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EX-32.1 - CERTIFICATION - HIGH PERFORMANCE BEVERAGES CO.f10q1015ex32i_highperform.htm
EX-31.1 - CERTIFICATION - HIGH PERFORMANCE BEVERAGES CO.f10q1015ex31i_highperform.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended October 31, 2015

 

   TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE EXCHANGE ACT

 

For the transition period from ___________ to _____________

 

HIGH PERFORMANCE BEVERAGES COMPANY

(Exact name of small business issuer as specified in its charter)

 

Nevada   333-170393   27-3566307

(State or other jurisdiction of

incorporation or organization)

  (Commission file number)  

(IRS Employer

Identification Number)

  

5137 E. Armor St., Cave Creek, AZ 85331

(Address of principal executive office)

 

602.326.8290

(Issuer’s telephone number)

 

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” 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 Exchange Act. Yes    ☐   No  ☒.

 

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: 4,625,023,776 shares of Common Stock as of December 17, 2015.

 

 

 

 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

 

FORM 10-Q

 

October 31, 2015

 

INDEX

 

    Page
PART I - FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited) 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 23
Item 4. Mine Safety Disclosures 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
     
SIGNATURES 24

 

 2 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial statements

 

HIGH PERFORMANCE BEVERAGES COMPANY

CONSOLIDATED BALANCE SHEETS

AS OF OCTOBER 31, 2015 AND JULY 31, 2015

(Unaudited)

 

   October 31,
2015
   July 31,
2015
 
ASSETS        
Current Assets        
Cash and cash equivalents  $20,198   $144,093 
Accounts receivable   8,010    - 
Inventory   22,951    - 
           
Total Current Assets   51,159    144,093 
           
Total Assets  $51,159   $144,093 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities          
Accounts payable and accrued expenses  $796,713   $759,190 
Note payable   6,900    6,900 
Convertible notes payable, net   3,303,707    3,356,418 
Derivative liabilities   2,178,795    1,203,607 
Total Liabilities   6,286,115    5,326,115 
           
Stockholders’ Deficit          
Preferred stock: $0.001 par value; 1,000,000 shares authorized; 100,000 shares issued and outstanding   100    100 
Common stock: $0.001 par value; 5,000,000,000 shares authorized; 4,300,023,776 and 2,400,411,602 issued and outstanding at October 31, 2015 and July 31, 2015, respectively   4,300,024    2,400,411 
Common stock to be issued

   248,901    148,066 
Additional paid-in capital   3,071,651    3,258,329 
Accumulated deficit   

(13,855,632

)   (10,988,928)
Total Stockholders’ Deficit   (6,234,956)   (5,182,022)
           
Total Liabilities and Stockholders’ Deficit  $51,159   $144,093 

 

See accompanying notes to these unaudited financial statements.

 

 3 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2015 AND 2014

(Unaudited)

 

   2015   2014 
         
REVENUES  $29,368   $- 
COST OF GOODS SOLD   (29,163)   - 
           
GROSS PROFIT   205    - 
           
OPERATING EXPENSES          
General and administrative   171,873    147,144 
Marketing   13,619    56,221 
Product development   40,809    - 
Compensation   314,115    327,520 
           
TOTAL OPERATING EXPENSES   540,416    530,885 
           
OPERATING LOSS   (540,211)   (530,885)
           
OTHER (INCOME) / EXPENSES          
Interest income   (8)   - 
Interest expense   

460,557

    175,685 
Change in fair value of derivative liabilities   

1,865,944

    1,161,310 
           
TOTAL OTHER EXPENSES   

2,326,493

    1,336,995 
           
NET LOSS  $(2,866,704)  $(1,867,879)
           
NET LOSS PER COMMON SHARE: BASIC AND DILUTED  $(0.00)  $(0.01)
           
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED   3,485,337,461    1,101,587,315 

 

See accompanying notes to these unaudited financial statements.

