,350  $          —  $             —  $                 —  $         —  $        13,350
Mike Edwards  ( c ) 2015  $        12,000  $               —  $          —  $             —  $                 —  $         —  $        12,000
  2014  $        12,000  $          1,350  $          —  $             —  $                 —  $         —  $        13,350

 

Roy G. Warren, CEO, is the Chairman of the Board of Directors. His director compensation is reported in the Summary Compensation Table.

 

(a) Each above director is compensated $1,000 per month for their role as directors; however, no cash payments have been made for the year ended March 31, 2015. Roy G. Warren is the only non-independent director. The Company intends to pay these past due amounts either by issuing shares of the Company’s common stock and/or cash once the Company’s financial position will allow such payments. Total past due director fees are $78,000 for H. John Buckman and $74,792 for Mike Edwards.

 

(b) In addition to H. John Buckman being a Director, he also is an investor and debt holder of the Company whereas the Company issued him a note payable at face value of $55,000. He also received 22 shares of restricted stock that related to his note payable, 2 shares were issued to him in 2009 for his Director services, and he received 300 shares of restricted stock in November 2009 for his efforts in a financing during that month (total of 324 restricted shares). In September, 2013, he received 500,000 non-qualified stock options at an exercise price of $.004 with immediate vesting. The stock options have a life of five (5) years. We recorded the value of these stock options at $1,350 (500,000 options x $.0027 = $1,350).

 

(c) In September, 2013, Mike Edwards received 500,000 non-qualified stock options at an exercise price of $.004 with immediate vesting. The stock options have a life of five (5) years. We recorded the value of these stock options at $1,350 (500,000 options x $.0027 = $1,350).

 

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the beneficial ownership of our company’s common stock as of September 25, 2015 as to:

 

·     each person known to beneficially own more than 5% of our issued and outstanding common stock

·     each of our directors

·     each executive officer

·     all directors and officers as a group

 

Except as otherwise noted, the named beneficial owners have direct ownership of the stock and have sole voting and investment power with respect to the shares shown:

 

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Beneficial Owners

 

  Name and Address of  Amount and Nature Percent of
Title of Class Beneficial Owner (1) of Beneficial Ownership (1) Class (2)
Common Alpha Capital Anstaldt (3)                          1,309,117,178 9.99%
  Pradafant 7    
  9490 Furstentums    
  Vaduz, Lichetenstein    
       
Common  Southridge Partners II LP (3)                             596,930,978 9.99%
  90 Grove Street, Suite 206    
  Ridgefield, Connecticut 06877    
       
Common  Roy G. Warren (4)                          2,480,116,908 51.55%
  712 U.S. Highway 1, Suite 200    
  North Palm Beach, Florida 33408    

 

 

(1)   Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.

  

(2)   Percentage calculated from base of 2,330,565,835 shares of common stock outstanding at September 25, 2015 plus for each person shares subject to convertible debt, convertible accrued interest, or preferred stock currently exercisable or convertible within 60 days of September 25, 2015 that are deemed outstanding for computing the percentage of the person holding such convertible instrument but are not deemed outstanding for computing the percentage of any other person.

  

(3)  This owner is contractually limited to a beneficial ownership of our equity not to exceed 9.99%. Equity listed consists of common stock, convertible notes, convertible accrued interest and convertible preferred stock. Alpha’s total relates to Series C Convertible Preferred Stock, and Southridge’s total relates mainly to Series C Convertible Preferred Stock and some convertible notes payable.

  

(4)   Equity listed consists of common stock, preferred stock and stock options to purchase common stock. Due to the Company’s stockholders’ deficit, conversion of the Series A and A-1 convertible preferred stock cannot be converted at this time. Mr. Warren also owns 269 shares of Series C Convertible Preferred Stock which cannot be converted 60 days from September 25, 2015 as he must hold the preferred stock for six months of holding per Rule 144 before doing any conversions due to salary treatment. His total includes voting rights for 2,425,586,666, Series A Convertible Preferred Stock for 54,000,000, common stock for 30,242 and stock options for 500,000. 

 

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Management Owners

 

  Name and Address of  Amount and Nature Percent of
Title of Class Beneficial Owner (1) of Beneficial Ownership (1) Class (1)
Common Roy G. Warren (2)                          2,480,116,908 51.55%
  712 U.S. Highway 1, Suite 200    
  North Palm Beach, Florida 33408    
       
Common  Tommy Kee (3)  1,817,741 (3)  Less than  1%
  712 U.S. Highway 1, Suite 200    
  North Palm Beach, Florida 33408    
       
Common  H. John Buckman (4)  500,324 (4)  Less than  1%
  712 U.S. Highway 1, Suite 200    
  North Palm Beach, Florida 33408    
       
Common  Mike Edwards (5)  500,002 (5)  Less than  1%
  712 U.S. Highway 1, Suite 200    
  North Palm Beach, Florida 33408    
       
Common Executive officers and directors as a group                          2,482,934,975 51.58%
       

 

(1)     Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options currently exercisable or exercisable within 60 days of September 25, 2015 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

 

(2)     The total amount includes 30,242 shares of common stock, 500,000 non-qualified stock options and 54,000,000 shares of common stock from the potential conversion of 9,000,000 Series A Preferred Stock and 51 shares of Series A-1 Preferred Stock having voting rights for 2,425,586,666.

 

(3)     Represents 1,817,739 non-qualified stock options and 2 shares of common stock. Mr. Kee also owns 371 shares of Series C Convertible Preferred Stock which cannot be converted 60 days from September 25, 2015 as he must hold the preferred stock for six months of holding before doing any conversions.

