UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X . ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2015
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. TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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HARRISON VICKERS AND WATERMAN INC.
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(Exact name of registrant as specified in its charter)
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Nevada
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| 26-2883037
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(State or jurisdiction of incorporation or organization)
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| (I.R.S. Employer Identification No.)
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712 U.S. Highway 1,
Suite 200
North Palm Beach, FL 33408
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Address of registrant’s Principal executive offices including Area code
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| Registrant’s telephone number
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common stock, par value $.0001 per share
(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 X . .
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 X . .
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X . No .
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants 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.
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Large accelerated filer
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| Accelerated filer
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Non-accelerated filer
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| Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes . No X ..
Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of September 14, 2015 was approximately $1,958,229 based on $.0155, the price at which the registrant’s common stock was last sold as of this filing.
As of September 14, 2015, the registrant had 126,337,367 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes . No X .
Documents incorporated by reference: None
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TABLE OF CONTENTS
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PART I
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Item 1
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| Business
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| 4
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Item 1A
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| Risk Factors
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| 10
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Item 1B
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| Unresolved Staff Comments
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| 22
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Item 2
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| Properties
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Item 3
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| Legal Proceedings
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Item 4
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| Mine Safety Disclosures
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PART II.
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ITEM 5.
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| Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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ITEM 6.
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| Selected Financial Data
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ITEM 7
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations
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ITEM 7A.
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| Quantitative and Qualitative Disclosures about Market Risk
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ITEM 8.
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| Financial Statements and Supplementary Data
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ITEM 9.
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| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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ITEM 9A.
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| Controls and Procedures
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ITEM 9B.
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| Other Matters
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PART III
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ITEM 10.
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| Directors, Executive Officers, and Corporate Governance
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ITEM 11.
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| Executive Compensation
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ITEM 12.
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| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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ITEM 13.
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| Certain Relationships and Related Transactions and Director Independence
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ITEM 14.
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| Principal Accounting Fees and Services
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PART IV
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ITEM 15
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| Exhibits, Financial Statement Schedules
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Signatures
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As used in this Form 10-K, references to “the Company,” “we,” “our,” “ours” and “us” refers to Harrison Vickers and Waterman, Inc., unless otherwise indicated. In addition, references to “financial statements” are to our financial statements except as the context otherwise requires.
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PART I.
Forward-Looking Information
Much of the discussion in this Item is “forward looking”. Actual operations and results may materially differ from present plans and projections due to changes in economic conditions, new business opportunities, changed business conditions, and other developments. Other factors that could cause results to differ materially are described in our filings with the Securities and Exchange Commission.
There are several factors that could cause actual results or events to differ materially from those anticipated, and include, but are not limited to, general economic, financial and business conditions, commodity prices, and changes in consumer preferences
Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We believe the information contained in this Form 10-K to be accurate as of the date hereof. Changes may occur after that date. We will not update that information except as required by law in the normal course of its public disclosure practices.
ITEM 1. BUSINESS
Through our wholly owned subsidiary, Attitude Beer Holding Co., a Delaware corporation (“ABH”), we are an owner of a 51% interest in a World of Beer franchise tavern and restaurant located in West Hartford Connecticut. In December 2014, ABH entered into a joint venture (the “JV”) with New England World of Beer (“NEWOB”) and together opened a 4,000 sq. foot tavern in West Hartford, Connecticut (“West Hartford WOB”) 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. Our joint venture partner, NEWOB, operates and manages this location. NEWOB acquired exclusive rights from World of Beer Franchising Inc to develop World of Beer franchise taverns and restaurants in the State of Connecticut, and the greater Boston area. Through our agreement with NEWOB, we have the right, but are not obligated, to participate in the development of new franchises. As NEWOB has franchise rights with the World of Beer Franchising, Inc. in Tampa, Florida (“franchisor”), we expect to develop other franchise locations in these exclusive territories.
In April 2015, we entered into a Purchase Agreement (the “Purchase Agreement”), with the three original shareholders of ABH, namely, Attitude Drinks Incorporated, a Delaware corporation (“Attitude Drinks”), 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 us all of the outstanding shares of stock of ABH, and ABH thereupon became our wholly owned subsidiary. In consideration for the purchase of the shares of common stock of ABH, we issued: (i) to Attitude Drinks, 51 shares of our newly created Series B Preferred Stock of the Company (the “Series B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of our 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 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 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 our Series A Preferred Stock (convertible into 32,300,000 shares of Common Stock) from HVW Holdings LLC “HVW”, an entity of which Mr. James Giordano, our prior Chief Executive Officer and prior Chairman of the Board, was the managing member, subject to the terms of a Purchase Agreement (the “Series A Purchase Agreement”). Attitude Drinks purchased 87,990,000 shares of 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”).
References in this Report to “company”, “we”, “us”, and “our” refer to the business of Harrison Vickers and Waterman, Inc. and our subsidiary.
In September 2013, we shifted our focus to the commercial real estate industry and on September 6, 2013, we purchased from Harrison Vickers and Waterman LLC (“LLC”) certain real estate loans. We still own certain real estate loans, although real estate lending is no longer the primary focus of our business, and therefore we operate as two segments for reporting purposes. We do not anticipate engaging in any more commercial loans
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Our History
We were incorporated on June 5, 2008, under the laws of the State of Nevada under the name Sharp Performance Inc. From inception until September 2013, our business focus was on the provision of consulting services to the American automotive industry. On October 24, 2013, we changed our name to Harrison Vickers & Waterman Inc. in conjunction with the change in our business focus and engaged in a 324.5-to-1 forward stock split of our common stock. In connection with our shift in business focus, on August 18, 2015, we filed a Definitive Information statement with the Securities and Exchange Commission to change our name to Attitude Beer, Inc. and we expect to file the Certificate of Amendment to our Certificate of Incorporation to effectuate the name change in September 2015.
Available Information
Our principal offices are located at 712 US Highway One, North Palm Beach Florida. Our website address is www.attitudebeer.com. The information contained in, and that can be accessed through, our website is not incorporated into and is not a part of this report. Our phone number is (561) 227- 2727, and our facsimile number is (561) 799-5039. Our filings may also be read and copied at the SEC's Public Reference Room at 100 F Street NE, Room 1580 Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.
The West Hartford World Of Beer Restaurant
ABH and NEWOB are the joint venture owners of the West Hartford World of Beer restaurant and tavern. ABH also has an option to purchase a 51% interest in an existing World of Beer restaurant and tavern in Stamford, Connecticut with NEWOB. World of Beer restaurants feature a family friendly environment that offers over 500 imported and craft beers plus a wide variety of menu items. Our 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 we differentiate our 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 any the sports fan, 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, our restaurant allows our guests to customize their experience to meet their time demands and experience requirements.
There are currently approximately 80 World of Beer restaurants in operation of which ABH along with NEWOB own one. We leverage the brand recognition of the other 80 World of Beer restaurants and expect to gain acceptance of our restaurant through the brand recognition of other World of Beer locations throughout the country even though we do not own them. We intend to further strengthen our concept by our emphasis on operational excellence supported by operating guidelines and employee training, all targeted to meet the needs of our demographic base.
Our Concept and Business Strategy
To implement our strategy, the joint venture intends to
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Identify, invest in and develop new locations;
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Continuously develop and deliver unique guest experiences;
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Create an inviting neighborhood atmosphere;
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Focus on operational excellence;
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Increase same-store sales, average unit volumes, and profitability.
Our Growth Strategy
Our joint venture with NEWOB will originally concentrate in the New England area where we feel our strategy is most likely to take hold. The JV has developed procedures for identifying new opportunities, determining our expansion strategy in those areas and developing sites for franchised restaurants and taverns. Our 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 us to gain marketing, operational, cost and other efficiencies. The JV intends to have a franchise system through the development of new locations.
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Along with planned unit growth, the JV is focused on innovating our customer experience in order to enhance each visit to our establishment and strengthen brand loyalty by customizing our menu for specific events that we believe 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).
World of Beer Menu
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.
Our 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 our loyal guests with new menu items that increase guest frequency and attract new guests.
World of Beer Atmosphere and Layout
Our restaurants and taverns are “open layouts” which provide for complete visibility for our patrons. The open layout, combined with our detailed selection of beers, we believe makes for an excellent experience that combines a friendly atmosphere, sporting events and our outstanding beer selection. We strive to provide a high-energy atmosphere where friends can gather for camaraderie and to celebrate competition, as well as allow our guests the flexibility to customize their dining experience. The inviting and energetic environment of our restaurant is designed using furnishings that can be easily rearranged to accommodate parties of various sizes. Our restaurant and tavern also features distinct dining and bar areas.
Site Selection and Development
Our site selection process is integral to the successful execution of our 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.
Possible Restaurant Franchise Operations
All of our 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.
Information Technology
The store utilizes a standard point-of-sale system which tabulates sales as well as items sold. We have daily reporting of revenues and expenses plus inventory on hand.
Competition
The restaurant industry is intensely competitive. We compete on the basis of the taste, quality and price of food offered, guest service, ambience, location and overall guest experience. We believe that our attractive price-value relationship, the atmosphere of our restaurants, our sports viewing experience, our focus on our guests and the quality and distinctive flavor of our food enable us to differentiate ourselves from our competitors. We believe we compete 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 our direct and indirect competitors are well-established national, regional or local chains, and some have greater financial and marketing resources than we do.
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Government Regulation
The restaurant industry is subject to numerous federal, state and local governmental regulations, including those relating to the preparation and sale of food and alcoholic beverages, sanitation, public health, fire codes, zoning, and building requirements. Each restaurant requires appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and each restaurant requires food service licenses from local health authorities. Our licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause, including violation by us or our employees of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of employees or patrons who may serve or be served alcoholic beverages, the serving of alcoholic beverages to visibly intoxicated patrons, advertising, wholesale purchasing and inventory control. In order to reduce this risk, restaurant employees are trained in standardized operating procedures designed to assure compliance with all applicable codes and regulations. We have implemented policies, procedures and training to ensure compliance with these regulations.
We are also subject to laws governing our relationship with employees. Our failure or the failure of our franchisees to comply with international, federal, state and local employment laws and regulations may subject us to losses and harm our brands. The laws and regulations govern such matters as wage and hourly requirements; workers’ compensation insurance; unemployment and other taxes; working and safety conditions; and citizenship and immigration status. Significant additional government-imposed regulations under the Fair Labor Standards Act and similar laws related to increases in minimum wages, overtime pay, paid leaves of absence, and mandated health benefits, may also impact the performance of our franchised operations. In addition, employee claims based on, among other things, discrimination, harassment, wrongful termination, wage and hour requirements and payments to employees who receive gratuities, may divert financial and management resources and adversely affect operations. The losses that may be incurred as a result of any violation of such governmental regulations by the company or our franchisees are difficult to quantify.
We are also subject to licensing and regulation by State of Connecticut and local departments relating to the service of alcoholic beverages, health, sanitation, fire and safety standards. Compliance with these laws and regulations may lead to increased costs and operational complexity and may increase our exposure to governmental investigations or litigation. In addition, we are subject to various state and federal laws relating to the offer and sale of franchises and the franchisor-franchisee relationship. In general, these laws and regulations impose specific disclosure and registration requirements prior to the sale and marketing of franchises and regulate certain aspects of the relationship between franchisor and franchisee.
Emerging Growth Company Status
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or “JOBS Act.” We anticipate that we will remain an emerging growth company until we attain one of the following: a) we have more than $1 billion in annual revenue in a fiscal year; b) we issue more than $1 billion of non-convertible debt over a three-year period; c) we have more than $700 million in market value of our common stock held by non-affiliates as of any June 30, and d) before the end of the five full fiscal years. For as long as we are an emerging growth company, unlike other public companies, we will not be required to:
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provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002;
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comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;
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comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the Securities and Exchange Commission determines otherwise;
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provide certain disclosure regarding executive compensation required of larger public companies;
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hold nonbinding shareholder advisory votes on executive compensation; or
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obtain shareholder approval of previously unapproved golden parachute payments in connection with proposed merger and sale transactions.
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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Marketing
Our marketing programs are designed to build awareness of our brand with beer aficionados, sports fans, and families encouraging them to visit and ultimately develop a personal connection to World of Beer. We believe these programs will drive return traffic to our facility and support new restaurant openings.
These lifestyles and behaviors are the cornerstones for creating key brand touch-points within each campaign that includes media, promotions, partnerships and food and beverage experiences that will encourage social interactions and bring each theme to life.
In addition, we have a gift card program. We can give these away as promotions to bring new customers into our facilities as quickly as possible and also to generate loyalty with existing customers.
Net Revenue Streams
Our net revenue streams are currently derived solely from the revenues from our West Hartford World of Beer location.
Operations
Our leadership team strives for operational excellence by implementing operational standards and best practices.
Kitchen Operations. An important aspect of our concept is the efficient design, layout and execution of our kitchen operations. Due to the relatively simple preparation of our menu items, the kitchen consists of fryers, grill and food prep stations that are arranged assembly-line style for maximum productivity. Our kitchen employees require only basic training before reaching full productivity. Additionally, we do not require the added expense of an on-site chef. The ease and simplicity of our kitchen operations allows us to achieve our goal of preparing casual dining quality food with minimal wait times.
Training. We provide thorough training for our management and hourly employees to prepare them for their role in delivering a positive and engaging experience.
Career Opportunities. Through our training programs, we are able to motivate and retain our field operations team by providing them with opportunities for increased responsibilities and advancement. We strive for a balance of internal promotion and external hiring. This provides us with the ability to retain and grow our employee base.
Recruiting. We actively recruit and select individuals who demonstrate enthusiasm and dedication and who share our passion for high quality guest service delivered through teamwork and commitment. To attract high caliber managers, we have developed a competitive compensation plan that includes a base salary and an attractive benefits package.
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Food Preparation, Quality Control and Purchasing
We strive to maintain high quality standards. Our systems are designed to protect our food supply from procurement through the preparation process. We provide detailed specifications to suppliers for our food ingredients, products and supplies. Our restaurant managers are certified in a comprehensive food safety and sanitation course, ServSafe®, which was developed by the National Restaurant Association Educational Foundation.
We negotiate directly with independent suppliers for our supply of food and paper products. Domestically, we use larger local distributors when possible to distribute these products to our restaurants. To maximize our purchasing efficiencies and obtain the lowest possible prices for our ingredients, products and supplies, our purchasing team negotiates prices based on the system-wide usage of both company-owned and franchised restaurants. We believe that competitively-priced, high-quality alternative manufacturers, suppliers, growers and distributors are available should the need arise.
We also explore purchasing strategies to reduce the severity of cost increases and fluctuations, including long-term purchasing arrangements if possible.
Commercial Real Estate
Commencing September 2013, we have been engaged in the making of commercial secured real estate loans to commercial borrowers under what we believe to be advantageous and risk adverse terms. Our business model was to provide alternative funding solutions to borrowers who may not qualify with conventional lenders or may require faster turnaround by offering them commercial secured real estate loans with terms that are designed to be advantageous and otherwise risk averse to us. We currently own loans in the principal amount of $950,000. We do not anticipate making any new loans.
Effective September 6, 2013, we entered into a Securities Purchase Agreement with Harrison Vickers and Waterman, LLC (“Harrison Vickers”). Pursuant to the agreement we purchased from Harrison Vickers the real estate loans (the “Loans”). The purchase price was paid by us via the issuance of a secured promissory note in the principal amount of $1,800,000 (the “Note”) due December 31, 2014.
The Note is secured by a Pledge Agreement entered into between us and Harrison Vickers, whereby the proceeds of the Loans are pledged as security for the repayment of the Note.
Effective September 6, 2013, we also entered into a Securities Purchase Agreement with HVW. Pursuant to the Agreements we sold to HVW an aggregate of 308,166 shares of our Common Stock and 32,300 shares of our preferred stock which is convertible into 32,300,000 shares of our common stock. The consideration under the agreement was certain services to be rendered by HVW to us pursuant to a management agreement (the “Management Agreement”) entered into between us and HVW on September 6, 2013. The material terms of the Management Agreement include: (i) HVW will provide certain business, financial and advisory services to us; (ii) HVW will receive a management fee of two percent (2%) per annum of average gross assets, (iii) HVW will also receive twenty percent (20%) of the revenues received by us derived from the services under the Management Agreement.
Competitive Business Conditions in The Real Estate Loan Industry
We face considerable competition in our market areas from larger competitor loans from other depository institutions. Many of our competitors have substantially greater resources, broader geographic markets, and higher lending limits than we and are also able to provide more services and make greater use of media advertising. In recent years, intense market demands, economic pressures, increased customer awareness of products and services and the availability of electronic services have forced banking institutions to diversify their services and become more cost-effective.
Competition for loans comes from other commercial banks, savings institutions, insurance companies, consumer finance companies, credit unions, mortgage banking firms and other institutional lenders. Competition is affected by the availability of lendable funds, general and local economic conditions, market interest rates and other factors that are not readily predictable.
Employees
As of June 30, 2015, our tavern at our West Hartford, Connecticut World of Beer location employs 44. We utilize the services of 4 employees of Attitude Drinks Incorporated in North Palm Beach, Florida for our corporate needs. We anticipate that we will need to identify, attract, train and retain other highly skilled personnel to pursue our development program. Hiring such personnel is competitive, and there can be no assurance that we will be able to retain our key employees or attract, assimilate or retain the qualified personnel necessary for the development of our business.
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ITEM 1A. RISK FACTORS
This Current Report on Form 10-K, including the discussions contained in Items 1 and 7, contains various “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. Forward-looking statements are based on current expectations or beliefs concerning future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,” “will,” “forecast” and similar words or expressions. Our forward-looking statements generally relate to our growth strategy, financial results, sales efforts, franchise expectations, restaurant openings and related expense and cash requirements. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. While it is not possible to foresee all of the factors that may cause actual results to differ from our forward-looking statements, such factors include, among others, the risk factors that follow. Investors are cautioned that all forward-looking statements involve risks and uncertainties and speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement. We believe that all material risk factors have been discussed below.
Our business is subject to numerous risk factors, including the following:
Risks Related to Our Business
If we are unable to identify and obtain suitable new franchise sites and successfully open new franchises, our revenue growth rate and profits may be reduced.
We require that all proposed franchise sites meet our site selection criteria. We 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. We face significant competition from other restaurant companies and retailers for sites that meet our criteria, and the supply of sites may be limited in some markets. Further, we may be precluded from acquiring an otherwise suitable site due to an exclusivity restriction held by another tenant. As a result of these factors, our costs to obtain and lease sites may increase, or we may not be able to obtain certain sites due to unacceptable costs. Our inability to obtain suitable sites at reasonable costs may reduce our growth.
To successfully expand our business, we 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 we may experience similar delays in the future. Delays in opening new sites could hurt our ability to meet our growth objectives, which may affect our results of operations and thus our stock price. We cannot guarantee that we or any future franchisees will be able to achieve our expansion goals. Further, any sites that we open may not achieve operating results similar or better than our existing restaurant. If we are unable to generate positive cash flow from a new site, we may be required to recognize an impairment loss with respect to the assets for that restaurant. Our ability to expand successfully will depend on a number of factors, many of which are beyond our control. These factors include:
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Negotiating acceptable lease or purchase terms for new sites;
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Cost effective and timely planning, design and build-out of sites;
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Creating Guest awareness of our restaurants and taverns in new markets;
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Competition in new and existing markets;
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General economic conditions.
Our restaurants and taverns may not achieve market acceptance in the new regions we enter.
Our expansion plans depend on opening restaurants and taverns in markets starting with New England where we have little or no operating experience. We may not be successful in operating our 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 our ability to generate market awareness of our brands. Sales at our locations opening in new markets may take longer to reach profitable levels, if at all.
New restaurants added to our existing markets may take sales from existing restaurants.
We intend to open new restaurants and taverns in our existing market, which may reduce sales performance and guest visits for our 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.
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A security failure in our information technology systems could expose us to potential liability and loss of revenues.
We accept 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 our company or our service providers could result in theft, loss, fraudulent or unlawful use of customer data which could harm 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 our location(s) caused by inclement weather, terrorist attacks, natural disasters such as floods, drought and hurricanes, pandemics, the inability of our vendors to obtain credit in a tightened credit market, food safety warnings or advisories or the prospect of such pronouncements, or other conditions beyond our control could adversely affect the availability, quality and cost of items we buy and the operations of our restaurants. Our inability to effectively manage supply chain risk could increase our costs and limit the availability of products critical to our restaurant operations.
Our business is difficult to evaluate because we are currently focused on a new line of business and have very limited operating history and information.
Our company was incorporated on June 5, 2008, which makes an evaluation of us extremely difficult. In addition, we have recently shifted our focus from the commercial real estate lending to restaurant and tavern sales. There is a risk that we will be unable to successfully operate this new line of business or be able to successfully integrate it with our current management and structure. Our estimates of capital and personnel required for our new line of business are based on the experience of management and businesses that are familiar to them. We are subject to the risks such as our ability to implement our business plan, market acceptance of our proposed business and services, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, competition from better funded and experienced companies, and uncertainty of our ability to generate revenues. There is no assurance that our activities will be successful or will result in any revenues or profit, and the likelihood of our success must be considered in light of the stage of our development. In addition, no assurance can be given that we will be able to consummate our business strategy and plans, as described herein, or that financial, technological, market, or other limitations may force us to modify, alter, significantly delay, or significantly impede the implementation of such plans. We have insufficient results for investors to use to identify historical trends or even to make quarter to quarter comparisons of our operating results. You should consider our prospects in light of the risk, expenses and difficulties we will encounter as an early stage company. Our revenue and income potential is unproven, and our business model is continually evolving. We are subject to the risks inherent to the operation of a new business enterprise and cannot assure you that we will be able to successfully address these risks.
We may not be profitable.
We expect to incur operating losses for the foreseeable future. For the year ending June, 2015, we had a net operating loss of $104,938 as compared to a net operating loss of $562,101 for the year ending June 30, 2014. To date, we have not generated significant revenue from our real estate lending business. Our ability to become profitable depends on our ability to have successful operations and generate and sustain revenues, while maintaining reasonable expense levels, all of which are uncertain in light of our limited operating history in our current line of business and our beginning of our new food and beverage line of business.
Our auditors have substantial doubt about our ability to continue as a going concern.
Our auditors’ report reflects the fact that the ability of our Company to continue as a going concern and expresses substantial doubt about our ability to continue as a going concern. This substantial doubt is due to our lack of committed funding and lack of revenue. Our consolidated audited financial statements report a net loss of ($1,343,950) for the year ended June 30, 2015. If we are unable to continue as a going concern, you will lose your investment. You should not invest in us unless you can afford to lose your entire investment. See “Report of Independent Registered Public Accounting Firm” and the notes to our Financial Statements.
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There are general risks associated with the restaurant industry.
Restaurants are a very cyclical business. Specific factors that impact our 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 the Company’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 the Company.
If consumer confidence in our business deteriorates, our business, financial condition and results of operations could be adversely affected.
Our business is built on consumers’ confidence in our brand. As a consumer business, the strength of our brand and reputation are of paramount importance to us. A number of factors could adversely affect consumer confidence in our brand, many of which are beyond our control and could have an adverse impact on our results of operations. These factors include:
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In addition, we are largely dependent on the other World of Beer franchisees to maintain the reputation of our brand. Despite the measures that we put in place to ensure their compliance with our performance standards, our lack of control over their operations may result in the low quality of service being attributed to our brand, negatively affecting our overall reputation. Any event that hurts our brand and reputation among consumers as a reliable services provider could have a material adverse effect on our business, financial condition and results of operations.
We face substantial competition in our target markets
The restaurant industry is highly competitive, and many of our competitors are substantially larger and possess greater financial resources than we do. 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 we face 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 our sports fan and family demographic. There are additional restaurants that feature custom beers. Many of these competitors have substantially more resources than we which allows them to have economies of scale allowing them price points which compare favorably to ours. They also have the ability to market their restaurants given their sheer size which we do not possess. All of these factors may make it difficult for us to succeed.
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Unfavorable publicity could harm our business.
Multi-unit restaurant businesses such as ours 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 our 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 our failure to respond effectively to adverse publicity, could have a material adverse effect on our business.
Changes in employment laws or regulation could harm our performance.
Various federal and state labor laws govern our relationship with our 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 our 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 our restaurants are designed to be accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for disabled persons.
Failure of our internal controls over financial reporting could harm our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our stock.
Economic conditions could have a material adverse impact on our landlords or other tenants in retail centers in which we or our franchisees are located, which in turn could negatively affect our financial results.
Our 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 us. In addition other tenants at retail centers in which we or our franchisees are located or have executed leases may fail to open or may cease operations. If our landlords fail to satisfy required co-tenancies, such failures may result in us or our franchisees terminating leases or delaying openings in these locations. Also, decreases in total tenant occupancy in retail centers in which we are located may affect guest traffic at our restaurants. All of these factors could have a material adverse impact on our operations.
An impairment in the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and consolidated results of operations.
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Goodwill represents the excess of cost over the fair value of identified net assets of business acquired. We review goodwill for impairment annually, or whenever circumstances change in a way which could indicate that impairment may have occurred. Goodwill is tested at the reporting unit level. We identify potential goodwill impairments by comparing the fair value of the reporting unit to its carrying amount, which includes goodwill and other intangible assets. The fair value of the reporting unit is calculated using a market approach. If the carrying amount of the reporting unit exceeds the fair value, this is an indication that impairment may exist. We calculate the amount of the impairment by comparing the fair value of the assets and liabilities to the fair value of the reporting unit. The fair value of the reporting unit in excess of the value of the assets and liabilities is the implied fair value of the goodwill. If this amount is less than the carrying amount of goodwill, impairment is recognized for the difference. A significant amount of judgment is involved in determining if an indication of impairment exists. Factors may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors would have a significant impact on the recoverability of these assets and negatively affect our financial condition and consolidated results of operations. We compute the amount of impairment by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. We are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.
We evaluate the useful lives of our intangible assets to determine if they are definite- or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures and the expected lives of other related groups of assets.
We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill or other intangible assets become impaired, there could be an adverse effect on our financial condition and consolidated results of operations.
We 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 our results of operations.
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. We incur substantial pre-opening expenses each time we open a new restaurant and incur other expenses when we close, relocate or remodel existing restaurants. These expenses are generally higher when we open 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 our results of operations.
Our success depends substantially on the value of our brands and our reputation for offering guests an unparalleled Guest experience.
We believe we have built a strong reputation for the quality and breadth of our menu items as part of the total experience that guests enjoy in our restaurants. We believe we must protect and grow the value of our brands to continue to be successful in the future. Any incident that erodes consumer trust in or affinity for our brands could significantly reduce their value. If consumers perceive or experience a reduction in food quality, service, or ambiance, or in any way believe we failed to deliver a consistently positive experience, our brand value could suffer.
Our inability to successfully and sufficiently raise menu prices could result in a decline in profitability.
We utilize 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 our selection and amount of menu price increases are not accepted by consumers and reduce guest traffic, or are insufficient to counter increased costs, 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 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, 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 our 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, our quarterly operating results may fluctuate significantly because of other factors, including:
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Fluctuations in food costs, particularly chicken wings;
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The timing of new restaurant openings which may impact margins due to the related preopening costs and initially higher restaurant level operating expense ratios;
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Potential distraction or unusual expenses associated with our expansion into other geographical territories;
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Our ability to operate effectively in new markets in which we have limited operating experience;
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Labor availability and costs for hourly and management personnel;
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Changes in competitive factors;
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Disruption in supplies;
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General economic conditions, consumer confidence and fluctuations in discretionary spending;
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Claims experience for self-insurance programs;
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Increases or decreases in labor or other variable expenses;
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The impact of inclement weather, natural disasters and other calamities;
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Fluctuations in interest rates;
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The timing and amount of asset impairment loss and restaurant closing charges; and
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Tax expenses and other non-operating costs.
As a result of the factors discussed above, 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.
We may not be able to attract and retain qualified team members and key executives to operate and manage our business.
Our success and the success of our individual restaurant(s) and business depends on our 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 our expansion plans and business performance and, to the extent that a labor shortage may force us to pay higher wages, harm our profitability. The loss of any of our key executive officers could jeopardize our ability to meet our financial targets.
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The sale of alcoholic beverages at our locations subjects us to additional regulations and potential liability.
Because our locations sell alcoholic beverages, we are required to comply with the alcohol licensing requirements of the federal government, states and municipalities where our 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 we fail to comply with federal, state or local regulations, our licenses may be revoked, and we may be forced to terminate the sale of alcoholic beverages at one or more of our locations. Further, growing movements to change laws relating to alcohol may result in a decline in alcohol consumption at our facilities or increase the number of dram shop claims made against us, either of which may negatively impact operations or result in the loss of liquor licenses.
In certain states we are 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 our performance.
The success of our 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 our unique food and beverage items and appeal of sports bars and casual dining restaurants. We also depend on trends toward consumers eating away from home. Shifts in these consumer preferences could negatively affect our 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 our menu. Negative publicity over the health aspects of such food items may adversely affect consumer demand for our menu items and could result in a decrease in guest traffic to our restaurants, which could materially harm our business. In addition, we will be required to disclose calorie counts for all food items on our menus, due to federal regulations, and this may have an effect on consumers’ eating habits. Other federal regulations could follow this pattern. In addition, our 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 our business, financial condition, operating results or cash flow.
A regional or global health pandemic could severely affect our 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, our business could be severely affected. We have positioned our 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 our 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.
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We may be subject to increased labor and insurance costs.
Our 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, we 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 our labor costs. This, in turn, could lead us to increase prices which could impact our sales. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline. In addition, the current premiums that we pay for our 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 we actually experience under our workers' compensation and general liability insurance, for which we carry high per-claim deductibles, may also increase at any time, thereby further increasing our 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.
Our current insurance may not provide adequate levels of coverage against claims.
We currently maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure, such as losses due to natural disasters. Such damages could have a material adverse effect on our business and results of operations.
We are dependent on information technology and any material failure of that technology could impair our ability to efficiently operate our business.
We rely on information systems across our operations, including, for example, point-of-sale processing in our locations, management of our supply chain, collection of cash and credit and debit card payments, payment of obligations and various other processes and procedures. Our ability to efficiently manage our 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 our operations, require significant investment to remediate the issue or cause negative publicity that could damage our brand. Significant capital investments might be required to remediate any problems.
If we are unable to maintain our rights to use key technologies of third parties, our business may be harmed.
We rely on certain technology licensed from third parties and may be required to license additional technology in the future for use in managing our internet sites and providing related services to users and customers. These third-party technology licenses may not continue to be available to us on acceptable commercial terms or at all. The inability to enter into and maintain any of these technology licenses could significantly harm our business, financial condition and operating results.
Our future growth may require us 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 our business plan and to be ultimately successful, we will need ample capital to purchase/rent new properties, build new locations, hire personnel and market our locations. We may not generate sufficient cash from our existing operations in order to do so. Therefore, we may at some point choose to raise additional capital to support our continued growth. Our ability to raise additional capital will depend, in part, on conditions in the capital markets at that time which are outside of our control. Accordingly, we may be unable to raise additional capital, if and when needed, on terms acceptable to us, or at all. If 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.
