Attached files
file | filename |
---|---|
EX-4.1 - CONVERTIBLE NOTE - Sustainable Environmental Technologies Corp | rgglobal_10q-ex0401.htm |
EX-31.2 - CERTIFICATION - Sustainable Environmental Technologies Corp | rgglobal_10q-ex3102.htm |
EX-32.1 - CERTIFICATION - Sustainable Environmental Technologies Corp | rgglobal_10q-ex3201.htm |
EX-31.1 - CERTIFICATION - Sustainable Environmental Technologies Corp | rgglobal_10q-ex3101.htm |
EX-32.2 - CERTIFICATION - Sustainable Environmental Technologies Corp | rgglobal_10q-ex3202.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended December 31, 2009
o TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission
File Number: 000-254888
RG GLOBAL LIFESTYLES,
INC.
(Exact
Name of issuer as specified in its charter)
California
|
33-0230641
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
2345 W Foothill, Suite
7, Upland, CA
|
91876
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer’s
telephone number: (949) 888-9500
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
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 o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o (Do not
check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
As of
December 31, 2009, there were 104,454,491 shares of the Registrant’s common
stock issued and outstanding.
INDEX
Page
|
||
PART
I - FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
3
|
Consolidated
Balance Sheets –December 31, 2009 and March 31, 2009
|
3
|
|
Consolidated
Statements of Operations For the Three and Nine months ended December 31,
2009 and 2008
|
4
|
|
Consolidated
Statements of Cash Flows For the Nine months ended December 31, 2009 and
2008
|
5
|
|
Notes
to Financial Statements
|
6
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
Item
4T.
|
Controls
and Procedures
|
21
|
PART
II – OTHER INFORMATION
|
||
21
|
||
Item
1.
|
Legal
Proceedings
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
22
|
Item
5.
|
Other
Information
|
|
Item
6.
|
Exhibits
|
22
|
SIGNATURES
|
24
|
2
Item
1. Financial Statements
PART
I — FINANCIAL INFORMATION
RG
GLOBAL LIFESTYLES, INC.
CONSOLIDATED
BALANCE SHEETS
(unaudited)
As
of
December
31,
2009
|
As
of
March
31,
2009
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
1,756
|
$
|
3,007
|
||||
Accounts
receivable
|
673
|
673
|
||||||
Current
assets of discontinued operations
|
410
|
2,565
|
||||||
Total
current assets
|
2,839
|
6,245
|
||||||
Property
and equipment, net
|
30,188
|
30,515
|
||||||
Assets
held for sale (Note 5)
|
30,000
|
424,351
|
||||||
Intangible
assets, net
|
532,839
|
576,042
|
||||||
Other
assets
|
204,542
|
198,678
|
||||||
Assets
of discontinued operations
|
3,894
|
3,094
|
||||||
Total
Assets
|
$
|
804,302
|
$
|
1,238,925
|
||||
Liabilities
and Stockholders' Deficit
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
1,058,431
|
$
|
1,038,100
|
||||
Accrued
salaries
|
1,231,869
|
1,082,488
|
||||||
Other
accrued liabilities
|
581,982
|
694,360
|
||||||
State
income taxes payable
|
95,732
|
95,732
|
||||||
Convertible
notes payable
|
500,000
|
500,000
|
||||||
Notes
payable - related party
|
50,000
|
5,233
|
||||||
Notes
payable
|
455,500
|
455,500
|
||||||
Current
liabilities of discontinued operations
|
43,286
|
210,088
|
||||||
Total
current liabilities
|
4,016,800
|
4,081,501
|
||||||
Long-term
liability -
|
||||||||
Warrant
liability
|
43,078
|
-
|
||||||
Total
liabilities
|
4,059,878
|
4,081,501
|
||||||
Commitments
and Contingencies (Note 12)
|
||||||||
Stockholders'
Deficit:
|
||||||||
Preferred
stock, $0.001 par value, 10,000,000 shares authorized; none issued and
outstanding; 10,000,000 shares of Series A preferred stock have been
designated with none issued and outstanding
|
-
|
-
|
||||||
Common
stock, $0.001 par value, 200,000,000 shares authorized, 104,454,491 and
79,845,076 issued, 101,458,856 and 76,368,211 outstanding,
respectively
|
101,530
|
76,369
|
||||||
Additional
paid-in capital
|
35,336,378
|
37,593,763
|
||||||
Accumulated
deficit
|
(38,693,484
|
)
|
(40,512,708
|
)
|
||||
Total
stockholders' deficit
|
(3,255,576
|
)
|
(2,842,576
|
)
|
||||
Total
Liabilities and Stockholders' Deficit
|
$
|
804,302
|
$
|
1,238,925
|
The
accompanying notes are an integral part of these financial
statements.
3
RG
GLOBAL LIFESTYLES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
For the Three Months Ended |
|
|
For
the Nine months Ended
|
|
||||||||||
|
December 31, |
|
|
December
31,
|
|
||||||||||
|
2009 |
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Water
treatment related
|
$
|
-
|
|
|
$
|
100,131
|
|
|
$
|
57,739
|
|
|
$
|
190,550
|
|
Total
revenues
|
|
-
|
|
|
|
100,131
|
|
|
|
57,739
|
|
|
|
190,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water
treatment related
|
|
-
|
|
|
|
218,515
|
|
|
|
103,681
|
|
|
|
651,795
|
|
Total
cost of revenue
|
|
-
|
|
|
|
218,515
|
|
|
|
103,681
|
|
|
|
651,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
-
|
|
|
(118,384
|
) |
|
|
(45,942
|
) |
|
|
(461,245
|
) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
220,602
|
|
|
|
789,683
|
|
|
|
816,955
|
|
|
|
2,560,386
|
|
Selling
and marketing
|
|
4,430
|
|
|
|
550
|
|
|
|
7,770
|
|
|
|
1,256
|
|
Project
costs
|
|
9,515
|
|
|
|
147,396
|
|
|
|
84,980
|
|
|
|
387,930
|
|
Impairment
of intangibles
|
|
311,722
|
|
|
|
-
|
|
|
|
311,722
|
|
|
|
-
|
|
Total
expenses
|
|
546,269
|
|
|
|
937,629
|
|
|
|
1,221,427
|
|
|
|
2,949,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
(546,269
|
) |
|
|
(1,056,013
|
) |
|
|
(1,267,369
|
) |
|
|
(3,410,817
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
2
|
|
|
|
42
|
|
|
|
66
|
|
|
Interest
expense
|
|
(41,100
|
) |
|
|
(39,764
|
) |
|
|
(98,986
|
) |
|
|
(193,384
|
) |
Loss
on sale of assets
|
|
|
|
-
|
|
|
|
(6,329
|
) |
|
|
||||
Change
in fair value of derivative liability
|
|
176,920
|
|
|
|
-
|
|
|
|
431,632
|
|
|
|
-
|
|
Other
income (expense)
|
|
(762
|
) |
|
|
(2,380
|
)
|
|
|
(2,784
|
) |
|
|
(1,301
|
)
|
Total
other income (expense)
|
|
135,058
|
|
|
|
(42,142
|
) |
|
|
323,575
|
|
|
|
(194,619
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
(411,211
|
) |
|
|
(1,098,155
|
) |
|
|
(943,794
|
) |
|
|
(3,605,436
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from discontinued operations, net of tax benefit of
$0
|
|
14,673
|
|
|
|
(40,030
|
) |
|
|
120,112
|
|
|
|
(293,634
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(396,538
|
) |
|
$
|
(1,138,185
|
) |
|
$
|
(823,682
|
) |
|
$
|
(3,899,070
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
97,336,882
|
|
|
|
46,133,879
|
|
|
|
86,130,074
|
|
|
|
44,049,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted – continuing operations
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
) |
|
$
|
(0.08
|
) |
Basic
and diluted – discontinued operations
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
) |
The
accompanying notes are an integral part of these financial
statements.