 

 4 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2015 AND 2014

(Unaudited)

 

   2015   2014 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss  $(2,866,704)  $(1,867,879)
Adjustments to reconcile net loss to net cash used in operating activities          
Share-based compensation   255,435    28,769 
Amortization of debt discounts   

48,398

    44,615 
Change in fair value of derivative liabilities   

1,865,944

    1,161,310 
Penalty interest expense   

288,059

    76,729 
Changes in operating assets and liabilities          
Accounts receivable   (8,010)   - 
Inventory   (22,951)   - 
Accounts payable and accrued expenses   

52,988

    110,502 
Cash Flows Used in Operating Activities   (386,841)   (445,954)
           
CASH FLOWS FROM FINANCING ACTIVITIES          

Proceeds from sale of common stock

   100,000    - 
Proceeds from issuances of convertible notes payable   162,946    718,000 
Cash Flows Provided by Financing Activities   262,946    718,000 
           
NET CHANGE IN CASH AND CASH EQUIVALENTS   (123,895)   272,046 
Cash and cash equivalents, beginning of period   144,093    10,485 
Cash and cash equivalents, end of period  $20,198   $282,531 
           
SUPPLEMENTAL CASH FLOWS INFORMATION          
Cash paid for interest  $-   $6,208 
Cash paid for income taxes  $-   $- 
           
NONCASH INVESTING AND FINANCING ACTIVITIES          
Debt discounts from fair value of derivative liabilities  $

48,489

   $- 
Debt discounts on convertible notes payable  $

890,756

   $- 
Common stock issued for exercise of warrants  $500,000   $173,574 
Conversion of convertible notes payable and interest payable to common stock  $1,161,233   $284,497 

 

See accompanying notes to these unaudited financial statements.

 

 5 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 1 - ORGANIZATION

 

High Performance Beverages Company (formerly known as Dethrone Royalty Holdings, Inc. and Exclusive Building Services, Inc.) (the “Company”) was founded as an unincorporated DBA in February 1997 and was incorporated as a C corporation under the laws of the State of Nevada on October 11, 2010.

 

Currently, the Company is selling its beverage products online through Amazon.com.

  

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Interim financial statements

 

The accompanying interim unaudited financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission set forth in Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The interim unaudited financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Unaudited interim results are not necessarily indicative of the results for the full fiscal year.  These financial statements should be read in conjunction with the financial statements of the Company for the fiscal year ended July 31, 2015 and notes thereto contained in the Company’s Annual Report on Form 10-K.

 

Basis of Accounting

 

The Company’s consolidated financial statements are prepared using the accrual method of accounting.   These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Dethrone Beverage, Inc. All significant inter-company balances and transactions have been eliminated upon consolidation.

 

 6 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

Use of Estimates and Assumptions

 

Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.  

 

Inventory

 

Inventory is accounted for on a lower of cost or market basis. The inventory consists of completed bottled beverages.

 

Reclassifications

 

Certain comparative figures have been reclassified to conform to the current year presentation.

 

Loss per Share

 

Basic and diluted net income per common share has been calculated by dividing the net income for the period by the basic and diluted weighted average number of common shares. As of October 31, 2015 and July 31, 2015, independent third parties held 14,218,282 and 14,439,441 warrants outstanding, respectively, which have a dilutive effect.

 

 7 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

Subsequent Events

 

The Company evaluates subsequent events from the date of the balance sheet through the date when the financial statements are issued.  

 

Recently Issued Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

 8 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 3 - GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company had negative net working capital and a net stockholders’ deficit at October 31, 2015 and had no reliable source of ongoing debt or equity financing.

 

The Company is emphasizing a new product line involving the manufacture and sale of sports performance or energy drinks along with any other non-alcoholic beverage under the Trade Name, High Performance Beverages Company. However, there are uncertainties as to whether the Company will obtain sufficient financing to continue to distribute the planned product or if there will be sufficient market demand for the products.

 

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

  

NOTE 4 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

   October 31,   July 31, 
Description  2015   2015 

On November 15, 2012, the Company entered into a Senior Secured Promissory Note with an unaffiliated party under which the Company received a one-year loan with a principal balance of $100,000. This note bears interest at 20% per annum with interest payments due quarterly. In addition, the Company issued 2,500,000 shares of restricted common stock to the lender and Mr. Holley and McBride pledged their 56,250,000 shares of the Company’s common stock as collateral and transferred 1,000,000 shares of free trading shares to the lender. If the Company goes into default of the provisions of the note, it becomes convertible into the Company’s common stock at a price of $0.001 per share (100 million shares).