 

(4)     Includes 324 shares of common stock and 500,000 non-qualified stock options.

 

(5)     Represents 2 shares of common stock and 500,000 non-qualified stock options.

 

Changes in Control

 

None

 

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 

 

The Company issued aggregate notes of $100,000 ($50,000 in October 2007 and $50,000 in February 2008) to Roy Warren, the Company’s CEO, an accredited investor with whom the Company entered into subscription agreements for 10% convertible notes. Roy Warren assigned the $100,000 notes to another party. During the quarter ended September 30, 2009, 9,000,000 shares of Series A Preferred, convertible into 54,000,000 shares of common stock at the option of the holder, were granted to Roy Warren for services rendered. We recorded a non-cash expense for $1,620,000 which is based on the then market price of $0.03 per common share times the convertible stock equivalents (9,000,000 preferred shares x 6 = 54,000,000 common stock equivalents). These shares vote with the common stock at a rate of 6 votes per share (54,000,000 total votes). During the quarter ended March, 31, 2013, 51 shares of Series A-1 Preferred, convertible into 306 shares of common stock at the option of the holder, were granted to Roy Warren for services rendered. We recorded a non-cash expense for $0.09 which is based on the then market price of $0.0003 per common share times the convertible stock equivalents (51 preferred shares x 6 = 306 common stock equivalents).

 

45
 

 

H. John Buckman is a board director of the company and is a debt holder of the company of a note payable at the face value of $55,000.  He also received 21 shares of restricted stock that related to this note payable, 3 shares of restricted stock for being a Director and 300 shares of restricted stock for his services related to a November 2009 financing (total of 324 shares of restricted stock). He also received 500,000 non-qualified stock options at an exercise price of $.004 with full vestment as the life of the stock options is five (5) years.

 

Director Independence

 

H. John Buckman and Mike Edwards are independent directors as defined by Rule 10A-3 of the Exchange Act under NASDAQ rules. Roy G. Warren is not independent as he is an officer of the Company.

 

Attitude Beer Holding Co.

 

On April 21, 2015, ABH was sold to HVWC. As part of the sale, we received 87,990,000 shares of HVWC resulting in us being the majority owner of the common shares of HVWC. See Part 1, Item 1 under the section of “Recent Developments and Change in Business Model” for more information.

 

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Audit Fees

 

The aggregate fees billed for the year ended March 31, 2015 for professional services rendered by the principal accountant for the review of financial statements included in our Form 10-Q’s were approximately $20,000. We have accrued expected audit fees for the year ended March 31, 2015 in the amount of $45,000.  Total audit fees for the previous year ended March 31, 2014 were approximately $36,000.

 

Audit Related Fees

 

None.

 

Tax Fees

 

None

 

All Other Fees

 

None

 

Audit Committee Pre-Approval Policies

 

The Company does not have an audit committee and therefore the board considers and has approval authority over all engagements of the independent auditors. All of the engagements resulting in the fees disclosed above for fiscal 2014-2015 were approved by the Chairman of the Board prior to the engagement.

 

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PART IV 

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) The following documents are filed as part of this Form 10-K:

 

1. Financial Statements

 

The following financial statements are included in Part II, Item 8 of this Form 10-K:

 

Consolidated Balance Sheet 

Consolidated Statement of Operations 

Consolidated Statement of Stockholders’ Deficit 

Consolidated Statement of Cash flows

 

2. Exhibits

 

The exhibits listed in the Exhibit Index are incorporated herein by reference and are filed as part of this Form 10-K,

 

47
 

 

Exhibit   Incorporated Filed
No. Documents Description By Reference Herewith
(2)(1) Agreement and Plan of Merger dated September 14,2007 (1)  
(3)(1)(i) Restated Certificate of Incorporation (1)  
(3)(1)(ii) Certificate of Amendment to Certificate of Incorporation (5)  
(3)(1)(iii) Certificate of Amendment to Certificate of Incorporation (6)  
(3)(1)(iv) Certificate of Amendment to the  Certificate of Incorporation (11)  
(3)(1)(iv-2) Certificate of Amendment to the  Certificate of Incorporation (13)  
(3)(1)(v) Certificate of Amendment to the  Certificate of Incorporation (16)  
(3)(2) Amended and Restated Bylaws (1)  
(4)(1) Certificate of Designation of the Series A Convertible Preferred (1)  
(4)(1)(i) Certificate of Designation of the Relative Rights and    
    and Preferences of the Series A Convertible Preferred (12)  
(4)(2) Form of Common Stock Certificate (1)  
(4)(6) Certificate of Amendment to the certificate of Designation of the Series A    
    Convertible Preferred Stock (3)  
(10)(1) Sublicense Agreement, Termination Agreement, Promissory Note with    
    Nutraceutical Discoveries, Inc. - August, 2008 and February, 2010 (7)  
(10)(2) Manufacturing Agreement dated December 16,  2008 with O-AT-KA    
    Milk Products Cooperative, Inc. (2)  
(10)(3) Intentionally left blank    
(10)(4) Form of Note with previous Landlord dated January 26, 2011 (8)  
(10)(5) Form of Promissory Note dated October 7, 2011 (Alpha) (9)  
(10)(6) Form of Promissory Note dated October 7, 2011 (Centaurian) (9)  
(10)(7) Form of Promissory Note with conversion rights November 3, 2011 (9)  
(10)(8) Form of Promissory Note dated December 1, 2011 (Centaurian) (10)  
(10)(9) Form of Promissory Note dated December 1, 2011 (Alpha) (10)  
(10)(10) Form of Note dated December 28, 2011 (Alpha) (10)  
(10)(10) ii Certificate of Amendment to the Certificate of Incorporation May 1, 2012 (11)  
(10)(11) Amendment to the Certificate of Designation of the Relative Rights and     
    Preferences of the Series A Convertible Preferred Stock January 9, 2013 (15)  
(10)(12) Submission of Matters to a Vote of Security Holders to Approve Increase in    
    Authorized Shares for Common Stock to Twenty Billion Shares and to     
    Decrease Par Value of Common Stock and Preferred Stock from $.001    
    to $.00001 plus Ratification of the 2013 Equity Incentive Plan-January 29, 2013 (14)  
(10)(13) Certificate of Amendment of Certificate of Incorporation January 30, 2013 (15)  
(10)(14) Form of New Office Lease Agreement, Commencing February 1, 2013 (14)  
(10)(15) Allonge No. 8 dated April 11, 2013 to Secured Note Issued February 22, 2013 (18)  
(10)(16) Form of Exchange Agreement (Surrendered Notes) February 21, 2013 (18)  
(10)(17) Form of Exchange Agreement (Surrendered Warrants) February 21, 2013 (18)  
(10)(18) Form of Consolidated Note at February 21, 2013 (18)  
(10)(19) Convertible Note for Services Provided at February 21, 2013 (18)  
(10)(20) Promissory Note March 1, 2013 (18)  
(10)(21) Promissory Note April 1, 2013 (18)  
(10)(22) Submission of Matters to a Vote of Security Holders on April 30, 2013 that    
    Approved the Amendment of the Company’s Certificate of Incorporation to    
    Effect a Reverse Stock Split of a ratio of One-For-500 Subject to Regulatory    
    Approval (to be effective July 1, 2013) (17)  

