UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1

To

FORM 10-Q

 

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

 

For the quarterly period ended October 31, 2013

 

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

For the transition period from ___________ to _____________

 

HIGH PERFORMANCE BEVERAGES COMPANY

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

Nevada		333-170393		27-3566307
(State or other jurisdiction of incorporation or organization)		(Commission file number)		(IRS Employer Identification Number)

 

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

(Address of principal executive office)

 

602.326.8290

(Issuer’s telephone number)

 

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.  Yes x . . No ¨ 

      .

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

 

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

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 ¨ ..No x.

 

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: 121,407,603 shares of Common Stock as of December 30, 2013.

  

  

HIGH PERFORMANCE BEVERAGES COMPANY

 

FORM 10-Q/A

 

October 31, 2013

 

INDEX

PART I - FINANCIAL INFORMATION	Page
Item 1.    Consolidated Financial Statements	3
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.    Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.    Controls and Procedures	14
PART II - OTHER INFORMATION
Item 1.    Legal Proceedings	14
Item 1A. Risk Factors	14
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.    Defaults Upon Senior Securities	19
Item 4.    Mine Safety Disclosures	19
Item 5.    Other Information	19
Item 6.    Exhibits and Reports on Form 8-K	19
SIGNATURES	19

 

  

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

(formerly Dethrone Royalty Holdings, Inc.)

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 2013 AND JULY 31, 2013

(Unaudited)

ASSETS		October 31, 2013				July 31, 2013
Current Assets
Cash		$	23,960				3,920
Accounts receivable, net			-				-
Inventory			33,766				31,034
Deferred loan costs			26,747			$	174,857
Total Current Assets			84,473				209,811
TOTAL ASSETS		$	84,473			$	209,811
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current Liabilities
Accrued expenses		$	111,467			$	60,564
Convertible notes payable, net			402,800				270,000
Derivative liability			452,912				242,430
Total Current  Liabilities			967,179				572,294
Total Liabilities			967,179				572,994
Commitments and contingencies (Note 5)			-				-
Stockholders’ (Deficit)
Preferred stock: $0.001 par value; 1,000,000 shares authorized; no shares issued or outstanding			-				-
Common stock: $0.001 par value; 500,000,000 shares authorized;  121,407,603 and 108,970,00 shares issued and outstanding at October 31, 2013 and July 31, 2013, respectively			121,408				108,970
Stock subscriptions payable			315,600				282,220
Additional Paid-in Capital			2,488,564				1,561,409
Retained earnings from discontinued operations			6,944				6,944
Accumulated deficit			(3,815,222	)			(2,322,706	)
Total Stockholders’ (Deficit)			(882,706	)			(363,183	)
Total Liabilities and Stockholders’ Deficit		$	84,473			$	209,811

 

See accompanying notes to the consolidated financial statements.

 

  

HIGH PERFORMANCE BEVERAGES COMPANY

(formerly Dethrone Royalty Holdings, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2013 AND 2012

 

(Unaudited)

		2013				2012
REVENUES		$	373			$	-
COST OF GOOD SOLD			1,392				-
GROSS PROFIT			(1,019	)			-
OPERATING EXPENSES
General and administrative			77,606				53,380
Marketing			10,847				43,131
Product development			-				21,744
Compensation			983,292				302,000
TOTAL OPERATING EXPENSES			1,071,745				420,255
OTHER (INCOME) EXPENSE
Interest expense			209,268				-
Change in derivative liability			210,482				-
Total Other Expenses			419,750				-
NET LOSS		$	(1,492,514	)		$	(420,255	)
NET LOSS PER SHARE: BASIC AND DILUTED		$	(0.01	)		$	(0.00	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED			110,706,264				94,150,000

 

See accompanying notes to the financial statements.