If we are unable to obtain additional funding, our business operations will be harmed. Even if we do obtain additional financing, our then existing shareholders may suffer substantial dilution.
It is possible that additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. The inability to raise the required capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. Our ability to obtain capital will also depend on market conditions, the national economy and other factors beyond our control. If we are unable to obtain necessary financing, we will likely be required to curtail our business plans, which could cause the company to become dormant. Any additional equity financing may involve substantial dilution to our then existing shareholders.
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The occurrence of any failure, breach or interruption in service involving our systems or those of our service providers could damage our reputation, cause losses, increase our expenses, and result in a loss of customers, an increase in regulatory scrutiny or expose us to civil litigation and possibly financial liability, any of which could adversely impact our financial condition, results of operations and the market price of our stock.
Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits and our loans. Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our 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 our 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 our computer systems and networks could potentially be jeopardized or could otherwise cause interruptions or malfunctions in our operations or the operations of our customers, clients or counterparties. This could cause us significant reputational damage or result in our experiencing significant losses.
Furthermore, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We also may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance we maintain. In addition, we routinely transmit and receive personal, confidential and proprietary information by e-mail and other electronic means. We have discussed and worked with our customers, clients and counterparties to develop secure transmission capabilities, but we do not have, and may be unable to put in place, secure capabilities with all of these constituents, and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of such information.
While we have 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, we outsource certain aspects of our data processing to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communication with them, our ability to adequately process and account for customer transactions could be affected, and our 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.
Our management team is not required to devote their full time to our business.
Our Chief Executive Officer, Roy Warren, and our Chief Financial Officer, Tommy Kee, hold the same roles at Attitude Drinks, another publicly traded company that is the majority owner of Harrison, Vickers and Waterman, Inc. As a result of this other obligation, there is a substantial risk that both Mr. Warren and Mr. Kee may not devote as much time as is necessary to our operations, which may harm our business and operating results.
Our Former CEO and Director believes he is owed $175,000
We had accrued $175,000 to our former CEO and Sole Director, James Giordano. Upon Mr. Giordano’s exit from our firm, we arranged for the purchase of his common shares held as complete compensation for his tenure here. All other liabilities to Mr. Giordano for services rendered were eliminated. Mr. Giordano disputes this assertion. If we are required to remit to Mr. Giordano $175,000, it will take away funds from operating and expanding the business, which may greatly harm our cash position and growth potential.
On September 4, 2015, the Company was notified that Mr. Giordano filed a summons in Connecticut Superior Court alleging lost wages.
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Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares of our common stock.
We have no committed source of financing. Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of shares of our stock. As of the date of this Report, we have 2,000,000,000 authorized shares of common stock of which 126,337,367 are currently outstanding. We also have 1,000,000 shares of preferred stock authorized of which 100,000 shares have been designated as Series A Convertible Preferred Stock and 100,000 shares are outstanding and maybe converted into 100,000,000 shares of common stock. We also have designated and issued 51 shares of Series B Convertible Preferred Stock that may be converted into 51,000 shares of common stock Our Board of directors has authority, without action or vote of the shareholders, to issue all or part of the remaining authorized but unissued common shares. The preferred shares are subject to certain rights of the holders of the Series A and B Convertible Preferred Stock and may also be issued without the vote of the common stockholders. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders and may further dilute common stock book value. Such dilution may be substantial. Such issuances may also serve to enhance existing management’s ability to maintain control of the Company because the shares may be issued to parties or entities committed to supporting existing management.
We are and will continue to be completely dependent on the services of our Chief Executive Officer, Roy Warren, the loss of whose services may cause our business operations to cease, and we will need to engage and retain qualified employees and consultants to further implement our strategy.
As of the date of this Report, our operations and business strategy are completely dependent upon the knowledge and business contacts of Roy Warren, our President and CEO. He is under no contractual obligation to remain employed by us. If he should choose to leave us for any reason before we have hired additional personnel, our operations may fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described herein. We will fail without Mr. Warren or an appropriate replacement(s). We may, in the future, acquire key-man life insurance on the life of Mr. Warren naming us as the beneficiary when and if we obtain the resources to do so, assuming Mr. Warren remains insurable. We have not yet procured such insurance, and there is no guarantee that we will be able to obtain such insurance in the future. Accordingly, it is important that we are able to attract, motivate and retain highly qualified and talented personnel and independent contractors. Furthermore, much of our marking efforts rely principally on the personality and achievements of Roy Warren. If he was to incur any negative publicity, our operating results may be harmed.
We are dependent upon affiliated parties for the provisions of a substantial portion of our administrative services as we do not have the internal capabilities to provide such services.
We utilize the services of four employees of Attitude Drinks to perform administrative services for us. These individuals are not obligated to devote any set amount of time to our business and may not be available when needed. There can be no assurance that we can successfully develop the necessary expertise and infrastructure on our own without the assistance of these affiliated entities.
Our articles of incorporation provide for indemnification of officers and directors at our expense and limit their liability, which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.
Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents upon such person's promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. There is no assurance that we would be able to collect on such promises. Therefore, if it is ultimately determined that any such person shall not have been entitled to indemnification; this indemnification policy could result in substantial expenditures by us which we will be unable to recoup.
The costs to meet our reporting and other requirements as a public company subject to the Securities Exchange Act of 1934, as amended, may be substantial and may result in us having insufficient funds to expand our business or even to meet routine business obligations.
As a public entity subject to the reporting requirements of the Exchange Act, we will incur ongoing expenses associated with professional fees for accounting, legal and a host of other expenses for annual reports and proxy statements. We estimate that these costs will range up to $100,000 per year for the next few years and will be higher if our business volume and activity increases, but lower during the first year of being public because our overall business volume will be lower. Until we become profitable, we will be required to sell additional equity or seek loans to pay such expenses.
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Risks Related to Our Common Stock
Any additional funding we arrange through the sale of our common stock will result in dilution to existing security holders.
Our most likely source of working capital and additional funds for the foreseeable future will be through the profits from World of Beer restaurants and taverns, and the sale of additional shares of our common stock. Such issuances will cause security holders’ interests in our common stock to be diluted which will negatively affect the value of your shares.
Any active trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws, which prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible for our security holders to sell shares of our common stock in those states.
There is a limited public market for our common stock, and there can be no assurance that an active public market will develop in the foreseeable future. Transfer of our common stock may also be restricted under the securities regulations and laws promulgated by various states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered for resale under the Blue Sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading market that might develop in the future should be aware that there may be significant state Blue Sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit or limit the secondary trading of our common stock.
We currently do not intend to, and may not be able to, qualify our securities for resale by our selling security holders in approximately 17 states that do not offer manual exemptions and require shares to be qualified before they can be resold by our security holders. Accordingly, investors should consider the secondary market for our securities to be a limited one.
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.
There is volatility in our stock price.
The market for our stock has, from time to time, experienced extreme price and volume fluctuations. Factors such as announcements of variations in our quarterly financial results and fluctuations in same-store sales could cause the market price of our stock to fluctuate significantly. In addition, the stock market in general, and the market prices for restaurant companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, many of whom have been granted equity compensation.
The market price of our stock can be influenced by stockholders' expectations about the ability of our business to grow and to achieve certain profitability targets. If our financial performance in a particular quarter does not meet the expectations of our stockholders, it may adversely affect their views concerning our growth potential and future financial performance. In addition, if the securities analysts who regularly follow our stock lower their ratings of our stock, the market price of our stock is likely to drop significantly.
20
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.
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 apply 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.
21
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.
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 1,000,000 shares of preferred stock, of which 100,000 have been designated as Series A Convertible Preferred Stock and 51 have been designated as Series B Convertible Preferred Stock. 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Commencing April 21, 2015, our principal offices are located at 712 US Highway 1. Suite 200, North Palm Beach, FL 33408. From February 2014 until April 2015, we were located at 4224 White Plains Road, Bronx, New York 10466 and prior to that on 129 Glenwood Road, Glenwood Landings, NY 11545.
ITEM 3. LEGAL PROCEEDINGS
James Giordano, our previous CEO, filed a lawsuit on August 26, 2015 in the State of Connecticut in Hartford County. The claim is in a total amount of no less than $220,833 for past salaries. The Company does not agree with this complaint and will respond as soon as practical. The Company has recorded a liability of $175,000 in regards to the disputed claim.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
22
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the OTCBB on July 17, 2014. Prior to that time, there was no public market for our common stock. As a result, we have only close to one year’s information with respect to high and low prices for our common stock which are shown below:
| | |
QUARTER
| HIGH STOCK PRICE
| LOW STOCK PRICE
|
| | |
Fiscal year – 2014/2015
| | |
| | |
First Quarter
| $0.35
| $0.15
|
Second Quarter
| $0.15
| $0.0026
|
Third Quarter
| $0.014
| $0.013
|
Fourth Quarter
| $0.0355
| $0.013
|
Dividend Policy
We have never paid any cash dividends on our common stock to date and do not anticipate paying such cash dividends in the foreseeable future. Whether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Nevada corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
Recent Sales of Unregistered Securities
On September 6, 2013, we issued to HVW LLC an aggregate 32,300 shares of its Series A, 8% Convertible Preferred Stock which pursuant to the terms thereof will be convertible into 32,300,000 shares of the Company’s common stock. In addition, on September 6, 2013 we issued 46,500 shares of its Series A 8% Convertible Preferred Stock to our former president, Robert Sharp and 16,200 shares to an investor. These issuances were not registered under the Securities Act of 1933, as amended (the “Securities Act’) and were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) as transactions by an issuer not involving any public offering. The recipients of the securities represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
On April 21, 2015, we issued to (i) Attitude Beer 51 shares of our Series B, Preferred Stock which pursuant to the terms thereof has 51% voting rights but can be converted into 51,000 shares of common stock of the Company; (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 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 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.
23
Compensation Plan Information
On October 5, 2013, we adopted a 2013 Equity Incentive Plan that allows for the grant of up to 5,000,000 awards. The following table contains information about our equity compensation plans as of June 30, 2015.
| | | | | | |
|
|
|
|
|
|
|
Plan Category
|
| Number of Securities to be Issued Upon Exercise of Outstanding Options
|
| Weighted-Average Exercise Price of Outstanding Options
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
|
|
|
|
|
|
|
|
Equity compensation plans approved by stockholders:
|
| −
|
| −
|
| 5,000,000
|
2013 Equity Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by stockholder
|
|
|
|
|
|
|
Total
|
| −
|
| −
|
| 5,000,000
|
Limitations on Directors’ Liability
As permitted by the provisions of the Nevada Revised Statutes, we have the power to indemnify any person made a party to an action, suit or proceeding by reason of the fact that they are or were a director, officer, employee or agent of our company, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any such action, suit or proceeding if they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest and, in any criminal action or proceeding, they had no reasonable cause to believe their conduct was unlawful. Termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which they reasonably believed to be in or not opposed to our best interests, and, in any criminal action or proceeding, they had no reasonable cause to believe their conduct was unlawful.
We must indemnify a director, officer, employee or agent who is successful, on the merits or otherwise, in the defense of any action, suit or proceeding, or in defense of any claim, issue, or matter in the proceeding, to which they are a party because they are or were a director, officer employee or agent, against expenses actually and reasonably incurred by them in connection with the defense.
We may provide to pay the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding as the expenses are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that they are not entitled to be indemnified by us.
The Nevada Revised Statutes also permit a corporation to purchase and maintain liability insurance or make other financial arrangements on behalf of any person who is or was:
·
a director, officer, employee or agent of the corporation; or
·
is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
Such coverage may be for any liability asserted against them and liability and expenses incurred by them in their capacity as a director, officer, employee or agent, or arising out of their status as such, whether or not the corporation has the authority to indemnify them against such liability and expenses.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to officers, directors or persons controlling our company pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in such Act and is therefore unenforceable.
Anti-Takeover Provisions
We may be or in the future become subject to Nevada’s control share laws. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and if the corporation does business in Nevada, including through an affiliated corporation. This control share law may have the effect of discouraging corporate takeovers. We currently have 43 stockholders.
24
The control share law focuses on the acquisition of a “controlling interest,” which means the ownership of outstanding voting shares that would be sufficient, but for the operation of the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-fifth or more but less than one-third; (2) one-third or more but less than a majority; or (3) a majority or more. The ability to exercise this voting power may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that an acquiring person, and those acting in association with that person, will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell the shares to others. If the buyer or buyers of those shares themselves do not acquire a controlling interest, the shares are not governed by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than the acquiring person, who did not vote in favor of approval of voting rights, is entitled to demand fair value for such stockholder’s shares.
In addition to the control share law, Nevada has a business combination law, which prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after the interested stockholder first becomes an interested stockholder, unless the corporation’s Board of directors approves the combination in advance. For purposes of Nevada law, an interested stockholder is any person who is: (a) the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation, or (b) an affiliate or associate of the corporation and at any time within the previous three years was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding shares of the corporation. The definition of “business combination” contained in the statute is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of our Company from doing so if it cannot obtain the approval of our Board of directors.
Warrants and Options
As of June 30, 2015, the outstanding options and warrants to purchase shares of our common stock were as follows:
Number of Warrants 1,832,235,733 granted 4/21/15 at an exercise price of $0.0025 with an expiration date of 4/21/22
Number of Options 0
Holders
As of June 30, 2015, we have 126,337,367 shares of common stock issued and outstanding, which are held by 43 security holders of record.
Transfer Agent
We have engaged VStock Transfer LLC as the transfer agent for our common stock.
Employment Agreements
We do not have an employment agreement in place with either Mr. Warren, our Chief Executive Officer, or Mr. Kee, our Chief Financial Officer. We do not anticipate entering into any employment agreements in the foreseeable future. See “Risk Factors”.
Board Committees
We have not established any committees of the Board of Directors, and the entire Board of Directors is acting as the Audit Committee.
Directors
The minimum number of directors we are authorized to have is one and the maximum is six. We currently have three directors with two of them being independent. Although we anticipate appointing additional directors in the future, as of the date of this filing, we have not identified such individuals. Our directors do not receive any compensation for their position on our Board of directors.
25
Code of Ethics
We will adopt a code of ethics that applies to our officers, directors and employees, including, without limitation, our Chief Executive Officer and Chief Financial Officer in a planned meeting on October 1, 2015.
Board Independence
Although our common stock is not listed on any national securities exchange, for purposes of independence, we use the definition of independence applied by The NASDAQ Stock Market. Based on such definition, we currently have two independent members of our Board of Directors. We intend to appoint independent persons to committees of the Board of Directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange when and if we elect to seek listing on a national security exchange.
ITEM 6. SELECTED FINANCIAL DATA
Not required for smaller reporting companies
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected for any future periods.
This discussion contains forward-looking statements, based on current expectations. All statements regarding future events, our future financial performance and operating results, our business strategy and our financing plans are forward-looking statements and involve risks and uncertainties. In many cases, you can identify forward-looking statements by terminology, such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. These statements are only predictions. Known and unknown risks, uncertainties and other factors could cause our actual results and the timing of events to differ materially from those projected in any forward-looking statements. In evaluating these statements, you should specifically consider various factors, including, but not limited to, those set forth in the Registration Statement and in this report.
General
Through our wholly owned subsidiary, ABH, we are an owner of a 51% interest in a World of Beer franchise tavern and restaurant located in West Hartford Connecticut. In December 2014, ABH entered into a joint venture (the “JV”) with New England World of Beer (“NEWOB”) and together opened a 4,000 sq. foot tavern in West Hartford, Connecticut (“West Hartford WOB”) that sells a selection of over 500 craft and imported beers along with tavern food and other spirits and cocktails. For the year ended June 30, 2015, all of our revenue has been derived from the operations of ABH from the tavern and restaurant.
On April 21, 2015, we entered into the Purchase Agreement, with the three original shareholders of ABH, namely, Attitude Drinks, Alpha and Tarpon Bay, pursuant to which the shareholders sold to us all of the outstanding shares of stock of ABH and ABH thereupon became our wholly owned subsidiary. In consideration for the purchase of the shares of common stock of ABH, we issued: (i) to Attitude Drinks 51 shares of our newly created Series B Preferred Stock and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of our 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 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 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 Company’s Series A Preferred Stock (convertible into 32,300,000 shares of the Company’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”). Attitude Drinks purchased 87,990,000 shares of 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”).
26
In September 2013, we shifted our focus to the commercial real industry and on September 6, 2013, we purchased from HVW LLC certain real estate loans in the amount of $1,800,000 in exchange for a secured promissory note in the principal amount of $1,800,000 that was due on December 31, 2014. As of June 30, 2015, $850,000 of the real estate loans were repaid with interest, and we repaid that portion of the loan owed to Harrison Vickers. To date, $950,000 are owed under loans that we have acquired or issued, and we have not derived any net income revenues from the commercial lending business.
Accordingly, we may be required to raise cash from sources other than our operations in order to continue our business plan. We may raise this additional capital either through debt or equity. No assurance can be given that such efforts will be successful. We have no specific plans at present for raising additional capital.
Results of Operations for the Year Ended June 30, 2015 As Compared to June 30, 2014
Commensurate with the change in business model described, under “General” above, the Company now has operations in the restaurant and tavern and commercial lending businesses. All discussion items will show each line separately
Revenues and Gross Margin
| | | | |
| | 2015
| | 2014
|
Restaurant
| | | | |
Revenues
| $
| 669,172
| $
| -0-
|
Cost of Goods sold
| | 185,602
| | -0-
|
Gross Margin
| | 483,570
| | -0-
|
| | | | |
Commercial Lending
| | | | |
Revenues
| | 162,455
| | 148,830
|
Cost of Goods sold
| | 162,455
| | 148,830
|
Gross Margin
| | -0-
| | -0-
|
| | | | |
Total
| | | | |
Revenues
| | 831,627
| | 148,830
|
Cost of Goods sold
| | 348,057
| | 148,830
|
Gross Margin
| $
| 483,570
| $
| -0-
|
Restaurant and Tavern
The Restaurant and Tavern segment commenced on April 21, 2015. It currently consists of one restaurant. We have plans to add additional facilities in the future.
Revenue in the restaurant and tavern segment was $669,172 for the year ended June 30, 2015 due to sales at our West Hartford World of Beer location for the period from acquisition, April 21, 2015, through June 30, 2015. Cost of goods sold was 28% of revenues and consists principally of the cost of beer, food and maintenance of the restaurant. There were no revenues or cost of goods sold in the same period in 2014 as we were not in that line of business in 2014.
Commercial Lending
Revenues in the commercial lending segment consist of interest income on loans incurred offset by interest expense. Revenues were $13,625 greater in fiscal 2015 as the revenues for fiscal 2015 include a full year of revenue as opposed to fiscal 2014 which included revenue from September 2013, the date of commencement of our operations in the commercial lending business, through in the year ended June 30, 2014
27
Operating Expenses
| | | | |
| | 2015
| | 2014
|
Restaurants/taverns
| | | | |
Professional Fees
| $
| 41,456
| $
| -0-
|
Compensation
| | 195,567
| | -0-
|
Compensation-Officer (in-dispute)
| | -0-
| | -0-
|
Management Fees
| | -0-
| | -0-
|
Consulting fees
| | -0-
| | -0-
|
Depreciation and amortization
| | 31,935
| | -0-
|
General and administrative
| | 192,166
| | -0-
|
| | | | |
Total
| $
| 453,924
| $
| -0-
|
| | | | |
Commercial Lending
| | | | |
Professional Fees
| $
| 39,500
| $
| 11,750
|
Compensation
| | -0-
| | -0-
|
Compensation-Officer (undisputed)
| | -0-
| | 208,788
|
Compensation-Officer (in-dispute)
| | 75,000
| | 100,000
|
Management Fees
| | -0-
| | 145,879
|
Consulting fees
| | -0-
| | 72,474
|
Depreciation and amortization
| | -0-
| | -0-
|
General and administrative
| | 12,884
| | 23,210
|
| | | | |
Total
| $
| 127,384
| $
| 562,101
|
| | | | |
Total
| | | | |
Professional Fees
| $
| 80,956
| $
| 11,750
|
Compensation
| | 195,567
| | -0-
|
Compensation-Officer (undisputed)
| | -0-
| | 208,788
|
Compensation-Officer (in-dispute)
| | 75,000
| | 100,000
|
Management Fees
| | -0-
| | 145,879
|
Consulting fees
| | -0-
| | 72,474
|
Depreciation and amortization
| | 31,935
| | -0-
|
General and administrative
| | 205,050
| | 23,210
|
| | | | |
Total
| $
| 588,508
| $
| 562,101
|
Restaurant and tavern
Operating expenses increased by $453,924 due to the initiation of the World of Beer business.
Professional fees of $41,456 consisted primarily of investor relation fees of $25,750 and legal fees of $8,000 principally associated with the acquisition of ABH.
Compensation expense of $195,567 was for the operations of the World of Beer franchise location in West Hartford, Connecticut.
Depreciation and amortization was related to the following:
| | |
Depreciation of property, plant and equipment at the West Hartford WOB
| $
| 24,735
|
Amortization of Deferred financing costs
| | 7,200
|
Total Depreciation and amortization expense
| $
| 31,935
|
General and Administrative Expense of $192,166 was incurred at the West Hartford, Connecticut World of Beer location principally for rents, royalties and the cost of operations.
28
Commercial Lending
Professional fees of $39,500 for the fiscal year ended June 30, 2015 were $27,750 higher than the $11,750 balance from the fiscal year ended June 30, 2014 primarily due to increased legal fees.
Compensation expense- Officer (undisputed) decreased $208,788 for the fiscal year ended June 30, 2015 due to the issuance to James Giordano, our former Chairman and Chief Executive Officer of Series A Preferred Stock in the prior period for services rendered of $208,788.
Compensation Expense- Officer (disputed) decreased $25,000 for the fiscal year ended June 30, 2015. Commensurate with Mr. Giordano leaving the Company, he sold all his common shares to ABH in April, 2015. The payment he received for those shares was to be for complete compensation for his services to our company. Accordingly, in our fiscal third quarter, we reversed the liability to Mr. Giordano for his salary. Mr. Giordano disputes this arrangement and accordingly, we have reestablished the liability. No formal legal action has been commenced by either party at this time.
Management fees for the year ended June 30, 2014 were $145,879 due to the commencement of operations under the new real estate lending business model and our obligation under the Management Agreement that we entered into with HVW LLC. Effective September 2013, we entered into a Management Agreement with HVW pursuant to which HVW agreed to provide certain business, financial and advisory services to us in consideration of our payment to HVW of a management fee of two percent (2%) per annum of average gross assets and twenty percent (20%) of the revenues received by the Company derived from the services under the Management Agreement. There were no management fees for the fiscal year ended June 30, 2015.
General and administrative expenses decreased $10,326 from $23,210 for the fiscal year ended June 30, 2014 to $12,884 for the fiscal year ended June 30, 2015. The decrease was primarily due to greater SEC filing fees in the prior year
Other Expense
Other expenses increased $2,305,900 from $2,276 in the year ended June 30, 2014 to $2,308,176 in the year ended June 30, 2015, mostly due to greater derivative expense.
Derivative expense increased $2,058,493 due to the issuance of debt associated with the merger.
Interest expense increased $292,287 due to greater overall debt levels mostly associated with the acquisition of ABH and the amortization of the derivative liability associated with that debt.
Change in the Fair Market value of derivative liability was a credit of $48,020 due to the quarterly mark to market of the debt.
Loss on retirement of debt was $2,600 due to the modifications of terms for certain convertible notes payable.
Liquidity and Capital Resources
Our cash balance at June 30, 2015 was $226,088, an increase of $225,727 from $361 at June 30, 2014. Approximately $200,000 of the increase was cash acquired in the acquisition of Attitude Beer Holding Co. The remaining $25,000 was the net of cash financings less the cash used in operations. At June 30, 2015 we have a working capital deficit of ($4,442,811) and an accumulated deficit of ($1,948,727).
As of September, 2015, we owe $950,000.in commercial real estate loans. These are notes that we issued when we acquired the real estate loans. The loans are secured by a pledge of the real estate loans that we acquired. We have limited capital resources, as, among other things, we are in a new line of business with a limited operating history. We have generated limited revenues to date and may not be able to generate sufficient revenues to become profitable in the future.
The report of our independent registered public accounting firm on our financial statements for the fiscal year ended June 30, 2015 contains an explanatory paragraph regarding our ability to continue as a going concern based on our history of net losses since our inception.
We do not currently own any significant property or equipment that we will seek to sell in the near future.
We do not anticipate the need to hire corporate employees over the next 12 months with the possible exception of secretarial and accounting support should our business grow and necessitate such expenditure. We believe the services provided by the employees at Attitude Drinks are sufficient at this time.
29
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the following in the Financial Section of this report:
·
Financial statements, together with the report thereon of Li and Company, PC dated October 4, 2012, beginning with the section entitled “Report of Independent Registered Public Accounting Firm” and continuing through “Note 7: Subsequent Events”;
·
“Quarterly Information” (unaudited);
·
Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 8, 2015, our Board of Directors (the “Board”) of notified Li and Company, PC (“Li and Company”) that it had determined to dismiss them as our independent registered public accounting firm, effective as of May 8, 2015. Also on May 8, 2015, the Board determined to engage Scrudato & Co., PA (“Scrudato”) as its new independent registered public accounting firm to replace Li and Company.
Li and Company’s reports on our financial statements as of and for the two years ended June 30, 2014 and 2013, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that Li and Company’s reports contained an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
There were no disagreements with Li and Company in regards to accounting treatment.
These events were described in our Form 8-K filed with the SEC on May 26, 2105.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of June 30, 2015. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission 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 conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that it files or submits under the Exchange Act is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Inasmuch as we only have two individuals serving as officers and two independent directors plus one of the officers who also serves as director, we have determined that we have, per se, inadequate controls and procedures over financial reporting due to the lack of segregation of duties. Management recognizes that its controls and procedures would be substantially improved if there was a greater segregation of the duties of the Chief Executive Officer and the Chief Financial Officer as such is actively seeking to remediate this issue. Management believes that the material weakness in its controls and procedures referenced did not have an effect on our financial results.
30
Evaluation of Disclosure Controls and Procedures
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our 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 internal control over financial reporting includes policies and procedures that are intended to:
1.
maintain records in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
2.
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
3.
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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.
Management evaluated the effectiveness of our internal control over financial reporting as of June 30, 2015. Management conducted an assessment of our internal control over financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (1992). The COSO framework summarizes each of the components of a company's internal control system, including: (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring.
Consistent with the results of the Audit Committee's review and inquiry, management did not identify any material weaknesses in our ability to appropriately account for complex or non-routine transactions.
As a result of the evaluation described above, management has concluded that our internal control over financial reporting were not effective at June 30, 2015 based on the guidelines established in Internal Control—Integrated Framework issued by COSO. We have identified material weaknesses in our internal controls with respect to our financial statement closing process of our consolidated financial statements for the year ended June 30, 2015. Our management discovered certain conditions that we deemed to be material weaknesses and significant deficiencies in our internal controls as follows:
·
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 our 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.
31
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures and our internal control processes will prevent all error and all fraud. 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 error or fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Changes in Internal Control Over Financial Reporting
There were no changes during our last fiscal quarter ended June 30, 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER MATTERS
None
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors and Executive Officers
Set forth below is certain information relating to our directors and executive officers, including their names, ages, and business experience.
| | | | |
| | | | |
Name
| | Age
| | Position
|
Roy Warren
| | 60
| | Chairman, Chief Executive Officer and President
|
Tommy Kee
| | 66
| | Chief Financial Officer
|
Isaac Onn
| | 64
| | Director
|
Conrad Huss
| | 66
| | Director
|
Mr. Roy Warren - Chairman, Chief Executive Officer and President since April, 2015
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 Chairman of the Board and Chief Executive Officer for Attitude Drinks Incorporated which is the majority owner of the Company. 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. Mr. Warren’s 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. Tommy Kee –Chief Financial Officer since April, 2015
Mr. Kee serves as our Chief Financial Officer and will provide all needed financial, accounting and compliance requirements. Mr. Kee is also Chief Financial Officer of Attitude Drinks Incorporated which is the majority owner of the Company. Mr., Kee joined Attitude Drinks Incorporated 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 Attitude Drinks Incorporated, 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.
32
Mr. Isaac Onn-Director since April 2015
Mr. Onn, 64, serves on the Board of Directors. He currently serves or has served on the Board of Directors of other companies such as Cybra Corp., Intellect Neurosciences, Inc. and Ness Energy. His previous experience includes Mooney Airplane Corp. from 2002 to 2004 as Crisis Manager. He served as CEO and Partner of Fueling Services, Ltd. From 2001 to 2002. He also served as VP –Marketing for Austria Casino. He received his degree in Business administration and marketing from the Tel Aviv College of Management, and his law degree is from Ono Academic College Law school in Israel, where he is a member of the Israeli Bar.
Mr. Conrad Huss -Director since April 2015
Mr. Huss, 66, serves on the Board of Directors. Mr. Huss is a financial professional with over 25 years of investment banking and operating experience. Most recently, he was with Ocean Cross Capital Markets, as Senior Managing Director. Previously, he was a Senior Managing Director at Southridge Investment Group.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who beneficially own more than 10 percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Such officers, directors and persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms that they file with the SEC.
Based solely on a review of the copies of such forms that were received by us, or written representations from certain reporting persons that no Form 5s were required for those persons, we are not aware of any failures to file reports or report transactions in a timely manner during the year ended June 30, 2015 other than late Form 3s filed by Roy Warren, Conrad Huss and Isaac Onn upon their appointments as Directors.
ITEM 11. EXECUTIVE COMPENSATION
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
| Year
| Salary
| Bonus
| Stock Awards
| Option Awards
| Non-Equity Incentive Plan Compensation
| Non-qualified Deferred Compensation Earnings
| All Other Compensation
| Total
|
|
| ($)
| ($)
| ($)
| ($)
| ($)
| ($)
| ($)
| ($)
|
| | | | | | | | | |
James Giordano,
| 2014
| 100,000*
| –
| 208,088
| –
| –
| –
| –
| 308,088
|
CEO and CFO
| 2015
| 75,000*
| –
| -
| –
| –
| –
| –
| 75,000
|
* Amount accrued are under dispute as James Giordano is no longer an employee of the Company.
(1) Mr. Giordano resigned from all positions with our company in April 2015.
There are no corporate employees as we utilize the services of 4 employees of Attitude Drinks, the majority owner of our outstanding stock.
Director Compensation
To date, we have not paid any directors compensation for their services as directors
33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our capital stock as of the date hereof by (i) each person whom we know to beneficially own more than five percent of any class of our common stock, and (ii) our sole director and sole executive officer. The individual listed below has sole voting and investment power with respect to the shares beneficially owned.