          
           
On September 17, 2015, the Company and the lender entered into an exchange agreement and combined this note with two other notes held by the same lender and issued a new note to the lender.  $-   $100,000 
           
On February 27, 2013, the Company entered into a $335,000 convertible loan agreement. The agreement provides for a $35,000 original issue discount. The lender, at its discretion, may provide funds up to $300,000 to the Company. It provided $60,000 at the closing of the agreement on April 30, 2013. All loans under the agreement are payable in full one year after the funds are issued together with a prorated portion of the original issue discount. All amounts outstanding under the agreement become convertible, at the lender’s discretion, into shares of the Company’s common stock starting 180 days from the execution date of the agreement. The conversion rate per share is the lower of (i) $0.044 or (ii) 60% of the lowest trade price during the 25 trading days prior to a conversion notice. The lender has agreed that it will not execute any short trades and, at no time, will hold more than 4.9% of the Company’s outstanding common stock.          
           
If the Company repays all amounts outstanding under the agreement within 90 days of the execution date, there will be no interest amounts due. If it does not pay all amounts due within 90 days of the execution date, it cannot make any other prepayments of the amounts outstanding without the consent of the lender. In addition, there will be a one-time interest charge of 12% of the amounts outstanding. The Company must also register all shares that are issuable under the agreement in any Registration Statement that it files with the SEC for any purpose. The Company has not filed a Registration Statement since this note was issued.           
           

During the quarter ended October 31, 2015, the Company repaid $18,400 by issuing 184,000,000 shares of common stock. As of October 31, 2015, this note was in default.

   17,320    35,720 

 

 9 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On April 30, 2013, the Company sold an 18% Senior Convertible Debenture in the principal amount of $60,000 (the “Debenture”). The Debenture matures on April 30, 2014 and has an interest rate of 18% per annum payable monthly and on each conversion date. The conversion price of the Debenture is 65% of the average of the lowest three closing bid prices of the Common Stock for the twenty trading days immediately prior to the conversion date.          
           
Upon an Event of Default (as defined in the Debenture), the outstanding principal amount of the Debenture plus accrued but unpaid interest, liquidated damages and other amounts owing on the Debenture through the date of the acceleration shall become at the Debenture holder’s election immediately due and payable in cash at the Mandatory Default Amount (as defined in the Debenture). Commencing five days after the occurrence of an Event of Default that results in the eventual acceleration of the Debenture, the interest rate on the Debenture shall accrue at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law.          
           

On September 17, 2015, the Company and the lender entered into an exchange agreement and combined this note with two other notes held by the same lender and issued a new note to the lender.

   -    37,554 
           
On October 10, 2013, the Company entered into a securities purchase agreement (the “SPA”) with an investor, pursuant to which the investor purchased a master promissory note (the “Master Note”) with a principal balance of $48,000 for a purchase price of $40,000 at an original issuance discount of $4,000. The Company also agreed to pay $4,000 worth of legal, accounting and due diligence costs to the investor.          
           
Pursuant to the Master Note, the investor has the right, solely in the investor’s discretion, to subsequently purchase up to eight (8) additional promissory notes (each, an “Additional Note”, the Master Note and each Additional Note collectively, the “Notes”), at any time from the date of issuance of the Master Note until October 10, 2014.  Each Additional Note shall have a principal balance of $22,000 and shall have a purchase price of $20,000, at an original issue discount of $2,000.          
           
Pursuant to the Master Note, if the Company repays the entire balance of each Note prior to the prepayment opportunity date (as defined in the Master Note), the Company shall pay an interest rate equal to 0% per annum.  If the Company does not repay the entire balance of each Note prior to the prepayment opportunity date each Note shall have a one-time interest charge equal to 12% , applied to the outstanding balance of each note.          
           
Each note is convertible, at any time after the date six months from the purchase price date (as defined in the Master Note), into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the Master Note.          
           
As of October 31, 2015, this note was in default.   72,027    72,027 

  

 10 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On January 8, 2014, the Company sold an Original Issue Discount Convertible Promissory Note in the principal amount of $75,000, for cash consideration of $50,000. This note matured on July 8, 2014 and all overdue principal entailed a late fee at the rate of 22% per annum. The Company had the option to prepay this note for $100,000 at any time prior to the maturity date.        
           
This note may be converted into common stock of the Company at any time after the maturity date at a fixed price of $0.0001 per share. However, if the stock price of the Company loses the bid at any time before the maturity date, the conversion price shall be $0.00001 per share. This note shall not be converted to the extent that such conversion would result in beneficial ownership by the holder and its affiliates to own more than 4.99% of the issued and outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the noteholder upon with not less than 61 days’ prior notice to the Company.          
           

