Nevada
|
2086
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84-1575085
|
||
(State or Other Jurisdiction of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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Large accelerated filer
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[ ]
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Accelerated filer
|
[ ]
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Non-accelerated filer
(do not check if a smaller reporting company)
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[ ]
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Smaller reporting company
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[X]
|
Title of Each Class of Securities to be Registered (1)
|
Amount to be Registered (2)
|
Proposed
Maximum
Aggregate
Offering Price (3)
|
Amount of
Registration
Fee (3)
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|||||||||
Common Stock, $0.001 par value per share
|
44,863,395
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$
|
7,537,050.36
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$
|
758.98
|
(4)
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(1)
|
Consists of up to (i) 20,589,334 shares of common stock issuable upon conversion of shares of Series C Convertible Preferred Stock (“Series C Preferred”) issued in a series of private placement transactions, first consummated on August 13, 2015 (the “Private Placements”); (ii) 6,479,324 shares of common stock issuable upon exercise of warrants issued in connection with the Private Placements; (iii) up to 17,500,000 shares of common stock issuable upon exercise of a warrant issued to Mr. Vincent C. Smith in connection with the execution of a personal guaranty; and (iv) up to 294,737 shares of common stock issuable upon exercise of a warrant issued to Novelty Capital Group LLC, as consideration for certain advisory services related to investor relations.
|
|
(2)
|
In the event of a stock split, stock dividend or similar transaction involving the common stock of the Registrant, in order to prevent dilution, the number of shares registered shall be automatically increased to cover additional shares in accordance with Rule 416(a) under the Securities Act of 1933, as amended (“Securities Act”).
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(3)
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Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act.
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(4)
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Previously paid.
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The information in this prospectus is not complete and may be changed. The Selling Stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
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|
●
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up to 20,589,334 shares of common stock issuable upon conversion of shares of Series C Convertible Preferred Stock (“Series C Preferred”) issued in a series of private placement transactions, first consummated on August 13, 2015 (the “Private Placements”);
|
|
●
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up to 6,479,324 shares of common stock issuable upon exercise of warrants issued in connection with the Private Placements (the “Warrants”);
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|
●
|
up to 17,500,000 shares of common stock issuable upon exercise of a warrant issued to Mr. Vincent C. Smith in connection with the execution of a personal guaranty (the “Personal Guaranty Warrant”); and
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|
●
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up to 294,737 shares of common stock issuable upon exercise of a warrant issued to Novelty Capital Group LLC, as consideration for certain investment relations services provided to the Company (the “Novelty Warrant”).
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Page
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1
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1
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2
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7
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8
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9
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13
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13
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14
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14
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15
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20
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21
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26
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30
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31
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34 | ||
36
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38
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40
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42
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42
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42
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42
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43
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Securities Offered by the Selling Stockholders
|
44,863,395 shares of common stock
|
Common stock Outstanding as of April 19, 2016
|
112,049,107 shares
|
Use of Proceeds
|
We will not receive any of the proceeds of the shares offered by the Selling Stockholders. We may receive proceeds upon exercise of the warrants, if they are exercised. The shares that will be resold under this prospectus were sold by us, or were issued upon the conversion of securities issued by us.
|
Risk Factors
|
Prior to making an investment decision, you should carefully consider all of the information in this prospectus and, in particular, you should evaluate the risk factors set forth under the caption “Risk Factors” beginning on page 2.
|
Trading Symbol
|
TRUU
|
●
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proper new product selection;
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|
●
|
successful sales and marketing efforts;
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●
|
timely delivery of new products;
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|
●
|
availability of raw materials;
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●
|
pricing of raw materials;
|
|
●
|
regulatory allowance of the products; and
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|
●
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customer acceptance of new products.
|
|
·
|
our ability to implement our business strategy, including the transition from a hardware storage company to a software solutions and services provider;
|
|
·
|
anticipated trends and challenges in our business and the markets in which we operate;
|
|
·
|
our expected future financial performance;
|
|
·
|
our expectations regarding our operating expenses;
|
|
·
|
our ability to anticipate market needs or develop new or enhanced products to meet those needs;
|
|
·
|
our ability to expand into other sectors of the storage market, beyond protection storage;
|
|
·
|
our expectations regarding market acceptance of our products;
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|
·
|
our ability to compete in our industry and innovation by our competitors;
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|
·
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our ability to protect our confidential information and intellectual property rights;
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|
·
|
our ability to successfully identify and manage any potential acquisitions;
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|
·
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our ability to manage expansion into international markets;
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|
·
|
our ability to remediate the material weakness in our internal controls identified by our independent registered public accounting firm;
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·
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our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;
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·
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our ability to recruit and retain qualified sales, technical and other key personnel;
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|
·
|
our ability to obtain additional financing; and
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|
·
|
our ability to manage growth.