 

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(10)(23) Promissory Note May 1, 2013 (18)  
(10)(24) Promissory Note June 1, 2013 (18)  
(10)(25) Allonge No. 9 dated June 5, 2013 to Secured Note Issued February 22, 2013 (18)  
(10)(26) Assignment and Escrow Agreement June 5, 2013 (18)  
(10)(27) Promissory Note June 7, 2013 (18)  
(10)(28) Allonge No. 10 dated June 21, 2013 to Secured Note Issued February 22, 2013 (18)  
(10)(29) Promissory Note July 1, 2013 (18)  
(10)(30) Debt amendments for extension of maturity dates to December 31, 2014 (18)  
(10)(31) Allonge No. 11 dated July 23, 2013 to Secured Note Issued February 22, 2013 (19)  
(10)(32) Promissory Note August 1, 2013 (19)  
(10)(33) Allonge No. 12 dated August 8, 2013 to Secured Note Issued February 22, 2013 (19)  
(10)(34) Promissory Note September 1, 2013 (20)  
(10)(35) Form of Approval of Grant of Stock Options at September 13, 2013 (20)  
(10)(36) Allonge No. 13 dated September 18, 2013 to Secured Note Issued February 22, 2013 (20)  
(10)(37) Promissory Note October 1, 2013 (20)  
(10)(38) Allonge No. 14 dated October 28, 2013 to Secured Note Issued February 22, 2013 (20)  
(10)(39) Promissory Note November 1, 2013 (20)  
(10)(40) Allonge No. 15 dated November 15, 2013 to Secured Note Issued February 22, 2013 (20)  
(10)(41) Promissory Note December 1, 2013 (20)  
(10)(42) Form of Promissory Notes between December 23 and 24, 2013 (20)  
(10)(43) Promissory Note January 1, 2014 (20)  
(10)(44) Promissory Note February 1, 2014 (20)  
(10)(45) Allonge No. 16 dated February 11, 2014 to Secured Note Issued February 22, 2013 (20)  
(10)(46) Promissory Note March 1, 2014 (20)  
(10)(47) Form of Promissory Note March 24, 2014 (21)  
(10)(48) Promissory Note April 1, 2014 (23)  
(10)(49) Promissory Note April 30, 2014 (23)  
(10)(50) Promissory Note May 1, 2014 (23)  
(10)(51) Allonge No. 17 dated May 2, 2014 to Secured Note Issued February 22, 2013 (23)  
(10)(52) Convertible Note dated May 13, 2014 issued to LG Capital Funding LLC (23)  
(10)(53) Promissory Note June 1, 2014 (23)  
(10)(54) Form of Promissory Note dated June 11, 2014 - four investors (23)  
(10)(55) Promissory Note July 1, 2014 (23)  
(10)(56) Allonge No. 18 dated July 11, 2014 to Secured Note Issued February 22, 2013 (23)  
(10)(57) Promissory Note July 31, 2014 (23)  
(10)(58) Promissory Note August 1, 2014 (23)  
(10)(59) Promissory Note August 21, 2014 (23)  
(10)(60) Promissory Note August 29, 2014 (23)  
(10)(61) Promissory Note September 1, 2014 (23)  
(10)(62) Promissory Note September 17. 2014 (23)  
(10)(63) Form of Promissory Note September 30. 2014 - two investors (23)  
(10)(64) Promissory Note October 1, 2014 (23)  
(10)(65) Promissory Note November 1, 2014 (23)  
(10)(66) Promissory Note November 19, 2014 (23)  
(10)(67) Promissory Note December 1, 2014 (23)  
(10)(68)  Certificate of Incorporation Attitude Beer Holding Co. December 1, 2014 (28)  
(10)(69) Class A Common Stock Purchase Warrant-Attitude Drinks Incorporated (22)  
(10)(70) Form of Convertible Note (22)  

 

49
 

 