4
RG
GLOBAL LIFESTYLES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
For
the Nine months Ended
|
||||||||
December
31
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$
|
(823,682
|
)
|
$
|
(3,899,070
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Amortization
of debt discounts related to beneficial conversion features and
warrants
|
-
|
33,333
|
||||||
Stock
issued for services
|
-
|
127,179
|
||||||
Change
in fair value of derivative liabilities
|
(431,632
|
)
|
- | |||||
Fair
value of common stock in excess of notes payable
forgiven
|
13,000
|
67,610
|
||||||
Depreciation
and amortization
|
51,491
|
697,629
|
||||||
Impairment
of assets held for sale
|
311,722
|
- | ||||||
Loss
on disposal of asset
|
6,329
|
-
|
||||||
Stock-based
compensation
|
118,348
|
1,049,446
|
||||||
Change
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
-
|
(6,566)
|
||||||
Inventory
|
-
|
32,382
|
||||||
Income
tax refund
|
-
|
143,775
|
||||||
Prepaid
expenses
|
2,157
|
(38,642)
|
||||||
Other
assets
|
(6,664)
|
-
|
||||||
Accounts
payable
|
(96,366
|
)
|
404,566
|
|||||
Accrued
wages
|
309,617
|
-
|
||||||
Accrued
liabilities
|
79,564
|
502,056
|
||||||
Net
cash used in operating activities
|
(466,116
|
)
|
(886,302
|
)
|
||||
Cash
flows from investing activities:
|
||||||||
Purchase
of fixed assets
|
(7,950)
|
-
|
||||||
Net
cash used in investing activities
|
(7,950)
|
|||||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from notes payable – related party
|
59,500
|
-
|
||||||
Payments
on notes payable – related party
|
-
|
(2,767)
|
||||||
Proceeds
from notes payable
|
413,317
|
45,000
|
||||||
Proceeds
from common stock issued for cash
|
-
|
231,000
|
||||||
Cash
received for preferred stock to be issued
|
-
|
|
505,733
|
|||||
Cash
received for common stock to be issued
|
-
|
|
168,000
|
|||||
Net
cash provided by financing activities
|
472,817
|
946,966
|
||||||
Net
(decrease)/increase in cash
|
(1,249)
|
60,664
|
||||||
Cash
of discontinued operations
|
(410
|
)
|
2,379
|
|||||
Cash
- beginning of period
|
3,415
|
9,940
|
||||||
Cash
- end of period
|
$
|
1,756
|
$
|
72,983
|
||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Non-cash
investing and financing activities:
|
||||||||
Issuance
of common stock in settlement of accounts payable and accrued
expenses
|
$
|
165,870
|
$
|
-
|
||||
Settlement
of accounts payable and accrued liabilities with stock option
conversions
|
$ |
174,858
|
$ |
-
|
||||
Conversion
of Series A preferred stock into common stock
|
$ |
432,062
|
$ |
-
|
||||
Conversion
of stock options with notes payable and accrued
interest
|
$
|
-
|
$
|
539,594
|
||||
Capitalization
of amounts payable to Yates for reimbursement
|
$
|
-
|
$
|
100,000
|
The
accompanying notes are an integral part of these financial
statements.
5
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Organization, History and Significant Accounting Policies and
Procedures
Organization and
History
R.G.
Global Lifestyles, Inc. (the “Company”), was incorporated in California on July
12, 1985 as International Beauty Supply Ltd. The name of the corporation
was changed on May 28, 1993 to L.L. Knickerbocker Co., Inc., and thereafter on
January 9, 2003 to the present name, R.G. Global Lifestyles, Inc.
The
Company operates in the wastewater treatment business. Recently, the
Company has changed its strategy from solely a build to sell manufacturing
business model to include a royalty based model whereby the Company would
license its DynIX™ Technology. Currently the Company is focusing its
efforts toward potential customers in Australia. Australian Energy
Companies are drilling thousands of Coal Seam Gas wells, (CSG as they call
it in Australia) which produce millions of barrels of “produced
water”. This produced water must to be processed and utilized in
environmentally sound ways to satisfy the regulations of the Queensland
Government. This area has tremendous potential for our DynIX ™
Technology and we are currently exploring multiple opportunities.
As of
March 31, 2009, the Company decided to discontinue its energy drink operations
and focus completely on marketing its water treatment technology. As
a result, the Company has classified balances related to its energy drink
business as discontinued operations in its financial statements as of March 31,
2009.
Note
2 – Accounting Policies and Basis of Presentation
The
consolidated financial statements included herein, presented in accordance with
United States generally accepted accounting principles and stated in US dollars,
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (“SEC”). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These
statements reflect all adjustments, consisting of normal recurring adjustments,
which, in the opinion of management, are necessary for fair presentation of the
information contained therein. It is suggested that these consolidated interim
financial statements be read in conjunction with the consolidated financial
statements and notes thereto of the Company for the year ended March 31, 2009
included in the Company's annual report on Form 10-K. The Company follows the
same accounting policies in the preparation of interim reports. The financial
statements for the three and nine months ended December 31, 2009, are not
necessarily indicative of the results expected for the full year.
Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary Aquair, Inc. (inactive), its majority owned subsidiary
OC Energy Drink, Inc. (inactive), after elimination of all material
inter-company accounts and transactions. OC Energy is classified as discontinued
operations.
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Significant estimates include the valuation of derivatives, equity instruments
such as options and warrants, and the percentage of completion related to
construction contracts, impairment of assets held for sale and intangible assets
related to its water treatment technology. Actual results could differ from
those estimates.
Concentrations
Credit
Risk
At times,
the Company maintains cash balances at a financial institution in excess of the
FDIC insurance limit. In addition, we extend credit to customers in the normal
course of business, after we evaluate the credit worthiness. We do not expect to
take any unnecessary credit risks causing significant write-offs of potentially
uncollectible accounts.
6
Customer
During
the nine months ending December 31, 2009, the Company discontinued doing
business with its only customer for water treatment. The loss of this
customer has had a significant impact on the Company’s financial
results, see Note 3.
Net Loss Per
Share
Net loss
per share is provided in accordance with SFAS No. 128 “Earnings Per Share”
(“SFAS 128”), codified into ASC 260. Basic loss per share is computed by
dividing losses available to common stockholders by the weighted average number
of common shares outstanding during the period, after giving effect to dilutive
common stock equivalents, such as stock options, warrants and convertible debt.
The following is a summary of outstanding securities which have been excluded
from the calculation of diluted net loss per share because the effect would have
been anti-dilutive for the nine months ended December 31, 2009 and
2008:
2009
|
2008
|
|||||||
Common
stock options
|
-
|
3,520,215
|
||||||
Common
stock warrants
|
-
|
4,180,885
|
||||||
Secured
convertible notes
|
9,500,000
|
9,500,000
|
||||||
Totals
|
9,500,000
|
17,201,100
|
Fair
Value of Financial Instruments
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statements of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements”, which has been codified into Accounting Standards Codification
825 (“ASC 825”). The standard defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value
measurements. ASC 825 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. In February 2008,
the FASB deferred the effective date of ASC 825 by one year for certain
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). On April 1, 2008, we adopted the provisions of
ASC 825, except as it applies to those nonfinancial assets and nonfinancial
liabilities for which the effective date has been delayed by one year, which we
adopted on April 1, 2009. The adoption of ASC 825 did not have a material
effect on our financial position or results of operations. The book values
of cash, accounts receivable and accounts payable approximate their respective
fair values due to the short-term nature of these instruments. At December 31,
2009, the warrant liability was recorded under a level two assumption; see Note
11 for discussion of the valuation techniques used to measure the fair value of
the warrant liability.