During the quarter ended October 31, 2015, the Company repaid $11,965 by issuing 119,660,000 shares of common stock. As of October 31, 2015, this note was in default.

   56,706    68,671 
           
On March 25, 2014, the Company sold a note with a principal balance of $75,000 for a purchase price of $50,000 and an original issuance discount of $25,000. This note matured on September 25, 2014.         
           
This note may be converted into common stock of the Company at any time after the maturity date at a fixed price of $0.0001 per share. However, if the stock price of the Company loses the bid, loses DTC eligibility, or gets “chilled for deposit” at any time before the maturity date, the conversion price shall be $0.00001 per share. This note shall not be converted to the extent that such conversion would result in beneficial ownership by the holder and its affiliates to own more than 4.99% of the issued and outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the noteholder upon with not less than 61 days’ prior notice to the Company.          
           

During the quarter ended October 31, 2015, the Company repaid $43,671 by issuing 87,456,860 shares of common stock. As of October 31, 2015, this note was in default.

   31,329    75,000 
           
On March 31, 2014, the Company sold a note with a principal balance of $42,000 for a purchase price of $30,000.  This note matured on September 30, 2014.  Interest accrued at the rate of 15% per annum, compounding daily.  At any time from the date hereof until no payment and/or repayment of funds due to the holder of this note, all principal, accrued but unpaid interest and all other payments due under this note shall be convertible into shares of common stock of the Company, at a conversion price of $.0001 at the option of the holder, in whole at any time and from time to time.        
           

On September 17, 2015, the Company and the lender entered into an exchange agreement and combined this note with two other notes held by the same lender and issued a new note to the lender.

   -    6,496 

  

 11 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On June 3, 2014, the Company sold a note with a principal purchase price of $10,000.  This note matured on June 2, 2015.  Interest accrued at the rate of 8% per annum, compounding daily.  At any time from the date hereof until no payment and/or repayment of funds due to the holder of this note, all principal, accrued but unpaid interest and all other payments due under the note shall be convertible into shares of common stock of the Company, at a conversion price of $.0001 at the option of the noteholder, in whole at any time and from time to time.        
           
During the quarter ended October 31, 2015, the Company repaid $39,534 in interest and penalties by issuing 92,620,408 shares of common stock.

       1,500 
           
On June 6, 2014, the Company sold a note with a principal purchase price of $60,000.  This note matured on June 5, 2015. Interest accrues at the rate of 8% per annum, compounding daily.  At any time from the date hereof until no payment and/or repayment of funds due to the noteholder, all principal, accrued but unpaid interest and all other payments due under this note shall be convertible into shares of common stock of the Company, at a conversion price of $.0001 at the option of the noteholder, in whole at any time and from time to time.        
           

During the quarter ended October 31, 2015, the Company repaid $39,756 by issuing 58,750,821 shares of common stock.

   -    39,756 
           
On June 4, 2014, a new lender assumed a $60,000 portion of existing debt.  Pursuant to the original agreement, if the Company does not repay the entire balance of the maturity date, June 15, 2014, the note shall accrue interest at 22% per annum.          
           
The note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the original note.          
           
As of October 31, 2015, the Company was in default on this note.   472,568    472,568 
           
On June 6, 2014, the Company sold a note with a principal purchase price of $60,000.  This note matured on June 5, 2015.  Interest accrues at the rate of 8% per annum, compounding daily.  This note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the five (5) trading days immediately preceding the conversion, subject to certain adjustment as further described in the original note.         
           

During the quarter ended October 31, 2015, the Company repaid $36,510 by issuing 54,340,385 shares of common stock.

   -   36,510 
           
On August 15, 2014, the Company sold a non interest bearing note with a principal purchase price of $66,000.  This note was due on August 15, 2015.  This note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 50% of the lowest trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the original note.          
           
As of October 31, 2015, the Company was in default on this note.   68,000    68,000 

 

 12 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On August 26, 2014, a new Investor purchased from an original noteholder, a convertible note with a face value of $48,000 dated October 8, 2013, with a present balance of $62,234, including accrued interest. The terms of the original note remain the same.          
           
Pursuant to the Master Note, the Investor held the right, solely in the Investor’s discretion, to subsequently purchase up to eight (8) additional promissory notes (each, an “Additional Note”, the Master Note and each additional note collectively, the “Notes”), at any time from the date of issuance of the Master Note until October 10, 2014.  Each Additional Note had a principal balance of $22,000 and had a purchase price of $20,000, and an original issue discount of $2,000.          
           