(10)(71) Non-Circumvention-No-Shop Agreement (22)  
(10)(72) Confidentiality, Non-solicitation and Noncompetition Agreement (22)  
(10)(73) West Hartford WOB, LLC Amended & Restated Operating Agreement (22)  
(10)(74) Joint Venture Agreement (22)  
(10)(75) Form of Secured Convertible Note-Attitude Beer Holding Co. (22)  
(10)(76) ABH Notes and Warrants Face Pages December 24, 2014 (28)  
(10)(77) Escrow Agreement (22)  
(10)(78) Form of Class A Common Stock Purchase Warrant-Attitude Beer Holding Co. (22)  
(10)(79) Guaranty (22)  
(10)(80) Form of Security Agreement (22)  
(10)(81) Securities Purchase Agreement (22)  
(10)(82) Promissory Note dated December 19, 2014  (23)  
(10)(83) Convertible Note dated December 19, 2014  (23)  
(10)(84) Lease Agreement West Hartford, Connecticut (28)  
(10)(85) Promissory Note January 1, 2015 (23)  
(10)(86) Form of Convertible Note January 14, 2015 (23)  
(10)(87) Form of Convertible Note  and Class A Purchase Warrant dated January 23, 2015 (23)  
(10)(88) ABH Notes and Warrants Face Pages January 23, 2015 (28)  
(10)(89) Promissory Note dated February 1, 2015 (23)  
(10)(90) ABH Notes and Warrants Face Pages February 24, 2015 (28)  
(10)(91) Promissory Note dated March 1, 2015 (25)  
(10)(92) Promissory Note dated March 5, 2015 (25)  
(10)(93) Promissory Note dated March 13,2015 (25)  
(10)(94) Promissory Note dated March 19, 2015 (25)  
(10)(95) ABH Notes and Warrants Face Pages March 24, 2015 (28)  
(10)(96) Promissory Note dated March 26, 2015 (25)  
(10)(97) Promissory Note dated April 1, 2015 (25)  
(10)(98) Promissory Note dated April 3, 2015 (25)  
(10)(99) Promissory Note dated April 17, 2015 (25)  
(10)(100) Certificate of Designations of Series B Convertible Preferred Stock of Harrison (24)  
  Vickers  and Waterman Inc. as Exhibit 4.1 to the Company’s Form 8-K filed on    
  April 27, 2015    
(10)(101) Warrant issued to Attitude Drinks Incorporated as Exhibit 4.2 to the (24)  
  Company’s Form 8-K filed on April 27,2015    
(10)(102) Secured Convertible Note due 2017 issued to Alpha Capital Anstalt as Exhibit 4.3 (24)  
  to the Company’s Form 8-K filed on April 27,2015    
(10)(103) Secured Convertible Note due 2017 issued to Tarpon Bay Partners LLC as Exhibit 4.4 (24)  
  to the Company’s Form 8-K filed on April 27, 2015    
(10)(104) Additional Investment Right issued to Alpha Capital Anstalt as Exhibit 4.5 (24)  
  to the Company’s Form 8-K filed on April 27,2015    
(10)(105) Additional Investment Right issued to Tarpon Bay Partners LLC as Exhibit 4.6 (24)  
  to the Company’s Form 8-K filed on April 27,2015    
(10)(106) Asset Purchase Agreement dated as of April 21, 2015 by and between Harrison (24)  
  Vickers and Waterman Inc., Attitude Drinks Incorporated, Alpha Capital Anstalt and    
  Tarpon Bay Partners LLC as Exhibit 10.1 to the Company’s From 8-K filed on    
  April 27, 2015.    

 

50
 

 