Recent Accounting
Pronouncements
In May
2009, the FASB issued ASC 855 “Subsequent Events” (formerly SFAS No. 165,
Subsequent Events). FASB ASC 855 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855 is
effective for interim and annual financial periods ending after June 15,
2009. The Company adopted ASC 855 during the three months ended June 30,
2009. The Company evaluated subsequent events through the issuance date of the
financial statements, February 22, 2010, and has disclosed the events identified
within this filing.
In June
2009, the FASB issued ASC 105 “Generally Accepted Accounting Principles”
(formerly SFAS No. 168 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB
Statement No. 162). ASC 105 establishes the FASB Accounting Standards
Codification as the source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. ASC 105, which changes the referencing
of financial standards, is effective for interim or annual financial periods
ending after September 15, 2009. The Company adopted ASC 105 during the
three months ended September 30, 2009 with no impact to its financial
statements, except for the changes related to the referencing of financial
standards.
Note
3 - Going Concern Considerations
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As shown in the accompanying financial statements,
during the nine months ended December 31, 2009, the Company incurred an
operating loss from continuing operations before income taxes of $1,267,369 and
used $466,116 of cash for operations. As of December 31, 2009, the Company had a
working capital deficit of $4,013,961. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
7
The
future of the Company is dependent upon its ability to obtain equity and/or debt
financing and ultimately achieving profitable operations from the development of
its business segments. During the nine months ended December 31, 2009, the
Company funded operations through debt and equity offerings. Currently, the
Company does not have any commitments or assurances for additional capital. In
fiscal 2009, the Company commenced production under it's water treatment
contract with Yates Petroleum Corp. but shut down the plant in April
2009 due to its inability to negotiate a higher royalty rate. The Company is
currently actively pursuing opportunities in the United States and Australia,
however, no definitive agreements have been signed. There can be no
assurance that the revenue from these opportunities will be sufficient for the
Company to achieve profitability in its operations, and it is possible that
additional equity or debt financing may be required to for the Company to
continue as a going concern. The Company estimates it has current cash reserves
sufficient to fund operations through February 2010. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and classification of
liabilities, which might be necessary in the event the Company cannot continue
in existence.
Note
4 – Property and Equipment
Property
and equipment as of December 31, 2009 and March 31, 2009 consisted of the
following:
December
31,
2009
|
March
31,
2009
|
|||||||
Office
equipment, computer software, and furniture and
fixtures
|
$
|
55,217
|
$
|
47,254
|
||||
Accumulated
depreciation
|
(25,029
|
) |
(16,739
|
)
|
||||
Total
|
$
|
30,188
|
$
|
30,515
|
During
the nine months ended December 31, 2009 and 2008, the Company recorded
depreciation expense of $8,288 and $460,461, respectively.
Note
5 – Assets Held for Sale – Impairment of Asset
On
December 8, 2008, the Company entered into a Memorandum of Understanding (“MOU”)
to sell its only existing water treatment plant to a third party. As a result,
the Company had classified the plant as Assets Held for Sale under SFAS 144,
codified into FASB ASC 360. In April 2009, the MOU was terminated because the
Company was unable to close the transaction largely due to the inability to
obtain a higher royalty under its contract with
Yates Petroleum and the unwillingness of Yates Petroleum to add
additional plants. In connection with the cancellation of the MOU, the Company
has shut the plant down due to the inability to currently run the plant at a
profit and ultimately the contract was cancelled. The Company is currently
attempting to find a purchaser for the plant. However, to do so the
plant will have to be moved to an alternative location. Thus, the costs to sell
the plant increased substantially and the fair market value of the plant
decreased upon cancellation of the MOU as some of the costs cannot be recaptured
upon sale. The Company determined the fair value of the plant through estimating
the fair market value of the assets based on the original purchase price and the
residual value. The Company has only included assets in which could be
transported to a new location. As a result, the Company determined that the
carrying value of the plant had been impaired and recorded a loss on impairment
on assets held for sale of $1,988,658 during the year ended March 31, 2009.
During
the three months ended December 31, 2009, a vendor was granted a summary
judgment allowing its potential foreclosure on the assets of the
plant. The Company does not expect to have a future interest in the plant due to
this judgment once the property is foreclosed upon. Due to these
circumstances, the Company evaluated the time line of events and factors in
determined that the filing of the request for summary judgment by the vendor was
a change in the legal landscape that directly impacted the carrying value of the
plant. Prior to the summary judgment filing, the Company expected the case
to go to trial in February 2010. As a result, the Company determined that the
carrying value of the plant had been impaired and recorded a loss on impairment
on assets held for sale of $311,722 during the three months ended December 31,
2009. The fair market value was determined by using the estimated salvage
value of the equipment less the cost to remove it. The net book value of the
assets held for sale is $30,000 as of December 31, 2009.
Note
6 – DynIX™ Technology
During
fiscal 2007, the Company entered into a series of agreements with Catalyx Fluid
Solutions, Inc. (“Catalyx”) pursuant to which the Company acquired certain
technology, know-how, and patent rights related to water treatment for use in
the oil and gas industry. In addition, per the terms of the acquisition
agreement the initial $200,000 paid will be offset against future royalties of
$0.01 per barrel of water treated and 5% of equipment sold based on the Catalyx
technology. Royalties earned by Catalyx during the nine month periods ended
December 31, 2009 and 2008, were $4,679 and $10,115,
respectively. During the nine months ended December 31, 2009 and
2008, the Company recorded amortization expense of $43,202 and $236,631,
respectively.The Company continues to carry the asset for future royalties as
Catalyx is owned by a former director and officer of the Company. As of December
31, 2009, amounts due to Catalyx and the former director and officer are greater
than the asset.
8
Note 7 – Discontinued Operations
The
Company has recently changed its focus to its water treatment segment due to the
decrease in energy drink revenues at OC Energy resulting from its inability to
market the product or obtain any contracts to place its products with retailers.
Thus, during the 4th quarter of fiscal 2009, management decided to formally
discontinue the operations of OC Energy. The Company is currently attempting to
sell the assets, including intangibles, but to date have been unsuccessful in
finding a buyer.
OC
Energy’s financial results, including those discussed above have been classified
as a discontinued operation in the consolidated financial statements for all
periods presented.
The
financial results of OC Energy included in discontinued operation are as follows
for the three months ended December 31:
2009
|
2008
|
|||||||
Sales
|
$
|
-
|
$
|
11,008
|
||||
Income
taxes
|
-
|
-
|
||||||
Income
(loss) from discontinued operations after income
taxes
|
$
|
14,673
|
$
|
(40,030
|
)
|
The
financial results of OC Energy included in discontinued operation are as follows
for the nine months ended by December 31:
2009
|
2008
|
|||||||
Sales
|
$
|
4,800
|
$
|
47,477
|
||||
Income
taxes
|
-
|
|||||||
Income
(loss) from discontinued operations after income
taxes
|
$
|
120,112
|
$
|
(293,634
|
)
|
The
following is the condensed balance sheets of OC Energy as of December 31, 2009
and March 31, 2009:
December
31,
2009
|
March
31,
2009
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
410
|
$
|
408
|
||||
Other
current assets
|
-
|
2,157
|
||||||
Total
current assets
|
410
|
2,565
|
||||||
Other
assets
|
3,894
|
3,094
|
||||||
Total
assets
|
$
|
4,304
|
$
|
5,659
|
||||
Liabilities
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
42,486
|
$
|
187,341
|
||||
Accrued
expenses
|
800
|
22,747
|
||||||
Total
liabilities
|
$
|
43,286
|
$
|
210,088
|
Management
believes there are no contingent liabilities related to discontinued
operations.