As of September 14, 2015 we had 126,337,367 shares of common stock outstanding which are held by 11 record holders. The chart below sets forth the ownership of our common stock, or claimed ownership, of certain individuals.
| | | | |
|
|
|
|
|
Name and Address of Beneficial Owner (1)
|
| Amount and Nature Of Beneficial Ownership Common Stock Included
|
| Percent of Common Stock Beneficially Owned (2)
|
| | | | |
Roy Warren (1)
| | 224,478,340 *
| | 85.41%
|
Alpha Capital Anstalt (2)
| | 216,878,858
| | 9.99%
|
Tarpon Bay Partners LLC (3)
| | 81,994,220
| | 9.99%
|
Southridge Partners II LP (4)
| | 26,153,683
| | 9.99%
|
Robert J. Sharp (5)
| | 10,000,000
| | 7.3%
|
Attitude Drinks Incorporated(1)
| | 224,478,140
| | 85.4%
|
* Includes all of the issued and convertible shares of Series B Preferred Stock as well as warrants.
Name of Owner of Series A and B Convertible Preferred Stock
| | |
Alpha Capital Anstalt
| 65,000 shares of Series A Convertible Preferred Stock
| 65% total of Series A
|
| | |
Tarpon Bay Partners LLC
| 25,000 shares of Series A Convertible Preferred Stock
| 25% total of Series A
|
| | |
Robert J. Sharp
| 15,000 shares of Series A Convertible Preferred Stock
| 10% total of Series A
|
| | |
Attitude Drinks Incorporated
| 51 shares of Series B Convertible Preferred Stock
| 100% total of Series B
|
(1)
Consists of: (i) 87,990,000 shares of Common Stock, (ii) a warrant to purchase 5,000,000 shares of common stock, and (iii) 51 shares of Series B Preferred Stock that has the right to 131,488,340 votes, all 51 shares are owned by Attitude Drinks. Mr. Warren is deemed to share beneficial ownership of these securities with ADI due to his ownership of ADI securities that represents approximately 51% of the voting power of ADI and due to his position as the Chairman, Chief Executive Officer and President of ADI. Each share of the Series B Preferred Stock has voting rights equal to (x) (i) 0.019607 multiplied by the aggregate total of: (A) the issued and outstanding shares of Common Stock eligible to vote at the time of the respective vote, plus (B) the number of votes which all other series or classes of securities other that the Series B Preferred Stock are entitled to cast together with the other holders of Common Stock at the time of the relevant vote divided by (ii) 0.49, minus (y) the numerator. The voting rights are subject to adjustment for any stock splits, stock dividends, reorganizations, recapitalizations and the like. As a result, the 51 shares of Series B Preferred Stock currently equal the power to vote 131,488,340 shares of common stock. The business address of Attitude Drinks is 712 U.S. Highway 1, Suite 200, North Palm Beach, Florida 33408.
(2)
Consists of: (i) a secured convertible note in the principal amount of $1,619,375 that is convertible into 679,750,000 shares of common stock as well as $60,110 of accrued interest that is convertible into 24,044,167 shares of common stock; (ii) a warrant to purchase 1,295,564,000 shares of common stock; and (iii) Series A Convertible Preferred Stock that is convertible into 65,000,000 shares of common stock. None of the Notes, accrued interest, the Warrant, or the Series A Convertible Preferred Stock may be converted into common stock such that Alpha Capital Anstalt (“Alpha”) would beneficially own more the 9.99% (216,878,858 shares) of HVW’s common stock at any given time. Alpha also holds an additional investment right to purchase up to $3,750,000 in additional secured convertible notes and corresponding warrants. The business address of Alpha is Pradafant 7, Furstentums 9490, Vaduz, Liechtenstein.
34
(3)
Consists of: (i) a secured convertible note in the principal amount of $562,292 that is convertible into 224,916,800 shares of common stock as well as accrued interest for $20,342 that is convertible into 8,136,949 shares of common stock; (ii) a warrant to purchase 443,833,333 shares of common stock; and (iii) 25,000 shares of HVW’s Series A Convertible Preferred Stock that are convertible into 25,000,000 shares of common stock. None of the Notes, accrued interest, the Warrant, or the Series A Convertible Preferred Stock may be converted into common stock such that Tarpon Bay Partners LLC (“Tarpon”) would beneficially own more the 9.99% (81,994,220 shares) of HVW’s common stock at any given time. Tarpon also holds an additional investment right to purchase up to $1,250,000 in additional secured convertible notes and corresponding warrants. The business address of Tarpon is 17210 Germano Court, Naples, Florida 34110.
(4)
Consists of: (i) a series of convertible notes in the total principal amount of $109,878 that is convertible into 43,951,200 shares of common stock as well as accrued interest of $14,969 that is convertible into 5,987,646 shares of common stock; and (ii) warrants to purchase 87,902,400 shares of common stock. None of the Notes, accrued interest or the Warrant may be converted into common stock such that Southridge Partners II, LP (“Southridge”) would beneficially own more than 9.99% (26,153,683 shares) of HVW’s common stock at any given time. The business address of Southridge is 90 Grove Street, Suite 108, Ridgefield CT 06877
(5)
Consists of 10,000 shares of HVW’s Series A Convertible Preferred Stock that are convertible into 10,000,000 shares of common stock.
(6)
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Except as indicated in the footnotes to the table, to the knowledge of the Company, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable. Pursuant to the rules of the SEC, the number of shares of our common stock deemed outstanding includes shares issuable pursuant to options held by the respective person or group that are currently exercisable or may be exercised within 60 days of September 14, 2015.
(7)
As of September 14, 2015, we had 126,337,367 shares of common stock outstanding
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
In order to further our real estate loan business, on September 6, 2013, we entered into a Securities Purchase Agreement (the “HVW Agreement”) with HVW Holdings LLC (“HVW”). We also entered into the Management Agreement on September 6, 2013 pursuant to which HVC agreed to render certain services to us in consideration of the shares issuances. Pursuant to the Agreement, we agreed to sell to HVW an aggregate of 308,166 shares of our Common Stock and 32,300 shares of our preferred stock which is convertible into 32,300,000 shares of our common stock. The Management Agreement also provides that HVW will receive a management fee of two percent (2%) per annum of our average gross assets and that HVW will also receive twenty percent (20%) of the net incomes derived from the services under the Management Agreement. To date HVW has not been paid any fees pursuant to the Management Agreement.
Prior to September 2013, we utilized office space owned by Mr. Sharp and have not been charged a fee for such use.
Since inception, we had received advances from our former Chairman and Chief Executive Officer, Robert J Sharp, for working capital purposes. During the interim period ended September 30, 2013, Mr. Sharp advanced the Company an additional $2,001.
During April 21, 2015, HVW sold its 32,300 shares of Series A Convertible Preferred Stock to Alpha Capital Anstalt and 87,990,000 shares of its common stock of the Company to Attitude Drinks Incorporated. As such, HVW is no longer considered having any related transactions with the Company.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Scrudato and Company CPAs has been our principal auditing firm since April, 2015.
Audit Fees
An aggregate of $6,500 was billed by our auditors for the following professional services: audit of our annual financial statement for the fiscal year ended June 30, 2015 including the review of our interim financial statements.
An aggregate of $9,500 was billed by our auditors for the following professional services: audit of our annual financial statement for the fiscal year ended June 30, 2014 including the review of our interim financial statements.
35
PART IV
ITEM 15. EXHIBIT INDEX
| | |
|
|
|
Exhibit
|
|
|
Number
|
| Description
|
3.1
|
| Articles of Incorporation (1)
|
3.2
|
| Bylaws (1)
|
4.1
|
| Specimen Common Stock Certificate (1)
|
10.1
|
| Form of Subscription Agreement (2)
|
10.1A
|
| Subscription Agreement, including Investor Questionnaire (2)
|
10.2
|
| LLC Contribution Agreement (1)
|
10.3
|
| Management Agreement with HVW Holdings LLC (3)_
|
10.4
|
| Securities Purchase Agreement with HVW Holdings LLC (3)
|
10.5
| | Certificate of Designation of Rights and Preferences for Series A 8% Convertible Preferred Stock (4)
|
10.6
| | Certificate of Amendment (5)
|
10.7
| | 2013 Equity Incentive Plan (5)
|
10.8
| | Certificate of Designation of Series B Convertible Preferred Stock (6)
|
10.9
| | A Warrant issued to Alpha Capital Anstalt (6)
|
10.10
| | A Warrant issued to Tarpon Bay Partners LLC (6)
|
10.11
| | B Warrant issued to Attitude Drinks Incorporated (6)
|
10.12
| | Secured Convertible Note due 2017 issued to Alpha Capital Anstalt (6)
|
10.13
| | Secured Convertible Note due 2017 issued to Tarpon Partners LLC (6)
|
10.14
| | Additional Investment Right issued to Alpha Capital Anstalt (6)
|
10.15
| | Additional Investment Right issued to Tarpon Bay Partners LLC (6)
|
10.16
| | Asset Purchase Agreement (6)
|
10.17
| | Stock Pledge Agreement (6)
|
10.18
| | Guaranty – Attitude Beer Holding Co. (6)
|
10.19
| | Guaranty – Attitude Drinks Incorporated (6)
|
10.20
| | Purchase Agreement – Alpha Capital Anstalt (6)
|
10.21
| | Purchase Agreement – Attitude Drinks Incorporated (6)
|
10.22
| | Draft Operating Agreement
|
10.23
| | Note issued to Alpha Capital Anstalt on July 29, 2015
|
10.24
| | Warrant to Alpha Capital Anstalt issued July 29, 2015
|
21.1
|
| Subsidiary of Registrant**
|
31.1
|
| Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act And Rule 13a-14(A) Or 15d-14(A) Under The Securities Exchange Act Of 1934
|
32.1
|
| Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
|
101.CAL
| | XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
| | XBRL Taxonomy Extension Definition Linkbase Document
|
101.INS
| | XBRL Instance Document
|
101.LAB
| | XBRL Taxonomy Extension Labels Linkbase Document
|
101.PRE
| | XBRL Taxonomy Extension Presentation Linkbase Document
|
101.SCH
| | XBRL Taxonomy Extension Schema Document
|
(1) Filed with Registration Statement on Form S-1 (File No. 333-162072) filed on September 23, 2009
(2) Filed with Registration Statement on Form S-1/A (File No. 333-162072) filed on March 12, 2010
(3) Filed as an exhibit on Form 8-K on September 6, 2013 (SEC Accession No. 0001078782-13-001812)
(4) Filed as an exhibit on Form 8-K on September 18, 2013 (SEC Accession No. 0001078782-13-001871)
(5) Filed as an exhibit on Form 8-K on October 25, 2013 (SEC Accession No. 0001078782-13-002087)
(6) Filed as an exhibit on Form 8-K on April 27, 2015 (SEC Accession No. 0001144204-15-025280)
36
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.
By: /s/ Roy G. Warren
Roy G. Warren
President and Chief Executive Officer
September 14, 2015
By: /s/ Tommy E. Kee
Tommy E. Kee
Chief Financial Officer and Principal Accounting Officer
September 14, 2015
By: /s/ Conrad Huss
Conrad Huss
Director
September 14, 2015
By: /s/ Isaac Onn
Isaac Onn
Director
September 14, 2015
37
Harrison Vickers and Waterman, Inc.
June 30, 2015 and 2014
Index to the consolidated financial statements
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Contents
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Report of Independent Registered Public Accounting Firm
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| F-2
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Consolidated Balance Sheets at June 30, 2015 and 2014
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| F-3
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Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2015 and 2014
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| F-4
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Consolidated Statement of Stockholders’ Equity (Deficit) for the Fiscal Years Ended June 30, 2015 and 2014
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| F-5
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Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2015 and 2014
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| F-6
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Notes to the Consolidated Financial Statements
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| F-7
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F-1
Scrudato & Co., PA
CERTIFIED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Harrison Vickers and Waterman, Inc.
712 U.S. Highway 1,
Suite 200
North Palm Beach, FL 33408
We have audited the accompanying balance sheet of Harrison, Vickers and Waterman, Inc. as of June 30, 2015 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Harrison, Vickers and Waterman, Inc. at June 30, 2014, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Company has incurred significant accumulated deficits, recurring operating losses and a negative working capital. This and other factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ John Scrudato CPA
Califon, New Jersey
September 11, 2015
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7 Valley View Drive Califon, New Jersey 07830
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Registered Public Company Accounting Oversight Board Firm
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F-2
Harrison Vickers and Waterman Inc.
Consolidated Balance Sheet
| | | | | | | |
| | | June 30, 2015
| | June 30, 2014
|
ASSETS
| | | |
CURRENT ASSETS:
| | | | | |
| Cash
| $
| 226,088
| | $
| 361
|
| Inventory
| | 81,049
| | | -
|
| Real estate loans receivable
| | 950,000
| | | 1,470,000
|
| Receivable from Attitude Drinks, Inc.
| | 131,423
| | | -
|
| Prepaid Expenses
| | 44,192
| | | -
|
| | Total Current Assets
| | 1,432,752
| | | 1,470,361
|
NON-CURRENT ASSETS:
| | | | | |
| Property, Plant and Equipment (net of accumulated depreciation)
| | 962,470
| | | -
|
| Capitalized costs (net of accumulated depreciation)
| | 198,823
| | | -
|
| Deferred Financing Costs
| | 67,889
| | | -
|
| Goodwill
| | 4,038,945
| | | -
|
| | Total Non-Current Assets
| | 5,268,127
| | | -
|
| | | | | | | |
| | Total Assets
| $
| 6,700,879
| | $
| 1,470,361
|
| | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT
| | | | | |
CURRENT LIABILITIES:
| | | | | |
| Accounts payable
| $
| 367,974
| | $
| 9,437
|
| Accrued expenses- in dispute
| | 175,000
| | | 100,000
|
| Promissory note payable
| | 950,000
| | | 1,470,000
|
| Convertible notes payable - investor, net of discount
| | 144,699
| | | 65,472
|
| Derivative liability
| | 4,237,890
| | | -
|
| | Total Current Liabilities
| | 5,875,563
| | | 1,644,909
|
NON-CURRENT LIABILITIES
| | | | | |
| | Notes payable - investor-non-current
| | 210,522
| | | -
|
| | Minority Interest
| | 883,009
| | | -
|
| | Total Non-Current Liabilities
| | 1,093,531
| | | -
|
| | | | | | | |
| | Total Liabilities
| | 6,969,094
| | | 1,644,909
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| | | | | | | |
STOCKHOLDERS' DEFICIT:
| | | | | |
| Preferred stock par value $0.0001: 1,000,000 shares authorized;
| | | | | |
| | 100,000 shares designated as Series A 8% Convertible Preferred Stock
| | | | | |
| Series A 8% Convertible preferred stock par value $0.0001: stated value $1,000 per share; 100,000 and 95,000 shares issued and outstanding at June 30, 2015 and June 30, 2014, respectively
| | 10
| | | 10
|
| Series B Convertible Preferred stock, par value $.0001, stated value of $1,000 per share; 51 and -0- shares outstanding at June 30, 2015 and June 30, 2014, respectively
| | -
| | | -
|
| Common stock par value $0.0001: 2,000,000,000 shares authorized;
| | | | | |
| | 126,337,367 and 124,337,367 shares issued and outstanding at June 30, 2015 and June 30, 2014, respectively
| | 12,634
| | | 12,434
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| Additional paid-in capital
| | 1,667,868
| | | 417,785
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| Accumulated deficit
| | (1,948,727)
| | | (604,777)
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| | | | | | | |
| | Total Stockholders' Deficit
| | (268,215)
| | | (174,548)
|
| | | | | | | |
| | Total Liabilities and Stockholders' Deficit
| $
| 6,700,879
| | $
| 1,470,361
|
| | | | | | | |
See accompanying notes to the consolidated financial statements.
F-3
Harrison Vickers and Waterman Inc.
Consolidated Statement of Operations
| | | | | | | | | | |
| | | | | For the Year
| | | For the Year
|
| | | | | Ended
| | | Ended
|
| | | | | June 30, 2015
| | | June 30, 2014
|
| | | | | | | | |
REVENUES AND GROSS MARGIN
| | | | | | | | |
| Restaurant:
| | | | | | | | |
|
| Revenues
| | | $
| 669,172
| | | $
| -
|
|
| Cost of goods sold
| | | | (185,602)
| | | | -
|
| | Gross margin
| | | | 483,570
| | | | -
|
| Real Estate Loans
| | | | | | | | |
| | Interest income earned
| | | | 162,455
| | | | 148,830
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| | Interest expense incurred
| | | | (162,455)
| | | | (148,830)
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| | Gross Margin
| | | | -
| | | | -
|
| | | | | | | | | | |
| Total Gross margin
| | | | 483,570
| | | | -
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| | | | | | | | | | |
OPERATING EXPENSES:
| | | | | | | | |
| Professional fees
| | | | 80,956
| | | | 11,750
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| Compensation
| | | | 195,567
| | | | -
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| Compensation - officer (undisputed)
| | | | -
| | | | 208,788
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| Compensation - officer (in-dispute)
| | | | 75,000
| | | | 100,000
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| Management fees
| | | | -
| | | | 145,879
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| Consulting fees
| | | | -
| | | | 72,474
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| Depreciation and Amortization Expense
| | | | 31,935
| | | | -
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| General and administrative expenses
| | | | 205,050
| | | | 23,210
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| | | | | | | | | | |
| | Total operating expenses
| | | | 588,508
| | | | 562,101
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| | | | | | | | | | |
LOSS FROM OPERATIONS
| | | | (104,938)
| | | | (562,101)
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| | | | | | | | | | |
OTHER (EXPENSE)
| | | | | | | | |
| Interest expense
| | | | (295,103)
| | | | (2,276)
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| Derivative Expense
| | | | (2,058,493)
| | | | -
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| Change in Fair Market Value of Derivative liability
| | | | 48,020
| | | | -
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| (Loss) on retirement of debt
| | | | (2,600)
| | | | -
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| | | | | | | | | | |
| | Other (expense), net
| | | | (2,308,176)
| | | | (2,276)
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| | | | | | | | | | |
LOSS BEFORE INCOME TAX PROVISION AND MINORITY INTEREST
| | | | (2,413,114)
| | | | (564,377)
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| | | | | | | | | | |
INCOME TAX PROVISION
| | | | -
| | | | -
|
| | | | | | | | | | |
NET LOSS BEFORE MINORITY INTEREST
| | | | (2,413,114)
| | | | (564,377)
|
| | | | | | | | | | |
MINORITY INTEREST
| | | | 1,069,164
| | | | -
|
| | | | | | | | | | |
NET LOSS
| | | $
| (1,343,950)
| | | $
| (564,377)
|
| | | | | | | | | | |
| | | | | | | | | | |
EARNINGS PER COMMON SHARE
| | | | | | | | |
| - basic and diluted
| | | $
| (0.01)
| | | $
| (0.00)
|
| | | | | | | | | | |
| Weighted average common shares outstanding
| | | | | | | | |
| | - basic and diluted
| | | | 124,868,874
| | | | 124,986,367
|
See accompanying notes to the consolidated financial statements.
F-4
Harrison Vickers and Waterman Inc.
Consolidated Statement of Stockholders’ Deficit
For the Period June 30, 2012 through June 30, 2015
| | | | | | | | | | | | | | | | | |
| Series A
Preferred Stock
Par Value $0.0001
| | Series B
Preferred Stock
Par Value $0.0001
| | Common Stock
Par Value $0.0001
| | Additional
paid-in Capital
| | Accumulated
Deficit
| | Total
Stockholders'
Deficit
|
| Number of Shares
| | Amount
| | Number of Shares
| | Amount
| | Number of Shares
| | Amount
|
| | | | | | | | | | | | | | | | | |
Balance, June 30, 2012
| -
| $
| -
| | -
| $
| -
| | 1,634,993,250
| $
| 163,499
| $
| (159,649)
| $
| (35,085)
| $
| (31,235)
|
| | | | | | | | | | | | | | | | | |
Net loss
| -
| | -
| | -
| | -
| | -
| | -
| | -
| | (5,315)
| | (5,315)
|
| | | | | | | | | | | | | | | | | |
Balance, June 30, 2013
| -
| | -
| | -
| | -
| | 1,634,993,250
| | 163,499
| | (159,649)
| | (40,400)
| | (36,550)
|
| | | | | | | | | | | | | | | | | |
Retirement of common shares
| -
| | -
| | -
| | -
| | (1,610,006,750)
| | (161,000)
| | 161,000
| | -
| | -
|
| | | | | | | | | | | | | | | | | |
Issuance of common shares for compensation
| -
| | -
| | -
| | -
| | 99,999,867
| | 10,000
| | (8,621)
| | -
| | 1,379
|
| | | | | | | | | | | | | | | | | |
Issuance of Series A Preferred Stock for compensation
| 95,000
| | 10
| | -
| | -
| | -
| | -
| | 424,990
| | -
| | 425,000
|
| | | | | | | | | | | | | | | | | |
Shares returned to Treasury
| -
| | -
| | -
| | -
| | (649,000)
| | (65)
| | 65
| | -
| | -
|
| | | | | | | | | | | | | | | | | |
Net loss
| -
| | -
| | -
| | -
| | -
| | -
| | -
| | (564,377)
| | (564,377)
|
| | | | | | | | | | | | | | | | | |
Balance, June 30, 2014
| 95,000
| | 10
| | -
| | -
| | 124,337,367
| | 12,434
| | 417,785
| | (604,777)
| | (174,548)
|
| | | | | | | | | | | | | | | | | |
Shares issued upon conversion of debt
| -
| | -
| | -
| | -
| | 2,000,000
| | 200
| | 5,000
| | -
| | 5,200
|
| | | | | | | | | | | | | | | | | |
Issuance of Series A Preferred
| 5,000
| | -
| | -
| | -
| | -
| | -
| | 40,089
| | -
| | 40,089
|
| | | | | | | | | | | | | | | | | |
Issuance of Series B Preferred
| -
| | -
| | 51
| | -
| | -
| | -
| | 1,031,061
| | -
| | 1,031,061
|
| | | | | | | | | | | | | | | | | |
Issuance of Warrants
| -
| | -
| | -
| | -
| | -
| | -
| | 173,933
| | -
| | 173,933
|
| | | | | | | | | | | | | | | | | |
Net loss
| -
| | -
| | -
| | -
| | -
| | -
| | -
| | (1,343,950)
| | (1,343,950)
|
| | | | | | | | | | | | | | | | | |
Balance, June 30, 2015
| 100,000
| $
| 10
| | 51
| $
| -
| | 126,337,367
| $
| 12,634
| $
| 1,667,868
| $
| (1,948,727)
| $
| (268,215)
|
See accompanying notes to the consolidated financial statements.
F-5
Harrison Vickers and Waterman Inc.
Consolidated Statement of Cash Flows
| | | | | | | |
| | | For the Year
| | For the Year
|
| | | Ended
| | Ended
|
| | | June 30, 2015
| | June 30, 2014
|
CASH FLOWS FROM OPERATING ACTIVITIES:
| | | | | |
Net loss
| $
| (1,343,950)
| | $
| (564,377)
|
| | | | | | | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
| | | | | |
| Common stock issued for compensation
| | -
| | | 1,314
|
| Series A Preferred Stock issued for compensation
| | -
| | | 425,065
|
| Depreciation and amortization expense
| | 31,935
| | | -
|
| Amortization of Discount on Notes Payable
| | 241,313
| | | -
|
| Derivative Expense
| | 2,058,493
| | | -
|
| Change in Fair Market Value of Derivative liability
| | (48,020)
| | | -
|
| Minority Interest
| | (1,069,165)
| | | -
|
| Gain (loss) on conversion of debt
| | 2,600
| | | -
|
| Changes in operating assets and liabilities:
| | | | | |
| | Real estate loans
| | -
| | | 330,000
|
| | Inventory
| | (2,066)
| | | -
|
| | Prepaid Expenses
| | (37,737)
| | | -
|
| | Accounts payable and accrued expenses
| | 112,620
| | | 104,808
|
| | Accounts payable and accrued expenses- in dispute
| | 75,000
| | | -
|
| | Accrued interest converted to debt
| | 25,384
| | | -
|
| | Net working capital acquired from acquisition
| | (174,689)
| | | -
|
| | | | | | | |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
| | (128,282)
| | | 296,810
|
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES:
| | | | | |
| Cash received on acquisition
| | 203,467
| | | -
|
| Purchase of Property, Plant and Equipment and other capitalized costs
| | (2,708)
| | | -
|
| | | | | | | |
NET CASH USED IN INVESTING ACTIVITIES
| | 200,759
| | | -
|
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES:
| | | | | |
| Amounts received from related party -net
| | -
| | | 2,001
|
| Issuance of notes payable -investor
| | 153,250
| | | 28,844
|
| Payment on secured promissory note
| | -
| | | (330,000)
|
| | | | | | | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
| | 153,250
| | | (299,155)
|
| | | | | | | |
NET CHANGE IN CASH
| | 225,727
| | | (2,345)
|
| | | | | | | |
Cash at beginning of reporting period
| | 361
| | | 2,706
|
| | | | | | | |
Cash at end of reporting period
| $
| 226,088
| | $
| 361
|
| | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
| | | | | |
| Interest paid
| $
| -
| | $
| -
|
| Income tax paid
| $
| -
| | $
| -
|
| | | | | | | |
NON-CASH INVESTING AND FINANCING ACTIVITIES:
| | | | | |
| Purchase of real estate loans for debt, net
| $
| -
| | $
| 1,800,000
|
| Goodwill acquired in acquisition
| $
| 4,038,945
| | $
| -
|
| Issuance of Series B Preferred
| $
| 1,031,061
| | $
| -
|
| Issuance of warrants associated with Acquisition debt
| $
| 173,933
| | $
| -
|
See accompanying notes to the consolidated financial statements.
F-6
Harrison Vickers and Waterman Inc.
June 30, 2015 and 2014
Notes to the Consolidated Financial Statements
Note 1 − Organization and Operations
Sharp Performance, Inc.
Sharp Performance Associates LLC (“LLC” or “Predecessor”) was organized as a Limited Liability Company on September 5, 2008 under the laws of the State of Nevada. Sharp Performance, Inc. (the “Sharp”) was incorporated on the same date under the laws of the State of Nevada for the sole purpose of acquiring all of the outstanding membership units of Sharp Performance Associates LLC.
April 2015 Material definitive Agreement
On April 21, 2015, the Company entered into a Purchase Agreement (the “Purchase Agreement”), with the three original shareholders of Attitude Beer Holding Co., a Delaware corporation (“ABH”), namely, Attitude Drinks, Incorporated, a Delaware corporation (“Attitude Drinks”), 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 the Company all of the outstanding shares of stock of ABH and ABH thereupon became a wholly owned subsidiary of the Company. In consideration for the purchase of the shares of common stock of ABH, the Company issued: (i) to Attitude Drinks, 51 shares of a newly created Series B Preferred Stock of the Company (the “Series B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of the Company’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 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 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 Company’s Series A Preferred Stock (convertible into 32,300,000 shares of the Company’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”). Attitude Drinks purchased 87,990,000 shares of 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.
September 2013 Material Definitive Agreement
Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “Agreement”) with Harrison Vickers and Waterman, LLC (“Harrison Vickers”). Pursuant to the Agreement the Company agreed to purchase from Harrison Vickers certain assets held by Harrison Vickers in the form of real estate loans (the “Loans”). The purchase price was paid by the Company via the issuance of a secured promissory note in the principal amount of $1,800,000 (the “Note”) due December 31, 2014.
The Note is secured by a Pledge Agreement (the “Pledge Agreement”) entered into between the Company and Harrison Vickers, whereby the proceeds of the Loans are pledged as security for the repayment of the Note.
F-7
Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “HVW Agreement”) with HVW Holdings LLC (“HVW”). Pursuant to the Agreement the Company agreed to sell to HVW an aggregate of 308,166 shares of the Company’s Common Stock and 32,300 shares of preferred stock of the Company which pursuant to the terms thereof will be convertible into 32,300,000 shares of the Company’s common stock. The consideration under the HVW Agreement was certain services to be rendered by HVW to the Company pursuant to a management agreement (the “Management Agreement”) entered into between the Company and HVW on September 6, 2013. Some of the material terms of the HVW Agreement include: (i) that Robert J. Sharp, the Chief Executive Officer and Board Member of the Company retire 4,961,500 shares of common stock of the Company owned by Mr. Sharp, (ii) the Company will submit to a vote of its shareholders a forward split of the Company’s common stock equal to 324.5 for 1, (iii) the Company will appoint up to three persons nominated by HVW to the board of directors of the Company to serve until the next annual meeting of shareholders of the Company, (iv) the Company will issue shares of a to be created series of preferred stock (8% annual dividend, anti-dilution rights for 24 months, each share convertible into 1,000 shares of common stock) to each of HVW (32,300), Mr. Sharp (46,500) and an Institutional Investor (16,200).
The material terms of the Management Agreement include: (i) HVW will provide certain business, financial and advisory services to the Company; (ii) HVW will receive a management fee of two percent (2%) per annum of average gross assets, (iii) HVW will also receive twenty percent (20%) of the revenues received by the Company derived from the services under the Management Agreement.
Certificate of Amendment of the Articles of Incorporations
On October 24, 2013 the Company filed a Certificate of Amendment to amend its Articles of Incorporation (the “Actions”) to: (i) change the name of the Company to Harrison Vickers & Waterman Inc. (the “Company”); (ii) increase the number of shares of authorized common stock of the Corporation from 74,000,000 to 2,000,000,000 shares; and (iii) effect a forward stock split of our common stock at a ratio determined by our Board of Directors of 324.5 for 1.
All shares and per share amounts in the consolidated financial statements have been adjusted to give retroactive effect to the Stock Split and the change in authorized stock.
Note 2 − Significant and Critical Accounting Policies and Practices
The Management of the Company is responsible for the selection and use of appropriate accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Fiscal Year End
The Company elected June 30th as its fiscal year end date upon its formation.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
F-8
Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimate(s) and assumption(s) affecting the financial statements were:
(i)
Assumption as a going concern: Management assumes that the Company will continue as a going concern which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business.
(ii)
Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the fact that the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Principles of Consolidation
The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC") to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.
The Company's consolidated subsidiaries and/or entities are as follows:
| | | | | | |
|
|
|
|
|
|
|
Name of consolidated subsidiary or entity
|
| State or other jurisdiction of incorporation or organization
|
| Date of incorporation or formation (date of acquisition, if applicable)
|
| Attributable interest
|
|
|
|
|
|
|
|
Attitude Beer Holding Co.
|
| The State of Delaware
|
| April 21, 2015
|
| 100%
|
The consolidated financial statements of the Company include all accounts of the Company and its wholly owned subsidiary, Attitude Beer Holding Co.
All intercompany balances and transactions have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
F-9
Level 1
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3
Pricing inputs that are generally observable inputs and not corroborated by market data.
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses approximate their fair values because of the short maturity of these instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the consolidated financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
F-10
If the assessment of a contingency indicates that it is probable that a material loss has been incurred, and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position and results of operations or cash flows.
Revenue Recognition
The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Income Tax Provision
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended June 30, 2015 or 2014.
F-11
Earnings per Share
Earnings Per Share ("EPS") is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16. Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23, diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: (a) Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later), and common shares shall be assumed to be issued. (b) The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) (c) The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.
Since there was no reported net income for the 2015 and 2014 reporting periods, any potentially outstanding dilutive common shares are not considered for the reporting period ended June 30, 2015 or 2014.
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing or financing activities and provides definitions of each category and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.