(10)(107) Pledge Agreement dated as of April 21, 2015 by and between Attitude Drinks Incorporated (24)  
  and Tarpon Bay Partners LLC as collateral agent on behalf of Alpha Capital Anstalt    
  and Tarpon Bay Partners LLC as exhibit 10.2 to the Company’s Form 8-K filed on    
  April 27, 2015.    
(10)(108) Security Agreement dated as of April 21, 2015 among Harrison Vickers and Waterman (24)  
  Inc., each subsidiary of Harrison Vickers and Waterman Inc. and Tarpon Bay Partners    
  LLC as collateral agent as Exhibit 10.3 to the Company’s Form 8-K on April 27, 2015    
(10)(109) Guaranty dated as of April 21, 2015 entered into by Attitude Beer Holding Co. for the (24)  
  benefit of Alpha Capital Anstalt and Tarpon Bay Partners LLC as Exhibit 10.4 to the    
  Company’s Form 8-K filed on April 27,2015    
(10)(110) Guaranty dated as of April 21, 2015 entered into by Attitude Drinks Incorporated for the (24)  
  benefit of Alpha Capital Anstalt and Tarpon Bay Partners LLC as Exhibit 10.5 to the    
  Company’s Form 8-K filed on April 27,2015    
(10)(111) Exchange Agreement dated as of April 21, 2015 by and among Attitude Beer Holding (24)  
  Co., Attitude Drinks Incorporated, Alpha Capital Anstalt and Tarpon Bay Partners    
  as exhibit 10.6 to the Company’s Form 8-K filed on April 27, 2015    
(10)(112) Purchase Agreement dated as of April 21, 2015 between HVW Holdings LLC and  (24)  
  Attitude Drinks Incorporated as exhibit 10.7 to the Company’s Form 8-K on April    
  27, 2015    
(10)(113) A Warrant issued to Alpha Capital Anstalt as exhibit 99.1 to the Company’s Form (24)  
  8-K on April 27, 2015    
(10)(114) Series A Warrant issued to Tarpon Bay Partners LLC as exhibit 99.2 to the Company’s (24)  
  Form 8-K on April 27, 2015    
(10)(115) Purchase Agreement dated as of April 21, 2015 between HVW Holdings LLC and  (24)  
  Alpha Capital Anstalt as exhibit 99.3 to the Company’s Form 8-K on April 27, 2015    
(10)(116) Promissory Note dated April 24, 2015 (25)  
(10)(117) Promissory Note dated May 1, 2015 (25)  
(10)(118) Promissory Note dated May 1, 2015 (25)  
(10)(119) Promissory Note dated May 1, 2015 (25)  
(10)(120) Promissory Note dated May 15, 2015 (25)  
(10)(121) Promissory Note dated June 1, 2015 (26)  
(10)(122) Promissory Note dated May 22, 2015   X
(10)(123) Promissory Note dated May 29, 2015   X
(10)(124) Operating Agreement with Milford Craft, LLC May 29, 2015   X
(10)(125) Promissory Note dated July 1, 2015   X
(10)(126) Convertible Note for Harrison, Vickers and Waterman dated July 29, 2015   X
(10)(127) Class A Common Stock Purchase Warrant for Harrison Vickers and Waterman  7/29/15   X
(10)(128) 2015 Stock Incentive Plan August 12, 2015 Attitude Drinks Incorporated (29)  
(10)(129) Corrected Restated Certificate of Incorporation  July 31, 2015 (30)  
(10)(130) Certificate of Amendment to the Certificate of Designations, Powers, Preferences and (30)  
    Rights of Series A Convertible Preferred Stock August 7, 2015    
(10)(131) Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock August 7, 2015 (30)  
(10)(132) Promissory Note dated August 1, 2015   X
(10)(133) Form of Promissory Notes Warrant August 18, 2015 (31)  
(10)(134) Form of Promissory Notes Additional Investment Right August 18, 2015 (31)  
(10)(135) Form of Accrued Salary Warrant August 18, 2015 (31)  
(10)(136) Form of Accrued Salary Additional Investment Right August 18, 2015 (31)  
(10)(137) Form of Promissory Notes Exchange Agreement August 18, 2015 (31)  

 

51
 

 

(10)(138) Form of Accrued Salary Exchange Agreement August 18, 2015 (31)  
(10)(139) Promissory Note dated September 1, 2015   X
(10)(140) Approval to file Amendment of Articles of Incorporation for Harrison, Vickers (32)  
    and Waterman Inc. to increase authorized shares of common stock from     
    2,000,000,000 to 7,500,000,000    
(10)(141) Approval to file Amendment of Articles of Incorporation for Harrison, Vickers  (32)  
    and Waterman, Inc. to change the name to Attitude Beer, Inc.    
(10)(142) Approval to adopt the 2015 Stock Incentive Plan of Harrison, Vickers and Waterman Inc. (32)  
(14) Code of Ethics *  
(21) Subsidiaries of Registrant   X
(31)(i) Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14 (a),    
    as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   X
(31)(ii) Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14 (a),    
    as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   X
(32)(1) Certification of Chief Executive Officer and Chief Financial Officer pursuant    
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 906     
    of the Sarbanes-Oxley Act of 2002   X
101.INS XBRL Instance Document   X
101.SCH XBRL Taxonomy Extension Schema Document   X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document   X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document   X
101.LAB XBRL Taxonomy Extension Label Linkbase   X
101.PRE XBRL Taxonomy Extension Presentation Linkbase   X
       
*  previously filed with the Commission on August 14, 2009 as an exhibit to Form 10K (SEC Accession Number 0001213900-09-002104)
       
(1)   previously filed with the Commission on April 11, 2008 as an exhibit to Form S-1/A (SEC Accession Number 0001144204-08-021783)
(2)   previously filed with the Commission on March 5, 2009 as Exhibit 10.18 to Form 10-Q (SEC Accession Number 0001213900-09-0005)
(3)   previously filed with the Commission on November 23, 2009 as Exhibit 4.6 to Form 10-Q (SEC Accession No. 0001213900-09-003372)
(4)   previously filed with the Commission on May 25, 2010 as Exhibit 10.1 to Form S-8 (SEC Accession No. 0001213900-10-002206)  
(5)   previously filed with the Commission on July 14, 2010 as Exhibit 3(1)(ii) to Form 10-K (SEC Accession No. 0001213900-10-002857)
(6)   previously filed with the Commission on July 7, 2010 as Exhibit 3.1 to Form 8-K (SEC Accession No. 0001213900-10-002769)  
(7) previously filed with the Commission on April 21, 2011 as an  exhibit to Form 10-K/A (SEC Accession No. 0001213900-11-002129)  
(8) previously filed with the Commission on May 9, 2011 as an exhibit to Form 8-K/A (SEC Accession No. 0001213900-11-002409)  
(9) previously filed with the Commission on November 21, 2011 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-11-006291)
(10) previously filed with the Commission on February 21, 2012 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-12-000838)
(11) previously filed with the Commission on July 13, 2012 as an exhibit to Form 10-K (SEC Accession No. 0001213900-12-003795)  
(12 previously filed with the Commission on January 10, 2013 as an exhibit to Form 8-K (SEC Accession No. 0001213900-13-000118)  
(13) previously filed with the Commission on January 28, 2013 as Appendix A to Definitive 14C (SEC Accession No. 0001213900-13-000370)
(14) previously filed with the Commission on January 30, 2013 as an item to Form 8-K (SEC Accession No. 0001213900-13-000407)  
(15) previously filed with the Commission on February 19, 2013 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-13-000797)
(16) previously filed with the Commission on May 14, 2013 as Appendix A Definitive 14C (SEC Accession No. 0001213900-13-002476)