Note 8 – Certain Balance Sheet
Elements
Other
Assets
At
December 31, 2009 and March 31, 2009, the Company had deposits with various
vendors comprised of the following:
December
31,
2009
|
March
31,
2009
|
|||||||
Deposit
against future Catalyx royalty
|
$
|
175,652
|
$
|
180,331
|
||||
Other
|
28,890
|
18,347
|
||||||
Total
|
$
|
204,542
|
$
|
198,678
|
9
Other Accrued Liabilities
At
December 31, 2009 and March 31, 2009, the Company had other accrued expenses as
follows:
December
31,
2009
|
March
31,
2009
|
|||||||
Amounts
due to YPC (see Note 12)
|
$
|
230,972
|
$
|
230,972
|
||||
Accrued
interest
|
176,155
|
120,327
|
||||||
Cash
received for preferred stock to be issued
|
118,000
|
141,112
|
||||||
Accrued
consulting fees
|
1,167
|
128,235
|
||||||
Other
|
55,688
|
73,714
|
||||||
Totals:
|
$
|
581,982
|
$
|
694,360
|
Note
9 – Notes Payable
2007
Notes Payable
On
January 12, 2007, the Company entered into a note agreement with an accredited
investor for proceeds totaling $350,000. This note matured on January
12, 2008 and is currently in default as the holder had demanded payment. In
connection with the default, the interest rate increased to 11% per annum. As of
December 31, 2009, accrued interest recorded in accrued liabilities related to
this note was $19,999. See Note 12 for discussion of a lawsuit
filed by holder of the note against the Company and the payment of accrued
interest by Company.
Note
Payable to Vendor
On
January 29, 2008, the Company the issued a promissory note to a vendor in
settlement of $780,500 in accounts payable. The vendor manufactured and
installed the Company’s water treatment facility. The note bears
interest at 10% per annum with a one-time default penalty of 10% of the
principal balance, and is secured by the Company’s contract with Yates Petroleum
Corporation and the equipment that was manufactured by the
vendor. The note calls for an initial payment of $270,000 due on
February 1, 2008 with monthly principal payments of $100,000 due each month
until paid off. The Company did not make its April 2008 payment and
any payments there after and is currently in default on this note. As
a result of this default, the Company accrued an additional $41,000 penalty to
interest expense during the year ended March 31, 2009. The balance
due on this note at December 31, 2009, was $410,500 with accrued interest and
penalties of $117,617.
MOU
Note Payable
On
December 17, 2008, the Company issued a $45,000 promissory note in connection
with a memorandum of understanding to purchase its water treatment
plant. The funds were used for operations. The note bears
interest at 10% with a default rate of 18%. The sale was never
completed and the note matured on March 8, 2009. As of December 31,
2009, the note is in default and interest is being accrued at the default rate.
At December 31, 2009, accrued interest on the accompanying balance sheet was
$7,147.
2008Convertible
Notes Payable
In April
and September 2008, the Company entered into note agreements with an accredited
investor and shareholder for proceeds totaling $150,000. The notes
are due on demand, incur interest at 11% and are convertible into 1,000,000
shares of Series A Preferred Stock. As of December 31, 2009, the notes were
outstanding and accrued interest recorded in accrued liabilities related to
these notes was $26,442.
2009
Shareholder Advances
In
December 2009, the Company received $50,000 from a shareholder in which the
formal terms had not been agreed upon as of December 31, 2009. Thus, the Company
recorded as advance and accrued interest at an estimate 11% interest based on
other notes currently outstanding. The Company considers this shareholder a
related party due to the significant influence the shareholder has on the
Company’s operations due to the dependency on the monies being provided. See
Note 14 for additional advances provided and the agreement of formal
terms.
10
Note 10 – Stockholders’ Deficit
Authorized
Shares
On July
15, 2009, the Company amended their articles of incorporation to increase the
number of authorized common shares to 200 million and to increase the
designation of Series A preferred stock to 10 million shares.
Stock
Options Exercised
During
the nine months ended December 31, 2009, employees and consultants exercised
stock options for 2,914,300 shares of common stock for services rendered by the
employees and consultants. The exercises were cash less of which
liabilities of $174,858 were used to offset the exercise price of
$0.06.
Issuance
of Common Stock in Settlement of Liabilities
During
the nine months ended December 31, 2009, the Company issued 364,500 shares of
common stock valued at $21,870 to vendors of OC Energy in settlement of $122,430
in liabilities. The Company recorded a gain on settlement within net income from
discontinued operations on the accompany statement of operations for the
difference between the fair value of the common stock and the liability
relived.
Issuance
of Common Stock for Services
During
the nine months ended December 31, 2009, the Company issued 500,000 shares of
common stock valued at $19,000 to a consultant of the Company whose husband is
also a member of the board of directors. The fair value of the common stock
issued offset amounts payable to the consultant. The consultant provides
administrative and accounting services to the Company. As of December 31, 2009,
amounts payable to the consultant of $26,185 were included in accounts
payable.
During
the nine months ended December 31, 2009, the Company issued 1,100,000 shares of
common stock valued at $44,000 to two officers of the Company in settlement of
accrued salaries.
Series
A Preferred Stock
As of
December 31, 2009, the Company has received gross proceeds of $550,062 for the
purchase of 3,667,080 shares of Series A preferred stock (“Series A”) at $0.15
per share. The Series A is convertible into six shares of common
stock. During the nine months ended December 31, 2009, 2,880,413 shares
($432,062 in proceeds net costs of $26,495) of Series A were converted into
17,282,480 shares of common stock. As of December 31, 2009, proceeds of $118,000
remain for future issuances of Series A. The proceeds have been recorded as
accrued liabilities as to date the required Series A shares have not been
issued. As of December 31, 2009, there are no shares of Series A outstanding as
all have been converted into common stock.
See Note
13 for additional transactions.
Note
11 – Options and Warrants
Options
On May 3,
2006 and December 26, 2006, the Company’s Board of Directors adopted the 2006
and 2007 Incentive and Non-statutory Stock Option Plan (“2006 Plan”) for
issuance of stock options to employees and others. Compensation expense for
these plans recorded during the nine months ended December 31, 2009 and 2008 was
$118,348 and $1,049,446, respectively. All amounts were recorded in general and
administrative expense.
11
The following is a summary of activity of outstanding stock option activity for the nine months ended December 31, 2009:
Number
|
||||
of
Shares
|
||||
Balance,
March 31, 2009
|
7,618,255
|
|||
Options
granted
|
300,000
|
|||
Options
exercised, cancelled or forfeited
|
(2,914,300
|
) | ||
Balance,
December 31, 2009
|
5,003,955
|
Although
management believes its estimate regarding the fair value of the services to be
reasonable, there can be no assurance that all of the subjective assumptions
will remain constant, and therefore the valuation of the services may not be a
reliable measure of the fair value of stock compensation or stock based payments
for consulting services.
Warrants
Effective
April 1, 2009, the Company adopted the provisions of EITF 07-5, "Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-5”), codified into FASB ASC 815. EITF 07-5 applies to any freestanding
financial instruments or embedded features that have the characteristics of a
derivative, as defined by SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. As a
result of adopting EITF 07-5, 4,888,888 of our issued and outstanding common
stock purchase warrants previously treated as equity pursuant to the derivative
treatment exemption were no longer afforded equity treatment. These warrants
have an exercise price of $0.90 and expire in May of 2013; however, these
warrants have exercise price reset features in the event the Company issues
common stock below the exercise price of the warrants. As such,
effective April 1, 2009, we reclassified the cumulative effect of the fair value
of these common stock purchase warrants from equity to liability status as if
these warrants were treated as a derivative liability on April 1,
2009. We reclassified $3,117,617 from additional paid-in
capital, $2,642,907 from accumulated deficit and $474,710 to a
long-term warrant liability to recognize the fair value of such warrants on such
date.