Subsequent Events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the consolidated financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its consolidated financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
Derivative Liabilities
The Company reconsidered the requirements of the Financial Accounting Standards Board Accounting Standards Classification 820 (‘FASB ASC 820” or “ASC 820”) and determined that newly issued debt were derivative financial instruments.
Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instruments are initially recorded at their fair values and are then re-valued at each reporting date, with changes in the fair values reported as charges or credits to income. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
F-12
The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value from inception is made quarterly and appears in results of operations as an adjustment to fair value of derivatives.
Deferred Financing Costs and Debt Discount
The Company paid debt issue costs and recorded debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense.
Original Issue Discount
For certain issued convertible debt, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”)
This guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve that core principle, an entity should apply the following steps:
1.
Identify the contract(s) with the customer
2.
Identify the performance obligations in the contract
3.
Determine the transaction price
4.
Allocate the transaction price to the performance obligations in the contract
5.
Recognize revenue when (or as) the entity satisfies a performance obligations
The ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature, amount, timing and uncertainty of revenue recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about the following:
1.
Contracts with customers – including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations)
2.
Significant judgments and changes in judgments – determining the timing of satisfaction of performance obligations (over time or at a point in time) and determining the transaction price and amounts allocated to performance obligations
F-13
3.
Assets recognized from the costs to obtain or fulfill a contract.
ASU 2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early application is not permitted.
Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Note 3 – Going Concern
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business.
As reflected in the consolidated financial statements, the Company had an accumulated deficit at March 31, 2015 and a net loss for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is attempting to further implement its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4- Inventory
Inventory consists of the following at the West Hartford, Connecticut World of Beer location:
| | |
Bottled beer
| $
| 46,190
|
Other alcoholic beverages
| | 11,141
|
Food items
| | 11,399
|
Other items
| | 12,319
|
| | |
Total inventory at June 30, 2015
| $
| 81,049
|
There was no inventory at June 30, 2014.
Note 5 – Real Estate Loans Receivable and Related Promissory Note Payable
Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “Agreement”) with Harrison Vickers and Waterman, LLC (“Harrison Vickers”). Pursuant to the Agreement the Company agreed to purchase from Harrison Vickers certain assets held by Harrison Vickers in the form of real estate loans (the “Loans”). The purchase price was paid by the Company via the issuance of a secured promissory note in the principal amount of $1,800,000 (the “Note”) due March 31, 2015.
Four loans, $1,800,000 in aggregate, were purchased with one loan of $180,000 being collected during the interim period ending December 31, 2013. The remaining three loans of $520,000, $550,000 and $550,000 were issued on April 2, 2013, May 15, 2013 and July 15, 2013, respectively. They all bear interest at 12% per annum and are due one year from the date of issuance. The loans are secured by a first lien.
The Note is secured by a Pledge Agreement (the “Pledge Agreement”) entered into between the Company and Harrison Vickers, whereby the proceeds of the Loans are pledged as security for the repayment of the Note.
During the interim period ended December 31, 2013, the Company received payment on and paid down $330,000 of the Loans.
The $550,000 loan was reduced to $400,000 during the year ended June 30, 2014 with a corresponding reduction in the promissory note payable. The balance of $400,000 is being disputed by the property owner, but the Company is fully insured by Title Insurance for this amount.
F-14
On February 10, 2015, the note for $520,000 was fully repaid.
The current balance outstanding is $950,000.
| | | | |
| | June 30, 2015
| | June 30, 2014
|
Balance Outstanding
| $
| 950,000
| $
| 1,470,000
|
Note 6- Receivable from Attitude Drinks Incorporated
Attitude Drinks Incorporated is the majority owner of the Company. Occasionally, cash is forwarded to and from the entities, and a receivable/payable balance is established. As of the report date, the Company had a receivable of $131,423 that is due from Attitude Drinks Incorporated.
Note 7- Property Plant and Equipment
Property, plant and equipment relate to the fixtures at the West Hartford, Connecticut World of Beer location which are as follows (in $000):
| | | | |
Property Description
| | Amount
| | Depreciable life
|
Tenant Improvements
| $
| 490
| | 20 years
|
Bar equipment
| | 236
| | 10 years
|
Communications Equipment
| | 88
| | 5 years
|
Capitalized permitting and fees
| | 46
| | 15 years
|
Other
| | 162
| | 5-7 years
|
Accumulated Depreciation
| | (60)
| | |
Total
| $
| 962
| | |
Note 8- Capitalized Costs
Capitalized costs represent all costs incurred at the West Harford, Connecticut World of Beer location prior to its opening date. Such costs in thousands include:
| | |
Property Description
| | Amount
|
Pre-opening labor costs
| $
| 67
|
Franchise fees
| | 45
|
Training fees
| | 29
|
Legal fees
| | 23
|
Start-up costs
| | 20
|
Other
| | 24
|
Accumulated Depreciation
| | (9)
|
| | |
Total
| $
| 199
|
All costs are amortized over fifteen years.
Note 9 – Deferred Financing Costs
Deferred financing costs represent fees associated with the debt issuances for the merger with Attitude Beer as follows:
| | |
Legal fees associated with April 21 2015 merger
| $
| 35,000
|
Value of Preferred Series A shares associated with financing
| | 40,089
|
Total costs
| | 75,089
|
Amortization
| | (7,200)
|
Net Deferred costs
| $
| 67,889
|
All deferred financing costs are being amortized over the length of the financing, being two years
F-15
Note 10- Goodwill
Goodwill represents the increase in the consideration paid over the fair value of the assets being acquired by the Company on the acquisition date as set forth in the Statement of Financial Accounting Standard ASC 350 Intangibles- Goodwill and Other and ASC 850 Subsequent Accounting and Disclosure for Goodwill. In order to fairly value the enterprise, the following assumptions were made for a base case:
a.
The Company would open another three World of Beer franchises, one in October 1, 2015, and the other two would open prior to April 1, 2016;
b.
Operating results would be predicated on 80% of the existing World of Beer location in West Hartford, Connecticut;
c.
Discounted cash flow model through 2022 was used ;
d.
15% discount rate was used.
After the base case was quantified, various scenarios using 20% required rate of returns and 75% of operating results were quantified.
After equal weighting of all these scenarios, it was determined that goodwill was worth $3,997,418 as follows:
| | |
Value of enterprise
| $
| 4,841,801
|
Add: Negative net equity
| | |
of company
| | 20,764
|
Intercompany eliminations
| | 20,665
|
Less: Incremental debt acquired
| | (844,285)
|
| | |
Goodwill
| $
| 4,038,945
|
Note 11- Accrued Expenses- in dispute
Upon the signing of the April 2015 Material Definitive agreement (see Note 1 above), Mr. James Giordano resigned as our Chief Executive Officer. At that time, his shares in the Company were purchased, and all liabilities to him extinguished. Mr. Girodano disputes this and believes he is entitled to his back salary of which $175,000 was accrued. The Company disputes this assertion but has reaccrued the liability. No legal action by either party has been initiated at this time.
F-16
Note 12- Note Payable-investor
Notes payable – investor is as follows:
| | | | |
| | June 30, 2015
| | June 30, 2014
|
On October 9, 2013, the Company issued a promissory note in consideration for $2,500 received from an investor. The note matured on June 30, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $3,188 at June 30, 2015 and $2,938 at June 30, 2014.
| $
| 3,188
| $
| 2,938
|
| | | | |
On October 23, 2013, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on June 30, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $6,027 at June 30, 2015 and $5,527 at June 30, 2014.
| | 6,027
| | 5,527
|
| | | | |
On January 31, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on January 31, 2015 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $5,992 at June 30, 2015 and $5,212 at June 30, 2014.
| | 5,992
| | 5,212
|
| | | | |
On May 15, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on November 15, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $5,542 at June 30, 2015 and $5,042 at June 30, 2014.
| | 5,542
| | 5,042
|
| | | | |
On May 30, 2014, the Company issued a promissory note in consideration for $10,000 received from an investor. The Note matured on December 31, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $11,628 at June 30, 2015 and $10,125 at June 30, 2014.
| | 11,628
| | 10,125
|
| | | | |
Since inception, the Company had received advances from its former Chairman and Chief Executive Officer, Robert J Sharp, for working capital purposes. Mr. Sharp advanced the Company $36,628. On September 1, 2013, Mr. Sharp assigned his rights to the advances to an investor. On January 2, 2015, the Company and the investor agreed to adjust the note such that the note (a) became immediately convertible; (b) converts into common stock at a 50% discount from the lowest closing bid price for the prior thirty trading days; (c) bears interest at a rate of 10% per year. On March 25, 2015, the investor converted $2,600 worth of debt into 2,000,000 shares. The note balance with accrued interest is $35,775 at June 30, 2015 and $36,628 at June 30, 2014.
| | 35,775
| | 36,628
|
| | | | |
| | | | |
On October 1, 2014, the Company issued a promissory note in consideration for $25,000 received from an investor. The Note matures on June 30, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $26,863 at June 30, 2015.
| | 26,863
| | -
|
| | | | |
On October 24, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $5,073 at June 30, 2015.
| | 5,073
| | -
|
| | | | |
On March 15, 2015, the Company issued a promissory note in consideration for $2,500 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $2,573 at June 30, 2015.
| | 2,573
| | -
|
| | | | |
On April 21, 2015, the Company issued a promissory note in consideration for $1,619,375 received from an investor. The Note matures on April 20, 2017 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $1,650,432.
| | 1,650,432
| | -
|
| | | | |
On April 21, 2015, the Company issued a promissory note in consideration for $554,792 received from an investor. The Note matures on April 20, 2017 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $565,432.
| | 565,432
| | -
|
| | | | |
On April 27, 2015, the Company issued a promissory note in consideration for $13,250 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $13,482.
| | 13,482
| | -
|
| | | | |
| | | | |
On May 8, 2015, the Company issued a promissory note in consideration for $7,500 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $7,609.
| | 7,609
| | -
|
| | | | |
Total face value of notes plus accrued interest
| | 2,339,616
| | 65,472
|
| | | | |
Discount on Notes Payable
| | 1,984,395
| | -
|
| | | | |
Net debt
| | 355,221
| | 65,472
|
Less: long term portion
| | 210,522
| | -
|
Current portion
| $
| 144,699
| $
| 65,472
|
Note 13 – Derivative Liabilities:
Fair Value Measurement
Valuation Hierarchy
ASC 820, “Fair Value Measurements and Disclosures,” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the liabilities carried at fair value measured on a recurring basis as of June 30, 2015:
| | | | | | | | | | | | | | | |
|
|
|
|
| Fair Value Measurements at June 30, 2015
|
|
| Total
Carrying
Value at
June 30, 2015
|
|
| Quoted
prices in
active
markets
(Level 1)
|
|
| Significant
other
observable
inputs
(Level 2)
|
|
| Significant
unobservable
inputs
(Level 3)
|
Conversion feature liability
|
| $
| 4,237,890
|
|
| $
| –
|
|
| $
| –
|
|
| $
| 4,237,890
|
The carrying amounts of cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities approximate their fair value due to their short maturities. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting department, who reports to the Principal Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting department and are approved by the Principal Financial Officer.
Level 3 Valuation Techniques
Level 3 financial liabilities consist of the conversion feature liability for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement.
F-19
As of June 30, 2015, there were no transfers in or out of level 3 from other levels in the fair value hierarchy.
Note 14 – Commitments and Contingencies
Management Agreement
Effective September 6, 2013 the Company entered into a management agreement (the “Management Agreement”) between the Company and HVW.
The material terms of the Management Agreement include: (i) HVW will provide certain business, financial and advisory services to the Company; (ii) HVW will receive a management fee of two percent (2%) per annum of average gross assets, and (iii) HVW will also receive twenty percent (20%) of the revenues received by the Company derived from the services under the Management Agreement. The management fee has been waived for the year ended June 30, 2015 and June 2014.
Note 15 – Income Tax Provision
Deferred Tax Assets and Valuation Allowance
At June 30, 2015, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes of $1,944,010 that may be offset against future taxable income through 2034. No tax benefit has been reported with respect to these net operating loss carry-forwards in the consolidated financial statements because the Company believes that the realization of the Company’s net deferred tax assets of approximately $680,404 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance.
Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realization. The valuation allowance increased approximately $468,732 and $191,888 for the fiscal year ended June 30, 2015 and 2014, respectively.
Components of deferred tax assets and valuation allowance are as follows:
| | | | | | |
|
|
|
|
|
|
|
|
| June 30, 2015
|
| June 30, 2014
|
Net deferred tax assets – non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax benefit from NOL carry-forwards
|
| $
| 680,404
|
| $
| 205,624
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
| (680,404)
|
|
| (205,624)
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
| $
| −
|
| $
| −
|
Income Tax Provision in the Consolidated Statements of Operations
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:
| | | | | | |
|
|
|
|
|
|
|
|
| For the Fiscal Year Ended
June 30, 2015
|
| For the Fiscal Year Ended
June 30, 2014
|
|
|
|
|
|
|
|
Federal statutory income tax rate
|
|
| 35.0%
|
|
| 34.0%
|
|
|
|
|
|
|
|
Change in valuation allowance on net operating loss carry-forwards
|
|
| (35.0)%
|
|
| (34.0)%
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
| 0.0%
|
|
| 0.0%
|
F-20
Note 16 – Stockholders’ Deficit
Shares Authorized
Upon formation, the total number of shares of all classes of stock which the Company is authorized to issue is Seventy Five Million (75,000,000) shares of which One Million (1,000,000) shares shall be Preferred Stock, par value $0.0001 per share, and Seventy Four Million (74,000,000) shares shall be Common Stock, par value $0.0001 per share.
On October 24, 2013 the Company filed a Certificate of Amendment to amend its Articles of Incorporation (the “Actions”) to: (i) change the name of the Company to Harrison Vickers & Waterman Inc.; (ii) increase the number of shares of authorized common stock of the Company from 74,000,000 to 2,000,000,000 shares; and (iii) effectuate a forward stock split of our common stock at a ratio determined by our Board of Directors of 324.5 for 1.
All shares and per share amounts in the consolidated financial statements have been adjusted to give retroactive effect to the Stock Split and the change in authorized stock.
Series A 8% Convertible Preferred Stock
On September 17, 2013 the Company filed the Series A 8% Convertible Preferred Stock Certificate of Designation with the Secretary of State of Nevada (the “Certificate of Designation”) authorizing 100,000 shares of Series A Convertible Preferred Stock and establishing the rights, preferences, privileges and obligations thereof.
As set forth in the Certificate of Designation, the holders of Series A Convertible Preferred Stock are entitled to receive, when and as declared by the Board of Directors out of funds legally available therefore, and the Company is obligated to accrue, quarterly in arrears on March 31, September 30, September 30, and December 31 of each year, cumulative dividends on the Series A Preferred Stock at the rate per share equal to eight percent (8%) per annum on the Stated Value, payable in common stock valued at the closing trade price per share on the last trading day of the calendar quarter. Through the Balance sheet date, the holders of the Series A Preferred Stock have waived all dividends. There is no guarantee they will do so going forward. The Series A Convertible Preferred Stock does not have the right to vote on any matter that may from time to time be submitted to the Company’s shareholders for a vote, either by written consent or by proxy. So long as any shares of Series A Preferred Stock are outstanding, the Company does not have the right to, and cannot cause its subsidiaries not to, without the affirmative vote of the Requisite Holders, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock, (b) alter or amend this Certificate of Designation, (c) amend its certificate of incorporation, bylaws or other charter documents so as to affect adversely any rights of any Holders of the Series A Preferred Stock, (d) increase the authorized or designated number of shares of Series A Preferred Stock, (e) issue any additional shares of Series A Preferred Stock (including the reissuance of any shares of Series A Preferred Stock converted for Common Stock) or (f) enter into any agreement with respect to the foregoing. Each share of Series A Convertible Preferred Stock is convertible into 1,000 shares of Common Stock. For a period of 24 months from the Issuance Date, if the Company issues shares of common stock (or securities, including any derivative securities, containing the right to purchase, exercise or convert into shares of common stock) (the “Dilution Shares”) such that the outstanding number of shares of common stock on a fully diluted basis is greater than 214,000,000 shares (inclusive of conversions of Series A Preferred Stock at the Conversion Ratio immediately above), then the Conversion Ratio for the Series A Preferred Stock then outstanding and unconverted as of the date the Dilution Shares are issued shall be adjusted to equal the Conversion Ratio multiplied by a fraction, the numerator of which shall be the number of shares outstanding on a fully diluted basis after the issuance of the Dilution Shares, and the denominator shall be 214,000,000. The Company cannot effect any conversion of the Series A Preferred Stock, to the extent that, after giving effect to the conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of 9.9% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series A Preferred Stock.
Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “HVW Agreement”) with HVW Holdings LLC (“HVW”). Pursuant to the Agreement the Company agreed to sell to HVW an aggregate 32,300 shares of its Series A, 8% Convertible Preferred Stock which pursuant to the terms thereof will be convertible into 32,300,000 shares of the Company’s common stock. The consideration under the HVW Agreement was certain services to be rendered by HVW to the Company pursuant to a management agreement (the “Management Agreement”) entered into between the Company and HVW on September 6, 2013. HVW sold these 32,300 shares to another investor on April 21, 2015.
In addition, the Company issued 46,500 shares of its Series A, 8% Convertible Preferred Stock to its former president, Robert Sharp and 16,200 shares to an investor. Robert Sharp sold 36,500 of these shares to two other investors on April 21, 2015
The 95,000 shares issued of the A 8% Convertible Preferred Stock were valued at $425,000 in aggregate, $208,206, $144,500 and $72,474 of which were booked as compensation – officer, management fees and consulting fees, respectively.
F-21
On November 4, 2013, the owners of the Series A Convertible Preferred Stock agreed that the Conversion ratio, as defined in the Certificate of Designation, shall not change in the event of forward-split or reverse-split for a period of nine months from issuance.
On April 21, 2015, we issued 5,000 new shares of the Series A Convertible Preferred Stock to another investor.
Series B Convertible Preferred Stock
On April 21, 2015, the Company issued 51 shares of Series B Convertible Preferred Stock to Attitude Drinks Incorporated. At the time, the Company accounted for approximately $1,000,000 in Additional paid in capital due to its issuance. See Note 10- Goodwill, above for more detail.
Common Stock
Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “HVW Agreement”) with HVW Holdings LLC (“HVW”). Pursuant to the Agreement the Company agreed to sell to HVW an aggregate of 308,166 shares of the Company’s Common Stock. The consideration under the HVW Agreement was certain services to be rendered by HVW to the Company pursuant to a management agreement (the “Management Agreement”) entered into between the Company and HVW on September 6, 2013. Some of the material terms of the HVW Agreement include: (i) that Robert J. Sharp, the previous Chief Executive Officer and Board Member of the Company retire 4,961,500 shares of common stock of the Company owned by Mr. Sharp, and the Company will appoint up to three persons nominated by HVW to the board of directors of the Company to serve until the next annual meeting of shareholders of the Company.
The common stock issued was valued at its fair market value of $1,379.
On September 10, 2013, 649,000 shares of the Company’s common stock were returned without consideration. The transaction was recorded at the Company’s par value.
Equity Incentive Plan
On October 24, 2013, the Company created the 2013 Equity Incentive Plan (the “2013 Plan.”) The aggregate number of shares of Common stock that may be issued under the Plan shall not exceed five million (5,000,000) shares.
No shares have been issued as of June 30, 2015, and all of the 5,000,000 shares are available for issuance under the 2013 Plan.
Note 17 – Concentrations and Credit Risk
Customers Concentrations
The Company’s net revenues come from restaurant and bar operations, and it has been determined that there is no concentration of revenues from any one customer.
F-22
Note 18- Segment Reporting
The Company operates in two segments which are consistent with its internal organization. The major segments are restaurants/taverns and commercial lending.
Revenues, expenses and assets not explicitly attributed to a segment are deemed to be unallocated.
See below for a summary:
| | | | | | | | |
Harrison Vickers and Waterman, Inc.
|
Segment Reporting
|
June 30, 2015
|
| | | | | | | | |
| | Restaurants/
Tavern
| | Commercial Lending
| | Corporate overhead
| | Total
|
Net Revenues
| $
| 669,172
| $
| -
| $
| -
| $
| 669,172
|
| | | | | | | | |
Cost of Goods sold
| | (185,602)
| | -
| | -
| | (185,602)
|
| | | | | | | | |
Gross Margin
| | 483,570
| | -
| | -
| | 483,570
|
| | | | | | | | |
Operating Expenses
| | 461,124
| | 127,384
| | -
| | 588,508
|
| | | | | | | | |
Other Income (Expense)
| | (253,038)
| | (39,948)
| | (2,015,190)
| | (2,308,176)
|
| | | | | | | | |
Net Income (loss) before minority interest
| | (230,592)
| | (167,332)
| | (2,015,190)
| | (2,413,114)
|
| | | | | | | | |
Minority interest
| | (34,827)
| | -
| | 1,103,991
| | 1,069,164
|
| | | | | | | | |
Net Income
| | (265,419)
| | (167,332)
| | (911,199)
| | (1,343,950)
|
| | | | | | | | |
Total Current assets
| | 482,752
| | 950,000
| | -
| | 1,432,752
|
| | | | | | | | |
Total Assets
| | 1,676,934
| | 950,000
| | 4,073,945
| | 6,700,879
|
| | | | | | | | |
Total Liabilities
| $
| 1,705,268
| $
| 1,254,180
| $
| 4,009,615
| $
| 6,969,063
|
F-23
| | | | | | | | |
Harrison Vickers and Waterman, Inc.
|
Segment Reporting
|
June 30, 2014
|
| | | | | | | | |
| | Restaurants/
Tavern
| | Commercial Lending
| | Corporate overhead
| | Total
|
Net Revenues
| $
| -
| $
| -
| $
| -
| $
| -
|
| | | | | | | | |
Cost of Goods sold
| | -
| | -
| | -
| | -
|
| | | | | | | | |
Gross Margin
| | -
| | -
| | -
| | -
|
| | | | | | | | |
Operating Expenses
| | -
| | 562,101
| | -
| | 562,101
|
| | | | | | | | |
Other Income (Expense)
| | -
| | (2,276)
| | -
| | (2,276)
|
| | | | | | | | |
Net Income (loss) before minority interest
| | -
| | (564,377)
| | -
| | (564,377)
|
| | | | | | | | |
Minority interest
| | -
| | -
| | -
| | -
|
| | | | | | | | |
Net Income
| | -
| | (564,377)
| | -
| | (564,377)
|
| | | | | | | | |
Total Current assets
| | -
| | 1,470,361
| | -
| | 1,470,361
|
| | | | | | | | |
Total Assets
| | -
| | 1,470,361
| | -
| | 1,470,361
|
| | | | | | | | |
Total Liabilities
| $
| -
| $
| 1,644,909
| $
| -
| $
| 1,644,909
|
Note 19 – Subsequent Events
The Company has evaluated all events that occurred after the balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported. Here is the subsequent event:
On July 29, 2015, we issued a convertible note payable for $80,000 with a two year maturity at an interest rate of ten percent per annum. We also issued a warrant to purchase up to 64,000 shares of our common stock at a price of $.0025 with an expiration date of June 29, 2022.
On August 18, 2015, we filed a DEF 14C report whereas the Company obtained the approval by written consent of one shareholders that has 85.4% of the voting power of the Company as well as the Board of Directors to amend the Company’s Articles of Incorporation to (1) increase the Company’s authorized shares of common stock from 2,000,000,000 to 7,500,000,000, (2) change the name of the Company to Attitude Beer, Inc. and (3) to adopt the 2015 Stock Incentive Plan. Effective date will be September 8, 2015.
F-24
MILFORD CRAFT, LLC
_____________
OPERATING AGREEMENT
________________
As of May __, 2015
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (the “Agreement”) of MILFORD CRAFT, LLC, a Connecticut limited liability company (the “Company”), dated as of May __, 2015, by and among New England WOB, LLC and Attitude Beer Holding Co. (each a “Member and collectively the “Members”).
WHEREAS, the Company, was formed as a limited liability company pursuant to the laws of the State of Connecticut by filing the Articles of Organization with the Connecticut Secretary of State on April 10, 2015, as the same may be amended, supplemented or modified from time to time (the “Articles of Organization”); and
WHEREAS, the undersigned desire to provide for the regulation and establishment of the affairs of the Company, the conduct of its business and the relations among them as Members of the Company.
NOW THEREFORE, for and in consideration of the premises stated, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1
Definitions. As used herein, the following terms have the following respective meanings:
(a)
“Act” shall mean the Limited Liability Company Law of the State of Connecticut and any successor statute, as amended from time to time.
(b)
“Adjusted Capital Account” means the cash contributed by a Member, (i) reduced from time to time by cash distributions from the Company to him in accordance with Section 5.2(b)(ii) herein, and (ii) increased from time to time by any additional cash contributions made by him in accordance with Section 3.2(a) herein, and (iii) otherwise adjusted as required under Treasury Regulations § 1.704-1(b)(2)(iv).
(c)
“Affiliate” means any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person.
(d)
“Agreement” means this Operating Agreement, as amended from time to time.
(e)
“Available Cash” means all cash of the Company after paying its current obligations and making the appropriate reservations for foreseeable future expenses.
(f)
“Bankruptcy” with respect to any Person, means (i) making an assignment for the benefit of creditors, (ii) filing a voluntary petition in bankruptcy, (iii) becoming the subject of an order for relief or being-declared insolvent in any federal or state bankruptcy or insolvency proceeding (unless such order is dismissed within ninety (90) days following entry), (iv) filing a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, (v) filing an answer or other pleading admitting or failing to contest the material allegation of a petition filed against it in any proceeding similar in nature to those described in the preceding clause, or otherwise failing to obtain dismissal of such petition within one hundred- twenty (120) days following its filing, or (vi) seeking, consenting to, or acquiescing in, the appointment of a trustee, receiver, or liquidator of all or any substantial part of its properties.
(g)
“Capital Contribution” means the aggregate capital contribution made from time to time in cash by a Member to the Company.
(h)
“Capital Proceeds” means the proceeds of the sale of all or substantially all the assets of the Company.
(i)
“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.
(j)
“Company” means MILFORD CRAFT, LLC, a New York limited liability company.
(k)
“Incompetency” with respect to any member who is a natural person, shall mean the entry by a court of competent jurisdiction of an order or decree adjudicating such Member incompetent to manage his person or his estate.
1
(l)
“Interest(s)” means an interest as a Member of the Company.
(m)
“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, conditional sale agreement or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest in respect of such asset.
(n)
“Liquidator” means the Manager, or if there are no Manager at the time in question, such other Person who is appointed in accordance with applicable law to take all actions related to the winding up of the Company’s business and the distribution of the Company’s assets.
(o)
“Manager” means New England WOB, LLC.
(p)
“Management Fee” shall mean 4% of Net Sales. Net Sales shall mean the total revenue from sales generated by a company, less deduction of returns, allowances for damaged or missing goods and any discounts allowed.
(q)
“Member” means any of those Persons identified above as Members and any substitute or additional Member in such Person’s capacity as a member of the Company.
(r)
“Member Majority” or “Majority of Members” means, at any time, any combination of Members holding, in the aggregate, a majority of all of the Interests.
(s)
“Membership Interest” shall mean the same thing as Interest as defined in Section 1.1(o) herein.
(t)
“Membership Percentage” means, with respect to each Member, the percentage set forth in “Schedule A” attached hereto.
(u)
“Net Profits and Net Losses” means, for any period, the net profits and net losses, respectively, derived from the operation of the Company for Federal income tax purposes, including gains and losses on the sale of all or any portion of the Company’s assets.
(v)
“Notice” means a written notice containing all information which is either desirable, relevant or necessary to satisfy the purposes for which such notice is being delivered.
(w)
“Operating Reserves” means cash reserves of the Company held by the Company to ensure it can make future payments despite any drop in revenue. Operating Reserves shall not exceed two (“2”) months expenses determined by taking the average monthly expense for the previous 12 months.
(x)
“P&L Participant” means a person entitled to participate in the profits and losses of the Company but shall not be a Member of the Company and shall not have any voting rights, equity interest or stake in the Company. A P&L Participant shall solely have a contractual agreement with the Company.
(y)
“Person” means any natural person, corporation (stock or nonstock), limited liability company, limited partnership, general partnership, joint stock company, joint venture, association (profit or nonprofit), company, estate, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any government agency or political subdivision thereof.
(z)
“Securities Act” means the Securities Act of 1933, as amended, and any successor statute, and the rules and regulations promulgated thereunder.
(aa)
“Transfer” means the sale, transfer, assignment, pledge, mortgage, hypothecation, encumbrance, distribution or other disposition of any Interests.
(bb)
“Treasury Regulations” means regulations adopted by the Treasury Department of the United States governing application and enforcement of the Code. Any reference to a section or provision of the Treasury Regulations shall be deemed to refer also to such section or provision as amended or superseded.
(cc)
“Unreturned Capital Contribution” of any Member means, at any date, the Capital Contributions of such Member reduced from time to time (but not below zero) by any distribution to such Member pursuant to Section 5.2(b)(ii) hereof.
2
ARTICLE 2
THE COMPANY; THE MEMBERS; VOTING RIGHTS
SECTION 2.1
Registered Office and Registered Agent. The address of the registered office of the Company is 3472 Pine Haven Circle, Boca Raton, FL 33431 and the registered agent is Corporate Creations Network, Inc.
SECTION 2.2
Principal Office. The address of the principal office of the Company shall be 3472 Pine Haven Circle, Boca Raton, FL 33431 or such other place as the Manager may from time to time determine.
SECTION 2.3
Duration. The Company’s existence shall continue until dissolved in accordance with the Act and this Agreement.
SECTION 2.4
Maintenance. The Members shall promptly sign and file all certificates, amendments or other instruments as required by law to maintain the Company in good standing as a limited liability company in all jurisdictions in which it conducts business, including without limitation, as required to comply with any fictitious name statutes.
SECTION 2.5
Changes in Registered Office, etc. The Manager may make such changes in the registered office, registered agent and principal office as they may deem necessary or advisable, and shall give Notice to all Members promptly following any such change. The Company may maintain such other or additional business offices at such other place or places as the Manager may from time to time deem advisable.
SECTION 2.6
Business Purpose. The Company is formed and organized to engage in the following business:
(a)
To own, improve, develop, operate and manage a World of Beer Franchise in Milford, Connecticut; and
(b)
To engage in any business related or incidental to one or more of the foregoing activities.
The Members have entered into a Joint Venture Agreement dated December 24, 2014, regarding the establishment of World of Beer franchises (the “JV Agreement”).
SECTION 2.7
Authority and Powers. The Company is authorized and empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to, or convenient for the furtherance and accomplishment of its purposes, and for the protection and benefit of the Company, including without limitation, all acts and things permitted under the Act and this Agreement.
SECTION 2.8
Juridical Existence, Properties, Etc. The Company shall maintain, preserve, and keep in full force and effect its limited liability company existence and all rights, franchises, licenses and permits necessary to the proper conduct of its business, and the ownership, lease, or operation of its properties which, if not so maintained, could reasonably be expected to have a material adverse effect on the Company, and to take all action which may be reasonably required to obtain, preserve, renew and extend all material licenses, permits, authorizations, trade names, trademarks, service names, service marks, copyrights and patents which are necessary for the continuance of the operation of any such property by the Company.