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High
|
Low
|
|||||||
2016 | ||||||||
First Quarter | $ | 0.19 | $ | 0.11 | ||||
2015
|
||||||||
First Quarter
|
$
|
0.25
|
$
|
0.12
|
||||
Second Quarter
|
$
|
0.20
|
$
|
0.14
|
||||
Third Quarter
|
$
|
0.40
|
$
|
0.14
|
||||
Fourth Quarter
|
$
|
0.22
|
$
|
0.06
|
||||
2014
|
||||||||
First Quarter
|
$
|
0.53
|
$
|
0.22
|
||||
Second Quarter
|
$
|
0.49
|
$
|
0.28
|
||||
Third Quarter
|
$
|
0.40
|
$
|
0.30
|
||||
Fourth Quarter
|
$
|
0.38
|
$
|
0.13
|
Name
|
Age
|
Position
|
||
Kevin Sherman
|
45
|
Chief Executive Officer and Director
|
||
Daniel Kerker
|
43
|
Chief Financial Officer, Treasurer and Secretary
|
||
Robert Van Boerum
|
39
|
Chief Operations Officer
|
||
Ramona Cappello
|
56
|
Chairman
|
||
Scot Cohen
|
46
|
Director
|
||
Neil LeVecke
|
48
|
Director
|
Members:
|
Mr. Scot Cohen (Chairman)
Ms. Ramona Cappello
Mr. Neil LeVecke
|
Number of Meetings in 2015:
|
None
|
Functions:
|
This committee assists the Board in fulfilling its legal and fiduciary obligations in matters involving the Company’s accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by the Company’s independent accountants and reviewing their reports regarding the Company’s accounting practices and systems of internal accounting controls. This committee is responsible for the appointment, compensation, retention and oversight of the independent accountants and for ensuring that the accountants are independent of management.
Following the resignation of three of the Company's independent Board members between November 2014 and March 2015, the Board temporarily suspended the Audit Committee until there were sufficient independent directors to satisfy the independence requirements for Audit Committees as determined by the NASDAQ Stock Market Rules. During this time, the responsibilities of the Audit Committee were carried out by the full Board of Directors. The Audit Committee was reinstated in November 2015, and did not meet during the year ended December 31, 2015.
|
Members:
|
Ms. Ramona Cappello (Chairman)
Mr. Scot Cohen
|
Number of Meetings in 2015:
|
Three
|
Functions:
|
This committee determines the Company’s general compensation policies and practices. This committee also reviews and approves compensation packages for the Company’s officers and, based upon such review, recommends overall compensation packages for the officers to the Board. This committee also reviews and determines equity-based compensation for the Company’s directors, officers, employees and consultants and administers the Company’s 2013 Stock Incentive Plan.
|
Members:
|
Mr. Neil LeVecke (Chairman)
Ms. Ramona Cappello
|
Number of Meetings in 2015:
|
One
|
Functions:
|
This committee is responsible for making recommendations to the Board regarding candidates for directorships and the size and composition of the Board and for overseeing the Company’s corporate governance guidelines and reporting and making recommendations to the Board concerning corporate governance matters.
|
(a)
|
our principal executive officer;
|
(b)
|
our most highly compensated executive officers who were serving as an executive officer at the end of the fiscal year ended December 31, 2015 who had total compensation exceeding $100,000 (together, with the principal executive officer, the “Named Executive Officers”); and
|
(c)
|
any additional individuals who would have been considered Named Executive Officers, but for the fact that they were not serving in such capacity at the end of our most recently completed fiscal year.