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
|||||||
Balances
at March 31, 2009
|
$
|
37,593,763
|
$
|
(40,512,708
|
)
|
|||
Cumulative
effect of warrants reclassified
|
(3,117,617
|
)
|
3,117,617
|
|||||
Reclassification
of long term warrant liability
|
-
|
(474,711
|
)
|
|||||
Fiscal
2010 equity issuances
|
860,232
|
-
|
||||||
Net
loss
|
-
|
(823,682
|
)
|
|||||
Balances
at December 31, 2009
|
$
|
35,336,378
|
$
|
(38,693,484
|
)
|
All
future changes in the fair value of these warrants will be recognized currently
in earnings until such time as the warrants are exercised or expire. These
common stock purchase warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using the Black-Scholes
option pricing model using the following assumptions:
December
31,
|
April
1,
|
|||||||
2009
|
2009
|
|||||||
Annual
dividend yield
|
-
|
|||||||
Expected
life
|
3.67
|
4.17
|
||||||
Risk-free
interest rate
|
1.65
|
%
|
1.65
|
%
|
||||
Expected
volatility
|
250
|
%
|
250
|
%
|
12
Expected
volatility is based primarily on historical volatility. Historical volatility
was computed using weekly pricing observations for recent periods that
correspond to the remaining life of the warrants. We believe this method
produces an estimate that is representative of our expectations of future
volatility over the expected term of these warrants. We currently have no reason
to believe future volatility over the expected remaining life of these warrants
is likely to differ materially from historical volatility. The expected life is
based on the remaining term of the warrants. The risk-free interest rate is
based on five-year U.S. Treasury securities.
The fair
value of these common stock purchase warrants declined to $43,078 as of December
31, 2009. As such, we recognized a gain of $431,632 from the
change in fair value of these warrants for the nine months ended December 31,
2009.
The
following is a summary of activity of outstanding common stock warrants for the
nine months ended December 31, 2009:
Number
|
||||
of
Shares
|
||||
Balance,
March 31, 2009
|
15,555,440
|
|||
Warrants
granted
|
888,888
|
|||
Warrants
exercised
|
-
|
|||
Balance,
December 31, 2009
|
16,444,328
|
Note
12 – Commitments and Contingencies
Legal
Proceedings
On June
11, 2008, the Company and Grant King was served a lawsuit from one of its note
holders claiming that the Company defaulted on repayment on a note payable in
the amount of $350,000 plus interest at 8%. The note is convertible
into common stock at a rate of $0.20 per share. The complaint asks for payment
of these amounts plus damages. On August 12, 2008, the parties agreed
to stipulated order whereby Grant King was dismissed from the lawsuit and the
Company was granted a 90-day extension to respond to the complaint (until
November 10, 2008) in exchange the Company paid $49,530 which represents the
interest due on the note through July 18, 2008. On January 30, 2009, the
Company paid $8,016 of additional interest on the note making it then current,
and entered into a stipulation whereby the Company had until February 19, 2009
to satisfy this entire note obligation. The Company failed to do so
and on April 1, 2009, a judgment was entered against it. As of December 31,
2009, the Company has the principal of $350,000 and accrued interest of $19,999
recorded in the financial statements. The Company is currently attempting to
settle the obligation.
On July
11, 2008, the Company received notice that one of the Company’s vendors filed a
lien against the Company’s water treatment plant for past due amounts due to the
vendor. As of December 31, 2009, the vendor was due approximately $140,310,
which is included in accounts payable. The Company disputed this lien
and a lawsuit was filed by the vendor. On October 29, 2009, the
vendor filed a motion for summary judgment. The Company did not
respond to the summary judgment. On or around December 12, 2009, the Wyoming
court issued a stipulated judgment allowing the vendor to foreclose and
liquidate the water treatment plant and recoup principle balance of $140,310,
pre-judgment interest of $21,563 and costs $1,097. See Note 5 for
discussion related to additional impairment of the water treatment plant. The
Company is currently attempting to settle the obligation and has a tentative
agreement, however, the payment performance criteria has not been met and thus
the matter is still considered open.
On July
17, 2009, the Company received notice that one of the Company’s vendors filed a
lien against the Company’s water treatment plant for past due amounts due to the
vendor for hauling waste water. The disputed amount totaled
approximately $145,000, which is included in accounts payable. No
additional amounts for damages have been accrued in the accompanying
consolidated financial statement as the Company cannot reasonably estimate the
damages, if any, due to the recentness of the issue. The Company is currently
attempting to settle the obligation and has a tentative agreement, however, the
payment performance criteria has not been met and thus the matter is still
considered open.
13
Water Treatment Contract
On June
25, 2007, the Company entered into a contract with Yates Petroleum Corporation
(“YPC”) to engineer, design, and install a water treatment system (“System”) of
Coal Bed Methane (“CBM”) produced water provided by YPC. The Company owned
and operated the system and related regeneration waste pond. The
Company received a base rate under the contract of $0.125 (12.50 cents) per
barrel (42 US gallons) of water discharged by the System. The term of the
contract was for 60 months from the start of the first billing
cycle.
YPC was
responsible for constructing the inflow pond and was to receive a credit from
the Company of $50,000 each month for the first nine months of operation. In
addition, YPC received reimbursements on current billings for repairs and
maintenance to the inflow pond. As of December 31, 2009, the Company accrued
$230,972 related to reimbursement of costs due to YPC for the construction of
the inflow pond and repair and maintenance incurred on behalf of the Company
which is included in accrued expenses on the accompanying balance sheet. The
Company expensed these costs as the future cash flows of the facility did not
support the carrying value of the plant at the time the expenditures were
incurred. In April 2009, due to YPC's unwillingness to change the royalty
rate under the contract the Company shut down the plant and subsequently
cancelled the contract.
YPC was
named as a co-defendant in connection with a lawsuit filed by a vendor. In
connection with this suit, YPC filed a cross-claim against the Company. YPC
claims that the Company violated the contract and has damaged YPC. Specific
liabilities mentioned relate to the non-payment of credits and reimbursed
expenditures totaling $236,306. In addition, the cross-claim requests that the
court order the Company to provide a plan for the removal of the System and
reimburse YPC for legal fees in connection with the lawsuit filed against them.
As of December 31, 2009, the Company has only accrued items discussed in the
preceding paragraph.
Note
13 – Related Party Transactions
From time
to time, Grant King, Chief Executive Officer, loans the Company monies for
operating purposes. The loan accrues interest at 11% and is due upon
demand. During the nine months ended December 31, 2009, an additional
$9,500 was advanced to the Company under the terms stated above. In December
2009, the Company issued 2,600,000 shares of common stock valued at $78,000 in
settlement of the note and accrued interest. Since the liability relieved was
$13,000 less than the fair market value of the common stock issued, the Company
recorded the amounts as additional interest expense, As of December 31,
2009, the note and accrued interest was paid in full.
As of
December 31, 2009, amounts due to Aquair Asia for Grant and Mark King’s
contracted employment $155,558, which are included in accrued liabilities on the
accompanying balance sheet. During the nine months ended December 31, 2009, the
individuals exercised 1,226,000 options and reduced the amounts payable to them
by an additional $73,560 through applying the required exercise price of $0.06
to the liability. In addition, during the nine months ended December 31, 2009,
the Company issued 400,000 shares of common stock valued at $16,000, which
reduced the amounts payable to them.
