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Share Name | Share Symbol | Market | Type |
---|---|---|---|
DNA Brands Inc (PK) | USOTC:DNAX | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.0002 | 0.0001 | 0.0002 | 0.00 | 12:53:11 |
DNA BRANDS, INC.
|
(Exact name of registrant as specified in its Charter)
|
Colorado
|
26-0394476
|
||||
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer Identification No.)
|
||||
544 NW 77
th
Street
Boca Raton, Florida
|
33487
|
||||
(Address of Principal Executive Offices)
|
(Zip Code)
|
||||
(954) 970-3826
|
(Registrant’s Telephone Number, Including Area Code)
|
Common Stock
|
(Title of class)
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
(Do not check if a smaller reporting company)
|
o
|
Smaller reporting company
|
þ
|
Page
No.
|
|||||
PART I
|
|||||
Item 1.
|
Business
|
1
|
|||
Item 1A.
|
Risk Factors
|
10
|
|||
Item 1B.
|
Unresolved Staff Comments
|
19
|
|||
Item 2
|
Properties
|
19
|
|||
Item 3.
|
Legal Proceedings
|
19
|
|||
Item 4.
|
Mine Safety Disclosures
|
19
|
|||
PART II
|
|||||
Item 5.
|
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
20
|
|||
Item 6.
|
Selected Financial Data
|
20
|
|||
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
21
|
|||
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
24
|
|||
Item 8.
|
Financial Statements and Supplementary Data
|
24
|
|||
Item 9.
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|
25
|
|||
Item 9A.
|
Controls and Procedures
|
25
|
|||
Item 9B.
|
Other Information
|
25
|
|||
PART III
|
|||||
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
26
|
|||
Item 11.
|
Executive Compensation
|
27
|
|||
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
28
|
|||
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
28
|
|||
Item 14.
|
Principal Accounting Fees and Services
|
29
|
|||
PART IV
|
|||||
Item 15.
|
Exhibits, Financial Statement Schedules
|
30
|
|||
Signatures
|
32
|
●
|
Cellular Citrus –Two time winner of World’s Best Tasting Energy Drink -
the taste of real oranges with specific citrus nuances;
|
●
|
Cellular Citrus Zero Sugar -
High end orange soda taste but with a jolt of energy;
|
●
|
Molecular Melon –
Velvety and smooth lemon lime mix
|
●
|
Cryo Berry –
Mixture of cranberries and raspberries, a blast to drink; and
|
●
|
Original -
Our unique proprietary blend taste is sure to resonate favorably with the Red Bull® and Monster® consumer.
|
●
|
Mocha
|
●
|
Caramel Macchiato
|
●
|
Vanilla Latte
|
State
|
Stores
|
|
Texas
|
15,191
|
|
California
|
10,763
|
|
Florida
|
9,737
|
|
New York
|
8,154
|
|
Georgia
|
6,750
|
|
North Carolina
|
6,272
|
|
Ohio
|
5,452
|
|
Michigan
|
4,903
|
|
Illinois
|
4,607
|
|
Virginia
|
4,512
|
●
|
Red Bull
: With estimated worldwide sales in excess of $5 billion, Red Bull is the largest participant in the energy drink sector. Red Bull is owned by Dietrich Mateschitz, who introduced it to the European market in 1987. Red Bull’s distributed more than one billion cans in 2001 without owning a single plant, truck or retail outlet. The taste profile of Red Bull is along medicinal lines with its ingredients being of standard fare. Due to the lack of competition, Red Bull was able to build a strong a brand and a loyal client base. Red Bull caters to the action sports community, on premise liquor sales, and a “yuppie” contingency. Red Bull is sold through Red Bull exclusive regional distributors in more than 50 countries worldwide.
|
●
|
Monster Energy
: Monster Energy is owned by Hansen’s Natural Beverage and according to Symphony/IRI generated $1.4 billion in revenue from US distribution in food/drug/convenience stores/mass merchandisers excluding Wal-Mart in 2011. Monster has risen to become the second largest energy drink producer behind Red Bull building a predominately strong core following through the sponsorship of major action sports events and teams.
|
●
|
Rock Star:
Rock Star Energy third largest producer in the energy drink category with slightly under $1 billion in revenue. Rock Star is a California/Nevada based operation with strong ties to the entertainment world. Rock Star also has shut off its distributors in favor of a national distribution relationship with Coca-Cola.
|
●
|
Full Throttle
: Full Throttle is in fourth position behind Red Bull, Monster and Rock Star. Full Throttle is owned by Coca-Cola but does not compete nearly as well as the top three, we believe because the corporate image behind Coke and Pepsi is viewed as contrary to the images of “cool and credible” that permeates among a younger target market.
|
●
|
AMP
: AMP is a new Pepsi product and rounds off the top of the line in the category. We believe it sells on par with Full Throttle and has image issues for similar reasons we raised for Full Throttle.
|
●
|
acceptance of our products and market penetration;
|
●
|
the amount and timing of capital expenditures and other costs relating to the implementation of our business plan;
|
●
|
the introduction of new products by our competitors;
|
●
|
general economic conditions and economic conditions specific to our industry.