SECTION 2.9
Members and Membership Percentages. The Members and their respective Membership Percentages shall are set forth in “Schedule A” attached hereto.
SECTION 2.10
Voting Rights. All Members shall have the right to vote t heir membership interest in proportion to their respective Membership Percentages shall are set forth in “Schedule A” attached hereto
SECTION 2.11
P&L Participants. The Manger may grant solely to significant employees of the Company the rights to be a P&L Participant of the Company, up to five percent (5%) of the Company’s profits and losses. Such P&L Participant shall participate in the profits and losses as if such person was a Member. All P&L Participant shall be identified on Schedule C and their participation with the Members in the profits and losses of the Company shall be set forth on Schedule B. No Member or employee of a Member may be a P&L Participant.
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ARTICLE 3
CAPITAL CONTRIBUTIONS
SECTION 3.1
Initial Capital Contributions. The members have made an initial capital contribution as set forth on Schedule A.
SECTION 3.2
Additional Capital Contributions.
(a)
Upon the consent of a Majority of Members, the Manager shall have the right to require additional capital contributions (“Capital Calls”) from the Members to be paid on a pro rata basis as to all Members in accordance with the percentages set forth on Schedule A.
(b)
The Manager may obtain Company loans to cover any Company required Additional Capital Contributions, with the consent of the Members holding a majority of the Membership Interest in the Company.
(c)
In the event that a Member fails to, or refuses to contribute towards a Capital Call (the “Defaulting Member”), then either:
(i)
The remaining Members may elect to purchase the Membership Interest from the Defaulting Member, at a 15% discount to the Defaulting Member’s Initial Capital Contribution; or
(ii)
The remaining Members may elect to contribute the necessary funds (the “Lending Members”) on behalf of the Defaulting Member which shall be considered a loan to the Defaulting Member, to be secured by its Membership Interest in the Company.
(A)
Any loan given to the Company by the Lending Member on behalf of the Defaulting Member, shall accrue interest at a rate of 300 basis points above LIBOR per annum. In the event of a Distribution by the Manager under Article 5 herein or under a dissolution of the Company under Article 10 herein, the Manager shall use the funds attributable to the Defaulting Member, to first pay off any loans to the Defaulting Member by the Lending Member.
(B)
In furtherance of any loan to any Defaulting Member by the Lending Members in accordance with this Section, the Members hereby expressly agree to execute any and all loan documents which the Company’s attorneys deem necessary, including but not limited to; a Note, Guaranty, Loan Agreement, and Pledge Agreement. Furthermore, the Defaulting Member shall be responsible to pay for all legal fees that the Company shall incur in furtherance of such loan.
SECTION 3.3
Return of Capital Contributions. The contributions of the Members to the capital of the Company shall be returned to them in cash, in whole or in part, at any time in the discretion of the Manager in accordance with Section 5.2(b) herein.
SECTION 3.4
Time when Capital is Returned. Upon the satisfaction of all the Company’s financing obligations, or a liquidation of the assets of the LLC, or the dissolution of the LLC, the Capital Contributions shall be returned to the Members pro rata in accordance with each Member’s Capital Contributions.
SECTION 3.5
No Right to Priority. Except as otherwise expressly provided in this Agreement, or as required to comply with the Code and Treasury Regulations, no Member shall have priority over any other Member as to any allocations, distributions, or return of all or any part of its Capital Contributions.
SECTION 3.6
Dilution. No dilution of the membership interest of any member shall occur without the consent of World of Beer Franchising, Inc.
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ARTICLE 4
ALLOCATION OF PROFITS AND LOSSES TO MEMBERS
SECTION 4.1
Allocation of Net Profits and Net Losses. Net profits and net losses shall be allocated in the proportions set forth on Schedule B.
SECTION 4.2
Required Special Allocations. Notwithstanding Section 4.1 hereof,
(a)
Appropriate adjustments shall be made to the allocations of Net Profits and Net Losses to the extent required under Section 704(c) of the Code and the Treasury Regulations thereunder and under Sections 1.704-1(b)(2)(iv)(d), (e), (f) and (g) of the Treasury Regulations;
(b)
Appropriate adjustments shall be made to the allocations of Net Profits and Net Losses to the extent required to comply with the “qualified income offset” provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations; the partnership “minimum gain chargeback” provisions of Section 1.704-2(f) of the Treasury Regulations; and the “partner nonrecourse deduction” and “partner nonrecourse debt minimum gain chargeback” provisions of Section 1.704-2(i) of the Treasury Regulations, all issued pursuant to Section 704(b) of the Code. To the extent permitted by such Treasury Regulations, the allocations in such year and subsequent years shall be further adjusted so that the cumulative effect of all the allocations shall be the same as if all such allocations were made pursuant to Section 4.1 hereof (as adjusted by Section 4.3(a) hereof) without regard to this Section 4.3(b).
SECTION 4.3
Other Allocation Rules. For purposes of determining the Net Profits, Net Losses, or any other items allocable to any period, Net Profits, Net Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Manager using any permissible method under Code § 706 and the Treasury Regulations applicable thereto.
SECTION 4.4
Recapture Income. “Recapture Income,” if any, realized by the Company pursuant to Sections 1245 or 1250 of the Code shall be allocated to the Members to whom the prior corresponding depreciation deductions were allocated, in proportion to the amounts of such depreciation deductions previously allocated to them.
ARTICLE 5
DISTRIBUTIONS
SECTION 5.1
Distributions in Kind. No Member shall be entitled to demand and receive distributions other than in cash form. Any non-cash Company assets distributed in kind shall be distributed to the Members entitled thereto as tenants-in-common owning undivided interests in the same proportion as would be applicable to cash distributions, however, such distribution in kind may only be made with consent of the Members holding a Member Majority.
SECTION 5.2
Distribution of Available Cash and Capital Proceeds.
(a)
Available Cash. The Manager shall distribute Available Cash in the percentages set forth on Schedule B. It is anticipated the Manager shall make distributions on a monthly basis.
(b)
Capital Proceeds. Capital Proceeds remaining after the payment of any debts and liabilities of the Company due and payable at such time and the establishment of any Operating Reserves which the Manager determines, in his sole discretion necessary for reasonable ongoing business requirements, and necessary to provide for any contingent or unforeseen liabilities or obligations of the Company, shall be distributed in accordance with the following order of priority:
(i)
First, to repay the Capital Contributions of the Members as set forth on Schedule A; and
(ii)
Second, in the percentages set forth on Schedule B.
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ARTICLE 6
RESIGNATION OR BANKRUPTCY OF A MEMBER
RESTRICTIONS ON THE TRANSFER OF INTERESTS;
ADMISSION OF SUBSTITUTE AND ADDITIONAL MEMBERS;
SECTION 6.1
Resignation or Bankruptcy of a Member; Continuation of the Company.
(a)
A Member shall have the right to withdraw his Capital Contribution upon the termination of the Company as provided in Section 10.2 hereof, provided, however, that no part of the Capital Contribution of any Member shall be withdrawn unless all liabilities of the Company, except obligations to Members on account of their Capital Contributions, have been paid, or unless the Company has assets sufficient to pay them.
(b)
Within ninety (90) days following the Resignation or the Bankruptcy (other than by reason of death or incompetency) of a Member, the Company shall dissolve unless, within such applicable period, a majority in interest of the Members (excluding for such purpose the successor in interest to the terminated Member’s Interest) elect in writing to continue the Company on such terms as they may agree upon in writing. If an election to continue the Company is so made then the Company shall continue in existence until the end of the term for which it has been formed, or until a subsequent Resignation (other than by reason of death or incompetency), Bankruptcy or other event of dissolution occurs.
(c)
The death or Incompetency of a Member shall neither dissolve nor terminate the Company.
SECTION 6.2
Restrictions on the Transfer of Interests.
(a)
Except as expressly provided herein, no Member shall have the right to Transfer all or any part of its Interest without the prior written consent of the Manager, which may be withheld in his sole discretion, according to reasonable terms.
Upon the consent of the Manager, a Member may transfer his Membership Interest in the Company to a permitted transferee (“Transferee”). Such Transferee shall be required to pay the Company’s legal fees in connection with effectuating such Transfer as a condition precedent to the consent. Such Transferee shall be bound to the same extent as a Member hereunder in making a Transfer of his Interest. Any purported Transfer in violation of the provisions of this Agreement shall be null and void ab initio.
(b)
Notwithstanding subparagraph (a) above, any Member may Transfer all of his Interest during his lifetime to;
(i)
an entity that is wholly controlled, and continues to be controlled by that Member.
(ii)
another Member of the Company, pursuant to Section 6.2 herein.
(iii)
an immediate family member of the Member or a trust for the benefit of an immediate family member.
For purposes of this subparagraph (b), the term “Entity” shall be limited to the transfer of Member’s interest to a Corporation, LLC or Trust. If control of such Entity is transferred to another individual or another entity, such change and transfer shall constitute an unauthorized transfer pursuant to the terms of this agreement.
(c)
Notwithstanding anything to the contrary contained herein, pursuant to Section 6.1(a) or the applicability of Section 6.1(b) or 6.2 hereof:
(i)
No Transfer of an Interest shall be made if the Interest which is the subject of a proposed Transfer when added to the total of all other Interests Transferred within the period of twelve (12) consecutive months prior thereto would result in the termination of the Company under Section 708 of the Code or if the Transfer would cause the Company to lose its status under the Code as a partnership for Federal income tax purposes.
(ii)
No Interest shall be transferred unless the registration provisions of the Securities Act of 1933, as amended, and all applicable state “blue sky laws” have been complied with or unless compliance with such provisions is not required, each Member recognizing that no interest in the Company has been registered under Federal or state securities laws. The Manager may request in their sole discretion an opinion from the Company’s counsel or any other counsel that such transfer will not violate applicable securities laws. The costs of such opinion shall be paid for by the Transferee.
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(iii)
Although a permitted Transferee pursuant to Sections 6.1(b) or 6.2 shall be treated as an assignee of, and be entitled to, all of the rights of the Selling Member to receive profits, losses and distributions to the extent of the Interest assigned to him, no Transferee whatsoever shall become substituted as a Member in the Company (x) without the prior written consent of a Majority of Members, which may be withheld in their sole discretion, for any or no reason, and (y) unless and until such Transferee shall have evidenced his consent and agreement to be bound by all of the terms and provisions of this Agreement, and to assume, as a substituted Member, his pro rata share hereunder of the obligations of his transferor as a Member, by executing and acknowledging a counterpart of an amendment of this Agreement and/or such other agreement to that effect as the Manager may request, each of which shall appropriately reflect his admission as a member of the Company and his capital contribution thereto, and such other documents, all as may reasonably be required by the Managing Member. Such substitution shall then take effect when the Manager have accepted such person as a Member and the books and records of the Company reflect such Person as admitted to the Company as a Member. As a condition to such Transferee becoming a substituted Member, such Transferee shall also be required to pay the Company’s costs and expenses, including but not limited to legal fees and disbursements, in connection with his becoming a Member.
(d)
If a Transfer or attempted Transfer of an Interest is made other than in accordance with the terms of this Agreement, it shall be null and void and no right, title or interest in the Company shall be transferred.
(e)
No assignment, transfer or other disposition of all or any part of the interest of any Member permitted under this Agreement shall be binding upon the Limited Liability Company unless and until a duly executed and acknowledged counterpart of such assignment or instrument of transfer, in form and substance satisfactory to the Company, has been delivered to the Company.
(f)
As between a Member and an assignee or transferee of such Member's interest in accordance with this Agreement, allocations and distributions for any fiscal year shall be apportioned as of the date of the assignment or transfer, on the basis of the number of days before and after said date, without regard to the results of the Company's operations before or after the assignment or transfer.
(g)
No assignment or other disposition of any interest of any Member may be made if such assignment or disposition, alone or when combined with other transactions, would result in the termination of the Company within the meaning of Section 708 of the Internal Revenue Code or under any other relevant section of the Code or any successor statute. No assignment or other disposition of any interest of any Member may be made without an opinion of counsel satisfactory to the Company that such assignment or disposition is subject to an effective registration under, or exempt from the registration requirements of, the applicable State and Federal securities laws. No interest in the Company may be assigned or given to any person below the age of 21 years or to a person who has been adjudged to be insane or incompetent.
SECTION 6.3
Right Of First Refusal.
(a)
Anything herein contained to the contrary, the Company shall be entitled to treat the record holder of the interest of a Member as the absolute owner thereof, and shall incur no liability by reason of distributions made in good faith to such record holder, unless and until there has been delivered to the Company the assignment or other instrument of transfer and such other evidence as may be reasonably required by the Company to establish to the satisfaction of the Limited Liability Company that an interest has been assigned or transferred in accordance with this Agreement.
(b)
Notwithstanding the forgoing terms, and subject to Section 6.1(b) herein, if a Member desires to sell, or otherwise dispose of all or any part of its interest in the Company, such Member (the “Selling Member”) shall first offer to sell and convey such interest to any other Members before selling, or otherwise disposing of such interest to any other person, corporation or other entity. Such offer shall be in writing, shall be given to every other Member, and shall set forth the interest to be sold, purchase price to be paid, the date on which the closing is to take place, (which date shall be not less than thirty nor more than sixty days after the delivery of the offer), the location within the State of New York at which the closing is to take place, and all other material terms and conditions of the sale, transfer or the disposition.
(c)
Within fifteen days after the delivery of said offer to the other Members shall deliver to the Selling Member a written notice either accepting or rejecting the offer. Failure to deliver said notice within said fifteen days conclusively shall be deemed a rejection of the offer. Any or all of the other Members may elect to accept the offer, and if more than one of the other Members elects to accept the offer, the interest being sold and the purchase price therefor shall be allocated among the Members so accepting the offer in proportion to their Members’ Percentage Interest, unless they otherwise agree in writing.
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(d)
If any or all of the other Members elect to accept the offer, then (a) upon such acceptance in writing, the Member(s) shall pay a non-refundable ten percent (10%) down payment of the purchase price and (b) then the transfer of the Membership Interest shall be held in accordance with the offer and the Selling Member shall deliver to the other Members who have accepted the offer an assignment of the interest being sold by the Selling Member, and said other Member shall pay the remaining balance of the purchase price prescribed in the offer.
(f)
If no other Member accepts the offer, or if the Members who have accepted such offer default in the obligation to purchase the interest, than the Selling Member within 120 days after the delivery of the offer may sell such interest to any other person or entity at a purchase price which is not less than the purchase price prescribed in the offer and upon terms and conditions which are substantially the same as the terms and conditions set forth in the offer, provided all other applicable requirements of the Agreement are complied with. An assignment of such interest to a person or entity who is not a Member of the Limited Liability Company shall cause such Person to become a member upon the execution of the such documents required by Section 6.2(c)(iii).
(g)
If the Selling Member does not sell such interest within said 120 days, then the Selling Member may not thereafter sell such interest without again offering such interest to the other Members in accordance with this Article 6.
SECTION 6.4
Admission of Persons as Additional Members. In regards to permitted Transferee’s pursuant to Section 6.1 and 6.2 herein, the Manager shall have the right to admit, and each of the Members hereby consents to the admission of, such additional Members to the Company as the Manager shall unanimously determine in his sole discretion; it being understood no Member shall have its Membership Percentage reduced without his prior written consent. In the event that the Manager shall determine to admit one or more Members to the Company, the Members hereby agree to execute and deliver such documents as the Manager shall request in order to effectuate the admission of such additional Member(s). Any additional Member(s) admitted to the Company shall be required to execute a counterpart signature page to this Agreement and, if required, an amendment to the Articles of Organization of the Company and such other documents as the Manager may request in order to effectuate admission to the Company.
SECTION 6.5
Attitude Beer Holding Co. The Company and Members acknowledge that Attitude Beer Holding Co. is owned by Harrison Vickers and Waterman, Inc., a publicly traded company. No change in the direct or indirect ownership of Attitude Beer Holding Co. shall be deemed a transfer of Attitude Beer Holding Co.’s Membership Interest. The Company agrees to fully cooperate with Attitude Beer Holding Co. and Harrison Vickers and Waterman in supplying all information to Harrison Vickers and Waterman and its auditor so Harrison Vickers and Waterman can timely comply with its Securities and Exchange Commission reporting obligations.
SECTION 6.6
WOB. The Members acknowledge that the business of the Company is subject to a franchising agreement with WOB and pursuant to the Franchise Agreement, the Members may be required to or prohibited from transferring their membership interest or make other changes to this agreement in accordance with the terms of the Franchise Agreement.
ARTICLE 7
MANAGEMENT
SECTION 7.1
Manager New England WOB, LLC is hereby appointed the Manager of the Company (the “Manager”). The business and affairs of the Company shall be managed under the sole direction and control of the Manager, using reasonable business practices, and all powers of the Company shall be exercised by or under the authority of the Manager. No other Person shall have any right or authority to act for or bind the Company except as permitted in this Agreement or as required by law. The Manager may be removed by a Majority of Members only for gross negligence or fraud.
SECTION 7.2
General Powers. The Manager shall have the full power to execute and deliver, for and on behalf of the Company, any and all documents and instruments which may be necessary or desirable to carry on the business of the Company, including, without limitation, any and all deeds, contracts, leases, mortgages, deeds of trust, promissory notes, security agreements, and financing statements pertaining to the Company's assets or obligations, and to authorize the confession of judgment against the Company. No person dealing with the Manager need inquire into the validity or propriety of any document or instrument executed in the name of the Company by the Manager, or as to the authority of the Manager in executing the same.
SECTION 7.3.
Limitation on Authority of Members.
(a)
No Member is an agent of the Company solely by virtue of being a Member, and no Member has authority to act for the Company solely by virtue of being a Member.
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(b)
This Article 7 supersedes any authority granted to the Members pursuant to Section 412 of the Law. Any non-manager Member who takes any action or binds the Company in violation of this Article 7 shall be solely responsible for any loss and expense incurred by the Company as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to the loss or expense.
SECTION 7.4
Appointment of New Manager. A new Manager can be appointed only by Members holding a Member Majority. Such new Manager need not be a Member of the company.
SECTION 7.5
Liability and Indemnification.
(a)
The Manager shall not be liable, responsible, or accountable, in damages or otherwise, to any Member or to the Company for any act performed by the Manager within the scope of the authority conferred on the Manager by this Agreement, except for fraud, bad faith, gross negligence, or an intentional breach of this Agreement.
(b)
The Company shall indemnify the Manager for any act performed by the Manager within the scope of the authority conferred on the Manager by this Agreement, except for fraud, bad faith, gross negligence, or an intentional breach of this Agreement.
SECTION 7.6
Major Decisions
(a)
Approval of Major Decisions. Notwithstanding anything to the contrary in this Agreement, certain decisions or actions as set forth in this Section 7.6 (“Major Decisions”) may not be taken solely in the Manager’s discretion and shall require the affirmative vote of a Member Majority. Approval of Major Decisions may be given at a Meeting called for that purpose or by written consent.
(b)
Designation of Major Decisions. The following shall constitute Major Decisions subject to this Section:
(i)
Other than in the regular course of business, the sale of all or a substantial portion of the assets owned by the Company. For this purpose, Twenty Percent (20%) of the fair market value of the assets owned by the Company shall constitute a “substantial portion.”
(ii)
The dissolution, liquidation or other termination or cessation of the business operations of the Company, including without limitation the filing of a voluntary petition in Bankruptcy, the assignment of all or substantially all of the assets of the Company for the benefit of the Company’s creditors or the appointment of trustee, liquidator, administrator or like person or entity for the purpose of winding up the business and affairs of the Company.
(iii)
Any change in the principal purpose of the Company’s business, as set forth in Section 2.6 above.
(iv)
Any borrowing or pledge of assets owned by the Company in excess of $50,000 in the aggregate or any loan to a Member or Manager.
(v)
The admission of new Member.
ARTICLE 8
RELATED PARTY DEALINGS
SECTION 8.1
Outside Business Interests; Business Opportunity. The Members may each engage in or possess interests in other business ventures of every kind and description for its own account, including without limitation, serving as a member, partner or shareholder of other entities which own, either directly or through interests in other entities, properties similar to the assets of the Company and neither the Company nor any of the Members shall have any rights by virtue of this Agreement in or to such other business ventures or to the income or profits derived therefrom, or to any business opportunities as may become available to the Manager or any Member, whether or not similar in nature to the Company’s then existing business activities.
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SECTION 8.2
Member Dealing With the Company. The fact that a Member or an affiliate thereof is employed by or is directly or indirectly interested in or connected with any person, firm or corporation employed by the Company for real estate management or otherwise to perform a service, or from or with which the Company may purchase any property or have other business dealings, shall not prohibit the Member from employing or otherwise dealing with such person, firm or corporation, so long as such business dealing, contract, or agreement follows and contains reasonable business terms. Neither the Company nor any of the Members shall have any rights in or to any income or profits derived therefrom. The said Member or his affiliated company shall not receive any benefit of any kind, other that is specifically and contractually agreed upon, in writing, between the respective companies and or parties.
ARTICLE 9
MEMBER LIABILITY; INDEMNIFICATION AND LIABILITY LIMITATION
SECTION 9.1
Liability of Members; Enforcement of Obligations. Except to the extent otherwise expressly stated in this Agreement or prescribed under the Act, (a) the Members shall have no fiduciary or partnership relationship between or among themselves solely by reason of their status as Members, and (b) the rights of each of the Members and the Company to sue for matters and claims arising out of or pertaining to this Agreement shall not be dependent upon the dissolution, winding-up or termination of the Company.
SECTION 9.2
Indemnification of Members . Except as provided in Section 9.4, every Person who was or is a party, or who is threatened to be made a party, to any pending, completed or impending action, suit or proceeding of any kind, whether civil, criminal, administrative, arbitrative or investigative (whether or not by or in the right of the Company) by reason of (a) being or having been a Member of the Company, (b) being or having been a Member, manager, partner, officer or director of any other entity at the request of the Company, or (c) serving or having served in a representative capacity for the Company in connection with any partnership, joint venture, committee, trust, employee benefit plan or other enterprise, shall be indemnified by the Company against all expenses (including reasonable attorneys’ fees and expenses), judgments, fines, penalties, awards, costs, amounts paid in settlement and liabilities of all kinds, actually incurred by such Person incidental to or resulting from such action, suit or proceeding to the fullest extent permitted under the Act, without limiting any other indemnification rights to which such Person otherwise may be entitled. The Company may, but shall not be required to, purchase insurance on behalf of such Person against liability asserted against or incurred by such Person in its capacity as a Manager or Member of the Company, or arising from such Person’s status as a Manager or Member, whether or not the Company would have authority to indemnify such Person against the same liability under the provisions of this Section 9.2 or the Act.
SECTION 9.3
Limitation of Liability. Except as otherwise expressly provided in this Agreement, no Member or Manager shall have liability to the Company or other Members for monetary damages resulting from errors made in the exercise of good-faith judgment.
SECTION 9.4
Qualification of Indemnification and Liability Limitation.
(a)
The indemnification rights and limitations on liabilities set forth in Sections 9.2 and 9.3 shall not apply to claims based upon any willful misconduct, intentional breach or disregard of the terms of this Agreement or knowing violation of criminal law or any federal or state securities law, including without limitation, unlawful insider trading or market manipulation for any security, nor shall such indemnification rights and limitations on liabilities preclude the Company or any Member from recovery for any loss or damage otherwise covered under any insurance policy or fidelity bonding. Nothing herein shall be deemed to prohibit or limit the Company’s right to pay, or obtain insurance covering, the costs (including reasonable attorneys’ fees and expenses) to defend an indemnitee, Member or Manager against any such claims, subject to a full reservation of rights to reimbursement in the event of a final adjudication adverse to such indemnitee, Member or Manager.
(b)
An indemnitee shall be entitled to recover from an indemnitor all legal costs or expenses, including reasonable attorney’s fees and expenses, incurred by such indemnitee to enforce its rights hereunder, or to collect any sums due from the indemnitor hereunder.
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ARTICLE 10
DISSOLUTION AND LIQUIDATION OF THE COMPANY
SECTION 10.1
Dissolution of the Company. The Company shall be dissolved on the earlier of the expiration of the term of the Company or upon:
(a)
The Resignation (other than by reason of death or incompetency) or Bankruptcy of a Member unless a majority in interest of the Members (as defined in Section 6.1(b)) elect to continue the Company pursuant to Section 6.1(b);
(b)
The Resignation or Bankruptcy of a Member which leaves only one (1) Member remaining, and no additional or substitute Member is admitted to the Company in accordance with this Agreement within ninety (90) days thereafter;
(c)
The expiration of thirty (30) days following the sale or other disposition of all or substantially all of the Company’s assets;
(d)
The election by a majority of the Members to liquidate the Company; or
(e)
The occurrence of any other event of dissolution under the provisions of this Agreement or the Act.
SECTION 10.2
Winding-up and Distribution of the Company.
(a)
Upon the dissolution of the Company pursuant to Section 10.1, the Company’s business shall be wound up and its assets liquidated by the Liquidator as provided in this Section 10.2, and the net proceeds of such liquidation shall be distributed as follows:
(i)
First, to payment of all debts and liabilities of the Company, including, without limitation, any loans from Members and the expenses of liquidation;
(ii)
Second, to establishment of any reserves reasonably deemed necessary by the Liquidator for contingent, unmatured or unforeseen liabilities or obligations of the Company. Said reserves shall be paid over to an attorney-at-law of the State of New York, as escrowee, to be held by him for the purpose of disbursing such reserves in payment of any of the aforementioned contingencies, and, at the expiration of such period as shall be deemed advisable, to distribute the balance thereafter remaining in the manner hereinafter provided, together with accrued interest thereon, if any;
(iii)
Third, to those Members having positive Capital Account balances pro rata in the proportion that each such Member’s positive Capital Account balance bears to the aggregate of the positive Capital Account balances of all such Members, until all Member’s Capital Account balances are equal to zero;
(iv)
Fourth, any funds remaining shall be distributed in the percentages set forth on Schedule B.
(b)
The Liquidator shall file all certificates and notices of the Company’s dissolution required by law. The Liquidator shall sell and otherwise liquidate the Company’s assets without unnecessary delay. Upon the complete liquidation of the Company’s assets and distribution to the Members, they shall cease to be Members of the Company, and the Liquidator shall execute, acknowledge and cause to be filed all certificates and notices required by law to terminate the existence of the Company.
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ARTICLE 11
AMENDMENTS
SECTION 11.1
Adoption of Amendments Generally. Amendments to this Agreement to reflect the substitution or addition of a Member shall be made by written instrument executed by the substituted Member, the added Member, or the resigned Member (or its authorized representative), as applicable. Any other amendments to this Agreement may be made by a written instrument executed by Members holding, in the aggregate, at least two-thirds of Membership Interests; provided, however, that no amendment to this Agreement may:
(a)
substantially alter the purposes of the Company without the written consent of all Members;
(b)
expand the obligations or liabilities of any Member under this Agreement, or modify any Member’s limited liability, without the written consent of such Member;
(c)
modify the computational method of determining, or priority applicable to, allocations or distributions under Articles 4 and 5 and Section 10.2, without the written consent of all Members; or
(d)
amend this Article 11 without the written consent of all Members.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1
Non-Recourse Company Loans. Any loans taken by the Company, shall be non-recourse loans as to any and all individual Members or the Manger, and no Member or Manager shall be required to sign a personal guaranty to in order to secure such loan(s), unless unanimously consented to by the Members.
ARTICLE 13
GENERAL PROVISIONS.
SECTION 13.1
Books and Records. All records of the Company shall be kept at the principal office of the Company and shall be available for examination by any Member, or such Member’s duly authorized representatives, at all reasonable times at the office of the Company and by way of internet access to Company bank accounts. The method of accounting on which the books shall be maintained shall be determined by the majority of the Members . The Manager may make on behalf of the Company the election permitted by Section 754 of the Code. New England WOB, LLC shall be designated as the “tax matters partner” (the “TMP”) for purposes of the Code and the “Designated Person” for purposes of maintaining an Investor List to the extent required by the Code. The TMP is hereby authorized to take such actions as may be required by the Code and the regulations thereunder to continue such designations. The determination by the TMP with respect to the treatment of any item or its allocation for Federal, state or local tax purposes shall be binding upon all of the Members, so long as such determination is reasonable and will not be inconsistent with any express terms hereof. No cause of action shall accrue to any Member under this Section 13.1 if the TMP acted in good faith to comply with his obligations hereunder. No charge shall be made to the Company for his acting as tax matters partner. Upon the Resignation or Bankruptcy of the TMP, a majority of the Members may select a Member to become the new “tax matter partner” and “Designated Person”.
SECTION 13.2
Fiscal Year. The fiscal year of the Company shall be the calendar year.
SECTION 13.3
Custody of Company Funds; Bank Accounts.
(a)
The Manager shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, whether or not in their immediate possession or control. The Company’s funds shall not be commingled with the funds of any other Person and the Manager shall not use, or permit use of, the Company’s funds in any manner except for the benefit of the Company.
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(b)
All funds of the Company not otherwise invested shall be deposited in one or more internet–accessible accounts maintained in such federally insured financial institutions as the Manager may deem appropriate, and withdrawals shall be made only in the regular course of Company business on such signature or signatures as the Manager may deem appropriate. Usernames and passwords for access to all accounts shall be made available to all members.
SECTION 13.4
Notices. Except as otherwise provided herein, all Notices, requests, consents and other communications hereunder to the Company or to any Member shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by telecopier, nationally-recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
(a)
if to the Company, to its principal office set forth in Section 2.4, as such office may be changed in accordance with Section 2.7.
(b)
if to any Member, to its respective address set forth on Schedule A hereto.
Any Member may, at any time and from time to time, designate a substitute address or addresses for itself by delivering a Notice to the Company and to each other Member in the manner set forth in this Section. All such Notices, requests, consents and other communications shall be deemed to have been delivered (i) in the case of personal delivery or delivery by telecopier, on the date of such delivery, (ii) in the case of delivery by nationally-recognized overnight courier, on the date of such delivery, and (iii) in the case of mailing in the manner set forth in this Section, on the third business day after the posting thereof.
SECTION 13.5
Burden and Benefit. This Agreement shall be binding upon, and shall inure to the benefit of, the Members, and their respective heirs, executors, administrators, successors and assigns. There shall be no third party beneficiaries of this Agreement.
SECTION 13.6
Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one Agreement binding on all parties hereto, notwithstanding that not all parties shall have signed the same counterpart.
SECTION 13.7
Severability of Provisions. If any term or provision of this Agreement or the application thereof to any Person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such term or provision to Persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforceable to the fullest extent permitted by law.
SECTION 13.8
Entire Agreement. This Agreement sets forth all (and is intended by the Members to be an integration of all) of the promises, agreements and understandings among the Members with respect to the Company, its business operations and management, the Property and all other Company assets, and there are no promises, agreements, or understandings, oral or written, express or implied, among them other than as set forth or incorporated herein.
SECTION 13.9
Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.
SECTION 13.10
Pronouns and Plurals. Whenever the context may require, any pronouns used herein shall be deemed to refer to the masculine, feminine, or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural, and vice versa.