During
the fiscal year ended March 31, 2008, the Company issued a purchase order to
Catalyx Fluid Solutions, Inc. (“Catalyx”), for the purchase of resin, at the
approximate cost of $756,000, needed for the operation of the Company’s
wastewater treatment plant in Wyoming. Catalyx is partially owned by Juzer
Jangbarwala, a former Company Director and Chief Technology Officer. In
addition, from time to time Catalyx has paid for various costs related to the
wastewater treatment plant on behalf of the Company, for which the Company has
reimbursed Catalyx. As of December 31, 2009, amounts due to Catalyx
included in accounts payable were $280,000.
In July
2007, the Company entered into a lease agreement with Catalyx Engineering, Inc.
(“CEI”), a company that is owned in part by Juzer Jangbarwala, a former Company
Director and Chief Technology Officer, to sub-lease approximately 7,000 square
feet to serve as its new corporate office in Anaheim, California. As of December
31, 2009, the Company has included $7,200 in accounts payable for rental
payments due to CEI.
The
Company utilized CEI for engineering services related to the design and
construction of its water treatment plant in Wyoming. As of December
31, 2009, amounts due to CEI included in accounts payable were
$23,803.
Note
14 – Subsequent Events
In
January 2010, the Company received an additional $150,000 advance from a
shareholder. The terms of the advance were not finalized until mid February
2010. Under the final agreements, the notes are due one year from the
date of issuance, incur interest at 11% and are convertible into shares of
common stock at a rate of $0.01 per share. As a result of this beneficial
conversion feature, the Company expects to record a 100% discount to the
convertible notes as the value of the beneficial conversion feature is expected
to be in excess of the proceeds received. The Company will amortize this
discount over the stated due date of the notes using the straight-line method.
The sale of securities was exempt from registration under the Securities Act of
1933 pursuant to Regulation S.
14
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This
document contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than statements
of historical fact are “forward-looking statements” for purposes of federal and
state securities laws, including, but not limited to, any projections of
earnings, revenue or other financial items; any statements of the plans,
strategies and objections of management for future operations; any statements
concerning proposed new services or developments; any statements regarding
future economic conditions or performance; any statements or belief; and any
statements of assumptions underlying any of the foregoing.
Forward-looking
statements may include the words "may," "could," "estimate," "intend,"
"continue," "believe," "optimistic," "plan," "aim," "will," "likely," "expect"
or "anticipate" or other similar words. These forward-looking statements present
our estimates and assumptions only as of the date of this report. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they are made. Except for our ongoing
securities laws, we do not intend, and undertake no obligation, to update any
forward-looking statement.
Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to change and inherent risks and uncertainties. The
factors impacting these risks and uncertainties include, but are not limited
to:
●
|
Increased
competitive pressures from existing competitors and new
entrants;
|
|
●
|
Deterioration
in general or regional economic conditions;
|
|
●
|
Adverse
state or federal legislation or regulation that increases the costs of
compliance, or adverse findings by a regulator with respect to existing
operations;
|
|
●
|
Ability
to grow business in DynIX wastewater treatment technology, and meet or
exceed its return on shareholders’ equity target, which will depend on the
Company’s ability to manage its capital needs and the effect of business
and/or acquisitions;
|
|
●
|
If
acquisitions are made, the costs and successful integration of
acquisitions;
|
|
●
|
Barriers
in trade with foreign countries or tariff regulations and other United
States and foreign laws;
|
|
●
|
Loss
of customers or sales weakness;
|
|
●
|
Effect
of environmental regulations in the field of wastewater treatment
associated with coal bed methane mining and coal seam
gas;
|
|
●
|
Inability
to achieve future sales levels or other operating
results;
|
|
●
|
Ability
to locate suitable new products for distribution within our business
sector, and retain licensing rights to such new products on acceptable
terms;
|
|
●
|
Outcomes
and costs associated with litigation and potential compliance
matters;
|
|
●
|
Inadequacies
in the Company’s internal control over financial reporting, which could
result in inaccurate or incomplete financial reporting;
|
|
●
|
Dilution
to Shareholders from convertible debt or equity
financings;
|
|
●
|
Loss
of key management or other unanticipated personnel
changes;
|
|
●
|
The
unavailability of funds for capital expenditures; and
|
|
●
|
Operational
inefficiencies in distribution or other
systems.
|
The
following discussion should be read in conjunction with the historical financial
statements and related notes thereto of R.G. Global Lifestyles, Inc., including
Form 10-K as of March 31, 2009.
15
OVERVIEW
RG
Global
RG Global
is a wastewater treatment technology licensing company with capabilities
in water and wastewater treatment engineering and construction company
headquartered in Southern California. Services include innovative technologies;
water and wastewater engineering; construction and construction management;
start-up, operation and maintenance services; and equipment manufacturing for
industrial and municipal sectors. Areas of expertise include water treatment and
distribution; wastewater collection, treatment, and disposal/reclamation. Its
multi-disciplinary team includes professional and licensed engineers and
scientists with extensive experience in current engineering, environmental, and
construction technologies.
DynIX™
TECHNOLOGY
The
Company, under the name RG Global, licenses to third parties for use and
manufactures plants that utilize its proprietary (DynIX™) wastewater
treatment technology, based on an ion-exchange process for the treatment and
reclamation of wastewater. The DynIX™ Technology removes sodium and other
pollutants from wastewater allowing it to be returned to the environment within
local, state and federal environmental compliance regulations. The successful
removal of the treated wastewater in turn allows energy companies to harvest and
sell methane, gas and oil associated with such fields. The Company receives a
royalty from the customer for every barrel of water treated and purified. With
the majority our focus currently in Australia we are putting most of our sales
effort there. The Australians have signed long term contracts with China for
Liquefied Natural Gas (LNG) which is produced from the thousands of CSG wells
they have and are currently being drilled daily. Our DynIX™ technology can be
used as a standalone solution in many cases and can also be used in conjunction
with Reverse Osmosis (RO) and Ultra Filtration (UF) for other more difficult
processing requirements. Australia is one of the hottest CSG mining areas in the
world with a great potential market for water processing and purification
needs.
OC
ENERGY DRINKS
The
Company has discontinued investing in its energy drink in order to focus
its resources on the development and licensing of its DynIX™
Technology.
16
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2009 AND 2008.
The
following table summarizes the results of continuing operations and balance
sheet amounts of the Company for the periods and dates shown:
Three
Months Ended
December
31
|
||||||||
2009
|
2008
|
|||||||
INCOME STATEMENT
DATA
|
||||||||
Revenue
|
$
|
-
|
$
|
100,131
|
||||
Gross
income (loss)
|
-
|
(118,384
|
)
|
|||||
Loss
from operations
|
(546,269
|
)
|
(1,056,013
|
)
|
||||
Net
loss from continuing operations
|
(411,211
|
)
|
(1,098,155
|
)
|
||||
Net
loss
|
(396,538
|
)
|
(1,138,185
|
)
|
||||
Net
loss per weighted average common share
|
$
|
(0.00
|
)
|
$
|
(0.02
|
)
|
As of
December
31, 2009
|
As of
March 31, 2009
|
|||||||
BALANCE
SHEET DATA
|
||||||||
Total
assets
|
$
|
804,302
|
$
|
1,238,925
|
||||
Total
liabilities
|
$
|
4,059,878
|
$
|
4,081,501
|
||||
Stockholders'
deficit
|
$
|
(3,255,576
|
)
|
$
|
(2,842,576
|
)
|
REVENUES
For
the quarter ended December 31
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
$
|
%
|
||||||||||||
Revenues
|
$
|
-
|
$
|
100,131
|
$
|
(100,131
|
) |
(100)
|
%
|
The
Company generated no revenues during the quarters ended December 31,
2009. Revenues of $100,131 were generated from one customer for the
quarter ended December 31, 2008.