|
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards
($)
|
Option Awards
($) (1)
|
Non-Equity Incentive Plan Compensation
($)
|
All Other Compensation
($)
|
Total
($)
|
||||||||||||||||||||||
Kevin Sherman, Chief Executive Officer, Director
|
2015
|
$
|
181,751
|
$
|
53,300
|
$
|
471,691
|
$
|
(262,795
|
)
|
$
|
-
|
$
|
-
|
$
|
443,947
|
||||||||||||||
2014
|
$
|
156,250
|
$
|
-
|
$
|
-
|
$
|
262,795
|
$
|
-
|
$
|
-
|
$
|
419,045
|
||||||||||||||||
Daniel Kerker
Chief Financial Officer
|
2015
|
$
|
178,680
|
$
|
63,959
|
$
|
471,691
|
$
|
(262,794
|
)
|
$
|
-
|
$
|
-
|
$
|
451,536
|
||||||||||||||
2014
|
$
|
180,000
|
$
|
-
|
$
|
-
|
$
|
262,794
|
$
|
-
|
$
|
-
|
$
|
442,794
|
||||||||||||||||
Robert Van Boerum
Chief Operations Officer
|
2015
|
$
|
144,970
|
$
|
38,433
|
$
|
353,768
|
$
|
(187,893
|
)
|
$
|
-
|
$
|
-
|
$
|
349,278
|
||||||||||||||
2014
|
$
|
126,186
|
$
|
-
|
$
|
-
|
$
|
187,893
|
$
|
-
|
$
|
-
|
$
|
314,079
|
||||||||||||||||
Lance Leonard (2)
|
2015
|
$
|
229,125
|
$
|
126,523
|
$
|
302,500
|
$
|
(375,188
|
)
|
$
|
-
|
$
|
-
|
$
|
282,960
|
||||||||||||||
Former Chief Executive Officer and Former Director
|
2014
|
$
|
250,000
|
$
|
-
|
$
|
-
|
$
|
375,188
|
$
|
-
|
$
|
-
|
|
$
|
625,188
|
(1)
|
During the year ended December 31, 2015, all Named Executive Officers exchanged their option awards for restricted Common Stock awards, valued at the closing price of the Company's Common Stock at the time of grant.
|
(2)
|
Mr. Leonard resigned from the Company effective January 15, 2016.
|
Name
|
|
Fees earned or
Paid in Cash
($)
|
Option
Awards
($)
|
Stock
Awards
($)
|
Total
($)
|
|||||||||||
Ramona Cappello (1)
|
$
|
17,500
|
$
|
-
|
$
|
-
|
$
|
17,500
|
||||||||
Neil LeVecke (2)
|
$
|
27,500
|
$
|
-
|
$
|
-
|
$
|
27,500
|
||||||||
Scot Cohen
|
|
$
|
30,000
|
$
|
-
|
$
|
-
|
$
|
30,000
|
|||||||
Carl Wistreich (3)
|
$
|
7,500
|
$
|
-
|
$
|
-
|
$
|
7,500
|
||||||||
Lou Imbrogno (3)
|
$
|
7,500
|
$
|
-
|
$
|
-
|
$
|
7,500
|
(1)
|
Ms. Cappello was appointed to the Company’s Board of Directors, effective July 31, 2015.
|
(2)
|
Mr. LeVecke was appointed to the Company’s Board of Directors on February 18, 2015.
|
(3)
|
Messrs. Wistreich and Imbrogno each resigned from the Board of Directors on March 10, 2015.
|
Stock Awards
|
||||||||||||||||
Name
|
Number of shares or units of stock that have not vested (#)
|
Market Value of shares or units of stock that have not vested ($)
|
Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)
|
Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested ($)
|
||||||||||||
Kevin Sherman
|
2,398,275
|
(1)
|
$
|
290,191
|
-
|
$
|
-
|
|||||||||
Daniel Kerker
|
2,398,275
|
(1)
|
$
|
290,191
|
-
|
$
|
-
|
|||||||||
Robert Van Boerum
|
1,923,706
|
(1)
|
$
|
232,768
|
-
|
$
|
-
|
|||||||||
Lance Leonard
|
3,672,268
|
(2)
|
$
|
444,344
|
-
|
$
|
-
|
(1)
|
Non-vested shares are scheduled to vest equally in four annual installments, beginning on September 30, 2016.
|
(2)
|
Mr. Leonard resigned from the Company effective January 15, 2016. Upon resignation, Mr. Leonard forfeited all non-vested restricted stock awards.
|
Plan category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted-average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|||||||||
(a)
|
(b)
|
(c)
|
||||||||||
Equity compensation plans approved by security holders
|
-
|
$
|
-
|
508,625
|
||||||||
Equity compensation plans not approved by security holders
|
-
|
-
|
-
|
|||||||||
Total
|
-
|
$
|
-
|
508,625
|
(i)
|
Each of our officers and directors;
|
|
(ii)
|
All officer and directors as a group; and
|
|
(iii)
|
Each person known by us to beneficially own five percent or more of the outstanding shares of our Series B Preferred, Series C Preferred and Common Stock. Percent ownership is calculated based on 1,317,870 shares of Series B Preferred, 88,266 shares of Series C Preferred and 112,049,107 shares Common Stock outstanding at April 19, 2016.