 

 

 HIGH PERFORMANCE BEVERAGE COMPANY

(formerly Dethrone Royalty Holdings, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2013 AND 2012

 

(Unaudited)

		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)		$	(1,492,516	)		$	(420,255	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation			957,796				417,000
Amortization of deferred financing costs			148,110				-
Change in derivative liability			210,482				-
Changes in assets and liabilities:
Inventory			(2,732	)			-
Accrued expenses			50,903				5,489
Cash Flows Provided by (Used in) Operating Activities			(127,960	)			2,234
CASH FLOWS FROM  INVESTING ACTIVITIES			-				-
CASH FLOWS FROM  FINANCING ACTIVITIES
Proceeds from convertible notes payable			148,000				-
Cash Flows Provided by Financing Activities			148,000				-
NET INCREASE  IN CASH			20,040				2,234
Cash, beginning of period			3,920				-
Cash, end of period		$	23,960			$	2,234
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-
Conversion of convertible notes payable		$	17,200			$	-

  

See accompanying notes to the financial statements.

 

 

HIGH PERFORMACE BEVERAGE COMPANY

(formerly Dethrone Royalty Holdings, Inc.)

Notes to the Consolidated Financial Statements

October 31, 2013 and 2012

(unaudited)

 

 

 

 

 

  

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

Interim financial statements

 

The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission set forth in Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Unaudited interim results are not necessarily indicative of the results for the full fiscal year.  These financial statements should be read in conjunction with the financial statements of the Company for the fiscal year ended July 31, 2013 and notes thereto contained in the Company’s Annual Report on Form 10-K.

 

Share-Based Compensation

 

The Company issues stock-based compensation awards to contractors, vendors and for marketing purposes. This compensation is generally in the form of restricted shares of common stock.

 

The Company measures and recognizes compensation expense for all stock-based awards based on the awards' fair value which is generally the quoted market value of common shares on the date that the contract mandating the award issuance is executed. The Company recognizes the expense on a straight-line basis over the service period of the related contract. However, if shares of common stock are issued as of the inception of a contract period and the Company does not have the right to recover any of the shares for nonperformance, the entire expense is recognized at the inception date of the contract.

 

Basic and Diluted Loss Per Common Share

 

Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic and diluted net income per common share has been calculated by dividing the net income for the period by the basic and diluted weighted average number of common shares outstanding assuming that the Company incorporated as of the beginning of the first period presented. There were no dilutive shares outstanding at October 31, 2013 or 2012.  Issuable common stock is not included in the calculation of basic or diluted weighted average number of common shares outstanding because including these shares would be antidilutive.

 

Discontinued Operations

 

In accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations (“ASC 205-20”), the Company reported the results of its commercial cleaning services as a discontinued operation. The results of operations of business dispositions are   segregated from continuing operations and reflected as discontinued operations in current and prior periods. The application of the principle is discussed in Note 5, Discontinued Operation .

 

Recently Issued Accounting Standards

 

There were no new accounting pronouncements that had a significant impact on the Company’s operating results or financial position.

 

NOTE 2 – GOING CONCERN

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying financial statements, the Company had negative working capital and a net stockholders’ deficit at October 31, 2013 and had no committed source of debt or equity financing.

 

While the Company is emphasizing a new product line involving the manufacture and sale of sports performance or energy drinks along with any other non-alcoholic beverage under the trade name, Throwdown, there are uncertainties as to whether the Company will obtain sufficient financing to introduce and distribute the planned product or, if distributed, there will be sufficient market demand for the products.