GROSS
PROFIT (LOSS)
For
the quarter ended December 31
|
Increase/(Decrease)
|
|||||||||||||
2009
|
2008
|
$
|
%
|
|||||||||||
Gross
income/(loss)
|
$
|
-
|
$
|
(118,384
|
)
|
$
|
118,384
|
100
|
%
|
During
the quarter ended December 31, 2008, gross loss associated with the Company's
water treatment technology was $118,834 as the Company was unable to operate the
plant at full capacity. Included in its cost of sales were labor costs and
depreciation expense of approximately $218,000.
17
TOTAL OPERATING EXPENSES
For
the quarter ended December 31
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
$
|
%
|
||||||||||||
Total
Operating Expenses
|
$
|
546,269
|
$
|
1,056,013
|
$
|
(509,744
|
)
|
48
|
%
|
Total
operating expenses include management and administrative personnel costs
(including non-cash stock-based compensation), corporate office costs,
accounting fees and legal expenses. The decrease in total operating expenses in
the quarter ended December 31, 2009 as compared to the quarter ended December
31, 2008 was primarily the result of decreases in salaries and wages, consulting
and stock based compensation.
Due
to a change in legal landscape and the pending foreclosure of the Company's
water treatment plant, the Company determined that the carrying value of the
plant had been impaired. As a result the Company recognized impairment on
assets held for sale for the three months ended December 31, 2009.
DISCONTINUED
OPERATIONS
For
the quarter ended December 31
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
$
|
%
|
||||||||||||
Discontinued
Operations
|
$
|
14,673
|
$
|
(40,030
|
)
|
$
|
54,703
|
136
|
%
|
The
company realized a gain from discontinued operations for the quarter ended
December 31, 2009 as compared to the quarter ended December 31, 2008 due to the
settlement of accounts payable due to vendors in 2009, in addition, to
relatively low administrative expenses as compared to the quarter ended December
31, 2008 where OC Energy did was incurring expenditures.
RESULTS
OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED DECEMBER 31, 2009 AND
2008.
The
following table summarizes the results of continuing operations and balance
sheet amounts of the Company for the periods and dates shown:
Nine
months Ended December 31
|
||||||||
2009
|
2008
|
|||||||
INCOME STATEMENT
DATA
|
||||||||
Revenue
|
$
|
57,739
|
$
|
190,550
|
||||
Gross
loss
|
(45,942
|
)
|
(461,245
|
)
|
||||
Loss
from operations
|
(1,267,369
|
)
|
(3,410,817
|
)
|
||||
Net
loss from continuing operations
|
(943,794
|
)
|
(3,605,436
|
)
|
||||
Net
loss
|
(823,682
|
)
|
(3,899,070
|
)
|
||||
Net
loss per weighted average common share
|
$
|
(0.01
|
)
|
$
|
(0.08
|
)
|
REVENUES
For
the Nine months ended December 31
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
$
|
%
|
||||||||||||
Revenues
|
$
|
57,739
|
$
|
190,550
|
$
|
(132,811
|
)
|
(70
|
)%
|
The nine
months ended December 31, 2009, only includes one month of production while the
same period in 2008 include four months of production. The decrease in water
treatment sales was due to the cancellation of its contract with Yates Petroleum
during the nine months ended December 31, 2009.
18
GROSS
LOSS
For
the quarter ended December 31
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
$
|
%
|
||||||||||||
Gross
loss
|
$
|
(45,942
|
)
|
$
|
(461,245
|
)
|
$
|
415,303
|
90
|
%
|
The gross
loss for the nine months ended December 31, 2009 was primarily the result of the
Company’s inability to operate the plant to generate sufficient
revenue.
TOTAL
OPERATING EXPENSES
For
the quarter ended December 31
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
$
|
%
|
||||||||||||
Total
Operating Expenses
|
$
|
1,221,427
|
$
|
2,949,572
|
$
|
(1,728,145
|
)
|
(59)
|
%
|
Total
operating expenses include management and administrative personnel costs
(including non-cash stock-based compensation), corporate office costs,
accounting fees, legal expense, information systems expense, and product
marketing and sales expense. The decrease in total operating expenses in the
quarter ended December 31, 2009 as compared to the quarter ended December 31,
2008 was primarily the result of decreases in salaries and wages, consulting and
stock based compensation.
DISCONTINUED
OPERATIONS
For
the quarter ended December 31
|
Increase/(Decrease)
|
||||||||||||||
2009
|
2008
|
$
|
%
|
||||||||||||
Discontinued
Operations
|
$
|
120,112
|
$
|
(293,663
|
)
|
$
|
413,775
|
141
|
%
|
The
company realized a gain from discontinued operations for the quarter ended
December 31, 2009 as compared to the quarter ended December 31, 2008 due to the
settlement of accounts payable due to vendors in 2009, in addition, to
relatively low administrative expenses as compared to the quarter ended December
31, 2008 where OC Energy did was incurring expenditures.
LIQUIDITY
AND CAPITAL RESOURCES
The
accompanying consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and
satisfaction of liabilities and other commitments in the normal course of
business. The report of our independent auditors contains an explanatory
paragraph expressing substantial doubt about the Company’s ability to continue
as a going concern as a result of recurring losses and negative cash flows. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that may be necessary if we are unable to continue
as a going concern.
The
Company’s principal sources of liquidity consist of cash and cash equivalents,
cash generated from product sales and construction contracts, and the issuance
of equity and/or debt securities. In addition to funding operations, the
Company’s principal short-term and long-term liquidity needs have been, and are
expected to be, the debt service requirements of its notes payable, capital
expenditures and general corporate expense expenses. In addition, if sales and
operations increase, the Company will be required to increase its purchases of
equipment for the construction of plants utilizing the DynIX™ Technology. As of
December 31, 2009, the Company had cash and cash equivalents of $1,756 and
liabilities outstanding of $4,059,878.
19
The
Company believes that its existing sources of liquidity, along with cash
expected to be generated from product sales and construction contracts and cash
generated from the issuance of debt and equity securities, will be sufficient to
fund its operations, anticipated capital expenditures, working capital and other
financing requirements through February of fiscal 2010. The Company
will need to continue a focused program of capital expenditures to effectuate
its DynIX™ Technology project constructions. In order to fund capital
expenditures or increase working capital above the current plan, or complete any
acquisitions, the Company may seek to obtain additional debt or equity
financing. It may also need to obtain additional debt or equity financing if it
experiences downturns or cyclical fluctuations in its business that are more
severe or longer than anticipated, or if the Company fails to achieve
anticipated revenue, experiences significant increases in the costs associated
with products sales, or if it engages in additional strategic transactions.
However, the Company cannot provide assurance that such financing will be
available to it on favorable terms, or at all. If, after utilizing the existing
sources of capital available to the Company, further capital needs are
identified and the Company is not successful in obtaining the financing, it may
be forced to curtail its existing or planned future operations.
OPERATING
ACTIVITIES
Operating
cash flows used during the nine months ended December 31, 2009, amounted to
$466,116. The primary use of operating cash was to pay consultants
and salaries and wages. This was the result of a net loss of $823,682, offset by
non-cash and non-operating items (depreciation, amortization of intangible
assets, stock-based compensation and interest expense from the amortization of
debt discounts) totaling $69,258 added to net changes in current
assets and liabilities of $288,308.