SECTION 13.11
Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.
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SECTION 13.12
Dispute Resolution. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York County, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery). Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of the documents contemplated herein, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
SECTION 13.13
Agreement in Counterparts. This Agreement may be executed in several counterparts, and all such executed counterparts shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or to the same counterpart.
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IN WITNESS WHEREOF, the parties hereto have executed this Operating Agreement as of the date first above written.
COMPANY:
MILFORD CRAFT, LLC
_______________________________
Name:
Title: Manager of its manager New England World of Beer
MEMBERS:
New England World of Beer
Attitude Beer Holding Co.
_______________________________
_______________________________
By:
By: Roy Warren
Its: Manager
Its: President
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SCHEDULE A
| | |
Member
| Percentage Interest
| Initial Capital Contribution
|
New England World of Beer
505 S. Flagler Drive, Suite 1010
West Palm Beach, FL 33401
| 49%
| $1.00
|
Attitude Beer Holding Co.
712 US Highway 1, Suite 200
North Palm Beach, FL 33408
| 51%
| $1,373,000*
|
Total
| 100%
| $1,373,001
|
* This amount shall be paid on the following schedule:
1. $40,000 on or before June 30, 2015;
2. $78,000 on or before July 30, 2015;
3. $210,000 on or before October 1, 2015;
4. $261,250 on or before January 1, 2016;
5. $261,250 on or before February 1, 2016;
6. $261,250 on or before March 1, 2016; and
7. $261,250 on or before April 1, 2016;.
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EXHIBIT 10.23
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
THIS NOTE HAS BEEN ISSUED PURSUANT TO THE EXERCISE OF AN ADDITIONAL INVESTMENT RIGHT ISSUED PURSUANT TO AN ASSET PURCHASE AGREEMENT AMONG HARRISON VICKERS AND WATERMAN INC., THE INITIAL HOLDER ON APRIL 21, 2015 (THE “PURCHASE AGREEMENT”) IN CONNECTION WITH TRANSACTIONS DESCRIBED THEREIN.
Original Issue Date: July 29, 2015
Principal Amount: $80,000.00
SECURED CONVERTIBLE NOTE
DUE JULY 29, 2017
THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of HARRISON VICKERS AND WATERMAN INC., a Nevada corporation, (the “Borrower”), having its principal place of business at 4224 White Plains Road, 3rd Floor, Bronx, New York 10466, due July 29, 2017 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).
FOR VALUE RECEIVED, Borrower promises to pay to ALPHA CAPITAL ANSTALT, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of Eighty Thousand Dollars ($80,000.00) on July 29, 2017 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.
The Holder of this Note has been granted a security interest in assets of the Borrower.
This Note is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
“Alternate Consideration” shall have the meaning set forth in Section 5(e).
“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) Borrower or any Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) Borrower or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) Borrower or any Subsidiary thereof makes a general assignment for the benefit of creditors, (f) Borrower or any Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) Borrower or any Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Buy-In” shall have the meaning set forth in Section 4(c)(v).
“Change of Control Transaction” means, other than by means of conversion or exercise of the Notes and the Securities issued together with the Notes, the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of in excess of 50% of the voting securities of Borrower, (b) Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction, or (c) Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) the execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.
“Closing Price” means on any particular date (a) the last reported closing bid price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (b) if there is no such price on such date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (c) if the Common Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then reported in the “pink sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to Borrower, the fees and expenses of which shall be paid by Borrower.
“Common Stock” means the common stock of the Company, $0.0001 par value, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion” shall have the meaning ascribed to such term in Section 4.
“Conversion Date” shall have the meaning set forth in Section 4(a).
“Conversion Price” shall have the meaning set forth in Section 4(b).
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.
“Distribution” shall have the meaning set forth in Section 5(d).
“Event of Default” shall have the meaning set forth in Section 8(a).
“Fundamental Transaction” shall have the meaning set forth in Section 5(e).
“Interest Payment Date” shall have the meaning set forth in Section 2(a).
“Loan Documents” shall have the meaning set forth in Section 9.
“Mandatory Conversion” shall have the meaning set forth in Section 6.
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“Mandatory Conversion Date” shall have the meaning set forth in Section 6.
“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Note divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 115% of the outstanding principal amount of this Note and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.
“New York Courts” shall have the meaning set forth in Section 9(d).
“Note Register” shall have the meaning set forth in Section 2(c).
“Notice of Mandatory Conversion” shall have the meaning set forth in Section 6.
“Original Issue Date” means the date of the first issuance of the Notes, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Notes.
“Other Holders” means the holders of Other Notes.
“Other Notes” means Notes nearly identical to this Note issued to other Holders pursuant to the Purchase Agreement.
“Permitted Indebtedness” means (x) any liabilities for borrowed money or amounts owed not in excess of $200,000 in the aggregate (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Borrower’s consolidated balance sheet (or the notes thereto) not affecting more than $200,000 in the aggregate, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments not in excess of $200,000 due under leases required to be capitalized in accordance with GAAP. Neither the Borrower nor any Subsidiary is in default with respect to any Indebtedness.
“Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Borrower) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of Borrower’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of Borrower’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of Borrower and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, and (c) Liens incurred prior to the Closing Date in connection with Permitted Indebtedness under clauses (a), (b) thereunder, and Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of Borrower or its Subsidiaries other than the assets so acquired or leased.
“Purchase Agreement” has the meaning set forth on the first page of this Note.
“Purchase Rights” shall have the meaning set forth in Section 5(b).
“Reservation Date” shall have the meaning set forth in Section 4(e)(vi).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).
“Successor Entity” shall have the meaning set forth in Section 5(e).
“Threshold Period” shall have the meaning set forth in Section 6(b).
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“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any successors to any of the foregoing).
“Transaction Documents” shall have the meaning set forth in the Purchase Agreement of even date herewith among the Borrower and other parties thereto.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported on the OTCQX, OTCQB or OTC Pink Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the volume weighted average price of the Common Stock on the first such facility (or a similar organization or agency succeeding to its functions of reporting prices), or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to Borrower, the fees and expenses of which shall be paid by Borrower.
Section 2. Interest.
a)
Interest in Cash or in Kind. Holders shall be entitled to receive, and Borrower shall pay, cumulative interest on the outstanding principal amount of this Note compounded annually at the annual rate of 10% (subject to increase as set forth in this Note) payable on each anniversary of the Original Issue Date and on the Maturity Date (each such date, an “Interest Payment Date”) (if the Interest Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day).
b)
Payment Grace Period. The Borrower shall not have any grace period to pay any monetary amounts due under this Note.
c)
Conversion Privileges. The Conversion Rights set forth in Section 4 shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. This Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Section 4 hereof.
d)
Application of Payments. Interest on this Note shall be calculated on the basis of a 360-day year and the actual number of days elapsed. Payments made in connection with this Note shall be applied first to amounts due hereunder other than principal and interest, thereafter to interest and finally to principal.
e)
Pari Passu. Except as otherwise set forth herein, all payments made on this Note and the Other Notes and all actions taken by the Borrower with respect to this Note and the Other Notes, shall be made and taken pari passu with respect to this Note and the Other Notes. Notwithstanding anything to the contrary contained herein or in the Transaction Documents, it shall not be considered non-pari passu for a Holder or Other Holder to elect to receive interest paid in shares of Common Stock or for the Borrower to actually pay interest in shares of Common Stock to such electing Holder or Other Holder.
f)
Manner and Place of Payment. Principal and interest on this Note and other payments in connection with this Note shall be payable at the Holder’s offices as designated above in lawful money of the United States of America in immediately available funds without set-off, deduction or counterclaim. Upon assignment of the interest of Holder in this Note, Borrower shall instead make its payment pursuant to the assignee’s instructions upon receipt of written notice thereof. This Note may not be prepaid or mandatorily converted without the consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
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b) Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.
c) Reliance on Note Register. Prior to due presentment for transfer to Borrower of this Note, Borrower and any agent of Borrower may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither Borrower nor any such agent shall be affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date until this Note is no longer outstanding, Note principal and/or at the election of the Holder accrued interest shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to Borrower a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal and/or interest amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to Borrower unless the entire principal amount of this Note has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note or accrued interest, at the option of the Holder, in an amount equal to the applicable conversion. The Holder and Borrower shall maintain records showing the principal and interest amount(s) converted and the date of such conversion(s). Borrower may deliver an objection to any Notice of Conversion only within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.
b) Conversion Price. The conversion price for the principal and interest in connection with voluntary conversions by the Holder shall be equal to the lesser of (i) $0.0025, or (ii) fifty percent (50%) of the lowest Closing Price of the Common Stock for the thirty (30) Trading Days preceding the Conversion Date, subject to adjustment herein (the “Conversion Price”).
c) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted plus interest elected by the Holder to be converted by (y) the Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), Borrower shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) after the effective date or a current registration statement, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note. On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the effective date, Borrower shall use its best efforts to deliver any certificate or certificates required to be delivered by Borrower under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.
iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to Borrower at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event Borrower shall promptly return to the Holder any original Note delivered to Borrower and the Holder shall promptly return to Borrower the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.
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iv. Obligation Absolute; Partial Liquidated Damages. Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to Borrower or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by Borrower of any such action Borrower may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, Borrower may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and Borrower posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, Borrower shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If Borrower fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, Borrower shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages being to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for Borrower’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if Borrower fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder or Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then Borrower shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if Borrower had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, Borrower shall be required to pay the Holder $1,000. The Holder shall provide Borrower written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of Borrower, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
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vi. Reservation of Shares Issuable Upon Conversion. Borrower covenants that it will from and after the Original Issue Date, and at all times thereafter reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall be issuable upon the conversion of the then outstanding principal amount of this Note and interest which has accrued and would accrue on such principal amount, assuming such principal amount was not converted through the Maturity Date. Borrower covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable.
vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, Borrower shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
viii. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, Borrower shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and Borrower shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall have established to the satisfaction of Borrower that such tax has been paid. Borrower shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.
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d) Holder’s Conversion Limitations. Borrower shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of Borrower subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes or the Warrants) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to Borrower each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and Borrower shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) Borrower’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by Borrower, or (iii) a more recent written notice by Borrower or Borrower’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, Borrower shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of Borrower, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to Borrower, may increase the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase will not be effective until the 61st day after such notice is delivered to Borrower. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
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Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If Borrower, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Borrower, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of Borrower) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time Borrower grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d)
Pro Rata Distributions. During such time as this Note is outstanding, if Borrower shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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e) Fundamental Transaction. If, at any time while this Note is outstanding, (i) Borrower, directly or indirectly, in one or more related transactions effects any merger or consolidation of Borrower with or into another Person, (ii) Borrower, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) Borrower, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) Borrower, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of Borrower, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Note). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. Borrower shall cause any successor entity in a Fundamental Transaction in which Borrower is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of Borrower under this Note and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of Borrower and shall assume all of the obligations of Borrower under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as Borrower herein.
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f)
Subsequent Equity Sales. If, at any time while this Note is outstanding, Borrower or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 6(b) in respect of an Exempt Issuance. If Borrower enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, Borrower shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. Borrower shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 6(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not Borrower provides a Dilutive Issuance Notice pursuant to this Section 6(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
g)
Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued and outstanding.
h) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, Borrower shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale or transfer of all or substantially all of the assets of Borrower, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding Borrower or any of the Subsidiaries, Borrower shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
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Section 6.
Redemption and Mandatory Conversion. Borrower shall have no right to require the Holder to surrender the Note for redemption, nor convert any part or all of this Note without the consent of the Holder.
Section 7. Negative Covenants. As long as any portion of this Note remains outstanding, unless the holders of at least 51% in principal amount of the then outstanding Notes which must include the Lead Investor shall have otherwise given prior written consent, Borrower shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:
a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;
c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to the Conversion Shares as permitted or required under the Transaction Documents;
e) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than the Notes if on a pro-rata basis), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness;
f) pay cash dividends or distributions on any equity securities of Borrower;
g) enter into any transaction with any Affiliate of Borrower which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of Borrower (even if less than a quorum otherwise required for board approval);
h)
any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of Borrower or any Subsidiary, if any such event or circumstance could have a Material Adverse Effect; or
i) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of any Note or (B) liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under clause (B) above, is not cured within 7 Trading Days after Borrower has become or should have become aware of such default;
ii. Borrower shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by Borrower of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any Other Holder to Borrower and (B) 15 Trading Days after Borrower has become or should have become aware of such failure;
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iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which Borrower or any Subsidiary is obligated (and not covered by clause (vi) below);
iv. any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any Other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;
v. Borrower or any Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
vi. Borrower or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $200,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;
vii. Borrower shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 30% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);
viii. Borrower does not meet the current public information requirements under Rule 144;
ix. Borrower shall fail for any reason to deliver certificates to a Holder prior to the seventh Trading Day after a Conversion Date pursuant to Section 4(c) or Borrower shall provide at any time notice to the Holder, including by way of public announcement, of Borrower’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof;
x. any Person shall breach any agreement delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;
xi. any monetary judgment, writ or similar final process shall be entered or filed against Borrower, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 90 calendar days;
xii.
any dissolution, liquidation or winding up by Borrower or a material Subsidiary of a substantial portion of their business;
xiii.
cessation of operations by Borrower or a material Subsidiary;
xiv.
The failure by Borrower or any material Subsidiary to maintain any material intellectual property rights, personal, real property, equipment, leases or other assets which are necessary to conduct its business (whether now or in the future) and such breach is not cured with twenty (20) days after written notice to the Borrower from the Holder;
xv.
An event resulting in the Common Stock no longer being listed or quoted on a Trading Market, or notification from a Trading Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for twenty (20) days following such notification;
xvi.
a Commission or judicial stop trade order or suspension from its Principal Trading Market;
xvii.
except as disclosed in the SEC Reports, the restatement after the date hereof of any financial statements filed by the Borrower with the Commission for any date or period from two years prior to the Original Issue Date and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statements, have constituted a Material Adverse Effect. For the avoidance of doubt, any restatement related to new accounting pronouncements shall not constitute a default under this Section;
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xviii.
the Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to the Holder;
xix.
the Borrower fails to have authorized and reserved 150% of the Conversion Shares issuable upon conversion of the Notes including Conversion Shares issuable upon conversion of interest through the Maturity Date;
xx.
a failure by Borrower to notify Holder of any material event of which Borrower is obligated to notify Holder pursuant to the terms of this Note or any other Transaction Document;
xxi.
a default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of an event of default under any such other agreement to which Borrower and Holder are parties which is not cured after any required notice and/or cure period;
xxii.
the occurrence of an Event of Default under any Other Note; or
xxiii.
any provision of any Transaction Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the parties thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by Borrower or any Subsidiary or any governmental authority having jurisdiction seeking to establish the invalidity or unenforceability thereof, or Borrower or any Subsidiary shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document.
b) Remedies Upon Event of Default, Fundamental Transaction and Change of Control Transaction. If any Event of Default or a Fundamental Transaction or a Change of Control Transaction occurs, the outstanding principal amount of this Note, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing on the Maturity Date and also five (5) days after the occurrence of any Event of Default interest on this Note shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by Borrower. In connection with such acceleration described herein, the Holder need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
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Section 9.
Security Interest/Waiver of Automatic Stay. This Note is secured by a security interest granted to the Holder pursuant to a Security Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower or a Subsidiary, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Transaction Documents and any other agreement to which the Borrower or a Subsidiary and Holder are parties (collectively, “Loan Documents”) and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder. The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel.
Section 10. Miscellaneous.
a) Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to Borrower, to: Harrison Vickers and Waterman Inc., 4224 White Plains Road, 3rd Floor, Bronx, New York 10466, Attn: Roy Warren, and (ii) if to the Holder, to: the address and fax number indicated on the front page of this Note, with an additional copy by fax only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697-3575.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of Borrower. This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.
c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to Borrower.
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d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding. This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.
e) Waiver. Any waiver by Borrower or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of Borrower or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver by Borrower or the Holder must be in writing.
f) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.
g) Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.
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j) Amendment. Unless otherwise provided for hereunder, this Note may not be modified or amended or the provisions hereof waived without the written consent of Borrower and the Holder.
k) Facsimile Signature. In the event that the Borrower’s signature is delivered by facsimile transmission, PDF, electronic signature or other similar electronic means, such signature shall create a valid and binding obligation of the Borrower with the same force and effect as if such signature page were an original thereof.
*********************
(Signature Pages Follow)
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an authorized officer as of the 29th day of July, 2015.
HARRISON VICKERS AND WATERMAN, INC.
By: /s/ Roy G. Warren
Name: Roy G. Warren
Title: President and CEO
WITNESS:
/s/ Tommy E. Kee
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Convertible Note due July 29, 2017 of Harrison Vickers and Waterman, Inc., a Nevada corporation (the “Borrower”), into shares of common stock (the “Common Stock”), of Borrower according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by Borrower in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and warrants to Borrower that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.
Conversion calculations:
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| Date to Effect Conversion: ____________________________
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| Principal Amount of Note to be Converted: $__________________
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| Number of shares of Common Stock to be issued: ______________
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| * Interest Amount to be Converted: $_______________
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| Signature: _________________________________________
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| Name: ____________________________________________
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| Address for Delivery of Common Stock Certificates: __________
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| _____________________________________________________
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| _____________________________________________________
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| Or
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| DWAC Instructions: _________________________________
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| Broker No:_____________
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| Account No: _______________
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* Interest on Principal Amount of $____________ for period of ______________ through ________________.
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EXHIBIT 10.24
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE CLASS A WARRANT
HARRISON VICKERS AND WATERMAN INC.
Warrant Shares: 64,000
Initial Exercise Date: July 29, 2015
Warrant No: A3
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ALPHA CAPITAL ANSTALT, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the seven (7) year anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from HARRISON VICKERS AND WATERMAN INC., a Nevada corporation (the “Company”), up to 64,000 shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1.
Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Asset Purchase Agreement (the “Purchase Agreement”), dated April 21, 2015, among the Company and the purchasers signatory thereto.
Section 2.
Exercise.
a)
Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one (1) Trading Day of delivery of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b)
Exercise Price. The initial exercise price per share of the Common Stock under this Warrant shall be $0.0025, subject to adjustment hereunder (the “Exercise Price”).
c)
Cashless Exercise. If at any time after the Initial Exercise Date, there is no effective registration statement registering, or no current prospectus available for the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
Notwithstanding anything herein to the contrary, on the Termination Date, unless the Holder notifies the Company otherwise, if there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d)
Mechanics of Exercise.
i.
Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise and Rule 144 is available, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted) (such date, the “Warrant Share Delivery Date”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. The Company understands that a delay in the delivery of the Warrant Shares after the Warrant Share Delivery Date could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Warrant Shares upon exercise of this Warrant the proportionate amount of $10 per Trading Day (increasing to $20 per Trading Day after the fifth (5th) Trading Day) after the Warrant Share Delivery Date for each $1,000 of Exercise Price of Warrant Shares for which this Warrant is exercised which are not timely delivered. The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.
ii.
Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
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iii.
Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right, at any time prior to issuance of such Warrant Shares, to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v.
No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi.
Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.
vii.
Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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e)
Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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Section 3.
Certain Adjustments.
a)
Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant or pursuant to any of the other Transaction Documents), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b)
Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
c)
Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.
5
d)
Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant) the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange or trading market (with such exchange or market including, without limitation, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, The New York Stock Exchange, Inc., the NYSE or Amex), the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable concurrently with the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder the higher of (i) an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction, or (ii) the positive difference between the cash per share paid in such Fundamental Transaction minus the then in effect Exercise Price. “Black Scholes Value” means the value of the unexercised portion of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the “HVT” function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and
6
(D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
e)
Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect, excluding Exempt Issuances as defined in the Purchase Agreement (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(e) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(e), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(e), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised. Notwithstanding the foregoing, the issuance of any Common Stock or Common Stock Equivalents pursuant to the Purchase Agreement shall not be deemed a Dilutive Issuance.
f)
Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
7
g)
Notice to Holder.
i.
Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, to the extent that such information constitutes material non-public information (as determined in good faith by the Company) the Company shall follow the procedure described in Section 13 of the Subscription Agreement and shall deliver to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least fifteen (15) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4.
Transfer of Warrant.
a)
Transferability. Subject to compliance with any applicable securities laws and the provisions of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b)
New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
8
c)
Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5.
Miscellaneous.
a)
No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(a).
b)
Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c)
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.
d)
Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e)
Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
9
f)
Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, or unless exercised in a cashless exercise when Rule 144 is available, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)
Non-waiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)
Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i)
Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j)
Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k)
Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l)
Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holders of not less than a majority of the outstanding Warrants issued pursuant to the Purchase Agreement.
m)
Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
m)
Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
HARRISON VICKERS AND WATERMAN INC.
By:/s/ Roy G. Warren
Name: Roy G. Warren
Title: President and CEO
11
NOTICE OF EXERCISE
TO:
HARRISON VICKERS AND WATERMAN INC.
(1)
The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2)
Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3)
Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
(4)
After giving effect to this Notice of Exercise, the undersigned will not have exceeded the Beneficial Ownership Limitation.
The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
[SIGNATURE OF HOLDER]
Name of Investing Entity: _______________________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
HARRISON VICKERS AND WATERMAN INC.
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder’s Signature:
_____________________________
Holder’s Address:
_____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
EXHIBIT 31.1
CERTIFICATION
I, Roy Warren, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Harrison Vickers and Waterman Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: September 14, 2015
/s/ Roy Warren
Roy Warren
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Tommy Kee, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Harrison Vickers and Waterman Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: September 14, 2015
/s/ Tommy Kee
Tommy Kee
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Harrison Vickers and Waterman Inc. (the “Company”) on Form 10-K for the period ending June 30, 2015 as filed with the U. S. Securities and Exchange Commission (the “Report”), I, Roy Warren, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 14, 2015
/s/ Roy Warren
Roy Warren
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Harrison Vickers and Waterman Inc. (the “Company”) on Form 10-K for the period ending June 30, 2015 as filed with the U. S. Securities and Exchange Commission (the “Report”), I, Roy Warren, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 14, 2015
/s/ Tommy Kee
Tommy Kee
Chief Financial Officer
(Principal Financial Officer)
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v3.3.0.814
Consolidated Balance Sheets - USD ($)
|
Jun. 30, 2015 |
Jun. 30, 2014 |
| CURRENT ASSETS: |
|
|
| Cash |
$ 226,088
|
$ 361
|
| Inventory |
81,049
|
0
|
| Real estate loans receivable |
950,000
|
1,470,000
|
| Receivable from Attitude Drinks, Inc. |
131,423
|
0
|
| Prepaid Expenses |
44,192
|
0
|
| Total Current Assets |
1,432,752
|
1,470,361
|
| NON-CURRENT ASSETS: |
|
|
| Property, Plant and Equipment (net of accumulated depreciation) |
962,470
|
0
|
| Capitalized costs (net of accumulated depreciation) |
198,823
|
0
|
| Deferred Financing Costs |
67,889
|
0
|
| Goodwill |
4,038,945
|
0
|
| Total Non-Current Assets |
5,268,127
|
0
|
| Total Assets |
6,700,879
|
1,470,361
|
| CURRENT LIABILITIES: |
|
|
| Accounts payable |
367,974
|
9,437
|
| Accrued expenses- in dispute |
175,000
|
100,000
|
| Promissory note payable |
950,000
|
1,470,000
|
| Convertible notes payable - investor, net of discount |
144,699
|
65,472
|
| Derivative liability |
4,237,890
|
0
|
| Total Current Liabilities |
5,875,563
|
1,644,909
|
| NON-CURRENT LIABILITIES |
|
|
| Notes payable - investor-non-current |
210,522
|
0
|
| Minority Interest |
883,009
|
0
|
| Total Non-Current Liabilities |
1,093,531
|
0
|
| Total Liabilities |
6,969,094
|
1,644,909
|
| STOCKHOLDERS' DEFICIT: |
|
|
| Preferred stock par value $0.0001: 1,000,000 shares authorized; 100,000 shares designated as Series A 8% Convertible Preferred Stock Series A 8% Convertible preferred stock par value $0.0001: stated value $1,000 per share; 100,000 and 95,000 shares issued and outstanding at June 30, 2015 and June 30, 2014, respectively |
10
|
10
|
| Series B Convertible Preferred stock, par value $.0001, stated value of $1,000 per share; 51 and -0- shares outstanding at June 30, 2015 and June 30, 2014, respectively |
0
|
0
|
| Common stock par value $0.0001: 2,000,000,000 shares authorized; 126,337,367 and 124,337,367 shares issued and outstanding at June 30, 2015 and June 30, 2014, respectively |
12,634
|
12,434
|
| Additional paid-in capital |
1,667,868
|
417,785
|
| Accumulated deficit |
(1,948,727)
|
(604,777)
|
| Total Stockholders' Deficit |
(268,215)
|
(174,548)
|
| Total Liabilities and Stockholders' Deficit |
$ 6,700,879
|
$ 1,470,361
|
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v3.3.0.814
Consolidated Balance sheets Parentheticals - $ / shares
|
Jun. 30, 2015 |
Jun. 30, 2014 |
| Parentheticals |
|
|
| Preferred stock value per share |
$ 0.0001
|
$ 0.0001
|
| Preferred stock shares authorized |
1,000,000
|
1,000,000
|
| Preferred stock- Series A 8% Convertible shares designated |
100,000
|
100,000
|
| Preferred stock- Series A 8% Convertible stated value per share |
$ 0.0001
|
$ 0.0001
|
| Preferred stock- Series A 8% Convertible stated par value per share |
$ 1,000
|
$ 1,000
|
| Preferred stock- Series A 8% Convertible shares issued |
100,000
|
95,000
|
| Preferred stock- Series A 8% Convertible shares outstanding |
100,000
|
95,000
|
| Preferred stock- Series B Convertible stated value per share |
0.0001
|
0.0001
|
| Preferred stock- Series B Convertible stated par value per share |
1,000
|
1,000
|
| Preferred stock- Series B Convertible shares issued |
51
|
0
|
| Preferred stock- Series B Convertible shares outstanding |
51
|
0
|
| Common Stock, par value |
$ 0.0001
|
$ 0.0001
|
| Common Stock, shares authorized |
2,000,000,000
|
2,000,000,000
|
| Common Stock, shares issued |
126,337,367
|
124,337,367
|
| Common Stock, shares outstanding |
126,337,367
|
124,337,367
|
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v3.3.0.814
Consolidated Statements of Operations - USD ($)
|
12 Months Ended |
Jun. 30, 2015 |
Jun. 30, 2014 |
| Restaurant: |
|
|
| Revenues |
$ 669,172
|
$ 0
|
| Cost of goods sold |
(185,602)
|
0
|
| Gross margin |
483,570
|
0
|
| Real Estate Loans |
|
|
| Interest income earned |
162,455
|
148,830
|
| Interest expense incurred |
(162,455)
|
(148,830)
|
| Gross Margin . |
0
|
0
|
| Total Gross margin |
483,570
|
0
|
| OPERATING EXPENSES: |
|
|
| Professional fees |
80,956
|
11,750
|
| Compensation |
195,567
|
0
|
| Compensation - officer (undisputed) |
0
|
208,788
|
| Compensation - officer (in-dispute) |
75,000
|
100,000
|
| Management fees |
0
|
145,879
|
| Consulting fees |
0
|
72,474
|
| Depreciation and Amortization Expense |
31,935
|
0
|
| General and administrative expenses |
205,050
|
23,210
|
| Total operating expenses |
588,508
|
562,101
|
| LOSS FROM OPERATIONS |
(104,938)
|
(562,101)
|
| OTHER (EXPENSE) |
|
|
| Interest expense |
(295,103)
|
(2,276)
|
| Derivative Expense |
(2,058,493)
|
0
|
| Change in Fair Market Value of Derivative liability |
48,020
|
0
|
| (Loss) on retirement of debt |
(2,600)
|
0
|
| Other (expense), net |
$ (2,308,176)
|
$ (2,276)
|
| LOSS BEFORE INCOME TAX PROVISION AND MINORITY INTEREST |
$ (2,413,114)
|
$ (564,377)
|
| INCOME TAX PROVISION |
$ 0
|
$ 0
|
| NET LOSS BEFORE MINORITY INTEREST |
(2,413,114)
|
(564,377)
|
| MINORITY INTEREST |
1,069,164
|
0
|
| NET LOSS |
$ (1,343,950)
|
$ (564,377)
|
| EARNINGS PER COMMON SHARE - basic and diluted |
$ (0.01)
|
$ 0.00
|
| Weighted average common shares outstanding - basic and diluted |
124,868,874
|
124,986,367
|
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v3.3.0.814
Consolidated Statement of Stockholders' Deficit For the Fiscal Years Ended June 30, 2015 and 2014 - USD ($)
|
Series A Preferred Stock Par Value $0.0001 Number of Shares |
Series A Preferred Stock Par Value $0.0001 Amount |
Series B Preferred Stock Par Value $0.0001 Number of Shares |
Series B Preferred Stock Par Value $0.0001 Amount |
Common Stock Par Value $0.0001 Number of Shares |
Common Stock Par Value $0.0001 Amount |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders' Deficit |
| Balance |
0
|
0
|
0
|
0
|
1,634,993,250
|
163,499
|
(159,649)
|
(35,085)
|
(31,235)
|
| Balance |
0
|
0
|
0
|
0
|
1,634,993,250
|
163,499
|
(159,649)
|
(35,085)
|
(31,235)
|
| Net loss |
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ (5,315)
|
$ (5,315)
|
| Balance |
0
|
0
|
0
|
0
|
1,634,993,250
|
163,499
|
(159,649)
|
(40,400)
|
(36,550)
|
| Balance |
0
|
0
|
0
|
0
|
1,634,993,250
|
163,499
|
(159,649)
|
(40,400)
|
(36,550)
|
| Retirement of common shares |
0
|
0
|
0
|
0
|
(1,610,006,750)
|
(161,000)
|
161,000
|
0
|
0
|
| Issuance of common shares for compensation |
0
|
0
|
0
|
0
|
99,999,867
|
10,000
|
(8,621)
|
0
|
1,379
|
| Issuance of Series A Preferred Stock for compensation |
95,000
|
10
|
0
|
0
|
0
|
0
|
424,990
|
0
|
425,000
|
| Shares returned to Treasury |
0
|
0
|
0
|
0
|
(649,000)
|
(65)
|
65
|
0
|
0
|
| Net loss |
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ (564,377)
|
$ (564,377)
|
| Balance |
95,000
|
10
|
0
|
0
|
124,337,367
|
12,434
|
417,785
|
(604,777)
|
(174,548)
|
| Balance |
95,000
|
10
|
0
|
0
|
124,337,367
|
12,434
|
417,785
|
(604,777)
|
(174,548)
|
| Net loss |
|
$ 0
|
|
$ 0
|
|
$ 0
|
$ 0
|
$ (5,315)
|
$ (5,315)
|
| Retirement of common shares |
0
|
0
|
0
|
0
|
(1,610,006,750)
|
(161,000)
|
161,000
|
0
|
0
|
| Issuance of common shares for compensation |
0
|
0
|
0
|
0
|
99,999,867
|
10,000
|
(8,621)
|
0
|
1,379
|
| Issuance of Series A Preferred Stock for compensation |
95,000
|
10
|
0
|
0
|
0
|
0
|
424,990
|
0
|
425,000
|
| Shares returned to Treasury |
0
|
0
|
0
|
0
|
(649,000)
|
(65)
|
65
|
0
|
0
|
| Net loss |
|
$ 0
|
|
$ 0
|
|
$ 0
|
$ 0
|
$ (564,377)
|
$ (564,377)
|
| Shares issued upon conversion of debt |
0
|
0
|
0
|
0
|
2,000,000
|
200
|
5,000
|
0
|
5,200
|
| Issuance of Series A Preferred |
5,000
|
0
|
0
|
0
|
0
|
0
|
40,089
|
0
|
40,089
|
| Issuance of Series B Preferred |
0
|
0
|
51
|
0
|
0
|
0
|
1,031,061
|
0
|
1,031,061
|
| Issuance of Warrants |
0
|
0
|
0
|
0
|
0
|
0
|
173,933
|
0
|
173,933
|
| Net loss |
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
$ (1,343,950)
|
$ (1,343,950)
|
| Balance |
100,000
|
10
|
51
|
0
|
126,337,367
|
12,634
|
1,667,868
|
(1,948,727)
|
(268,215)
|
| Balance |
100,000
|
10
|
51
|
0
|
126,337,367
|
12,634
|
1,667,868
|
(1,948,727)
|
(268,215)
|
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| Balance Type: |
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| Period Type: |
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| Period Type: |
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| Balance Type: |
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| Period Type: |
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|
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- Details
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| Balance Type: |
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| Period Type: |
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|
| X |
- Details
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| Namespace Prefix: |
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| Balance Type: |
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| Period Type: |
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|
| X |
- Details
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| Namespace Prefix: |
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| Balance Type: |
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| Period Type: |
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|
| X |
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| Period Type: |
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|
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|
v3.3.0.814
Consolidated Statements of Cash Flows - USD ($)
|
12 Months Ended |
Jun. 30, 2015 |
Jun. 30, 2014 |
| CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
| Net loss |
$ (1,343,950)
|
$ (564,377)
|
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
|
|
| Common stock issued for compensation |
0
|
1,314
|
| Series A Preferred Stock issued for compensation |
0
|
425,065
|
| Depreciation and amortization expense |
31,935
|
0
|
| Amortization of Discount on Notes Payable |
241,313
|
0
|
| Derivative Expense |
2,058,493
|
0
|
| Change in Fair Market Value of Derivative liability |
(48,020)
|
0
|
| Minority Interest |
(1,069,165)
|
0
|
| Gain (loss) on conversion of debt |
2,600
|
0
|
| Changes in operating assets and liabilities: |
|
|
| Real estate loans |
0
|
330,000
|
| Inventory |
(2,066)
|
0
|
| Prepaid Expenses |
(37,737)
|
0
|
| Accounts payable and accrued expenses |
112,620
|
104,808
|
| Accounts payable and accrued expenses- in dispute |
75,000
|
0
|
| Accrued interest converted to debt |
25,384
|
0
|
| Net working capital acquired from acquisition |
(174,689)
|
0
|
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
(128,282)
|
296,810
|
| CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
| Cash received on acquisition |
203,467
|
0
|
| Purchase of Property, Plant and Equipment and other capitalized costs |
(2,708)
|
0
|
| NET CASH USED IN INVESTING ACTIVITIES |
200,759
|
0
|
| CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
| Amounts received from related party -net |
0
|
2,001
|
| Issuance of notes payable -investor |
153,250
|
28,844
|
| Payment on secured promissory note |
0
|
(330,000)
|
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
153,250
|
(299,155)
|
| NET CHANGE IN CASH |
225,727
|
(2,345)
|
| Cash at beginning of reporting period |
226,088
|
361
|
| Cash at end of reporting period |
226,088
|
361
|
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: |
|
|
| Interest paid |
0
|
0
|
| Income tax paid |
0
|
0
|
| NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
| Purchase of real estate loans for debt, net |
0
|
1,800,000
|
| Goodwill acquired in acquisition |
4,038,945
|
0
|
| Issuance of Series B Preferred |
1,031,061
|
0
|
| Issuance of warrants associated with Acquisition debt |
$ 173,933
|
$ 0
|
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v3.3.0.814
Organization and Operations
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Organization and Operations |
|
| Organization and Operations |
Note 1 - Organization and Operations Sharp Performance, Inc. Sharp Performance Associates LLC (“LLC” or “Predecessor”) was organized as a Limited Liability Company on September 5, 2008 under the laws of the State of Nevada. Sharp Performance, Inc. (the “Sharp”) was incorporated on the same date under the laws of the State of Nevada for the sole purpose of acquiring all of the outstanding membership units of Sharp Performance Associates LLC. April 2015 Material definitive Agreement On April 21, 2015, the Company entered into a Purchase Agreement (the “Purchase Agreement”), with the three original shareholders of Attitude Beer Holding Co., a Delaware corporation (“ABH”), namely, Attitude Drinks, Incorporated, a Delaware corporation (“Attitude Drinks”), 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 the Company all of the outstanding shares of stock of ABH and ABH thereupon became a wholly owned subsidiary of the Company. In consideration for the purchase of the shares of common stock of ABH, the Company issued: (i) to Attitude Drinks, 51 shares of a newly created Series B Preferred Stock of the Company (the “Series B Preferred Stock”) and a seven year warrant (the “B Warrant”) to purchase 5,000,000 shares of the Company’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 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 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 Company’s Series A Preferred Stock (convertible into 32,300,000 shares of the Company’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”). Attitude Drinks purchased 87,990,000 shares of 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. September 2013 Material Definitive Agreement Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “Agreement”) with Harrison Vickers and Waterman, LLC (“Harrison Vickers”). Pursuant to the Agreement the Company agreed to purchase from Harrison Vickers certain assets held by Harrison Vickers in the form of real estate loans (the “Loans”). The purchase price was paid by the Company via the issuance of a secured promissory note in the principal amount of $1,800,000 (the “Note”) due December 31, 2014. The Note is secured by a Pledge Agreement (the “Pledge Agreement”) entered into between the Company and Harrison Vickers, whereby the proceeds of the Loans are pledged as security for the repayment of the Note. Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “HVW Agreement”) with HVW Holdings LLC (“HVW”). Pursuant to the Agreement the Company agreed to sell to HVW an aggregate of 308,166 shares of the Company’s Common Stock and 32,300 shares of preferred stock of the Company which pursuant to the terms thereof will be convertible into 32,300,000 shares of the Company’s common stock. The consideration under the HVW Agreement was certain services to be rendered by HVW to the Company pursuant to a management agreement (the “Management Agreement”) entered into between the Company and HVW on September 6, 2013. Some of the material terms of the HVW Agreement include: (i) that Robert J. Sharp, the Chief Executive Officer and Board Member of the Company retire 4,961,500 shares of common stock of the Company owned by Mr. Sharp, (ii) the Company will submit to a vote of its shareholders a forward split of the Company’s common stock equal to 324.5 for 1, (iii) the Company will appoint up to three persons nominated by HVW to the board of directors of the Company to serve until the next annual meeting of shareholders of the Company, (iv) the Company will issue shares of a to be created series of preferred stock (8% annual dividend, anti-dilution rights for 24 months, each share convertible into 1,000 shares of common stock) to each of HVW (32,300), Mr. Sharp (46,500) and an Institutional Investor (16,200). The material terms of the Management Agreement include: (i) HVW will provide certain business, financial and advisory services to the Company; (ii) HVW will receive a management fee of two percent (2%) per annum of average gross assets, (iii) HVW will also receive twenty percent (20%) of the revenues received by the Company derived from the services under the Management Agreement. Certificate of Amendment of the Articles of Incorporations On October 24, 2013 the Company filed a Certificate of Amendment to amend its Articles of Incorporation (the “Actions”) to: (i) change the name of the Company to Harrison Vickers & Waterman Inc. (the “Company”); (ii) increase the number of shares of authorized common stock of the Corporation from 74,000,000 to 2,000,000,000 shares; and (iii) effect a forward stock split of our common stock at a ratio determined by our Board of Directors of 324.5 for 1. All shares and per share amounts in the consolidated financial statements have been adjusted to give retroactive effect to the Stock Split and the change in authorized stock.