|
●
the level of demand for our brands and products in a particular distribution area;
|
●
our ability to price our products at levels competitive with those of competing products; and
|
●
our ability to deliver products in the quantity and at the time ordered by distributors, retailers and brokers.
|
●
|
competitive pricing pressures;
|
●
|
our ability to market our services on a cost-effective and timely basis;
|
●
|
our inability to obtain working capital financing, if needed;
|
●
|
changing conditions in the market;
|
●
|
changes in market valuations of similar companies;
|
●
|
stock market price and volume fluctuations generally;
|
●
|
regulatory developments;
|
●
|
fluctuations in our quarterly or annual operating results;
|
●
|
additions or departures of key personnel; and
|
●
|
future sales of our Common Stock or other securities.
|
Quarter Ended
|
High
|
Low
|
||||||
March 31, 2012
|
$
|
0.50
|
$
|
0.22
|
||||
June 30, 2012
|
$
|
0.36
|
$
|
0.14
|
||||
September 30, 2012
|
$
|
0.21
|
$
|
0.08
|
||||
December 31, 2012
|
$
|
0.12
|
$
|
0.05
|
||||
March 31, 2013
|
$
|
0.10
|
$
|
0.04
|
||||
June 30, 2013
|
$
|
0.055
|
$
|
0.02
|
||||
September 30, 2013
|
$
|
0.039
|
$
|
0.012
|
||||
December 31, 2013
|
$
|
0.027
|
$
|
0.015
|
●
|
discuss our future expectations;
|
●
|
contain projections of our future results of operations or of our financial condition; and
|
●
|
state other “forward-looking” information.
|
●
|
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 the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and
|
●
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company’s assets that could have a material effect on the financial statements.
|
●
|
Insufficient resources
|
●
|
Lack of personnel with requisite accounting knowledge
|
●
|
Inadequate segregation of duties
|
●
|
Insufficient written procedures
|
●
|
Inadequate closing financial statement process
|
●
|
Lack of an audit committee and outside directors on the Company’s Board of Directors
|
Name
|
Age
|
Position
|
||
Eric Fowler
|
54
|
Chief Executive Officer, President
|
||
Melvin Leiner
|
74
|
Chief Financial Officer, Chief Operating Officer, Executive Vice President, Secretary, Treasurer and Director
|
||
Darren M. Marks
|
|
46
|
Director
|
(1)
|
Effective April 1, 2014, Mr. Marks resigned his positions as our CEO and President and was replaced by Eric Fowler. Mr. Marks retained his position as Chairman of our Board of Directors.
|
Name and Principal Position
|
Year
|
Salary
(1)
|
Stock Awards
(1)
|
All Other
Compensation
(2)
|
Total
Compensation
|
||||||||||||
Darren Marks, (3)
|
2013
|
$
|
63,000
|
$
|
31,500
|
$
|
32,525
|
$ |
124,205
|
||||||||
CEO/President
|
2012
|
$
|
125,000
|
$
|
50,000
|
$
|
27,617
|
$
|
202,617
|
||||||||
Melvin Leiner,
|
2013
|
$
|
63,000
|
$
|
31,500
|
$
|
35,069
|
$
|
129,569
|
||||||||
Executive VP/COO/CFO/Treasurer/Secretary
|
2012
|
$
|
125,000
|
$
|
50,000
|
$
|
29,596
|
$
|
204,596
|
(1) | In 2013 and 2012 Mr. Marks and Mr. Leiner each received $31,500 and $50,000, respectively, in stock compensation. Salary for Mr. Marks and Mr. Leiner represents approximately one-half of a year’s salary for the period July 1, 2013 through December 31, 2013. Salary earned for the first half of 2013 was forgiven by each individual-see below and is not included in the compensation table. |
(2)
|
Represents insurance premiums and car allowances paid by us.
|
(3)
|
Mr Marks resigned his position as an officer effective April 1, 2014.
|
Title of Class
|
Name and Address
Of Beneficial Owner
|
Amount and Nature
Of Beneficial Ownership
|
Percent
Of Class
(3)
|
|||
Common
|
Melvin Leiner
(1) (3)
544 NW 77th Street
Boca Raton, Florida, 33487
|
64,169,839
(3)
|
19.8%
|
|||
Common
|
Darren Marks
(1) (2)
544 NW 77th Street
Boca Raton, Florida, 33487
|
63,868,690
(2)
|
19.7%
|
|||
Common
|
Eric Fowler
(1)(4)
544 NW 77th Street
Boca Raton, Florida, 33487
|
200,000
|
*
|
|||
Common
|
All Officers and Directors as a Group (3 persons)
|
128,238,529
|
39.6%
|
(1)
|
Officer and/or Director of our Company
.
|
(2)
|
Includes 2,474,401 held under the name 4 Life LLC.. Also includes 900,000 shares of Series E Preferred Stock. Each share entitles the holder to 68.02721 votes on all shareholder matters
.