Pursuant to the Master Note, if the Company repays the entire balance of each of the Notes prior to the prepayment opportunity date (as defined in the Master Note), the Company shall pay an interest rate equal to 0% per annum.  If the Company does not repay the entire balance of each Note prior to the prepayment opportunity date each Note shall have a one-time interest charge equal to 12%, applied to the outstanding balance of each note.          
           
Each of the notes is convertible, at any time after the date six months from the Purchase Price Date (as defined in the Master Note), into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the Master Note.          
           
As of October 31, 2015, this note was in default.   705,946    705,946 
           
On August 27, 2014, the Company sold a 12% Convertible Redeemable Note in the principal amount of $160,000 pursuant to a Securities Purchase Agreement.   The Note matures on March 27, 2015.          
           
The Note may be converted into common stock of the Company at any time beginning on the 1st day of the date of the Note at a price equal to the lesser of (i) $0.01 or (ii) 60% of the lowest intraday bid price of the common stock as reported on OTCQB, for the five prior   trading days.          
           
As of October 31, 2015, this note was in default.   233,707    233,707 

 

 13 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On October 2, 2014, the Company sold a 12% Convertible Redeemable Note in the principal amount of $58,000 pursuant to a Securities Purchase Agreement. The Note matured on May 2, 2015.          
           
This note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 40% of the lowest bid price for the thirty (30) trading days immediately preceding the conversion, subject to certain adjustment as further described in the note agreement.          
           

During the quarter ended October 31, 2015, the Company repaid $22,268 by issuing 643,389,194 shares of common stock. As of October 31, 2015, this note was in default.

   3,462    25,730 
           
On October 17, 2014, the Company sold a 1% Convertible Redeemable Note in the principal amount of $500,000 pursuant to a Securities Purchase Agreement.          
           
This note matured on April 17, 2015.   This note may be converted into common stock of the Company at any time beginning on the 1st day of the date of this note at a price equal to 56% of the lowest intraday bid price of the common stock as reported on OTCQB, for the five prior trading days.           
           
As of October 31, 2015, this note was in default.   500,000    500,000 
           
On November 28, 2014, the Company executed a convertible note payable in the amount of $800,000, which matured on May 28, 2015, bearing interest at 1% per annum. This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion.          
           
As of October 31, 2015, this note was in default.   800,000    800,000 
           
On March 11, 2015, the Company executed a convertible note payable in the amount of $100,000 payable on September 5, 2015 bearing interest at 1% per annum. This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion.          
           
As of October 31, 2015, this note was in default.   100,000    100,000 

 

 14 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On September 17, 2015, the Company entered into a Settlement Agreement with a lender. In accordance with the Settlement Agreement, the Company agreed to issue to the lender a convertible promissory note in the principal amount of $240,500, in exchange for the return and cancellation of certain outstanding debt held by the lender. The debt was comprised of an aggregate of $240,500 of principal and interest on i) a convertible debenture in the original principal amount of $60,000 issued to the lender on April 30, 2013, ii) a senior secured convertible promissory note with an original principal balance of $100,000, which the lender had assumed from an individual on June 17, 2013, and iii) a convertible note with an original principal amount of $42,000 issued to the lender on March 31, 2014.          
           
The note is convertible into shares of the Company’s common stock at a price per share equal to fifty percent (50%) of the lowest closing bid price or closing sale price for a share of common stock during the ten (10) consecutive trading days immediately preceding the date of conversion.  No effect shall be given to conversions that would result in the lender holding an aggregate of more than 4.99% of the Company’s outstanding Common Stock.  If at any time after September 17, 2015 the Company issues or sells any shares of Common Stock for consideration per share lower than the conversion price the conversion price in effect shall be reduced to the new issuance price.          
           