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v3.3.0.814
Significant and Critical Accounting Policies and Practices
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Significant and Critical Accounting Policies and Practices |
|
| Significant and Critical Accounting Policies and Practices |
Note 2 - Significant and Critical Accounting Policies and Practices The Management of the Company is responsible for the selection and use of appropriate accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles. Basis of Presentation The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Fiscal Year End The Company elected June 30th as its fiscal year end date upon its formation. Reclassification Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses. Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimate(s) and assumption(s) affecting the financial statements were: (i) Assumption as a going concern: Management assumes that the Company will continue as a going concern which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. (ii) Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the fact that the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Principles of Consolidation The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC") to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists. The Company's consolidated subsidiaries and/or entities are as follows: | | | | | | | | | Name of consolidated subsidiary or entity | | State or other jurisdiction of incorporation or organization | | Date of incorporation or formation (date of acquisition, if applicable) | | Attributable interest | | | | | | | | | | Attitude Beer Holding Co. | | The State of Delaware | | April 21, 2015 | | 100% | The consolidated financial statements of the Company include all accounts of the Company and its wholly owned subsidiary, Attitude Beer Holding Co. All intercompany balances and transactions have been eliminated. Fair Value of Financial Instruments The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below: Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses approximate their fair values because of the short maturity of these instruments. Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Related Parties The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The consolidated financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the consolidated financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. Commitment and Contingencies The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred, and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position and results of operations or cash flows. Revenue Recognition The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. Income Tax Provision The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date. The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. Uncertain Tax Positions The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended June 30, 2015 or 2014. Earnings per Share Earnings Per Share ("EPS") is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16. Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants. Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23, diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: (a) Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later), and common shares shall be assumed to be issued. (b) The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) (c) The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation. Since there was no reported net income for the 2015 and 2014 reporting periods, any potentially outstanding dilutive common shares are not considered for the reporting period ended June 30, 2015 or 2014. Cash Flows Reporting The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing or financing activities and provides definitions of each category and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. Subsequent Events The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the consolidated financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its consolidated financial statements issued when they are widely distributed to users, such as through filing them on EDGAR. Derivative Liabilities The Company reconsidered the requirements of the Financial Accounting Standards Board Accounting Standards Classification 820 (‘FASB ASC 820” or “ASC 820”) and determined that newly issued debt were derivative financial instruments. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instruments are initially recorded at their fair values and are then re-valued at each reporting date, with changes in the fair values reported as charges or credits to income. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments. Once determined, derivative liabilities are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value from inception is made quarterly and appears in results of operations as an adjustment to fair value of derivatives. Deferred Financing Costs and Debt Discount The Company paid debt issue costs and recorded debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense. Original Issue Discount For certain issued convertible debt, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt. Recently Issued Accounting Pronouncements In May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) This guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: 1. Identify the contract(s) with the customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligations The ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature, amount, timing and uncertainty of revenue recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about the following: 1. Contracts with customers – including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations) 2. Significant judgments and changes in judgments – determining the timing of satisfaction of performance obligations (over time or at a point in time) and determining the transaction price and amounts allocated to performance obligations 3. Assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early application is not permitted. Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
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Going Concern
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12 Months Ended |
Jun. 30, 2015 |
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| Going Concern: |
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| Going Concern |
Note 3 – Going Concern The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. As reflected in the consolidated financial statements, the Company had an accumulated deficit at March 31, 2015 and a net loss for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is attempting to further implement its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering. The consolidated financial statements do not include any adjustments related to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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v3.3.0.814
Inventory
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Inventory {2} |
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| Inventory |
Note 4- Inventory Inventory consists of the following at the West Hartford, Connecticut World of Beer location: | Bottled beer | $ | 46,190 | | Other alcoholic beverages | | 11,141 | | Food items | | 11,399 | | Other items | | 12,319 | | | | | | Total inventory at June 30, 2015 | $ | 81,049 | There was no inventory at June 30, 2014.
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v3.3.0.814
Real Estate Loans Receivable and Related Promissory Note Payable
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Real Estate Loans Receivable and Related Promissory Note Payable |
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| Real Estate Loans Receivable and Related Promissory Note Payable |
Note 5 – Real Estate Loans Receivable and Related Promissory Note Payable Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “Agreement”) with Harrison Vickers and Waterman, LLC (“Harrison Vickers”). Pursuant to the Agreement the Company agreed to purchase from Harrison Vickers certain assets held by Harrison Vickers in the form of real estate loans (the “Loans”). The purchase price was paid by the Company via the issuance of a secured promissory note in the principal amount of $1,800,000 (the “Note”) due March 31, 2015. Four loans, $1,800,000 in aggregate, were purchased with one loan of $180,000 being collected during the interim period ending December 31, 2013. The remaining three loans of $520,000, $550,000 and $550,000 were issued on April 2, 2013, May 15, 2013 and July 15, 2013, respectively. They all bear interest at 12% per annum and are due one year from the date of issuance. The loans are secured by a first lien. The Note is secured by a Pledge Agreement (the “Pledge Agreement”) entered into between the Company and Harrison Vickers, whereby the proceeds of the Loans are pledged as security for the repayment of the Note. During the interim period ended December 31, 2013, the Company received payment on and paid down $330,000 of the Loans. The $550,000 loan was reduced to $400,000 during the year ended June 30, 2014 with a corresponding reduction in the promissory note payable. The balance of $400,000 is being disputed by the property owner, but the Company is fully insured by Title Insurance for this amount. On February 10, 2015, the note for $520,000 was fully repaid. The current balance outstanding is $950,000. | | | June 30, 2015 | | June 30, 2014 | | Balance Outstanding | $ | 950,000 | $ | 1,470,000 |
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v3.3.0.814
Receivable from Attitude Drinks Incorporated
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Receivable from Attitude Drinks Incorporated: |
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| Receivable from Attitude Drinks Incorporated |
Note 6- Receivable from Attitude Drinks Incorporated Attitude Drinks Incorporated is the majority owner of the Company. Occasionally, cash is forwarded to and from the entities, and a receivable/payable balance is established. As of the report date, the Company had a receivable of $131,423 that is due from Attitude Drinks Incorporated.
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v3.3.0.814
Property Plant and Equipment
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Property, Plant, and Equipment: |
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| Property Plant and Equipment |
Note 7- Property Plant and Equipment Property, plant and equipment relate to the fixtures at the West Hartford, Connecticut World of Beer location which are as follows (in $000): | Property Description | | Amount | | Depreciable life | | Tenant Improvements | $ | 490 | | 20 years | | Bar equipment | | 236 | | 10 years | | Communications Equipment | | 88 | | 5 years | | Capitalized permitting and fees | | 46 | | 15 years | | Other | | 162 | | 5-7 years | | Accumulated Depreciation | | (60) | | | | Total | $ | 962 | | |
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v3.3.0.814
Capitalized Costs
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Capitalized Costs: |
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| Capitalized Costs |
Note 8- Capitalized Costs Capitalized costs represent all costs incurred at the West Harford, Connecticut World of Beer location prior to its opening date. Such costs in thousands include: | Property Description | | Amount | | Pre-opening labor costs | $ | 67 | | Franchise fees | | 45 | | Training fees | | 29 | | Legal fees | | 23 | | Start-up costs | | 20 | | Other | | 24 | | Accumulated Depreciation | | (9) | | | | | | Total | $ | 199 | All costs are amortized over fifteen years.
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v3.3.0.814
Deferred Financing Costs
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Deferred Financing Costs {1} |
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| Deferred Financing Costs |
Note 9 – Deferred Financing Costs Deferred financing costs represent fees associated with the debt issuances for the merger with Attitude Beer as follows: | Legal fees associated with April 21 2015 merger | $ | 35,000 | | Value of Preferred Series A shares associated with financing | | 40,089 | | Total costs | | 75,089 | | Amortization | | (7,200) | | Net Deferred costs | $ | 67,889 | All deferred financing costs are being amortized over the length of the financing, being two years
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v3.3.0.814
Goodwill
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Goodwill {1} |
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| Goodwill |
Note 10- Goodwill Goodwill represents the increase in the consideration paid over the fair value of the assets being acquired by the Company on the acquisition date as set forth in the Statement of Financial Accounting Standard ASC 350 Intangibles- Goodwill and Other and ASC 850 Subsequent Accounting and Disclosure for Goodwill. In order to fairly value the enterprise, the following assumptions were made for a base case: - The Company would open another three World of Beer franchises, one in October 1, 2015, and the other two would open prior to April 1, 2016;
- Operating results would be predicated on 80% of the existing World of Beer location in West Hartford, Connecticut;
- Discounted cash flow model through 2022 was used ;
- 15% discount rate was used.
After the base case was quantified, various scenarios using 20% required rate of returns and 75% of operating results were quantified. After equal weighting of all these scenarios, it was determined that goodwill was worth $3,997,418 as follows: | Value of enterprise | $ | 4,841,801 | | Add: Negative net equity | | | | of company | | 20,764 | | Intercompany eliminations | | 20,665 | | Less: Incremental debt acquired | | (844,285) | | | | | | Goodwill | $ | 4,038,945 |
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v3.3.0.814
Accrued Expenses - in dispute
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Accrued Expenses - in dispute |
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| Accrued Expenses - in dispute |
Note 11- Accrued Expenses - in dispute Upon the signing of the April 2015 Material Definitive agreement (see Note 1 above), Mr. James Giordano resigned as our Chief Executive Officer. At that time, his shares in the Company were purchased, and all liabilities to him extinguished. Mr. Girodano disputes this and believes he is entitled to his back salary of which $175,000 was accrued. The Company disputes this assertion but has reaccrued the liability. No legal action by either party has been initiated at this time.
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v3.3.0.814
Notes Payable - Investor
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Notes Payable - Investor |
|
| Notes Payable - Investor |
Note 12- Note Payable-investor Notes payable – investor is as follows: | | June 30, 2015 | | June 30, 2014 | | On October 9, 2013, the Company issued a promissory note in consideration for $2,500 received from an investor. The note matured on June 30, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $3,188 at June 30, 2015 and $2,938 at June 30, 2014. | $ | 3,188 | $ | 2,938 | | | | | | | On October 23, 2013, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on June 30, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $6,027 at June 30, 2015 and $5,527 at June 30, 2014. | | 6,027 | | 5,527 | | | | | | | On January 31, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on January 31, 2015 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $5,992 at June 30, 2015 and $5,212 at June 30, 2014. | | 5,992 | | 5,212 | | | | | | | On May 15, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on November 15, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $5,542 at June 30, 2015 and $5,042 at June 30, 2014. | | 5,542 | | 5,042 | | | | | | | On May 30, 2014, the Company issued a promissory note in consideration for $10,000 received from an investor. The Note matured on December 31, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $11,628 at June 30, 2015 and $10,125 at June 30, 2014. | | 11,628 | | 10,125 | | | | | | | Since inception, the Company had received advances from its former Chairman and Chief Executive Officer, Robert J Sharp, for working capital purposes. Mr. Sharp advanced the Company $36,628. On September 1, 2013, Mr. Sharp assigned his rights to the advances to an investor. On January 2, 2015, the Company and the investor agreed to adjust the note such that the note (a) became immediately convertible; (b) converts into common stock at a 50% discount from the lowest closing bid price for the prior thirty trading days; (c) bears interest at a rate of 10% per year. On March 25, 2015, the investor converted $2,600 worth of debt into 2,000,000 shares. The note balance with accrued interest is $35,775 at June 30, 2015 and $36,628 at June 30, 2014. | | 35,775 | | 36,628 | | | | | | | On October 1, 2014, the Company issued a promissory note in consideration for $25,000 received from an investor. The Note matures on June 30, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $26,863 at June 30, 2015. | | 26,863 | | - | | | | | | | On October 24, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $5,073 at June 30, 2015. | | 5,073 | | - | | | | | | | On March 15, 2015, the Company issued a promissory note in consideration for $2,500 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $2,573 at June 30, 2015. | | 2,573 | | - | | | | | | | On April 21, 2015, the Company issued a promissory note in consideration for $1,619,375 received from an investor. The Note matures on April 20, 2017 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $1,650,432. | | 1,650,432 | | - | | | | | | | On April 21, 2015, the Company issued a promissory note in consideration for $554,792 received from an investor. The Note matures on April 20, 2017 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $565,432. | | 565,432 | | - | | | | | | | On April 27, 2015, the Company issued a promissory note in consideration for $13,250 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $13,482. | | 13,482 | | - | | | | | | | On May 8, 2015, the Company issued a promissory note in consideration for $7,500 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $7,609. | | 7,609 | | - | | | | | | | Total face value of notes plus accrued interest | | 2,339,616 | | 65,472 | | | | | | | Discount on Notes Payable | | 1,984,395 | | - | | | | | | | Net debt | | 355,221 | | 65,472 | | Less: long term portion | | 210,522 | | - | | Current portion | $ | 144,699 | $ | 65,472 |
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v3.3.0.814
Derivative Liabilities
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Derivative Liabilities |
|
| Derivative Liabilities |
Note 13 – Derivative Liabilities: Fair Value Measurement Valuation Hierarchy ASC 820, “Fair Value Measurements and Disclosures,” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The following table provides the liabilities carried at fair value measured on a recurring basis as of June 30, 2015: | | | | | | Fair Value Measurements at June 30, 2015 | | | | TotalCarryingValue atJune 30, 2015 | | | Quotedprices inactivemarkets(Level 1) | | | Significantotherobservableinputs(Level 2) | | | Significantunobservableinputs (Level 3) | | Conversion feature liability | | $ | 4,237,890 | | | $ | – | | | $ | – | | | $ | 4,237,890 | | | | | | | | | | | | | | | | | The carrying amounts of cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities approximate their fair value due to their short maturities. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the derivative liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting department, who reports to the Principal Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting department and are approved by the Principal Financial Officer. Level 3 Valuation Techniques Level 3 financial liabilities consist of the conversion feature liability for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. As of June 30, 2015, there were no transfers in or out of level 3 from other levels in the fair value hierarchy
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v3.3.0.814
Commitments and Contingencies
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Commitments and Contingencies {1} |
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| Commitments and Contingencies |
Note 14 – Commitments and Contingencies Management Agreement Effective September 6, 2013 the Company entered into a management agreement (the “Management Agreement”) between the Company and HVW. The material terms of the Management Agreement include: (i) HVW will provide certain business, financial and advisory services to the Company; (ii) HVW will receive a management fee of two percent (2%) per annum of average gross assets, and (iii) HVW will also receive twenty percent (20%) of the revenues received by the Company derived from the services under the Management Agreement. The management fee has been waived for the year ended June 30, 2015 and June 2014.
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v3.3.0.814
Income Tax Provision
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Income Taxes: |
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| Income Tax Provision |
Note 15 – Income Tax Provision Deferred Tax Assets and Valuation Allowance At June 30, 2015, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes of $1,944,010 that may be offset against future taxable income through 2034. No tax benefit has been reported with respect to these net operating loss carry-forwards in the consolidated financial statements because the Company believes that the realization of the Company’s net deferred tax assets of approximately $680,404 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realization. The valuation allowance increased approximately $468,732 and $191,888 for the fiscal year ended June 30, 2015 and 2014, respectively. Components of deferred tax assets and valuation allowance are as follows: | | | | | | | | | | | June 30, 2015 | | June 30, 2014 | | Net deferred tax assets – non-current: | | | | | | | | | | | | | | | | Expected income tax benefit from NOL carry-forwards | | $ | 680,404 | | $ | 205,624 | | | | | | | | | | Less valuation allowance | | | (680,404) | | | (205,624) | | | | | | | | | | Deferred tax assets, net of valuation allowance | | $ | - | | $ | - | Income Tax Provision in the Consolidated Statements of Operations A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows: | | | | | | | | | | | For the Fiscal Year Ended June 30, 2015 | | For the Fiscal Year Ended June 30, 2014 | | | | | | | | | | Federal statutory income tax rate | | | 35.0% | | | 34.0% | | | | | | | | | | Change in valuation allowance on net operating loss carry-forwards | | | (35.0)% | | | (34.0)% | | | | | | | | | | Effective income tax rate | | | 0.0% | | | 0.0% |
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v3.3.0.814
Stockholders' Deficit
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Stockholders' Deficit |
|
| Stockholders' Deficit |
Note 16 – Stockholders’ Deficit Shares Authorized Upon formation, the total number of shares of all classes of stock which the Company is authorized to issue is Seventy Five Million (75,000,000) shares of which One Million (1,000,000) shares shall be Preferred Stock, par value $0.0001 per share, and Seventy Four Million (74,000,000) shares shall be Common Stock, par value $0.0001 per share. On October 24, 2013 the Company filed a Certificate of Amendment to amend its Articles of Incorporation (the “Actions”) to: (i) change the name of the Company to Harrison Vickers & Waterman Inc.; (ii) increase the number of shares of authorized common stock of the Company from 74,000,000 to 2,000,000,000 shares; and (iii) effectuate a forward stock split of our common stock at a ratio determined by our Board of Directors of 324.5 for 1. All shares and per share amounts in the consolidated financial statements have been adjusted to give retroactive effect to the Stock Split and the change in authorized stock. Series A 8% Convertible Preferred Stock On September 17, 2013 the Company filed the Series A 8% Convertible Preferred Stock Certificate of Designation with the Secretary of State of Nevada (the “Certificate of Designation”) authorizing 100,000 shares of Series A Convertible Preferred Stock and establishing the rights, preferences, privileges and obligations thereof. As set forth in the Certificate of Designation, the holders of Series A Convertible Preferred Stock are entitled to receive, when and as declared by the Board of Directors out of funds legally available therefore, and the Company is obligated to accrue, quarterly in arrears on March 31, September 30, September 30, and December 31 of each year, cumulative dividends on the Series A Preferred Stock at the rate per share equal to eight percent (8%) per annum on the Stated Value, payable in common stock valued at the closing trade price per share on the last trading day of the calendar quarter. Through the Balance sheet date, the holders of the Series A Preferred Stock have waived all dividends. There is no guarantee they will do so going forward. The Series A Convertible Preferred Stock does not have the right to vote on any matter that may from time to time be submitted to the Company’s shareholders for a vote, either by written consent or by proxy. So long as any shares of Series A Preferred Stock are outstanding, the Company does not have the right to, and cannot cause its subsidiaries not to, without the affirmative vote of the Requisite Holders, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock, (b) alter or amend this Certificate of Designation, (c) amend its certificate of incorporation, bylaws or other charter documents so as to affect adversely any rights of any Holders of the Series A Preferred Stock, (d) increase the authorized or designated number of shares of Series A Preferred Stock, (e) issue any additional shares of Series A Preferred Stock (including the reissuance of any shares of Series A Preferred Stock converted for Common Stock) or (f) enter into any agreement with respect to the foregoing. Each share of Series A Convertible Preferred Stock is convertible into 1,000 shares of Common Stock. For a period of 24 months from the Issuance Date, if the Company issues shares of common stock (or securities, including any derivative securities, containing the right to purchase, exercise or convert into shares of common stock) (the “Dilution Shares”) such that the outstanding number of shares of common stock on a fully diluted basis is greater than 214,000,000 shares (inclusive of conversions of Series A Preferred Stock at the Conversion Ratio immediately above), then the Conversion Ratio for the Series A Preferred Stock then outstanding and unconverted as of the date the Dilution Shares are issued shall be adjusted to equal the Conversion Ratio multiplied by a fraction, the numerator of which shall be the number of shares outstanding on a fully diluted basis after the issuance of the Dilution Shares, and the denominator shall be 214,000,000. The Company cannot effect any conversion of the Series A Preferred Stock, to the extent that, after giving effect to the conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of 9.9% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series A Preferred Stock. Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “HVW Agreement”) with HVW Holdings LLC (“HVW”). Pursuant to the Agreement the Company agreed to sell to HVW an aggregate 32,300 shares of its Series A, 8% Convertible Preferred Stock which pursuant to the terms thereof will be convertible into 32,300,000 shares of the Company’s common stock. The consideration under the HVW Agreement was certain services to be rendered by HVW to the Company pursuant to a management agreement (the “Management Agreement”) entered into between the Company and HVW on September 6, 2013. HVW sold these 32,300 shares to another investor on April 21, 2015. In addition, the Company issued 46,500 shares of its Series A, 8% Convertible Preferred Stock to its former president, Robert Sharp and 16,200 shares to an investor. Robert Sharp sold 36,500 of these shares to two other investors on April 21, 2015 The 95,000 shares issued of the A 8% Convertible Preferred Stock were valued at $425,000 in aggregate, $208,206, $144,500 and $72,474 of which were booked as compensation – officer, management fees and consulting fees, respectively. On November 4, 2013, the owners of the Series A Convertible Preferred Stock agreed that the Conversion ratio, as defined in the Certificate of Designation, shall not change in the event of forward-split or reverse-split for a period of nine months from issuance. On April 21, 2015, we issued 5,000 new shares of the Series A Convertible Preferred Stock to another investor. Series B Convertible Preferred Stock On April 21, 2015, the Company issued 51shares of Series B Convertible Preferred Stock to Attitude Drinks Incorporated. At the time, the Company accounted for approximately $1,000,000 in Additional paid in capital due to its issuance. See Note 10- Goodwill, above for more detail. Common Stock Effective September 6, 2013 the Company entered into a Securities Purchase Agreement (the “HVW Agreement”) with HVW Holdings LLC (“HVW”). Pursuant to the Agreement the Company agreed to sell to HVW an aggregate of 308,166 shares of the Company’s Common Stock. The consideration under the HVW Agreement was certain services to be rendered by HVW to the Company pursuant to a management agreement (the “Management Agreement”) entered into between the Company and HVW on September 6, 2013. Some of the material terms of the HVW Agreement include: (i) that Robert J. Sharp, the previous Chief Executive Officer and Board Member of the Company retire 4,961,500 shares of common stock of the Company owned by Mr. Sharp, and the Company will appoint up to three persons nominated by HVW to the board of directors of the Company to serve until the next annual meeting of shareholders of the Company. The common stock issued was valued at its fair market value of $1,379. On September 10, 2013, 649,000 shares of the Company’s common stock were returned without consideration. The transaction was recorded at the Company’s par value. Equity Incentive Plan On October 24, 2013, the Company created the 2013 Equity Incentive Plan (the “2013 Plan.”) The aggregate number of shares of Common stock that may be issued under the Plan shall not exceed five million (5,000,000) shares. No shares have been issued as of June 30, 2015, and all of the 5,000,000 shares are available for issuance under the 2013 Plan.
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v3.3.0.814
Concentrations and Credit Risk
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Concentrations and Credit Risk |
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| Concentrations and Credit Risk |
Note 17 – Concentrations and Credit Risk Customers Concentrations The Company’s net revenues come from restaurant and bar operations, and it has been determined that there is no concentration of revenues from any one customer.