 

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

 

  

NOTE 3 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

		October 31,				July 31,
Description		2013				2013
On November 15, 2012, the Company entered into a Senior Secured Promissory Note (the “Note”) with an unaffiliated party (the “Third Party”) under which the Company received a one-year loan with a principal balance of $100,000. The loan bears interest at 20% per annum with interest payments due quarterly. In addition, the Company issued 2,500,000 shares of restricted common stock to the lender and Mr. Holley and McBride pledged their 56,250,000 shares of the Company’s common stock as collateral and transferred 1,000,000 shares of free trading shares to the lender. . If the Company goes into default of the provisions of the loan, it becomes convertible into the Company’s common stock at a price of $0.001 per share (100 million shares). If an event of default occurs, the lender will have the ability of becoming the controlling shareholder of the Company. The Company recorded deferred financing costs of $560,000 in connection with these transfers.  The deferred financing costs is being amortized to interest expense over the term of the loan or twelve months. The company reflected amortization on the deferred financing costs in the amount of $______ for the nine months ended April 30, 2013, which is reflected in the statement of operations.  On June 20, 2013, the Company and the Third party entered into an Amended and Restated Senior Secured Convertible Promissory Note (the “Amended Note”) which amended certain terms of the Note. Pursuant to the Amended Note, the Company’s repayment of the principal balance of the Amended Note is secured by all the assets of the Company. In addition, the provisions of the Note whereby Mssrs. Holley and McBride pledged 56,250,000 of their shares of common stock of the Company were removed.		$	100,000			$	100,000
On February 27, 2013, the Company entered into a $335,000 convertible loan agreement. The agreement provides for a $35,000 original issue discount. The lender, at its discretion, may provide funds up to $300,000 to the Company. It provided $60,000 at the closing of the agreement on April 30, 2013. All loans under the agreement are payable in full one year after the funds are issued together with a prorated portion of the original issue discount. All amounts outstanding under the agreement become convertible, at the lender’s discretion, into shares of the Company’s common stock starting 180 days from the execution date of the agreement. The conversion rate per share is the lower of (i) $0.044 or (ii) 60% of the lowest trade price during the 25 trading days prior to a conversion notice. The lender has agreed that it will not execute any short trades and, at no time, will hold more than 4.9% of the Company’s outstanding common stock. If the Company repays all amounts outstanding under the agreement within 90 days of the execution date, there will be no interest amounts due. If it does not pay all amounts due within 90 days of the execution date, it cannot make any other prepayments of the amounts outstanding without the consent of the lender. In addition, there will be a one-time interest charge of 12% of the amounts outstanding. The Company must also register all shares that are issuable under the agreement in any Registration Statement that it files with the SEC for any purpose.			129,800				115,000
On April 30, 2013, the Company sold an 18% Senior Convertible Debenture in the principal amount of $60,000 (the “Debenture”). The Debenture matures on April 30, 2014 and has an interest rate of 18% per annum payable monthly and on each conversion date. The conversion price of the Debenture is 65% of the average of the lowest three closing bid prices of the Common Stock for the twenty trading days immediately prior to the conversion date. Upon an Event of Default (as defined in the Debenture), the outstanding principal amount of the Debenture plus accrued but unpaid interest, liquidated damages and other amounts owing on the Debenture through the date of the acceleration shall become at the Debenture holder’s election immediately due and payable in cash at the Mandatory Default Amount (as defined in the Debenture). Commencing five days after the occurrence of an Event of Default that results in the eventual acceleration of the Debenture, the interest rate on the Debenture shall accrue at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law. In connection with the sale of the Debenture, on April 30, 2013 (the “Initial Exercise Date”) the Company issued the purchaser of the Debenture a warrant to purchase 3,726,708 shares of the Company’s common stock at an exercise price of $.03 per share (subject to adjustment as provided in the debenture). The Warrant is exercisable on a cashless basis (as provided in the Warrant) and as a result there is no assurance that any part of the Warrant will be exercised for cash. The warrant terminates three years from the Initial Exercise Date and on such date the Warrant shall be automatically exercised via cashless exercise. The fair market value of the warrant was $50,777 on the date of issuance.			50,000				55,000