 

52
 

 

(17) previously filed with the Commission on July 1, 2013 as a Form 8-K (SEC Accession No. 0001213900-13-003367)  
(18) previously filed with the Commission on  July 15, 2013 as an exhibit to Form 10-K (SEC Accession No. 0001213900-13-0003610)  
(19) previously filed with the Commission on August 19, 2013 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-13-004654)  
(20) previously filed with the Commission  on March 19, 2014 as an exhibit to Form 10-Q (SEC Accession No. 0001213900-14-001532)
(21) previously filed with the Commission on April 15, 2014 as an exhibit to From 10-Q (SEC Accession No. 0001213900-14-002397)  
(22) previously filed with the Commission on December 31, 2014 as a Form 8-K (SEC Accession No. 0001144204-14-076573)  
(23) previously filed with the Commission on  February 13,2015 as a Form 10-K (SEC Accession No. 0001144204-15-009097)  
(24) previously filed with the Commission on April 27, 2015 as a Form 8-K (SEC Accession No. 0001144204-15-025275)  
(25) previously filed with the Commission on May 18, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001144204-15-031872)  
(26) previously filed with the Commission on June 12, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001144204-15-036831)  
(27) intentionally left blank    
(28) previously filed with the Commissi8on on July 1, 2015 as an exhibit to Form 10-Q (SEC Accession No. 0001615774-15-001667)  
(29) previously filed with the Commission on June 25, 2015 to Form DEF 14C (SEC Accession No. 0001615774-15-001595)  
(30) previously filed with the Commission on August 12, 2015 as an exhibit to Form 8-K (SEC Accession No. 0001615774-15-002174)  
(31) previously filed with the Commission on August 18, 2015 as an exhibit to Form 8-K (SEC Accession No. 0001615774-15-002293)  
(32) previously filed with the Commission on August 18, 2015 under Harrison, Vickers and Waterman Inc. to Form DEF 14C
                (SEC Accession No. 0001615774-15-002284)
 
     

 

3. Financial Statement Schedules

 

Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.

 

53
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

ATTITUDE DRINKS INCORPORATED

(Registrant)

     
  ATTITUDE DRINKS INCORPORATED  
       
Date: September 28, 2015 By: /s/ Roy G. Warren  
    Roy G. Warren  
    President and Chief Executive Officer  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated,  

 

Signature   Title    
         
/s/ Roy G. Warren   President and Chief Executive Officer    
Roy G. Warren        
Name        
         

/s/ Tommy E. Kee 

  Chief Financial Officer and Principal    
Tommy E. Kee    Accounting Officer    
Name        

 

/s/ H. John Buckman   Director    
H. John Buckman        
Name        
         
/s/ Mike Edwards    Director    

Mike Edwards 

     
Name        

 

54
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm – John Scrudato CPAs. F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statement of Operations F-4
   
Consolidated Statement of Stockholders’ Deficit F-5
   
Consolidated Statement of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-8 to F-37

 

 

F-1
 

 

Scrudato & Co., PA
CERTIFIED PUBLIC ACCOUNTING FIRM

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of
Attitude Drinks Incorporated

 

We have audited the accompanying consolidated balance sheet of Attitude Drinks Incorporated as of March 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Attitude Drinks Incorporated at March 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that Attitude Drinks Incorporated will continue as a going concern. As more fully described in Note 2, the Company had an accumulated deficit at March 31, 2015, a net loss and net cash used in operating activities for the fiscal year then ended. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

/s/ Scrudato & Co., PA

 

Califon, New Jersey
September 23, 2015

 

7 Valley View Drive Califon, New Jersey 07830

 

Registered Public Company Accounting Oversight Board Firm

 

F-2
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEET

 

    March 31, 2015     March 31, 2014  
             
ASSETS            
             
CURRENT ASSETS:            
Cash and cash equivalents   $ 233,591     $ 20,615  
Accounts receivable     4,478       1,422  
Inventories less reserve for abandoned property of $2,339 and allowance for obsolescence of $90,000 at March 31, 2015 and allowance for obsolescence of $44,107 at March 31, 2014     112,797       30,090  
Prepaid expenses     1,150       2,873  
TOTAL CURRENT ASSETS     352,016       55,000  
                 
FIXED ASSETS, NET     1,013,141       25,491  
                 
OTHER ASSETS:                
Capitalized pre-opening costs - World of Beer     204,059        
Trademarks, net     4,537       4,834  
Deposits and other assets     8,145       896  
TOTAL OTHER ASSETS     216,741       5,730  
                 
TOTAL ASSETS   $ 1,581,898     $ 86,221  
                 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 1,911,005     $ 1,667,615  
Accrued liabilities     6,757,764       5,733,308  
Derivative liabilities     1,868,857       1,993,393  
Short-term bridge loans payable     115,000       115,000  
Convertible notes payable     7,195,794       5,891,182  
Less: Discount on convertible notes payable     (196,499 )     (3,511,738 )
Non-convertible notes payable     625,016       411,517  
Loans payable -World of Beer Minority Owners     50,767        
Loans payable to related parties     21,463       21,463  
TOTAL CURRENT LIABILITIES     18,349,167       12,321,740  
                 
LONG TERM LIABILITIES:                
Convertible notes payable     178,500       100,000  
Minority interest     (3,391 )      
TOTAL LONG TERM LIABILITES     175,109       100,000  
                 
STOCKHOLDERS’ (DEFICIT):                