|
(3)
|
Includes 2,644,201 held under the name Family Tys, LLC Also includes 900,000 shares of Series E Preferred Stock. Each share entitles the holder to 68.02721 votes on all shareholder matters
.
|
(4)
|
Includes options to purchase up to 200,000 shares of our Common Stock at an exercise price of $0.25 per share.
|
Exhibit No.
|
Description
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
|
No.
|
Description
|
Filed With
|
Date Filed
|
|||
3.1
|
Articles of Incorporation
|
Form SB-2 Registration Statement
|
January 22, 2008
|
|||
3.2
|
Bylaws
|
Form SB-2 Registration Statement
|
January 22, 2008
|
|||
3.3
|
Articles of Amendment to Articles of Incorporation filed July 7, 2010
|
Form 8-K/A Dated July 6, 2010
|
October 18, 2010
|
|||
3.4
|
Statement of Share and Equity Exchange filed July 8, 2010
|
Form S-1 Registration Statement
|
December 15, 2010
|
|||
10.1
|
Share Exchange Agreement Between Famous Products, Inc. and DNA Beverage Corporation
|
Form 8-K Dated July 6, 2010
|
July 12, 2010
|
|||
10.2
|
Purchase and Sale Agreement between Famous Products, Inc. and DNA Beverage Corporation
|
Form 8-K Dated July 6, 2010
|
July 12, 2010
|
|||
10.3
|
Form of Distribution Agreement with Anheiser Busch Distributors
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.4
|
Vendor Participation Agreement with Walgreen Co and Professional Sports Teams
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.5
|
Form of Advertising and Promotion Agreement with Professional Sports Teams*
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
10.6
|
Letter Agreement with Circle K Stores, Inc.
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.7
|
Business Development Agreement with Racetrac Petroleum*
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.8
|
Title Sponsorship Agreement with C&R Motorsports LLC
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.9
|
Sponsorship Agreement with Star Racing LLC
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.10
|
Memorandum of Understanding between DNA Brands & Star Racing LLC
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.11
|
Sales, Marketing and Manufacturing Agreement with Monogram Meat Snacks LLC
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.12
|
Brokerage Service Agreement with Reese Group, Inc.
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.13
|
AAFES Retail Agreement – Army & Air Force Exchange Service
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.14
|
Broker Agreement with Royal Strategies and Solutions, Inc.
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.15
|
Trust Agreement
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.16
|
Letter Agreement with Equinox Securities, Inc.
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.17
|
12% Secured Convertible Debenture
|
Form S-1/A1 Registration Statement
|
February 24, 2010
|
|||
10.18
|
Letter Agreement with Circle K Stores, Inc.
|
Form 10-K
|
March 30, 2011
|
|||
10.19
|
Business Development Agreement with Racetrac Petroleum, Inc.
|
Form 10-K
|
March 30, 2011
|
|||
10.20
|
Letter Agreement with Walgreens
|
Form 10-K
|
March 30, 2011
|
|||
10.21
|
Distributor Agreement with City Beverages Limited Partnership
|
Form 10-K
|
March 30, 2011
|
|||
10.22
|
Distributorship Agreement with Sand Dollar Distributors LLC
|
Form 10-K
|
March 30, 2011
|
|||
10.23
|
Vendor Participation Agreement with Walgreen Co and Orlando Magic
|
Form 10-K
|
March 30, 2011
|
|||
10.24
|
Sponsorship Agreement with Jeff Ward Racing
|
Form 10-K
|
March 31, 2010
|
|||
16.1
|
Letter of Ronald R. Chadwick, P.C.
|
Form 8-K Dated September 10, 2010
|
September 13, 2010
|
|||
10.25
|
Investment Banking and Advisory Agreement with Charles Morgan Securities, Inc.
|
Form 10-K
|
April 13, 2012
|
|||
16.2
|
Letter of Ronald R. Chadwick, P.C.
|
Form 8-K/A Dated September 10, 2010
|
September 16, 2010
|
|||
21.1
|
List of Subsidiaries
|
Form S-1 Registration Statement
|
December 15, 2010
|
DNA BRANDS, INC.