On October 10, 2013, Dethrone Royalty Holdings, Inc. (the “Company”), entered into a securities purchase agreement (the “SPA”) with an investor (“Investor”), pursuant to which the Investor purchased a master promissory note (the “Master Note”) with a principal balance of $48,000 for a purchase price of $40,000 at an original issuance discount of $4,000.  The Company also agreed to pay $4,000 worth of legal, accounting and due diligence costs to the Investor. Pursuant to the Master Note, the Investor has the right, solely in the Investor’s discretion, to subsequently purchase up to eight (8) additional promissory notes (each, an “Additional Note”, the Master Note and each Additional Note collectively, the “Notes”), at any time from the date of issuance of the Master Note until October 10, 2014.  Each Additional Note shall have a principal balance of $22,000 and shall have a purchase price of $20,000, at an original issue discount of $2,000. Pursuant to the Master Note, if the Company repays the entire balance of each Note prior to the Prepayment Opportunity Date (as defined in the Master Note), the Company shall pay an interest rate equal to 0% per annum.  If the Company does not repay the entire balance of each Note prior to the Prepayment Opportunity Date (as defined in the Master Note) each Note shall have a one-time interest charge equal to 12% , applied to the outstanding balance of each note. Each Note is convertible, at any time after the date six months from the Purchase Price Date (as defined in the Master Note), into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the Master Note (the “Conversion Price”).  In connection with the SPA and the issuance of the Master Note, the Company issued to the Investor, warrants to purchase shares of the Company’s common stock (the “Warrant”) at an exercise price equal to the Conversion Price.  The Warrant has a term of five years.  The warrant provides for both cash and cashless exercise. The fair value of the warrant on the date of issuance was $295,273.			48,000				-
8% Convertible Note, dated August 26, 2013, in the principal amount of $42,500 (the “Note”) pursuant to a Securities Purchase Agreement. The Note matures on May 21, 2014 and has an interest rate of 8% per annum until the Note becomes due. Any amount of principal or interest on the Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof. The Note may be converted into common stock of the Company at any time beginning on the 180th day of the date of the Note. However, the Note shall not be converted if the conversion would result in beneficial ownership by the holder of the Note and its affiliates to own more than 9.99% of the outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the Note holder upon with not less than 61 days’ prior notice to the Company. The conversion price is 58% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days immediately prior to the conversion date. If the Company fails to pay the principal hereof or interest thereon when due at the maturity date, the Note shall become immediately due and payable and the Company shall pay to the holder of the Note an amount equal to the Default Sum (as defined in the Note). If the Company fails to issue common stock of the Company upon exercise of the Note, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum multiplied by two. Upon any other Event of Default (as defined in the Note), the Note shall become immediately due and payable and the Company shall pay to the holder of the Note an amount equal to the greater of (i) 150% times the Default Sum or (ii) the “parity value” (as defined in the Note) of the Default Sum to be prepaid.			42,500				-
On October 1, 2013, the Company, sold an 8% Convertible Note in the principal amount of $32,500 (the “Note”) pursuant to a Securities Purchase Agreement. The Note matures on June 19, 2014 and has an interest rate of 8% per annum until the Note becomes due. Any amount of principal or interest on the Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof. The Note may be converted into common stock of the Company at any time beginning on the 180th day of the date of the Note. However, the Note shall not be converted if the conversion would result in beneficial ownership by the holder of the Note and its affiliates to own more than 9.99% of the outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the Note holder upon with not less than 61 days’ prior notice to the Company. The conversion price is 58% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days immediately prior to the conversion date. If the Company fails to pay the principal hereof or interest thereon when due at the maturity date, the Note shall become immediately due and payable and the Company shall pay to the holder of the Note an amount equal to the Default Sum (as defined in the Note). If the Company fails to issue common stock of the Company upon exercise of the Note, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum multiplied by two. Upon any other Event of Default (as defined in the Note), the Note shall become immediately due and payable and the Company shall pay to the holder of the Note an amount equal to the greater of (i) 150% times the Default Sum or (ii) the “parity value” (as defined in the Note) of the Default Sum to be prepaid.			32,500				-
Total convertible notes payable		$	402,800			$	270,000