Series A and A-1 convertible preferred stock par value $0.00001 per share, 20,000,000 shares authorized, 9,000,051 shares issued and outstanding at March 31, 2015 and March 31, 2014, respectively

    90       90  

Common stock, par value $0.00001, 20,000,000,000 shares authorized and 1,161,193,362 and 181,714,134 shares issued and outstanding at March 31, 2015 and March 31, 2014, respectively

    11,612       1,817  
Additional paid-in capital     19,830,637       19,416,418  
Deficit accumulated     (36,784,717 )     (31,753,844 )
TOTAL STOCKHOLDERS’ (DEFICIT)     (16,942,378 )     (12,335,519 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)   $ 1,581,898     $ 86,221  

 

See accompanying notes to condensed consolidated financial statements

 

F-3
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENT OF OPERATIONS

 

    Year     Year  
    Ended     Ended  
    March 31,     March 31,  
    2015     2014  
             
             
REVENUES:            
Net revenues - World of Beer   $ 738,465     $  
Net revenues - Phase III     53,878       182,582  
Food and beverage costs - World of Beer     (209,908 )      
Product and shipping costs     (154,999 )     (164,639 )
GROSS PROFIT     427,436       17,943  
                 
OPERATING EXPENSES:                
Total salaries, taxes and employee benefits     911,012       883,306  
Administrative consulting fees     322,462       312,500  
Total general and administrative expenses     351,583       280,935  
Administrative marketing and promotion expenses     25,555       52,659  
Administrative professional and legal fees     17,251       196,071  
Product development costs     6,600       5,205  
Stock compensation expense     84       26,997  
Depreciation and amortization     37,154       7,687  
Total Operating Expenses     1,671,701       1,765,360  
                 
LOSS FROM OPERATIONS     (1,244,265 )     (1,747,417 )
                 
OTHER INCOME (EXPENSE):                
Interest and other financing costs     (3,759,383 )     1,535,402  
Reserve for assets abandonment     (5,629 )      
Total Other Income (Expense)     (3,765,012 )     1,535,402  
                 

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

    (5,009,277 )     (212,015 )
Minority interest     (21,596 )      
Provision for income taxes            
                 
NET INCOME (LOSS)   $ (5,030,873 )   $ (212,015 )
                 
Basic income (loss) per common share   $ (0.01 )   $  
                 
Diluted income (loss) per common share   $ (0.01 )   $  
                 

Weighted average common shares outstanding - basic

    625,605,503       102,827,957  
                 

Weighted average common shares outstanding - diluted

    625,605,503       102,827,957  

 

See accompanying notes to consolidated financial statements

 

F-4
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARIES 

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED MARCH 31, 2015 AND 2014

 

                            Additional              
    Preferred Stock     Common Stock     Paid In     Accumulated        
    Shares     Amount     Shares     Amount     Capital     Deficit     Total  
Balance, March 31, 2013     9,000,051     $ 90       18,414,546     $ 184     $ 18,686,258     $ (31,541,829 )   $ (12,855,297 )

Conversions of debt to common stock 

                    163,299,588       1,633       703,163             704,796  
Issuance of stock options                                     26,997             26,997  
Net loss                                             (212,015 )     (212,015 )
Balance, March 31, 2014     9,000,051     $ 90       181,714,134     $ 1,817     $ 19,416,418     $ (31,753,844 )   $ (12,335,519 )

Conversions of debt to common stock 

                    979,479,228       9,795       414,737             424,532  
Issuance of warrants                             (518 )           (518 )
Net loss                                             (5,030,873 )     (5,030,873 )
Balance, March 31, 2015     9,000,051     $ 90       1,161,193,362     $ 11,612     $ 19,830,637     $ (36,784,717 )   $ (16,942,378 )

 

 

See accompanying notes to consolidated financial statements

 

F-5
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

    Year     Year  
    Ended     Ended  
    March 31,     March 31,  
    2015     2014  
             
CASH FLOWS (USED) BY OPERATING ACTIVITIES:            
Net loss   $ (5,030,873 )   $ (212,015 )

    Adjustment to reconcile net loss to net cash used in operating activities:

               
Depreciation and amortization     37,154       7,685  
Compensatory stock and warrants     84       26,997  
Issuance of convertible notes for past due services     320,000       262,000  
Bad debt expense           (16,007 )
Fair value adjustment of convertible note     (185,817 )     (3,359,968 )
Reserve for abandoned assets     5,629        
Amortization of debt discount     3,512,756       990,842  
Minority interest     21,596        
Changes in operating assets and liabilities:                
Accounts receivable     (3,056 )     41,677  
Prepaid expenses and other assets     (5,526 )     27,237  
Inventories     (85,046 )     71,631  
Deferred revenue            
Accounts payable and accrued liabilities     2,489,463       1,426,981  
Net cash (used) in operating activities     1,076,364       (732,940 )
                 
CASH FLOWS (USED) BY INVESTING ACTIVITIES:                
Purchase of equipment and fixed assets     (1,023,911 )     (3,910 )
Dividends to World of Beer minority owners     (24,500 )      
Capitalized pre-opening expenses - World of Beer     (207,944 )      
Trademarks           (455 )
Net cash (used) in investing activities     (1,256,355 )     (4,365 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Loans payable - World of Beer minority owners     50,767        
Proceeds from convertible notes payable     146,200       715,000  
Proceeds from short-term bridge loans payable           95,505  
Proceeds from promissory notes     198,500       (60,000 )
Other costs of financing     (2,500 )      
Net cash provided by financing activities     392,967       750,505  
                 