The Note shall mature on the earlier of (i) December 3, 2015, (ii) the consummation of a Major Transaction (as defined in the note) or (iii) an Event of Default (as defined in the note). The note shall bear interest at a rate of ten percent (10%) per annum.   240,500    - 
           
On October 27, 2015, the Company executed a convertible note payable in the amount of $25,000 payable on April 26, 2016 bearing interest at 1% per annum. This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion.   25,000    - 
           
Total   3,326,565    3,379,185 
Less: debt discounts   (1,942,385)   (1,652,229)
Plus: amortization of discounts   1,919,527    1,629,462 
Total convertible notes payable  $3,303,707   $3,356,418 

 

 15 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 5 - DERIVATIVE LIABILITY

 

The convertible notes payable issued by the Company contain a variable conversion feature (the Variable Conversion Feature) that gives rise to a derivative liability. The Company has measured its derivative liability at fair value and recognized the derivative value as a current liability and recorded the derivative value on its consolidated balance sheet. The derivative is valued primarily using models based on unobservable inputs that are supported by little to no market activity. These inputs represent management’s best estimate of what market participants would use in pricing the liability at the measurement date and thus are classified as Level 3. Changes in the fair values of the derivative are recognized as earnings or losses in the current period.

 

The fair values of derivative liabilities related to the Variable Conversion Feature for the quarter ended October 31, 2015 and the year ended July 31, 2015 were estimated on the transaction dates and balance sheet dates under the following assumptions:

 

   July 31,
2015
   Issuances /
changes
   October 31,
2015
 
Shares of common stock issuable upon exercise of debt   11,029,762,479    5,122,264,791    5,907,497,688 
Estimated market value of common stock on measurement date  $0.0003   $0.0001   $0.00034 
Exercise price  $0.0007   $0.02262   $0.0007 
Risk free interest rate   0.33%   0.01% to 0.11%   0.11%
Expected dividend yield   0.00%   0.00%   0.00%
Expected volatility   384.93%   245.13% to 662.97%   

633.23

%
Expected exercise term in years   0.8333    0.00    0.00 

 

The changes in fair values of the derivative liabilities related to the convertible notes payable for the three months ended October 31, 2015 are summarized as follows:

 

Fair value of derivative liabilities at July 31, 2015  $1,203,607 
Conversion of derivative liabilities   (890,756)
Change in fair value of derivative liabilities   1,865,944 
Fair value of derivative liabilities at October 31, 2015  $2,178,795 

   

NOTE 6 - EQUITY

 

The Company is authorized to issue 5,000,000,000 shares of common stock and 1,000,000 shares of preferred stock.

 

On September 1, 2015, the Company issued 10,000,000 shares of common stock to a consultant for services rendered. The fair market value of these common stock is $25,000.

 

On September 1, 2015, the Company issued 1,000,000 shares of common stock to a consultant for services rendered. The fair market value of these common stock is $2,500.

 

On September 15, 2015, the Company settled a lawsuit by issuing 100,000,000 shares of common stock. These shares have a fair value of $220,000 on the date of issuance.

 

On September 22, 2015, the Company issued 5,000,000 shares of common stock to an athlete in exchange for an endorsement of its products. 1,000,000 shares had been recorded as a common stock to be issued as of July 31, 2015. The balance, 4,000,000 shares of common stock, was a bonus. The fair value of the additional 4,000,000 shares was $5,600 on the date of issuance.

 

During the three-month period ended October 31, 2015, the Company issued 500,000,000 shares of common stock upon the exercise of 221,159 warrants.

 

During the three-month period ended October 31, 2015, the Company issued 1,283,612,174 shares of common stock related to conversions of convertible debt and related accrued interest and fees during the period.

  

 16 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 7 - RELATED PARTY TRANSACTIONS

 

The Company neither owns nor leases any real or personal property. The Company's office is provided to it by an officer who incurs no incremental costs as a result of the Company using the space. Therefore, he does not charge for its use. There is no written lease agreement, and no obligation for him to continue this arrangement.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

Pending and Threatened Litigation

 

On or about January 29, 2015, Alpha Capital Anstalt (“Alpha”) filed a complaint against the Company for damages in connection with a note that they alleged was in default by the Company, which was answered on or about April 3, 2015. See Case 1:15-cv-00639-CM filed in the United States District Court, Southern District. It is still pending, discovery is complete, and Alpha has filed and served a motion for summary judgment. The Company plans to file and opposition, and the case will likely be settled in the meantime.

 

NOTE 9 - SUBSEQUENT EVENTS

 

On December 3, 2015, the Company issued 200,000,000 shares to an investor upon the conversion of $70,000 in principal.

 

On December 15, 2015, the Company issued 125,000,000 shares to an investor upon the conversion of $15,000 in principal.  