INVESTING
ACTIVITIES
Investing
cash flows used during the nine months ended December 31, 2009, amounted to
$7,950 generated primarily from the purchase of minor fixed assets.
FINANCING
ACTIVITIES
Financing
cash flows during the nine months ended December 31, 2009, amounted to $472,817
and consisted of a loan from a related party and an investor of $59,500 and
proceeds from issuing common stock of $413,317.
CRITICAL
ACCOUNTING POLICIES
We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Our
management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions or
conditions.
The
methods, estimates, and judgment we use in applying our most critical accounting
policies have a significant impact on the results we report in our financial
statements. The SEC has defined “critical accounting policies” as those
accounting policies that are most important to the portrayal of our financial
condition and results, and require us to make our most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. Based upon this definition, our most critical estimates
relate to the fair value of warrant liabilities. We also have other key
accounting estimates and policies, but we believe that these other policies
either do not generally require us to make estimates and judgments that are as
difficult or as subjective, or it is less likely that they would have a material
impact on our reported results of operations for a given period. For additional
information see Note 2, “Summary of Significant Accounting Policies” in the
notes to our reviewed financial statements appearing elsewhere in this quarterly
report and our annual audited financial statements appearing on Form 10-K.
Although we believe that our estimates and assumptions are reasonable, they are
based upon information presently available, and actual results may differ
significantly from these estimates.
20
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors.
Item
3. Quantitative and Qualitative Disclosures About Market Risk – N/A
Item
4T. Controls and Procedures
Disclosure
Controls and Procedures
As
required by SEC Rule 13a-15 or Rule 15d-15, our Chief Executive and Principal
Accounting Officers carried out an evaluation under the supervision and with the
participation of our management, 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. In the course of this evaluation, our chief
executive officer and principal accounting officer concluded that our
disclosure controls and procedures were not effective in ensuring that material
information relating to the Company required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and that such information is accumulated and communicated to management,
including the chief executive officer and the Principal Accounting officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Principal Accounting Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
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 internal 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, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate.
Changes
in Internal Control Over Financial Reporting
Pursuant
to Rule 13a-15(d) or Rule 15d-15(d) of the Exchange Act, our management, with
participation with the Company’s Chief Executive and Principal Accounting
Officers, is responsible for evaluating any change in the company's internal
control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f)
under the Exchange Act), that occurred during each of the issuer's fiscal
quarters that has materially affected, or is reasonably likely to materially
affect, the company's internal control over financial reporting.
Based on
the foregoing evaluation, the Company has concluded that there was no change in
our internal control over financial reporting that occurred during the fiscal
quarter ended December 31, 2009, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting. The Company continues to have material weaknesses in its
internal control over financial reporting.
21
PART II — OTHER INFORMATION
Item
1. Legal Proceedings
On June
11, 2008, the Company and Grant King was served a lawsuit from one of its note
holders claiming that the Company defaulted on repayment on a note payable in
the amount of $350,000 plus interest at 8%. The note is convertible
into common stock at a rate of $0.20 per share. The complaint asks for payment
of these amounts plus damages. On August 12, 2008, the parties agreed
to stipulated order whereby Grant King was dismissed from the lawsuit and the
Company was granted a 90-day extension to respond to the complaint (until
November 10, 2008) in exchange the Company paid $49,530 which represents the
interest due on the note through July 18, 2008. On January 30, 2009, the
Company paid $8,016 of additional interest on the note making it then current,
and entered into a stipulation whereby the Company had until February 19, 2009
to satisfy this entire note obligation. The Company failed to do so
and on April 1, 2009, a judgment was entered against it. As of December 31,
2009, the Company has the principal of $350,000 and accrued interest of $10,295
recorded in the financial statements.
On July
11, 2008, the Company received notice that one of the Company’s vendors filed a
lien against the Company’s water treatment plant for past due amounts due to the
vendor. As of December 31, 2009, the vendor was due approximately $140,310,
which is included in accounts payable. The Company disputed this lien
and a lawsuit was filed by the vendor. On October 29, 2009, the
vendor filed a motion for summary judgment. The Company did not
respond to the summary judgment. On or around December 12, 2009, the Wyoming
court issued a stipulated judgment allowing the vendor to foreclose and
liquidate the water treatment plant and recoup principle balance of $140,310,
pre-judgment interest of $21,563 and costs $1,097. See Note 5 for
discussion related to additional impairment of the water treatment plant. The
Company is currently attempting to settle the obligation and has a tentative
agreement, however, the payment performance criteria has not been met and thus
the matter is still considered open.
On July
17, 2009, the Company received notice that one of the Company’s vendors filed a
lien against the Company’s water treatment plant for past due amounts due to the
vendor for hauling waste water. The disputed amount totaled
approximately $145,000, which is included in accounts payable. No
additional amounts for damages have been accrued in the accompanying
consolidated financial statement as the Company cannot reasonably estimate the
damages, if any, due to the recentness of the issue. The Company is currently
attempting to settle the obligation and has a tentative agreement, however, the
payment performance criteria has not been met and thus the matter is still
considered open.
Yates was
named as a co-defendant in connection with a lawsuit filed by a vendor. In
connection with this suit, Yates filed a cross-claim against the Company. Yates
claims that the Company violated the contract and has damaged Yates. Specific
liabilities mentioned relate to the non-payment of credits and reimbursed
expenditures totaling $236,306. In addition, the cross-claim requests that the
court order the Company to provide a plan for the remove of the System and
reimburse Yates for legal fees in connection with the lawsuit filed against
them.
Other
than the foregoing, the Company is not aware of any litigation, either pending
or threatened.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
As of
December 31, 2009, the Company has received gross proceeds of $550,062 for the
purchase of 3,667,080 shares of Series A preferred stock (“Series A”) at $0.15
per share. The Series A is convertible into six shares of common
stock. During the nine months ended December 31, 2009, 2,880,413 shares
($460,062 in proceeds net costs of $26,495) of Series A were converted into
17,282,480 shares of common stock. As of December 31, 2009, proceeds of $118,000
remain for future issuances of Series A. The proceeds have been recorded as
accrued liabilities as to date the required Series A shares have not been
issued. As of December 31, 2009, there are no shares of Series A outstanding as
all have been converted into common stock. The securities were sold exempt
from registration under the Securities Act of 1933 pursuant to SEction 4(2) and
Regulation D thereunder.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
22
Item 5. Other Information
In
December 2009 and January 2010, the Company received $50,000 and $150,000 in
advances from a shareholder. The terms of the advance were not finalized until
mid February 2010. Under the final agreements, the notes are due one
year from the date of issuance, incur interest at 11% and are convertible into
shares of common stock at a rate of $0.01 per share. As a result of this
beneficial conversion feature, the Company expects to record a 100% discount to
the convertible notes as the value of the beneficial conversion feature is
expected to be in excess of the proceeds received. The Company will amortize
this discount over the stated due date of the notes using the straight-line
method. The securities were sold exempt from registration under the
Securities Act of 1933 pursuant to Regulation S.
Item 6. Exhibits.
The
following Exhibits are filed or incorporated by reference as part of this
Quarterly Report on Form 10-Q:
Exhibit
Number
|
Description of Document
|
|
4.1 | Form of Convertible Promissory Note with Horst Geicke | |
31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
31.2
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act
|
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act
|
|
32.2
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley
Act
|
23
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
R
G Global Lifestyles, Inc.
Signature
|
Title
|
Date
|
/s/ Grant
King
|
||
Grant
King
|
Chief
Executive Officer
|
February 22, 2010
|
/s/ Richard
Lambright
|
||
Richard
Lambright
|
Principal
Accounting Officer
|
February 22,
2010
|
24