|
|||
Dated: April 15, 2014
|
By:
|
|
|
Eric Fowler, Principal Executive Officer
|
By:
|
|||
Melvin Leiner, Principal Financial Officer
|
April 15, 2014
|
|
Darren Marks, Director
|
|
April 15, 2014
|
|
Melvin Leiner, Director
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|||
Consolidated Balance Sheets
|
F-3
|
|||
Consolidated Statements of Operations
|
F-4
|
|||
Consolidated Statements of Changes in Stockholders’ Deficit
|
F-5
|
|||
Consolidated Statements of Cash Flows
|
F-6
|
|||
Notes to Consolidated Financial Statements
|
F-7
|
/s/ Mallah Furman
|
|
Fort Lauderdale, FL
|
|
April 15, 2014
|
2013
|
2012
|
|||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ |
61,336
|
$ |
—
|
||||
Accounts receivable, net
|
8,750
|
19,347
|
||||||
Inventory
|
304,264
|
38,700
|
||||||
Prepaid expenses and other current assets
|
137,441
|
203,015
|
||||||
Total current assets
|
511,791
|
261,062
|
||||||
Property and equipment, net
|
11,800
|
20,339
|
||||||
Other assets
|
—
|
35,272
|
||||||
Total assets
|
$
|
523,591
|
$
|
316,673
|
||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
Current liabilities
|
||||||||
Bank overdrafts
|
$
|
—
|
$
|
11,042
|
||||
Accounts payable
|
405,854
|
644,077
|
||||||
Accrued liabilities
|
1,217,285
|
1,767,536
|
||||||
Current portion of loans payable, net of discounts
|
438,375
|
—
|
||||||
Current portion of convertible debentures, net of discounts
|
445,289
|
222,095
|
||||||
Conversion options, derivative liabilities
|
336,884
|
243,623
|
||||||
Loans payable to officers
|
3,777
|
1,457,539
|
||||||
Total current liabilities
|
2,847,464
|
4,345,912
|
||||||
Convertible, subordinated debentures, net of discounts
|
173,875
|
698,741
|
||||||
Loans payable to related party
|
67,150
|
—
|
||||||
Total liabilities
|
3,088,489
|
5,044,653
|
||||||
Commitments and contingencies
|
||||||||
Stockholders' deficit
|
||||||||
Preferred stock, $0.001 par value, 10,000,000 authorized, 2,100,000 and zero issued and outstanding, respectively
|
2,100
|
—
|
||||||
Common stock, $0.001 par value, 400,000,000 authorized,
177,594,187
and 65,476,313
|
||||||||
issued and outstanding, respectively
|
177,594
|
65,476
|
||||||
Additional paid-in capital
|
26,232,375
|
21,082,749
|
||||||
Accumulated deficit
|
(28,976,967
|
) |
(25,876,205
|
)
|
||||
Total stockholders' deficit
|
(2,564,899
|
) |
(4,727,980
|
)
|
||||
Total liabilities and stockholders' deficit
|
$
|
523,591
|
$
|
316,673
|
2013
|
2012
|
|||||||
Sales, net
|
$
|
156,803
|
$
|
249,416
|
||||
Cost of goods sold
|
176,375
|
177,403
|
||||||
Gross margin
|
(19,572)
|
72,013
|
||||||
Operating expenses
|
||||||||
Compensation and benefits
|
920,075
|
1,485,301
|
||||||
Depreciation expense
|
8,539
|
11,285
|
||||||
General and administrative expenses
|
464,143
|
689,282
|
||||||
Professional and outside services
|
876,192
|
1,282,929
|
||||||
Selling and marketing expenses
|
174,043
|
274,493
|
||||||
Total operating expenses
|
2,442,992
|
3,743,290
|
||||||
Loss from operations
|
(2,462,564
|
)
|
(3,671,277
|
)
|
||||
Other income (expense)
|
||||||||
Gain on conversion options, derivative liabilities
|
518,739
|
137,794
|
||||||
Other income
|
1,678
|
74,019
|
||||||
Interest expense
|
(1,158,616
|
)
|
(984,880
|
)
|
||||
Total other income (expense)
|
(638,199
|
)
|
(773,067
|
)
|
||||
Loss before income taxes
|
(3,100,763
|
)
|
(4,444,344
|
)
|
||||
Income taxes
|
—
|
—
|
||||||
Net loss
|
$
|
(3,100,763
|
)
|
$
|
(4,444,344
|
)
|
||
Loss per share:
|
||||||||
Basic and diluted
|
$
|
(0.04
|
)
|
$
|
(0.09
|
)
|
||
Weighted average number of common shares outstanding:
|
||||||||
Basic and diluted
|
83,344,648
|
50,237,728
|
Preferred Stock
|
Common Stock
|
Additional Paid-In
|
Accumulated
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Issued
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance, December 31, 2011
|
— | $ | — | 45,425,135 | $ | 45,425 | $ | 17,809,281 | $ | (21,431,861 | $ | (3,577,155 | ) | |||||||||||||||
Issuance of convertible, preferred stock in connection with private offerings
|
6,000 | 6 | — | — | 5,994 | — | 6,000 | |||||||||||||||||||||
Conversion of convertible, preferred stock into common stock
|
(6,000 | (6 | 20,000 | 20 | -14 | — | — | |||||||||||||||||||||
Issuance of common stock in connection with private offerings
|
— | — | 4,616,067 | 4,616 | 323,008 | — | 327,624 | |||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services