 

 17 

 

 

Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain matters discussed herein are forward-looking statements.  Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:

 

  ●  our future operating results;        
     
  our business prospects;        
     
  any contractual arrangements and relationships with third parties;        
     
  the dependence of our future success on the general economy;        
     
  any possible financings; and        
     
  the adequacy of our cash resources and working capital.

 

These forward-looking statements can generally be identified as such because the context of the statement will include words such as “believe," “anticipate,” “expect,” “estimate” or words of similar meaning.   Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements.   Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of filing of this Form 10-Q.   Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.   The forward-looking statements included herein are only made as of the date of filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

In October 2013, the Dethrone License Agreement was terminated and the Company entered into a license agreement with Throwdown Industries Holdings, LLC, a Delaware limited liability company (“Throwdown Licensor”), pursuant to which the Licensor granted an exclusive, non-sublicenseable and non-assignable right to the Company to use its trademarks and other intellectual properties (“Throwdown Trademarks”) solely in connection with the development, manufacture, distribution, marketing and sale of sports performance drinks within the United States and Canada (the “Throwdown License”) as well as a one-time right of first refusal to license other types of beverages.

 

Effective November 14, 2013, the Company changed its name to High Performance Beverages Company in order to better reflect the direction and business of the Company.

 

On July 23, 2014, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to increase the number of authorized shares of common stock from 500,000,000 to 2,500,000,000 shares, effective immediately.

 

On August 27, 2015, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to increase the number of authorized shares of common stock from 2,500,000,000 to 5,000,000,000 shares, effective immediately.

 

 18 

 

 

Current Status

 

We began distribution of our product in September 2015 through Amazon.com. Currently we have one flavor of our beverage, High Performance Punch, for sale on Amazon. It is sold in a pack of 12-16oz bottles. We sold 339 packs in September 2015 and 563 packs in October 2015. Our initial production run was approximately 5,000 cases. These units are stored in a warehouse and shipped to Amazon on a periodic basis in order to keep sufficient product on hand in Amazaon’s warehouses to meet customer demand.

 

We promote our product through social media and with athlete endorsements. We have entered into contracts with several professional sports personalities (Jonathan Quick, Aldon Smith, Haloti Nagata, Taj Gibson, Matt Moulson, Brian Braham, Kenneth Draun, and Andrew Depaula) to represent us by endorsing our products. All contracts cover three years and require us to issue an aggregate of 114,575,000 restricted shares of common stock over the lives of the contracts. During the quarter ended October 31, 2015, we have recorded an aggregate marketing expense of $13,619 relating to the shares that are issuable.

 

Three months ended October 31, 2015

 

We had sales of $29,368 during the quarter ended October 31, 2015, which represents an increase of $29,368 over the quarter ended October 31, 2105, through Amazon.

 

We incurred cost of goods sold related to the sale of our product during the quarter ending October 31, 2015 of $29,196. This represents an increase of $29,196 from the prior year, when there were no sales or related cost of goods sold. Cost of goods sold represents 99% of revenue due to the costs associated with establishing an inventory position with Amazon.com, the associated fees, and the relatively high cost of manufacturing our product in small lots.

 

General and administrative expenses increased by $24,729, from $147,144 during the three months ended October 31, 2014 to $171,873 during the three months ended October 31, 2015. The increase was due to higher professional fees for legal and accounting services.

 

Marketing expense decreased by $42,602, from $56,221 during the three months ended October 31, 2014 to $13,619 during the three months ended October 31, 2015. The decrease was due to decreased marketing activities during the three months ended October 31, 2015 after establishing the product in the market.

 

Compensation decreased by $13,405, from $327,520 during the three months ended October 31, 2014 to $314,115 during the three months ended October 31, 2015. The decrease was primarily due to a reduction in share based compensation expense.

 

Other expense increased $989,498 from $1,336,995 during the three months ended October 31, 2014 compared to $2,326,493 during the three months ended October 31, 2015. The increase is due to an increase in interest expense of $284,872, and a increase in the change in the fair value of derivative liabilities of $704,634.

 

Net loss for the three months ended October 31, 2015 increased by $998,825, from $1,867,879 during the three months ended October 31, 2014 to $2,866,704 during the three months ended October 31, 2015, primarily due to the change in fair value of derivative liabilities and increased interest expense.

 

 19 

 

  

Liquidity

 

The Company has financed its operations through the private placement of debt and its common stock.

 

During the quarter ended October 31, 2015, we obtained $100,000 from the sale of stock for cash proceeds, and $162,946 from the issuance of convertible notes payable.