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v3.3.0.814
Segment Reporting
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Segment Reporting |
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| Segment Reporting |
Note 18- Segment Reporting The Company operates in two segments which are consistent with its internal organization. The major segments are restaurants/taverns and commercial lending. Revenues, expenses and assets not explicitly attributed to a segment are deemed to be unallocated. See below for a summary: | Harrison Vickers and Waterman, Inc. | | Segment Reporting | | June 30, 2015 | | | | | | | | | | | | Restaurants/ Tavern | | Commercial Lending | | Corporate overhead | | Total | | Net Revenues | $ | 669,172 | $ | - | $ | - | $ | 669,172 | | | | | | | | | | | Cost of Goods sold | | (185,602) | | - | | - | | (185,602) | | | | | | | | | | | Gross Margin | | 483,570 | | - | | - | | 483,570 | | | | | | | | | | | Operating Expenses | | 461,124 | | 127,384 | | - | | 588,508 | | | | | | | | | | | Other Income (Expense) | | (253,038) | | (39,948) | | (2,015,190) | | (2,308,176) | | | | | | | | | | | Net Income (loss) before minority interest | | (230,592) | | (167,332) | | (2,015,190) | | (2,413,114) | | | | | | | | | | | Minority interest | | (34,827) | | - | | 1,103,991 | | 1,069,164 | | | | | | | | | | | Net Income | | (265,419) | | (167,332) | | (911,199) | | (1,343,950) | | | | | | | | | | | Total Current assets | | 482,752 | | 950,000 | | - | | 1,432,752 | | | | | | | | | | | Total Assets | | 1,676,934 | | 950,000 | | 4,073,945 | | 6,700,879 | | | | | | | | | | | Total Liabilities | $ | 1,705,268 | $ | 1,254,180 | $ | 4,009,615 | $ | 6,969,063 | | Harrison Vickers and Waterman, Inc. | | Segment Reporting | | June 30, 2014 | | | | | | | | | | | | Restaurants/ Tavern | | Commercial Lending | | Corporate overhead | | Total | | Net Revenues | $ | - | $ | - | $ | - | $ | - | | | | | | | | | | | Cost of Goods sold | | - | | - | | - | | - | | | | | | | | | | | Gross Margin | | - | | - | | - | | - | | | | | | | | | | | Operating Expenses | | - | | 562,101 | | - | | 562,101 | | | | | | | | | | | Other Income (Expense) | | - | | (2,276) | | - | | (2,276) | | | | | | | | | | | Net Income (loss) before minority interest | | - | | (564,377) | | - | | (564,377) | | | | | | | | | | | Minority interest | | - | | - | | - | | - | | | | | | | | | | | Net Income | | - | | (564,377) | | - | | (564,377) | | | | | | | | | | | Total Current assets | | - | | 1,470,361 | | - | | 1,470,361 | | | | | | | | | | | Total Assets | | - | | 1,470,361 | | - | | 1,470,361 | | | | | | | | | | | Total Liabilities | $ | - | $ | 1,644,909 | $ | - | $ | 1,644,909 |
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v3.3.0.814
Subsequent Events
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Subsequent Events |
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| Subsequent Events |
Note 19 – Subsequent Events The Company has evaluated all events that occurred after the balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported. Here is the subsequent event: On July 29, 2015, we issued a convertible note payable for $80,000 with a two year maturity at an interest rate of ten percent per annum. We also issued a warrant to to purchase up to 64,000 shares of our common stock at a price of $.0025 with an expiration date of June 29, 2022. On August 18, 2015, we filed a DEF 14C report whereas the Company obtained the approval by written consent of one shareholders that has 85.4% of the voting power of the Company as well as the Board of Directors to amend the Company’s Articles of Incorporation to (1) increase the Company’s authorized shares of common stock from 2,000,000,000 to 7,500,000,000, (2) change the name of the Company to Attitude Beer, Inc. and (3) to adopt the 2015 Stock Incentive Plan. Effective date will be September 8, 2015.
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v3.3.0.814
Accounting Policies (Policies)
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Accounting Policies (Policies): |
|
| Basis of Presentation - Unaudited Interim Financial Information |
Basis of Presentation The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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| Fiscal Year End |
Fiscal Year End The Company elected June 30th as its fiscal year end date upon its formation.
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| Reclassification |
Reclassification Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.
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| Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions |
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimate(s) and assumption(s) affecting the financial statements were: (i) Assumption as a going concern: Management assumes that the Company will continue as a going concern which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. (ii) Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the fact that the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
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| Principles of Consolidation |
Principles of Consolidation The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification ("ASC") to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists. The Company's consolidated subsidiaries and/or entities are as follows: | | | | | | | | | Name of consolidated subsidiary or entity | | State or other jurisdiction of incorporation or organization | | Date of incorporation or formation (date of acquisition, if applicable) | | Attributable interest | | | | | | | | | | Attitude Beer Holding Co. | | The State of Delaware | | April 21, 2015 | | 100% | The consolidated financial statements of the Company include all accounts of the Company and its wholly owned subsidiary, Attitude Beer Holding Co. All intercompany balances and transactions have been eliminated.
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| Fair Value of Financial Instruments |
Fair Value of Financial Instruments The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below: Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses approximate their fair values because of the short maturity of these instruments. Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
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| Cash Equivalents |
Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
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| Related Parties |
Related Parties The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The consolidated financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the consolidated financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
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| Commitment and Contingencies |
Commitment and Contingencies The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred, and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position and results of operations or cash flows.
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| Revenue Recognition |
Revenue Recognition The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
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| Income Tax Provision |
Income Tax Provision The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date. The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
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| Uncertain Tax Positions |
Uncertain Tax Positions The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended June 30, 2015 or 2014.
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| Earnings per Share |
Earnings per Share Earnings Per Share ("EPS") is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16. Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants. Pursuant to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23, diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: (a) Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later), and common shares shall be assumed to be issued. (b) The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) (c) The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation. Since there was no reported net income for the 2015 and 2014 reporting periods, any potentially outstanding dilutive common shares are not considered for the reporting period ended June 30, 2015 or 2014.
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| Cash Flows Reporting |
Cash Flows Reporting The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing or financing activities and provides definitions of each category and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.
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| Subsequent Events |
Subsequent Events The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the consolidated financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its consolidated financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
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| Derivative Liabilities |
Derivative Liabilities The Company reconsidered the requirements of the Financial Accounting Standards Board Accounting Standards Classification 820 (‘FASB ASC 820” or “ASC 820”) and determined that newly issued debt were derivative financial instruments. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instruments are initially recorded at their fair values and are then re-valued at each reporting date, with changes in the fair values reported as charges or credits to income. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments. Once determined, derivative liabilities are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value from inception is made quarterly and appears in results of operations as an adjustment to fair value of derivatives.
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| Deferred Financing Costs and Debt Discount |
Deferred Financing Costs and Debt Discount The Company paid debt issue costs and recorded debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense.
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| Original Issue Discount |
Original Issue Discount For certain issued convertible debt, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
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| Recently Issued Accounting Pronouncements |
Recently Issued Accounting Pronouncements In May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) This guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: 1. Identify the contract(s) with the customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligations The ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature, amount, timing and uncertainty of revenue recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about the following: 1. Contracts with customers – including revenue and impairments recognized, disaggregation of revenue and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations) 2. Significant judgments and changes in judgments – determining the timing of satisfaction of performance obligations (over time or at a point in time) and determining the transaction price and amounts allocated to performance obligations 3. Assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early application is not permitted. Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
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v3.3.0.814
Schedule of consolidated subsidiaries (Tables)
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Schedule of consolidated subsidiaries (Tables): |
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| Schedule of consolidated subsidiaries (Tables) |
The Company's consolidated subsidiaries and/or entities are as follows: | | | | | | | | | Name of consolidated subsidiary or entity | | State or other jurisdiction of incorporation or organization | | Date of incorporation or formation (date of acquisition, if applicable) | | Attributable interest | | | | | | | | | | Attitude Beer Holding Co. | | The State of Delaware | | April 21, 2015 | | 100% |
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v3.3.0.814
Inventory (Tables)
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12 Months Ended |
Jun. 30, 2015 |
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| Inventory (Table): |
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| Schedule of Inventory, Current |
Inventory consists of the following at the West Hartford, Connecticut World of Beer location: | Bottled beer | $ | 46,190 | | Other alcoholic beverages | | 11,141 | | Food items | | 11,399 | | Other items | | 12,319 | | | | | | Total inventory at June 30, 2015 | $ | 81,049 |
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v3.3.0.814
Property, Plant, and Equipment (Tables)
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12 Months Ended |
Jun. 30, 2015 |
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| Property, Plant, and Equipment: |
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| Property, Plant and Equipment |
Property, plant and equipment relate to the fixtures at the West Hartford, Connecticut World of Beer location which are as follows (in $000): | Property Description | | Amount | | Depreciable life | | Tenant Improvements | $ | 490 | | 20 years | | Bar equipment | | 236 | | 10 years | | Communications Equipment | | 88 | | 5 years | | Capitalized permitting and fees | | 46 | | 15 years | | Other | | 162 | | 5-7 years | | Accumulated Depreciation | | (60) | | | | Total | $ | 962 | | |
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v3.3.0.814
Capitalized Costs (Tables)
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12 Months Ended |
Jun. 30, 2015 |
|---|
| Capitalized Costs {1} |
|
| Schedule of Capitalized Costs |
Capitalized costs represent all costs incurred at the West Harford, Connecticut World of Beer location prior to its opening date. Such costs in thousands include: | Property Description | | Amount | | Pre-opening labor costs | $ | 67 | | Franchise fees | | 45 | | Training fees | | 29 | | Legal fees | | 23 | | Start-up costs | | 20 | | Other | | 24 | | Accumulated Depreciation | | (9) | | | | | | Total | $ | 199 |
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v3.3.0.814
Deferred Financing Costs (Tables)
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Deferred Financing Costs {3} |
|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure |
Deferred financing costs represent fees associated with the debt issuances for the merger with Attitude Beer as follows: | Legal fees associated with April 21 2015 merger | $ | 35,000 | | Value of Preferred Series A shares associated with financing | | 40,089 | | Total costs | | 75,089 | | Amortization | | (7,200) | | Net Deferred costs | $ | 67,889 |
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v3.3.0.814
Goodwill (Tables)
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Goodwill (Tables): |
|
| Schedule of Goodwill |
After equal weighting of all these scenarios, it was determined that goodwill was worth $3,997,418 as follows: | Value of enterprise | $ | 4,841,801 | | Add: Negative net equity | | | | of company | | 20,764 | | Intercompany eliminations | | 20,665 | | Less: Incremental debt acquired | | (844,285) | | | | | | Goodwill | $ | 4,038,945 |
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v3.3.0.814
Schedule of Notes Payable - Investor (Tables)
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Schedule of Notes Payable - Investor (Tables): |
|
| Schedule of Notes Payable - Investor (Tables) |
Notes payable – investor is as follows: | | June 30, 2015 | | June 30, 2014 | | On October 9, 2013, the Company issued a promissory note in consideration for $2,500 received from an investor. The note matured on June 30, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $3,188 at June 30, 2015 and $2,938 at June 30, 2014. | $ | 3,188 | $ | 2,938 | | | | | | | On October 23, 2013, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on June 30, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $6,027 at June 30, 2015 and $5,527 at June 30, 2014. | | 6,027 | | 5,527 | | | | | | | On January 31, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on January 31, 2015 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $5,992 at June 30, 2015 and $5,212 at June 30, 2014. | | 5,992 | | 5,212 | | | | | | | On May 15, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matured on November 15, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $5,542 at June 30, 2015 and $5,042 at June 30, 2014. | | 5,542 | | 5,042 | | | | | | | On May 30, 2014, the Company issued a promissory note in consideration for $10,000 received from an investor. The Note matured on December 31, 2014 and bears interest at ten percent per annum, compounded monthly. The note is currently in default. The note balance with the accrued interest included is $11,628 at June 30, 2015 and $10,125 at June 30, 2014. | | 11,628 | | 10,125 | | | | | | | Since inception, the Company had received advances from its former Chairman and Chief Executive Officer, Robert J Sharp, for working capital purposes. Mr. Sharp advanced the Company $36,628. On September 1, 2013, Mr. Sharp assigned his rights to the advances to an investor. On January 2, 2015, the Company and the investor agreed to adjust the note such that the note (a) became immediately convertible; (b) converts into common stock at a 50% discount from the lowest closing bid price for the prior thirty trading days; (c) bears interest at a rate of 10% per year. On March 25, 2015, the investor converted $2,600 worth of debt into 2,000,000 shares. The note balance with accrued interest is $35,775 at June 30, 2015 and $36,628 at June 30, 2014. | | 35,775 | | 36,628 | | | | | | | On October 1, 2014, the Company issued a promissory note in consideration for $25,000 received from an investor. The Note matures on June 30, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $26,863 at June 30, 2015. | | 26,863 | | - | | | | | | | On October 24, 2014, the Company issued a promissory note in consideration for $5,000 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $5,073 at June 30, 2015. | | 5,073 | | - | | | | | | | On March 15, 2015, the Company issued a promissory note in consideration for $2,500 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest is $2,573 at June 30, 2015. | | 2,573 | | - | | | | | | | On April 21, 2015, the Company issued a promissory note in consideration for $1,619,375 received from an investor. The Note matures on April 20, 2017 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $1,650,432. | | 1,650,432 | | - | | | | | | | On April 21, 2015, the Company issued a promissory note in consideration for $554,792 received from an investor. The Note matures on April 20, 2017 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $565,432. | | 565,432 | | - | | | | | | | On April 27, 2015, the Company issued a promissory note in consideration for $13,250 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $13,482. | | 13,482 | | - | | | | | | | On May 8, 2015, the Company issued a promissory note in consideration for $7,500 received from an investor. The Note matures on July 31, 2015 and bears interest at ten percent per annum. The investor is entitled at his option to convert all or any lesser portion of the amounts due from the Company for additional shares. The conversion price is an amount equal to fifty percent (50%) of the lowest closing bid price in the thirty days prior to the day that the Investor requests conversion. The balance of the note with accrued interest at June 30, 2015 is $7,609. | | 7,609 | | - | | | | | | | Total face value of notes plus accrued interest | | 2,339,616 | | 65,472 | | | | | | | Discount on Notes Payable | | 1,984,395 | | - | | | | | | | Net debt | | 355,221 | | 65,472 | | Less: long term portion | | 210,522 | | - | | Current portion | $ | 144,699 | $ | 65,472 |
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v3.3.0.814
Schedule of Derivative Liabilities (Tables)
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Schedule of Derivative Liabilities (Tables): |
|
| Summary of Fair Value of Liabilities Measured on a Recurring Basis |
The following table provides the liabilities carried at fair value measured on a recurring basis as of June 30, 2015: | | | | | | Fair Value Measurements at June 30, 2015 | | | | TotalCarryingValue atJune 30, 2015 | | | Quotedprices inactivemarkets(Level 1) | | | Significantotherobservableinputs(Level 2) | | | Significantunobservableinputs (Level 3) | | Conversion feature liability | | $ | 4,237,890 | | | $ | – | | | $ | – | | | $ | 4,237,890 | | | | | | | | | | | | | | | | |
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v3.3.0.814
Income Taxes (Tables)
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Income Taxes (Tables): |
|
| Summary of Income Tax Provision |
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows: | | | | | | | | | | | For the Fiscal Year Ended June 30, 2015 | | For the Fiscal Year Ended June 30, 2014 | | | | | | | | | | Federal statutory income tax rate | | | 35.0% | | | 34.0% | | | | | | | | | | Change in valuation allowance on net operating loss carry-forwards | | | (35.0)% | | | (34.0)% | | | | | | | | | | Effective income tax rate | | | 0.0% | | | 0.0% |
|
| Schedule of Components of deferred tax assets and valuation |
Components of deferred tax assets and valuation allowance are as follows: | | | | | | | | | | | June 30, 2015 | | June 30, 2014 | | Net deferred tax assets – non-current: | | | | | | | | | | | | | | | | Expected income tax benefit from NOL carry-forwards | | $ | 680,404 | | $ | 205,624 | | | | | | | | | | Less valuation allowance | | | (680,404) | | | (205,624) | | | | | | | | | | Deferred tax assets, net of valuation allowance | | $ | - | | $ | - |
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v3.3.0.814
Segment Reporting (Tables)
|
12 Months Ended |
Jun. 30, 2015 |
|---|
| Segment Reporting {2} |
|
| Schedule of Segment Reporting Information, by Segment |
Revenues, expenses and assets not explicitly attributed to a segment are deemed to be unallocated. See below for a summary: | Harrison Vickers and Waterman, Inc. | | Segment Reporting | | June 30, 2015 | | | | | | | | | | | | Restaurants/ Tavern | | Commercial Lending | | Corporate overhead | | Total | | Net Revenues | $ | 669,172 | $ | - | $ | - | $ | 669,172 | | | | | | | | | | | Cost of Goods sold | | (185,602) | | - | | - | | (185,602) | | | | | | | | | | | Gross Margin | | 483,570 | | - | | - | | 483,570 | | | | | | | | | | | Operating Expenses | | 461,124 | | 127,384 | | - | | 588,508 | | | | | | | | | | | Other Income (Expense) | | (253,038) | | (39,948) | | (2,015,190) | | (2,308,176) | | | | | | | | | | | Net Income (loss) before minority interest | | (230,592) | | (167,332) | | (2,015,190) | | (2,413,114) | | | | | | | | | | | Minority interest | | (34,827) | | - | | 1,103,991 | | 1,069,164 | | | | | | | | | | | Net Income | | (265,419) | | (167,332) | | (911,199) | | (1,343,950) | | | | | | | | | | | Total Current assets | | 482,752 | | 950,000 | | - | | 1,432,752 | | | | | | | | | | | Total Assets | | 1,676,934 | | 950,000 | | 4,073,945 | | 6,700,879 | | | | | | | | | | | Total Liabilities | $ | 1,705,268 | $ | 1,254,180 | $ | 4,009,615 | $ | 6,969,063 | | Harrison Vickers and Waterman, Inc. | | Segment Reporting | | June 30, 2014 | | | | | | | | | | | | Restaurants/ Tavern | | Commercial Lending | | Corporate overhead | | Total | | Net Revenues | $ | - | $ | - | $ | - | $ | - | | | | | | | | | | | Cost of Goods sold | | - | | - | | - | | - | | | | | | | | | | | Gross Margin | | - | | - | | - | | - | | | | | | | | | | | Operating Expenses | | - | | 562,101 | | - | | 562,101 | | | | | | | | | | | Other Income (Expense) | | - | | (2,276) | | - | | (2,276) | | | | | | | | | | | Net Income (loss) before minority interest | | - | | (564,377) | | - | | (564,377) | | | | | | | | | | | Minority interest | | - | | - | | - | | - | | | | | | | | | | | Net Income | | - | | (564,377) | | - | | (564,377) | | | | | | | | | | | Total Current assets | | - | | 1,470,361 | | - | | 1,470,361 | | | | | | | | | | | Total Assets | | - | | 1,470,361 | | - | | 1,470,361 | | | | | | | | | | | Total Liabilities | $ | - | $ | 1,644,909 | $ | - | $ | 1,644,909 |
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v3.3.0.814
Organization and Operations (Details) - USD ($)
|
Dec. 31, 2014 |
Oct. 24, 2013 |
Sep. 06, 2013 |
| Organization and Operations Details |
|
|
|
| Secured promissory note in the principal amount |
|
|
$ 1,800,000
|
| Agreed to sell to HVW an aggregate shares of the Company's Common Stock |
|
|
308,166
|
| Agreed to sell to HVW an aggregate shares of the Company's preferred stock |
|
|
32,300
|
| Convertible shares of the Company's common stock |
|
|
32,300,000
|
| Shares of common stock of the Company owned by Mr. Sharp |
|
4,961,500
|
4,961,500
|
| Increase the number of shares of authorized common stock |
|
2,000,000,000
|
|
| Forward stock split of our common stock at a ratio determined by our Board of Directors for one share |
|
$ 324.5
|
|
| HVW will receive a management fee |
|
|
2.00%
|
| HVW will receive revenues |
|
|
20.00%
|
| Annual dividend |
|
|
8.00%
|
| Each share convertible into shares of common stock |
|
|
1,000
|
| Company will issue shares to each of HVW |
|
|
32,300
|
| Company will issue shares to Mr. Sharp |
|
|
46,500
|
| Company will issue shares to an Institutional Investor |
|
|
16,200
|
| ABH entered a joint venture with New England World of Beer and opened a sq. foot tavern |
$ 4,000
|
|
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v3.3.0.814
Change in Business Model (Details)
|
Apr. 21, 2015
USD ($)
$ / shares
shares
|
| Change in Business Model |
|
| Series B Preferred Stock and warrant to purchase shares of common stock |
5,000,000
|
| Series B Preferred Stock and warrant to purchase shares of common stock par value | $ / shares |
$ 0.0001
|
| Series B Preferred Stock and warrant to purchase shares of common stock exercise price | $ / shares |
$ 0.075
|
| Alpha convertible note in principal amount | $ |
$ 1,619,375
|
| Alpha warrant to purchase shares of common Stock |
1,295,500,500
|
| Alpha warrant to purchase shares of common Stock exercise price | $ / shares |
$ 0.0025
|
| AIR to purchase additional notes | $ |
$ 3,750,000
|
| Tarpon Convertible Note in principal amount | $ |
$ 554,791.67
|
| Tarpon warrant to purchase shares of common Stock |
443,833,333
|
| Tarpon warrant to purchase shares of common Stock exercise price | $ / shares |
$ 0.0025
|
| AIR to purchase additional notes and corresponding AIR Warrants | $ |
$ 1,250,000
|
| Alpha acquired shares of Series A Preferred Stock |
32,300
|
| Attitude Drinks purchased shares of Common Stock from HVW Holdings LLC |
87,990,000
|
| Value of Attitude Drinks purchased shares of Common Stock from HVW Holdings LLC |
65,000
|
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| Namespace Prefix: |
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- DefinitionValue of Attitude Drinks purchased shares of Common Stock from HVW Holdings LLC
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| Namespace Prefix: |
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v3.3.0.814
| X |
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| X |
- DefinitionOther alcoholic beverages
| Name: |
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| Namespace Prefix: |
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| Balance Type: |
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|
v3.3.0.814
Real Estate Loans Receivable and Related Promissory Note Payable (Details) - USD ($)
|
Jun. 30, 2015 |
Mar. 31, 2015 |
Feb. 10, 2015 |
Jun. 30, 2014 |
Dec. 31, 2013 |
Jul. 15, 2013 |
May. 15, 2013 |
Apr. 02, 2013 |
| Real Estate Loans Receivable and Related Promissory Note Payable Details |
|
|
|
|
|
|
|
|
| Issuance of promissory note in principal amount |
|
$ 1,800,000
|
|
|
|
|
|
|
| Remaining three loans issued on |
|
|
|
|
|
$ 550,000
|
$ 550,000
|
$ 520,000
|
| Interest per annum |
|
|
|
|
12.00%
|
12.00%
|
12.00%
|
12.00%
|
| During the interim period ended December 31, 2013, the Company received payment on and paid down of the Loans |
|
|
|
|
$ 330,000
|
|
|
|
| loan $550,000 was reduced during the year ended June 30, 2014 |
|
|
|
|
$ 400,000
|
|
|
|
| The note Payable was fully repaid. |
|
|
$ 520,000
|
|
|
|
|
|
| Current balance outstanding |
|
950,000
|
|
|
|
|
|
|
| Balance Outstanding |
$ 950,000
|
$ 950,000
|
|
$ 1,470,000
|
|
|
|
|
| X |
- DefinitionCurrent balance outstanding
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|
| X |
- DefinitionDuring the interim period ended December 31, 2013, the Company received payment on and paid down of the Loans
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|
v3.3.0.814
| X |
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v3.3.0.814
| X |
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v3.3.0.814
| X |
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v3.3.0.814
| X |
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v3.3.0.814
| X |
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|
v3.3.0.814
| X |
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|
v3.3.0.814
Notes Payable (Details) - USD ($)
|
Jun. 30, 2015 |
Jun. 30, 2014 |
| Notes Payable {1} |
|
|
| On October 9, 2013, the Company issued a promissory note |
$ 3,188
|
$ 2,938
|
| On October 23, 2013, the Company issued a promissory note |
6,027
|
5,527
|
| On January 31, 2014, the Company issued a promissory note |
5,992
|
5,212
|
| On May 15, 2014, the Company issued a promissory note |
5,542
|
5,042
|
| On May 30, 2014, the Company issued a promissory note |
11,628
|
10,125
|
| Company had received advances from its former Chairman and Chief Executive Officer |
35,775
|
36,628
|
| On October 1, 2014, the Company issued a promissory note |
26,863
|
|
| On October 24, 2014, the Company issued a promissory note |
5,073
|
|
| On March 15, 2015, the Company issued a promissory note |
2,573
|
|
| On April 21, 2015, the Company issued a promissory note |
1,650,432
|
|
| On April 21, 2015, the Company issued a promissory note |
565,432
|
|
| On April 27, 2015, the Company issued a promissory note |
13,482
|
|
| On May 8, 2015, the Company issued a promissory note |
7,609
|
|
| Total company issued promissory note |
2,339,616
|
65,472
|
| Discount on Notes Payable |
1,984,395
|
|
| Net debt |
355,221
|
65,472
|
| Less: long term portion |
210,522
|
|
| Current portion |
$ 144,699
|
$ 65,472
|
| X |
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| X |
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| X |
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|
| X |
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| Period Type: |
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|
| X |
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| Namespace Prefix: |
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|
| X |
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| X |
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| Period Type: |
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|
v3.3.0.814
Note payable Parentheticals (Details) - USD ($)
|
May. 08, 2015 |
Apr. 27, 2015 |
Apr. 21, 2015 |
Mar. 25, 2015 |
Mar. 15, 2015 |
Oct. 24, 2014 |
Oct. 01, 2014 |
May. 30, 2014 |
May. 15, 2014 |
Jan. 31, 2014 |
Oct. 23, 2013 |
Oct. 09, 2013 |
| Note payable Parentheticals |
|
|
|
|
|
|
|
|
|
|
|
|
| Principal amount of note payable |
|
|
|
|
$ 2,500
|
$ 5,000
|
$ 25,000
|
$ 11,628
|
$ 5,542
|
$ 5,992
|
$ 6,027
|
$ 3,188
|
| Original Issuance Discount |
|
|
|
|
10.00%
|
10.00%
|
10.00%
|
10.00%
|
10.00%
|
10.00%
|
10.00%
|
10.00%
|
| Original Issuance Value |
|
|
|
|
|
|
|
$ 10,000
|
$ 5,000
|
$ 5,000
|
$ 5,000
|
$ 2,500
|
| Mr. Sharp advanced the Company |
$ 36,628
|
|
|
|
|
|
|
|
|
|
|
|
| Note converts into common stock at a discount from the lowest closing bid price for thirty trading days |
50.00%
|
50.00%
|
50.00%
|
|
|
|
|
|
|
|
|
|
| Note bears interest rate per year |
10.00%
|
10.00%
|
10.00%
|
|
10.00%
|
10.00%
|
10.00%
|
|
|
|
|
|
| Received promissory note from an investor |
$ 7,500
|
$ 13,250
|
$ 1,619,375
|
|
|
|
|
|
|
|
|
|
| Company received promissory note from an investor |
|
|
554,792
|
|
|
|
|
|
|
|
|
|
| conversion price of promissory note |
|
|
|
|
50.00%
|
50.00%
|
50.00%
|
|
|
|
|
|
| Balance of the note with accrued interest |
$ 7,609
|
$ 13,482
|
$ 565,432
|
|
$ 2,573
|
$ 5,073
|
$ 26,863
|
|
|
|
|
|
| Investor converted debt into shares |
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
| Value of Investor converted debt into shares |
|
|
|
$ 2,600
|
|
|
|
|
|
|
|
|
| X |
- DefinitionBalance of the note with accrued interest
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fil_BalanceOfTheNoteWithAccruedInterest |
| Namespace Prefix: |
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| Data Type: |
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| Period Type: |
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|
| X |
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| Namespace Prefix: |
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| Data Type: |
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| Balance Type: |
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| Period Type: |
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|
| X |
- DefinitionSum of the carrying values as of the balance sheet date of the portions of long-term notes payable due within one year or the operating cycle if longer.
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| Namespace Prefix: |
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v3.3.0.814
Equity Transactions (Details) - USD ($)
|
Jun. 30, 2015 |
Oct. 24, 2013 |
Sep. 17, 2013 |
Sep. 06, 2013 |
| Equity Transactions |
|
|
|
|
| Shares of preferred stock authorized |
1,000,000
|
|
|
|
| Shares of preferred stock par value |
$ 0.0001
|
|
|
|
| Shares of common stock authorized |
74,000,000
|
|
|
|
| Shares of common stock par value |
$ 0.0001
|
|
|
|
| Increase the number of shares of authorized common stock |
|
2,000,000,000
|
|
|
| Forward stock split of our common stock at a ratio determined by our Board of Directors for one share |
|
$ 324.5
|
|
|
| Series A 8% Convertible Preferred Stock: |
|
|
|
|
| Authorizing shares of Series A Convertible Preferred Stock |
|
|
100,000
|
|
| Preferred Stock at rate per share equal to per annum |
|
|
8.00%
|
|
| Series A Preferred Stock shall be convertible into shares of Common Stock |
|
|
1,000
|
|
| Outstanding number of shares of common stock on a fully diluted basis |
|
|
214,000,000
|
|
| Beneficially own in excess of number of shares |
|
|
9.90%
|
|
| Company agreed to sell HVW shares of Series A, 8% Convertible Preferred Stock |
|
|
|
32,300
|
| 8% Convertible Preferred Stock which pursuant to the terms thereof will be convertible into shares of the Company's common stock |
|
|
|
32,300,000
|
| Issued Series A, 8% Convertible Preferred Stock to its former president |
46,500
|
|
|
|
| Shares to an investor |
16,200
|
|
|
|
| Shares issued of Series A, 8% Convertible Preferred Stock |
95,000
|
|
|
|
| 8% Convertible Preferred Stock were valued at |
$ 425,000
|
|
|
|
| Shares of common stock owned by Mr. Sharp |
|
|
|
4,961,500
|
| Common stock issued was valued at its fair market value |
|
|
|
$ 1,379
|
| HVW will receive a management fee per annum of average gross assets |
|
|
|
2.00%
|
| HVW will receive of revenues received by the company from the services |
|
|
|
20.00%
|
| Aggregate number of shares of Common stock under Equity Incentive Plan |
|
5,000,000
|
|
|
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v3.3.0.814
Subsequent Transactions (Details) - USD ($)
|
Aug. 18, 2015 |
Jul. 29, 2015 |
| Subsequent Transactions |
|
|
| Company issued a convertible note payable with a two year maturity |
|
$ 80,000
|
| Company issued a convertible note payable with a two year maturity at an interest rate |
|
10.00%
|
| Company issued a warrant to purchase shares of our common stock |
|
64,000
|
| Company issued a warrant to purchase shares of our common stock at a price |
|
$ 0.0025
|
| Company obtained the approval by written consent of one shareholders that has of the voting power |
85.40%
|
|
| Increase the Company's authorized shares of common stock from 2,000,000,000 |
7,500,000,000
|
|
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