|
— | — | 6,608,764 | 6,609 | 1,089,996 | — | 1,096,605 | |||||||||||||||||||||
Issuance of common stock as compensation to employees and officers
|
— | — | 4,595,000 | 4,595 | 530,255 | — | 534,850 | |||||||||||||||||||||
Issuance of common stock in connection with convertible debenture offering
|
— | — | 100,000 | 100 | 11,900 | — | 12,000 | |||||||||||||||||||||
Issuance of common stock in connection with common stock warrant exercises
|
— | — | 611,681 | 611 | 152,309 | — | 152,920 | |||||||||||||||||||||
Conversion of convertible debentures into common stock
|
— | — | 3,499,666 | 3,500 | 521,450 | — | 524,950 | |||||||||||||||||||||
Fair market value of warrants issued in conjunction with subordinated debentures
|
— | — | — | — | 63,620 | — | 63,620 | |||||||||||||||||||||
Recognition of beneficial conversion features embedded with convertible debentures
|
— | — | — | — | 574,950 | — | 574,950 | |||||||||||||||||||||
Net loss
|
— | — | — | — | — | (4,444,344 | (4,444,344 | ) | ||||||||||||||||||||
Balance, December 31, 2012
|
— | $ | — | 65,476,313 | $ | 65,476 | $ | 21,082,749 | $ | (25,876,205 | $ | (4,727,980 | ) | |||||||||||||||
Issuance of convertible, preferred stock in connection with forgiveness of officer loans
|
300,000 | 300 | — | — | 199,700 | — | 200,000 | |||||||||||||||||||||
Issuance of common stock in connection with private offerings
|
— | — | 30,426,664 | 30,427 | 539,373 | — | 569,800 | |||||||||||||||||||||
Issuance of common stock in exchange for consulting, professional and other services
|
— | — | 19,947,434 | 19,947 | 542,739 | — | 562,686 | |||||||||||||||||||||
Issuance of common stock as compensation to employees and officers
|
— | — | 1,800,000 | 1,800 | 104,200 | — | 106,000 | |||||||||||||||||||||
Conversion of convertible debentures and accrued interest into common stock
|
— | — | 59,943,776 | 59,944 | 848,728 | — | 908,672 | |||||||||||||||||||||
Forgiveness of officer loans & accrued salaries by officers
|
1,800,000 | 1,800 | — | — | 2,842,200 | — | 2,844,000 | |||||||||||||||||||||
Recognition of beneficial conversion features embedded with convertible debentures
|
— | — | — | — | 63,696 | — | 63,696 | |||||||||||||||||||||
Recognition of common stock options issued to employee
|
— | — | — | — | 8,990 | — | 8,990 | |||||||||||||||||||||
Net loss
|
— | — | — | — | — | (3,100,763 | (3,100,763 | ) | ||||||||||||||||||||
Balance, December 31, 2013
|
2,100,000 | $ | 2,100 | 177,594,187 | $ | 177,594 | $ | 26,232,375 | $ | (28,976,968 | $ | (2,564,899 | ) |
2013
|
2012
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (3,100,763 | ) | $ | (4,444,344 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation expense
|
8,539 | 11,285 | ||||||
(Gain) on conversion options, derivative liabilities
|
(518,739 | ) | (137,794 | ) | ||||
Non-cash interest expense related to convertible debentures
|
987,237 | 822,792 | ||||||
Allowance for doubtful accounts-includes allowance on employee receivables
|
148,344 | 43,118 | ||||||
Common stock and common stock warrants issued in exchange for services
|
562,686 | 114,315 | ||||||
Common stock issued in connection with convertible debt
|
- | 1,108,605 | ||||||
Common stock issued as employee compensation
|
106,000 | 534,850 | ||||||
Share based compensation expense related to employee stock option grants
|
8,990 | |||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(3,203 | ) | 42,192 | |||||
Inventory
|
(265,563 | ) | 140,663 | |||||
Prepaid expenses and other current assets
|
(68,970 | ) | (171,368 | ) | ||||
Other assets
|
35,272 | (10,073 | ) | |||||
Bank overdrafts
|
(11,042 | ) | (8,115 | ) | ||||
Accounts payable
|
(238,223 | ) | (58,224 | ) | ||||
Accrued liabilities
|
481,854 | 411,961 | ||||||
Net cash used in operating activities
|
(1,867,581 | ) | (1,600,137 | ) | ||||
Cash flows from financing activities:
|
||||||||
Net proceeds from loans payable
|
265,000 | - | ||||||
Net proceeds from (payments on) officer loans
|
646,238 | 679,101 | ||||||
Net proceeds from convertible debentures
|
387,000 | 437,668 | ||||||
Net proceeds from loans payable to related party
|
67,150 | - | ||||||
Repayments on loans payable
|
(6,271 | ) | (3,176 | ) | ||||
Net proceeds from the issuance of convertible, preferred stock
|
- | 6,000 | ||||||
Net proceeds from the issuance of common stock
|
569,800 | 327,624 | ||||||
Net proceeds from the exercise of common stock warrants
|
- | 152,920 | ||||||