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS     212,976       13,200  
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     20,615       7,415  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 233,591     $ 20,615  

 

F-6
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASHFLOWS (CONTINUED)

 

             
    Year     Year  
    Ended     Ended  
    March 31,     March 31,  
    2015     2014  
             
SUPPLEMENTAL CASH FLOW INFORMATION:            
Cash paid during the period for interest   $     $  
Cash paid for taxes   $     $  
Non-cash investing and financing activities:                
Payment of financing fees with issuance of new notes payable   $     $  
Payment of financing fees with common stock and warrants   $     $  

  

See accompanying notes to consolidated financial statements

 

F-7
 

 

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARIES

  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

Note 1 –           Organization and Nature of Business:

  

Attitude Drinks Incorporated, a Delaware corporation, and subsidiaries (“the Company”) are engaged in the development and sale of functional beverages, primarily in the United States as well as during the year ended March 31, 2015 was engaged in the development and operations of World of Beer franchise locations, mainly in the New England area.

  

The Company’s fiscal year end is March 31. Its plan of operation during the next twelve months is to focus on the non-alcoholic single serving beverage business, developing and marketing products in two fast growing segments: sports recovery and functional dairy. In addition, ABH plans to open new World of Beer franchise locations based on available financing capital.

  

April 2015 Material definitive Agreement

 

On April 21, 2015, “HVWC” purchased ABH by entering into a Purchase Agreement (the “Purchase Agreement”), with the three original shareholders of Attitude Beer Holding Co., a Delaware corporation (“ABH”), namely, the Company, Alpha Capital Anstalt, a company organized under the laws of Liechtenstein (“Alpha”) and Tarpon Bay Partners LLC, a Florida limited liability company (“Tarpon Bay”), pursuant to which the shareholders sold to HVWC all of the outstanding shares of stock of ABH, and ABH thereupon became a wholly owned subsidiary of HVWC. In consideration for the purchase of the shares of common stock of ABH, HVWC issued: (i) to Attitude Drinks, 51 shares of a newly created Series B Preferred Stock of HVWC (the “Series B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of HVWC’s common stock, par value $.0001 per share (the “Common Stock”), at an exercise price of $0.075 per share (subject to customary anti-dilution adjustments); (ii) to Alpha, a secured convertible note due April 20, 2017 (the “Secured Convertible Note”) in the principal amount of $1,619,375 a seven year warrant (the “Alpha Warrant”), to purchase 1,295,500,500, shares of HVWC’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an additional investment right (“AIR”) to purchase up to $3,750,000 in additional notes (the “AIR Note”) and corresponding warrants (“the “AIR Warrant”); and (iii) to Tarpon, a Secured Convertible Note in the principal amount of $554,792, a seven year warrant (the “Tarpon Warrant”) to purchase 443,833,333 shares of HVWC’s Common Stock at an exercise price of $0.0025 per share (subject to customary anti-dilution adjustments), and an AIR to purchase up to $1,250,000 in additional notes and corresponding AIR Warrants.  In addition, Alpha acquired 32,300 shares of the HVWC’s Series A Preferred Stock (convertible into 32,300,000 shares of HVWC’s Common Stock) from HVW Holdings LLC (an entity of which Mr. James Giordano, the Company’s prior Chief Executive Officer and Chairman of the Board, is the managing member), subject to the terms of a Purchase Agreement (the “Series A Purchase Agreement”). The Company purchased 87,990,000 shares of HVWC’s Common Stock from HVW Holdings LLC at a price of $65,000, subject to the terms of a Purchase Agreement (the “Common Stock Purchase Agreement”). The Alpha Warrant and the Tarpon Warrant are collectively referred to herein as the “A Warrants” and the B Warrant and the A Warrants are collectively referred to herein as the “Warrants.” 

 

In December 2014, ABH entered into a joint venture with New England World of Beer and together opened a 4,000 sq. foot tavern in West Hartford (“West Hartford WOB”), Connecticut that sells a selection of over 500 craft and imported beers along with tavern food and other spirits and cocktails. New England World of Beer holds franchise rights for all of Connecticut and Massachusetts. Similar taverns are currently open in 20 states, namely AL, AZ, CO, CT, FL, GA, IL, LA, MD, MI, NC, NJ, NY, OH, SC, TN, TX, VA, WA and WI.

 

Note 2 -            Going Concern and Management’s Plans:

 

As reflected in the accompanying consolidated financial statements, the Company has incurred accumulated operating losses of $36,784,717 and negative cash flows from operations and has a significant working capital deficiency in the amount of $16,942,378 at March 31, 2015. The Company has been dependent upon third party financing and will continue to depend on additional financing for at least the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

F-8
 

 

Note 2 -            Going Concern and Management’s Plans (continued):

 

During 2016, the Company plans to file a registration statement to provide working capital as needed to increase operations and sales efficiencies through the need to implement sales and marketing programs to increase awareness of the Company’s products as well as to pay for slotting fees for certain retail channels of revenues. The Company plans to increase its sales, primarily by significantly increasing its sales force and partnering with new distributors, as well as offering new products in the next twelve months. The Company’s margins are expected to improve as a result of increased sales, expected economies of scale due to anticipated lower product costs based on increased volumes per production run and lower transportation costs from the expected shipment of full truck loads. However, the Company will work to reduce its dependency on third party financing during the next twelve months. There is no assurance that further funding will be available at acceptable terms, if at all, or that the Company will be able to achieve profitability. Ultimately, the Company’s ability to continue as a going concern is dependent upon the achievement of profitable operations. The accompanying financial statements do not reflect any adjustment