 

 

NOTE 4 – DERIVATIVE LIABILITY

 

The convertible notes payable each contain a variable conversion feature (the Variable Conversion Feature) that gives rise to a derivative liability. We have measured this derivative at fair value and recognized the derivative value as a current liability and recorded the derivative value on our consolidated balance sheet. The derivative is valued primarily using models based on unobservable inputs that are supported by little to no market activity. These inputs represent management’s best estimate of what market participants would use in pricing the liability at the measurement date and thus are classified as Level 3. Changes in the fair values of the derivative are recognized in earnings in the current period. During the year ended July 31, 2013, the Company recorded a derivative liability of $235,165 related to the variable conversion feature of several convertible notes payable and recognized a change in the derivative liability of $7,265. At July 31, 2013, derivative liability was $242,430. Convertible notes payable issued during the quarter ended October 31, 2013 and changes in volatility and interest rates resulted in an increase in the derivative liability of $214,346. The change in derivative liability during the three months ended October 31, 2013 was $3,864, resulting in a balance of $452,912 as of October 31, 2013.

 

NOTE 5 – EQUITY

 

The Company is authorized to issue 500,000,000 shares of common stock and 1,000,000 shares of preferred stock. In February 2012, the Company approved a 31.25 for 1 forward split of its common stock effective March 17, 2012, after which there were 359,375,000 shares of common stock outstanding. The Company also increased the number of authorized shares to 500,000,000. All share and per share disclosures in these Consolidated Financial Statements give retroactive effect to this forward split.

 

In August, 2013, the Company converted $10,200 in notes payable in exchange for 2,000,000 shares of its common stock in accordance with the note agreement.

 

In October 2013, the Company converted $5,000 in notes payable in exchange for 5,000,000 the Company’s common stock in accordance with the note agreement.

 

In October 2013, the Company issued 5,437,603 shares of its common stock in connection with the license agreement with Throwdown Industries Holdings, LLC. The fair market value of the shares on the date of issuance was $924,393, which was charged to expense as share based compensation during the quarter ending October 31, 2013.

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

In April2012, DB entered into an exclusive license agreement with Dethrone Royalty, Inc. giving DB the right to use the Dethrone Trademark worldwide in connection with the manufacture and sale of sports performance or energy drinks along with any other non-alcoholic beverage under the Trade Name, Dethrone Beverages.

 

The License Agreement with Dethrone Royalty, Inc. is for five years and requires payments as follows:

	Year			Royalty
	1			12% of Gross Profit
	2			$50,000 plus 8% of Gross Profit
	3			$100,000 or 6% of Gross profit, whichever is higher
	4			$150,000 or 6% of Gross profit, whichever is higher
	5			$200,000 or 6% of Gross profit, whichever is higher

 

 

The License Agreement with Dethrone Royalty, Inc. specifies minimum levels of sales which, if not attained by DB, gives Dethrone Royalty, Inc. the right to terminate the License Agreement. These minimums are as follows:

Year				Minimum Sales
	1			$	-0-
	2			$	3,000,000
	3			$	6,000,000
	4			$	9,000,000
	5			$	12,000,000

 

The License Agreement with Dethrone Royalty, Inc. also requires DB to maintain various liability insurance coverage.

 

In October 2013, the License Agreement with Dethrone Royalty, Inc, was terminated.

 

On October 10, 2013, Dethrone Royalty Holdings, Inc. (the “Company”), entered into a license agreement (“License Agreement”) with Throwdown Industries Holdings, LLC, a Delaware limited liability company (“Licensor”), pursuant to which the Licensor granted an exclusive, non-sublicenseable and non-assignable right to the Company to use its trademarks and other intellectual properties (“Trademarks”) solely in connection with the development, manufacture, distribution, marketing and sale of sports performance drinks within the United States and Canada (the “License”) as well as a one-time right of first refusal to license other types of beverages. The Company’s rights under the License Agreement are contingent upon Licensor’s prior written approval of any sports performance drinks developed or proposed by the Company to contain any of the Trademarks (“Licensed Products”).