Net cash provided by financing activities
|
1,928,917 | 1,600,137 | ||||||
Net change in cash and cash equivalents
|
61,336 | - | ||||||
Cash and cash equivalents at beginning of period
|
- | - | ||||||
Cash and cash equivalents at end of period
|
$ | 61,336 | $ | - | ||||
Supplemental disclosures:
|
||||||||
Interest paid
|
$ | 10,229 | $ | 109,343 | ||||
Income taxes paid
|
$ | - | $ | - | ||||
Supplemental disclosures of non-cash investing and financing activities:
|
||||||||
Preferred stock issued in connection with conversion of loans payable to officers
|
$ | 300,000 | $ | - | ||||
Common stock issued in connection with conversion of convertible debentures
|
$ | 820,567 | $ | 536,500 | ||||
Common stock issued in connection with conversion of accrued interest
|
$ | 88,105 | $ | 536,500 | ||||
Forgiveness of officers loans and accrued salaries contributed as capital
|
$ | 2,744,000 | $ | - | ||||
Discounts on convertible debentures
|
$ | 416,832 | $ | 905,669 | ||||
Warrants issued in conjunction with convertible debentures
|
$ | 63,696 | $ | - |
Equipment
|
5 Years
|
Furniture and fixtures
|
5 Years
|
Vehicles
|
5 Years
|
2013
|
2012
|
|||||||
Raw materials
|
$
|
16,652
|
$
|
—
|
||||
Finished goods – beverages
|
287,612
|
38,700
|
||||||
Total inventory
|
$
|
304,264
|
$
|
38,700
|
2013
|
2012
|
|||||||
Accounts Receivable
|
$
|
26,414
|
$
|
29,074
|
||||
Less: Allowance for doubtful accounts
|
(17,664)
|
(9,727
|
)
|
|||||
Accounts Receivable, net
|
$
|
8,750
|
$
|
19,347
|
2013
|
2012
|
|||||||
Short-term security deposit
|
$ | 6,000 | $ | 22,000 | ||||
Employee and other advances, net
|
— | 88,420 | ||||||
Prepaid services
|
131,441 | 127,867 | ||||||
Total prepaid expenses and other assets
|
137,441 | 238,287 | ||||||
Less: Non-current portion of employee advances, net
|
— | 35,272 | ||||||
Prepaid expenses and other current assets
|
$ |
137,441
|
$ | 203,015 |
2013
|
2012
|
|||||||
Equipment
|
$
|
18,690
|
$ |
18,690
|
||||
Furniture and fixtures
|
9,156
|
9,156
|
||||||
Vehicles
|
75,907
|
75,907
|
||||||
Accumulated depreciation
|
(91,953
|
)
|
(83,414
|
)
|
||||
Total property and equipment, net
|
$
|
11,800
|
$ |
20,339
|
2013
|
2012
|
|||||||
Salaries and bonuses
|
$ |
505,884
|
$
|
1,045,888
|
||||
Interest expense on convertible debentures
|
202,648
|
85,927
|
||||||
Professional services
|
51,035
|
34,074
|
||||||
Payroll taxes and penalties
|
449,332
|
601,647
|
||||||
Other
|
8,386
|
|||||||
Total accrued expenses
|
$ |
1,217,285
|
$
|
1,767,536
|
December 31,
2013
|
December 31,
2012
|
|||||||
Loans payable | $ | 530,000 | $ | — | ||||
Discounts
|
(91,625 | ) | — | |||||
Loans payable current, net of discounts | $ | 438,375 | $ | — |
Issue Date |
Default Interest Rate
|
Interest Rate | Face Value | Original Due Date |
Conversion Rate of
Face Value to Common Shares
|
|||||||||||
02/18/2011
|
12 | % | $ | 300,000 |
02/18/2014
|
50.00
|
||||||||||
07/18/2011
|
12 | % | 25,000 |
07/14/2014
|
50.00
|
(1) | ||||||||||
07/28/2011
|
3.75 | % | 93,729 |
07/31/2015
|
50.00
|
(1) | ||||||||||
08/26/2011
|
12 | % | 50,000 |
08/25/2015
|
50.00
|
(1) | ||||||||||
02/01/2012
|
12 | % | 75,000 |
01/31/2013
|
3.73 | |||||||||||
07/02/2012
|
18%
|
12 | % | 60,000 |
07/01/2013
|
125.00 | (2) | |||||||||
04/25/2012
|
12 | % | 30,000 |
04/25/2013
|
3.33 | |||||||||||
09/17/2013
|
6 | % | 31,500 |
09/17/2014
|
92.17
|
(3) | ||||||||||
11/21/2013
|
12 | % | 20,600 |
11/21/2014
|
107.87
|
(4) | ||||||||||
11/07/2013
|
8 | % | 53,000 |
08/08/2014
|
108.89
|
(5) | ||||||||||
10/31/2013
|
18 | % | 204,000 |
01/01/2016
|
96.55
|
(6) | ||||||||||
Total
|
$ | 942,829 |
(1)
|
The Company has determined the conversion ratio as of December 31, 2013. These debentures were convertible at a conversion price equal to 80% of the average share price of the Company’s common stock for the ten (10) previous trading days prior to conversion. As a result, the conversion ratio may fluctuate from period to period. Modified to $0.02 on October 15, 2013.
|
(2)
|
The Company has determined the conversion ratio as of December 31, 2013. These debentures are convertible at a conversion price equal to the lesser of 75% of the average share price of the Company’s common stock for the five (5) previous trading days prior to conversion or a base conversion price equivalent to the lowest issued price per share. As a result, the conversion ratio may fluctuate from period to period.