 

We will continue to seek financing as necessary but cannot give any assurances that we will be successful in doing so.

 

We are a public company and, as such, have incurred and will continue to incur additional significant expenses for legal, accounting and related services. Once we become a public entity, subject to the reporting requirements of the Exchange Act of '34, we will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses including annual reports and proxy statements, if required.

 

Recent Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

Critical Accounting Policies

 

The preparation of financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

 

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.

 

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements.  There are no critical policies or decisions that rely on judgments that are based on assumptions about matters that are highly uncertain at the time the estimate is made.  The financial statements include a summary of the significant accounting policies and methods used in the preparation of our financial statements. 

 

Seasonality

 

We do not yet have a basis to determine whether our business will be seasonal.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guarantee contracts or contingent obligations. We also have no other commitments, other than the costs of being a public company that will increase our operating costs or cash requirements in the future.

 

 20 

 

 

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

Item 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Our disclosure controls and procedures include those policies and procedures that:

 

  Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

 

 21 

 

 

  Ensure that our receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and

 

  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

As of October 31, 2014, our management conducted an assessment of the effectiveness of the Company's internal control over financial reporting.  In making this assessment, management followed an approach based on the framework set forth in Internal Control-Integrated Framework   issued by the Committee of Sponsoring Organizations of the Treadway Commission (known as “COSO”).  Based on this assessment, management determined that the Company's internal control over financial reporting was not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner. In forming this conclusion this officer considered the fact that we were unable to timely file our Form 10K for the year ended July 31, 2014 as well as our Form 10Q for the quarter ended October 31, 2014. As such we had inherent weakness in our ability to timely file our financial reports with the SEC.

 

We have made significant attempts to correct this issue including entering into an agreement to outsource our accounting and financial reporting functions to Clear Financial Solutions, Inc. of Houston, Texas. Management believes this arrangement will ensure the timely filing of future financial reports.

 

This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this quarterly report.

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

Pending and Threatened Litigation

 

On or about January 29, 2015, Alpha Capital Anstalt (“Alpha”) filed a complaint against the Company for damages in connection with a note that they alleged was in default by the Company, which was answered on or about April 3, 2015. See Case 1:15-cv-00639-CM filed in the United States District Court, Southern District. It is still pending, discovery is complete, and Alpha has filed and served a motion for summary judgment. The Company plans to file and opposition, and the case will likely be settled in the meantime.

  

Item 1A.  Risk Factors

 

The Company, as a smaller reporting company, is not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On September 1, 2015, the Company issued 10,000,000 shares of common stock to a consultant for services rendered. The fair market value of the common stock as $25,000. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

On September 1, 2015, the Company issued 1,000,000 shares of common stock to a consultant for services rendered. The fair market value of the common stock as $2,500. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

On September 15, 2015, the settled a lawsuit by issuing 100,000,000 shares of common stock, having a fair value of $220,000 on the date of issuance. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

 22 

 

 

On September 17, 2015, the Company entered into a Settlement Agreement with a lender. In accordance with the Settlement Agreement, the Company agreed to issue to the lender a convertible promissory note in the principal amount of $240,500, in exchange for the return and cancellation of certain outstanding debt held by the lender. The debt was comprised of an aggregate of $240,500 of principal and interest on i) a convertible debenture in the original principal amount of $60,000 issued to the lender on April 30, 2013, ii) a senior secured convertible promissory note with an original principal balance of $100,000, which the lender had assumed from an individual on June 17, 2013, and iii) a convertible note with an original principal amount of $42,000 issued to the lender on March 31, 2014. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

On September 22, 2015, the Company issued 5,000,000 shares of common stock to an athlete in exchange for an endorsement of its products. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

During the three month period ended October 31, 2015, the Company issued 500,000,000 shares of common stock upon the exercise of 221,159 warrants. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

  

During the three month period ended October 31, 2015, the Company issued 1,283,612,174 shares of common stock related to conversions of convertible debt and related accrued interest and fees during the period. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

None

 

Item 6. Exhibits and Reports of Form 8-K

 

(a)   Exhibits

 

31.1   Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
     
32.1   Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

 

 23 

 

 

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

 

  HIGH PERFORMANCE BEVERAGES COMPANY
  (Registrant)
   
  /s/ Toby McBride
  Toby McBride
  Title: President and Chief Financial Officer

 

December 21, 2015

 

 

 24