 

In consideration for the License, the Company shall pay ten percent (10%) of the net revenue generated by all sales and other transfers of the Licensed Products during the term of the License Agreement. Notwithstanding the foregoing, the Company shall pay the minimum royalties as set forth below:

 

Time Period:

Minimum

Minimum

Net Revenue

Quarterly Payments

(a)

Effective Date through 12/31/13

0.0

N/A

(b)

01/01/14 through 12/31/14

1,000,000.00

37,500.00

(c)

01/01/15 through 12/31/15

1,600,000.00

50,000.00

(d)

01/01/16 through 12/31/16

2,500,000.00

75,000.00

 

* 2015 minimum Net Revenue shall be the greater of 120% of the actual 2014 Net Revenue or $1,600,000.00.

*** 2016 Minimum Net Revenue shall be the greater of 110% of the actual 2015 Net Revenue or $2,500,000.00. During any Extension Term and beyond 2016, the annual Minimum Net Revenue shall be at least 105% greater than the previous year.

 

In addition to the cash payment, the Company will also issue 5,437,603 shares of its common stock to the Licensor. During each quarter of the term of the Agreement, the Licensor shall have the option to convert a portion or all of the greater of the minimum quarterly payments or the actual earned royalties into shares of stock of the Company at an exercise price equal to the lesser of $0.03 per share or the VWAP for the ten (10) trading days prior to the end of the respective quarter during the term.

 

During the term of the License Agreement, the Licensor will not grant any license that will enable any third party to directly compete with the Company by selling other sports performance drinks within the United States and Canada. The License Agreement has an initial term of three (3) years and is automatically extended for one (1) additional three (3) year period unless either party elects not to extend the term.

 

In the event the Licensor creates an independent and formal relationship with one of the Company’s athlete endorsers, the Licensor agrees to pay the Company twenty five percent (25%) of any compensation paid to the athlete endorser for athlete endorser participation.

 

Either party may terminate the License Agreement upon thirty (30) days written notice if the other party is in material breach of the License Agreement and fails to cure or take reasonable steps to cure the breach within the given time period in accordance with the License Agreement. In addition, the Licensor has the right to terminate the License Agreement immediately upon occurrence of certain events pursuant to the License Agreement.

 

On October 14, 2013, the licensor in this licensing agreement sent a notice of termination of this license agreement wherein it purposed to terminate this license agreement and demanded licensing fees of $475,000. The Company has asserted that the licensor has repudiated the license agreement and demanded damages of $850,000. This issue has not progressed passed this point and the Company is currently awaiting service of a complaint.

 

 

Additionally, the Company is involved in a dispute with Overtime Marketing, SE, LLC and Overtime Marketing, LLC (“Potential Plaintiffs”) with which it had signed an agreement for marketing services. Potential plaintiffs have sent Company a demand letter seeking payment in the amount of $4,814,500 arising from an alleged breach of a term sheet that provided for the Company to compensate plaintiffs with up to 5,000,000 shares of its restricted common stock in exchange for certain marketing services. Settlement negotiations with potential plaintiffs are in process and Company legal counsel is unable at this time to estimate any potential liability of the Company resulting from this dispute. The Company is currently awaiting service of a complaint. No liability has been accrued as a result of this dispute.

  

NOTE 6 - SUBSEQUENT EVENTS

 

In November 2013, the Company issued 75,000 shares to a consultant for services performed.

 

Management has evaluated subsequent events through December 30, 2013, the date which the financial statements were available to be issued.

 

 

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

·

our future operating results;

·

our business prospects;

·

any contractual arrangements and relationships with third parties;

·

the dependence of our future success on the general economy;

·

any possible financings; and

·

the adequacy of our cash resources and working capital.