|
(3)
|
The Company has determined the conversion ratio as of December 31, 2013. These debentures are convertible at a conversion price equal to 70% of the lowest closing bid price of the Company’s common stock on the four previous trading days prior to and day of conversion, but not less than $0.0001. As a result, the conversion ratio may fluctuate from period to period.
|
(4)
|
The Company has determined the conversion ratio as of December 31, 2013. These debentures are convertible at a conversion price equal to 50% of the lowest intra-day price of the Company’s common stock on the 10 previous trading days prior to the day of conversion. As a result, the conversion ratio may fluctuate from period to period.
|
(5)
|
The Company has determined the conversion ratio as of December 31, 2013. These debentures are convertible at a conversion price equal to 58% of the average of the 3 lowest share closing bid prices of the Company’s common stock on the 10 previous trading days prior to the day of conversion. As a result, the conversion ratio may fluctuate from period to period.
|
(6)
|
The Company has determined the conversion ratio as of December 31, 2013. These debentures are convertible at a conversion price equal to 50% of the lowest closing bid price of the Company’s common stock on the 20 previous trading days prior to the day of conversion. As a result, the conversion ratio may fluctuate from period to period.
|
December 31,
2013
|
December 31,
2012
|
|||||||
Convertible notes-face value
|
$ |
942,829
|
$
|
1,337,668
|
||||
Loan discount
|
( 617,729
|
)
|
(714,674
|
) | ||||
Amortization of loan discount
|
294,064
|
297,842
|
||||||
Current portion
|
(445,289
|
)
|
(222,095
|
) | ||||
Convertible, subordinated debentures, net of discounts and current portion
|
$ |
173,875
|
$
|
698,741
|
2013
|
2012
|
|||||||
Expected dividend yield (1)
|
—
|
%
|
—
|
%
|
||||
Risk-free interest rate (2)
|
0.10 – 1.32%
|
0.15 – 0.62
|
||||||
Expected volatility (3)
|
202.3 – 253.5
|
%
|
140.7 – 2305.60
|
%
|
||||
Expected life (in years) (4)
|
0.60 – 4.00
|
0.75 – 3.60
|
(1)
|
The Company has no history or expectation of paying cash dividends on its common stock.
|
(2)
|
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
|
(3)
|
The volatility is based upon the average volatility rate of the Company's common stock trading price.
|
(4)
|
The expected life represents the due date of the note.
|
11. Embedded Conversion on Option Liabilities
|
December 31,
2013
|
December 31,
2012
|
|||||||
Note inception date fair value allocated to debt discount
|
—
|
% |
—
|
% | ||||
Change in fair value – (gain)
|
0.10 – 0.38
|
% |
0.16 – 0.71
|
% | ||||
Embedded conversion option derivative liability fair value on December 31, 2013
|
223.0 –316.50
|
% |
153.3 – 280.1
|
% | ||||
0.15 – 2.17
|
1.00 – 4.00
|
(1)
|
The Company has no history or expectation of paying cash dividends on its common stock.
|
(2)
|
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
|
(3)
|
The volatility for the period ended December 31, 2013 is based upon the historical volatility of the Company’s stock price, a period equal to the expected life of the note or twenty four months following the reverse capitalization transaction.
|
(4)
|
The expected life represents the due date of the note.
|
December 31,
2013
|
December 31,
2012
|
|||||||
Note inception date fair value allocated to debt discount
|
$ | 878,916 | $ | 267,099 | ||||
Change in fair value – (gain)
|
(554,216 | ) | (58,717 | ) | ||||
Embedded conversion option derivative liability fair value on December 31, 2013
|
$ | 324,700 | $ | 208,682 |
|
Consolidated
Balance Sheet
|
Quoted Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
|
Quoted Prices
for Similar
Assets or
Liabilities in
Active
Markets
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Derivative Liabilities:
|
||||||||||||||||
December 31, 2013
|
$ | 336,884 | $ | - | $ | - | $ | 336,884 | ||||||||
December 31, 2012
|
$ | 243,623 | $ | - | $ | - | $ | 243,623 |
For the Year Ended December 31,
|
||||||||
2013
|
2012
|
|||||||
Beginning balance
|
$
|
243,623 |
$
|
- | ||||
Aggregate fair value of conversion features upon issuance
|
878,916 | 381,414 | ||||||
Change in fair value of conversion features
|
(785,655
|
)
|
(137,791
|
)
|
||||
Ending balance
|
$
|
336,884 |
$
|
243,623 |
2013
|
2012
|
|||||||
Loans payable to officers
|
$ |
3,777
|
$
|
1,457,539
|
2013
|
2012
|
|||||||
Loans payable to related party
|
$
|
67,150
|
$
|
—
|
Number of
Options
|
Weighted-Average Exercise Price
|
Average Remaining
Contractual Life (Years)
|
||||||||||
Outstanding and exercisable on December 31, 2012
|
226,076
|
$
|
1.49
|
1.53
|
||||||||
Granted
|
100,000
|
0.25
|
4.01
|
|||||||||
Exercised
|
—
|
—
|
—
|
|||||||||
Forfeited and expired
|
—
|
—
|
—
|
|||||||||
Outstanding and exercisable on December 31, 2013
|
326,076
|
$
|
$1.11
|
2.29
|
Number of
Warrants
Outstanding
|
Weighted Average
Exercise Price
|
Remaining
Contractual
Life (Years
)
|
|||||||
Balance, December 31, 2011
|
3,649,503
|
$
|
1.56
|
2.57
|
|||||
Warrants issued
|
780,000
|
$
|
0.73
|
4.68
|
|||||
Warrants exercised
|
(611,882)
|
$
|
0.25
|
||||||
Balance, December 31, 2012
|
3,817,621
|
$
|
1.39
|
2.14
|
|||||
Warrants issued
|
216,666
|
$
|
1.50
|
3.16
|
|||||
Warrants exercised
|
-
|
||||||||
Warrants expired
|
(1,490,601)
|
$
|
1.52
|
||||||
Balance, December 31, 2013
|
2,543,686
|
$
|
1.32
|
2.30
|
(1)
|
The remaining contractual life of the warrants outstanding as of December 31, 2013 ranges from .01 to 4.00 years.