 

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

 

Recent Developments

 

In February 2012, the Company approved a 31.25 for 1 forward split of its common stock effective March 17, 2012, All share and per share disclosures give retroactive effect to this forward split.

 

Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the fiscal years ended July 31, 2013 and 2012 that states that our lack of resources causes substantial doubt about our ability to continue as a going concern.

 

Operations

We were founded as an unincorporated DBA in February 1997 and were incorporated as a C corporation under the laws of the State of Nevada on October 11, 2010. The incorporation effort included the Company issuing 10,000,000 shares of common stock to Patricia G. Skarpa, who founded and managed the business which had been operating continuously as a DBA since February 1997, and 300,000 shares to Hallie Beth Skarpa, our other director, for services rendered. These services involving the incorporation planning were valued at $10,300. Hallie Beth Skarpa is the daughter of Patricia G. Skarpa. The day-to-day operations of the Company did not change as a result of the change in legal structure.

 

 On January 10, 2012, the Company incorporated a wholly-owned subsidiary, TO Sports Innovation, Inc. (“TO”), in Nevada. TO was inactive until March 15, 2012. Its name was changed to Dethrone Beverage, Inc. (“DB”).

 

In April 2012, DB entered into an exclusive license agreement with Dethrone Royalty, Inc. giving DB the right to use the Dethrone trademark worldwide in connection with the manufacture and sale of sports performance or energy drinks along with any other non-alcoholic beverage under the trade name, Dethrone Beverages.

 

The License Agreement with Dethrone Royalty, Inc. is for five years and requires payments as follows:

	Year			Royalty
	1			12% of Gross Profit
	2			$50,000 plus 8% of Gross Profit
	3			$100,000 or 6% of Gross profit, whichever is higher
	4			$150,000 or 6% of Gross profit, whichever is higher
	5			$200,000 or 6% of Gross profit, whichever is higher

 

  

The License Agreement with Dethrone Royalty, Inc. specifies minimum levels of sales which, if not attained by DB, gives Dethrone Royalty, Inc. the right to terminate the License Agreement. These minimums are as follows:

	Year				Minimum Sales
	1			$	-0-
	2			$	3,000,000
	3			$	6,000,000
	4			$	9,000,000
	5			$	12,000,000

 

The License Agreement with Dethrone Royalty, Inc. also requires DB to maintain various liability insurance coverage.

 

The Company’s officers have formulas that will be used for the initial products that are planned. They have undertaken efforts to raise the financing necessary to manufacture the initial products using outside contractors and implement marketing programs. The initial expenditures are being used for:

 

·

Production of bottles, labels and caps,

·

Purchase of inventory needed for beverage content,

·

Marketing materials,

·

Travel and business expenses, and

·

Shipping costs of our first orders.

 

We began distributing our product in the first calendar quarter of 2013. Initially, we shipped two flavors of one product and will distribute in California to convenience stores, gas stations, grocery stores and gyms. We ship product to distributors with net 30 day terms.

 

Three months ended October 31, 2013 and 2012

 

The Company began shipping products to distributors in February 2013. Shipments were insignificant during the quarter ending October 31, 2013 and generated sales of $373. There were no sales in the quarter ending October 31, 2012.

 

Cost of goods sold during the three months ended October 31, 2013 were $1,392, which exceeded of sales by $1,019, resulting in a gross profit $(1,019). This was due to the high cost of the initial product runs due to start up tooling costs and a lack of economies of scale in the manufacturing process.

 

General and administrative expenses increased by $24,226, from $53,820 during the three months ended October 31, 2012 to $77,606 during the three months ended October 31, 2013. The increase was due to higher professional fees for legal and accounting services.

 

Marketing expense decreased by $32,284, from $43,131 during the three months ended October 31, 2012 to $10,846 during the three months ended October 31, 2013. The decrease was due to decreased advertising costs.

 

Product development costs decreased by $21,744, from $21,744 during the three months ended October 31, 2012 to zero during the three months ended October 31, 2013. The decrease was due to the completion of the development of the Company’s initial product formulations and the transition to marketing and sales.

 

Compensation increased by $681,292, from $302,000 during the three months ended October 31, 2012 to $983,292 during the three months ended October 31, 2013. The increase was due to $676,292 in share based compensation issued in connection with professional athlete endorsement contracts in the current period and none in the prior year and an increase in cash compensation expense of $5,500.

 

Other income (expense) increased ($419,750) during the three months ended October 31, 2013 compared to the three months ended October 31, 2012, when Other income (expense) was zero. The increase is due to interest expense of $209,268 and the change in derivative liability of $210,482.

 

During the quarter ending October 31, 2012, the Company completed the winding down of its discontinued operations and recognized $25 in revenue related to these activities in the quarter ended October 31, 2012. There was no activity from discontinued operations in the current period.

 

Net loss for the three months ended October 31, 2013 increased by $1,072,234, from ($420,280) during the three months ended October 31, 2012 to ($1,492,514), primarily due to share based compensation expense, interest expense and change in derivative liability.

 

 

Liquidity

 

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

 

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

 

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

 

Recent Accounting Pronouncements

 

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

 

Critical Accounting Policies

 

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

 

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

 

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

   

  

Seasonality

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

Item 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

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

 

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

 

·

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

·

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

·

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

·

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

 

As of October 31, 2013, our management conducted an assessment of the effectiveness of the Company's internal control over financial reporting.  In making this assessment, management followed an approach based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (known as “COSO”).  Based on this assessment, management determined that the Company's internal control over financial reporting was not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner. In forming this conclusion this officer considered the fact that we were unable to timely file our Form 10K for the year ended July 31, 2013 as well as our From 10Q for the quarter ended October 31, 2013. As such we had inherent weakness in our ability to timely file our financial reports with the SEC.

 

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

 

 

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

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

Currently we are not aware of any litigation pending or threatened by or against the Company.

 

Item 1A.  Risk Factors

 

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

 

 

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

 

In August, 2013, the Company converted $10,200 in notes payable in exchange for 2,000,000 shares of its common stock in accordance with the note agreement. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

On August 26, 2013, the Company sold an 8% Convertible Note in the principal amount of $42,500 (the “August Note”), which matures on May 21, 2014 and has an interest rate of 8% per annum until the August Note becomes due. The August Note may be converted into common stock of the Company at any time beginning on the 180^th day of the date of the August Note. The conversion price is 58% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days immediately prior to the conversion date. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

In October 2013, the Company converted $5,000 in notes payable in exchange for 5,000,000 the Company’s common stock in accordance with the note agreement. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

On October 1, 2013, the Company sold an 8% Convertible Note in the principal amount of $32,500 (the “October Note”). The October Note may be converted into common stock of the Company at any time beginning on the 180^th day of the date of the October Note. The conversion price is 58% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days immediately prior to the conversion date. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

On October 10, 2013, the Company sold to an investor a master promissory note (the “Master Note”) with a principal balance of $48,000 for a purchase price of $40,000, convertible, at any time after the date six months from the Purchase Price Date (as defined in the Master Note), into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the Master Note (the “Conversion Price”). In connection with the issuance of the Master Note, the Company issued to the investor, warrants to purchase shares of the Company’s common stock at an exercise price equal to the Conversion Price.  The Warrant has a term of five years.  The warrant provides for both cash and cashless exercise. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

On October 10, 2013, the Company issued 5,437,603 shares of its common stock in connection with the license agreement with Throwdown Industries Holdings, LLC. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information

 

None

 

Item 6. Exhibits and Reports of Form 8-K

 

(a)

Exhibits

 

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

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

 

  

SIGNATURES

 

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

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

 

 

 

December 31, 2013