|
2013
|
2012
|
|||||||
Expected dividend yield (1)
|
0.00
|
%
|
0.00%
|
|||||
Risk-free interest rate (2)
|
.72
|
%
|
0.16%-0.71%
|
|||||
Expected volatility (3)
|
303.70
|
%
|
153.3%-297.4%
|
|||||
Expected life (in years)
|
5.00
|
1.00-7.00
|
(1)
|
The Company has no history or expectation of paying cash dividends on its common stock.
|
(2)
|
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
|
(3)
|
The volatility of the Company stock is based on historical trading prices.
|
December 31,
2013
|
||||
Expected dividend yield (1)
|
—
|
%
|
||
Risk-free interest rate (2)
|
0.72
|
%
|
||
Expected volatility (3)
|
241.9
|
%
|
||
Expected life (in years) (4)
|
5.00
|
(1)
|
The Company has no history or expectation of paying cash dividends on its common stock.
|
(2)
|
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
|
(3)
|
The volatility for the period ended December 31, 2012 is based upon the historical volatility of the Company’s stock price, a period equal to the expected life of the note or twenty four months following the reverse capitalization transaction.
|
(4)
|
The expected life represents the due date of the note.
|
Grant date fair value allocated to derivative liability
|
$
|
114,315
|
||
Change in fair value – (gain)
|
(102,131
|
)
|
||
Option derivative liability fair value on December 31, 2013
|
$
|
12,184
|
2013
|
2012
|
|||||||
Stock options
|
326,076
|
226,076
|
||||||
Outstanding unexercised warrants
|
2,542,686
|
3,817,622
|
||||||
Total
|
2,886,762
|
4,043,698
|
2013
|
Effective Tax Rate
|
2012
|
Effective Tax Rate
|
|||||||||||||
Federal taxes at statutory rate
|
$ | (1,064,547 | ) | 34.40 | % | $ | (1,528,854 | ) | 34.4 | % | ||||||
State income taxes, net of federal tax benefit
|
(111,654 | ) | 3.61 | % | ( 160,352 | ) | 3.61 | % | ||||||||
Change in valuation allowance
|
1,176,201 | (38.01 | ) % |
1,689,206
|
(38.01 | %) | ||||||||||
Total
|
$ | — | 0.00 | % | $ | — | 0.00 | % |
2013
|
2012
|
|||||||
Deferred tax asset:
|
||||||||
Net operating loss carryforward
|
$ | 4,263,409 | $ | 3,182,740 | ||||
Temporary differences
|
1,653,911 | 1,558,650 | ||||||
5,917,321 | 4,741,120 | |||||||
Less: Valuation allowance
|
(5,917,321 | ) | (4,714,120 | ) | ||||
Net deferred tax asset
|
$ | — | $ | — |
Loss from Operations - 2013
|
$ | (3,100,763 | ) | |
Loss from Operations - 2012
|
(4,444,344 | ) | ||
Loss from Operations - 2011
|
(4,472,848 | ) | ||
Loss from Operations - 2010
|
(3,433,761 | ) | ||
Loss from Operations - 2009
|
(56,199 | ) | ||
Loss from Operations - 2008
|
(66,853 | ) | ||
Subtotal
|
(15,574,768 | ) | ||
Add-back temporary differences:
|
||||
Common stock issued as employee compensation
|
889,000 | |||
Common stock issued in exchange for services
|
3,293,456 | |||
Shared based compensation expense on stock options
|
44,526 | |||
Officers' salaries - deferred
|
124,500 | |||
Preliminary NOL
|
$ | (11,223,286 | ) |
2014
|
$ |
99,780
|
||
2015
|
101,668
|
|||
2016
|
91,031
|
|||
2017
|
36,673
|
|||
Total
|
$
|
329,153
|
1 Year DNA Brands (PK) Chart |
1 Month DNA Brands (PK) Chart |
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