|
Name and Address (1)
|
Series B Convertible Preferred Stock(2)(3)
|
% Ownership of Class (4)
|
||||||
Scot Cohen (5)
|
135,000
|
10.24
|
%
|
|||||
Total Officers and Directors (1)
|
135,000
|
10.24
|
%
|
|||||
First Bank & Trust as custodian of Ronald L. Chez IRA
820 Church Street
Evanston Illinois, 60201
|
425,000
|
32.25
|
%
|
|||||
Wolfson Equities LLC
1 State Street Plaza, 29th Floor
New York, NY 10004
|
187,500
|
9.01
|
%
|
|||||
Joe Kolling
58 Beacon Bay
Newport Beach, CA 92660
|
155,556
|
14.23
|
%
|
|||||
V3 Capital Partners LLC
20 East 20th Street, Apt. 6
New York, NY 10003
|
118,750
|
11.80
|
%
|
(1)
|
Each of the Company’s officers and directors who do not hold shares of Series B Preferred were excluded from this table. Unless otherwise indicated, the address for each stockholder is 18662 MacArthur Blvd., Suite 110, Irvine, CA 92612.
|
(2)
|
Subject to the limitations in the Certificate of Designation, each share of Series B Preferred is convertible into that number of shares of Common Stock equal to the Stated Value, divided by the Conversion Price, as defined in the Certificate of Designation. As of December 31, 2015, the Conversion Price was $0.25.
|
(3)
|
Pursuant to the Certificate of Designation, shares of Series B Preferred may not be converted or exercised, as applicable, to the extent that the holder and its affiliates would own more than 9.99% of the Company’s outstanding Common Stock after such conversion. The Certificate of Designation also entitles each share of Series B Preferred to vote, on an as converted basis, along with the Common Stock; provided, however, that the Series B Preferred may not be voted to the extent that the holder and its affiliates would control more than 9.99% of the Company’s voting power.
|
(4)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
|
(5)
|
Includes 3,750 shares held directly by Mr. Cohen, 118,750 shares held by V3 Capital Partners and 12,500 shares held by the Scot Jason Cohen Foundation. Mr. Cohen is the Managing Partner of V3 Capital Partners and is an officer of the Scot Jason Cohen Foundation.
|
Name and Address (1)
|
Series C Convertible Preferred Stock
|
% Ownership of Class (2)
|
||||||
Red Beard Holdings, LLC
2560 East Chapman Avenue #173
Orange, CA 92869
|
81,471
|
92.30
|
%
|
|||||
Chris Turoci
974 Sandstone Dr.
Glendora, CA 91740
|
7,868
|
8.91
|
%
|
(1)
|
Each of the Company’s directors and officers was excluded from this table, as none of our officers or directors hold shares of Series C Preferred.
|
(2)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
|
Name, Address and Title (if applicable) (1)
|
Number of Shares (1)
|
% Ownership of Class (2)
|
||||||
Kevin Sherman
Chief Executive Officer and Director
|
2,887,942
|
2.58
|
%
|
|||||
Daniel Kerker
Chief Financial Officer, Treasurer and Secretary
|
2,139,594
|
1.91
|
%
|
|||||
Robert Van Boerum
Chief Operations Officer
|
1,000,000
|
*
|
||||||
Ramona Cappello
Chairman
|
–
|
*
|
||||||
Scot Cohen (3)
Director
|
6,545,834
|
5.69
|
%
|
|||||
Neil LeVecke
Director
|
–
|
*
|
||||||
Total officers and directors (4)
|
12,573,370
|
10.93
|
%
|
|||||
Vincent C. Smith (5)(6)
2560 East Chapman Avenue #173
Orange, CA 92869
|
163,711,354
|
71.61
|
%
|
|||||
Vincent C. Smith Annuity Trust 2015-1 (7)
2560 East Chapman Avenue #173
Orange, CA 92869
|
60,300,000
|
47.23
|
%
|
|||||
Red Beard Holdings, LLC (5)(8)
2560 East Chapman Avenue #173
Orange, CA 92869
|
83,430,580
|
42.68
|
%
|
|||||
First Bank & Trust as custodian of Ronald L. Chez IRA (9)
820 Church Street
Evanston Illinois, 60201
|
11,397,294
|
9.43
|
%
|
|||||
Chris Turoci (10)
974 Sandstone Dr.
Glendora, CA 91740
|
9,524,033
|
7.93
|
%
|
*
|
Less than 1%
|
(1)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. All entries exclude beneficial ownership of shares issuable pursuant to warrants, options or other derivative securities that have not vested or that are not otherwise exercisable as of the date hereof or which will not become vested or exercisable within 60 days of April 19, 2016.
|
(2)
|
Percentages are rounded to nearest one-hundredth of one percent. Percentages are based on 112,049,107 shares of Common Stock outstanding. Warrants, options or other derivative securities that are presently exercisable or exercisable within 60 days are deemed to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.
|
(3)
|
Comprised of 3,610,000 shares held of record, 60,000 shares issuable upon conversion of 3,750 shares of Series B Preferred, 17,500 shares issuable upon exercise of warrants, 1,900,000 shares issuable upon conversion of 118,750 shares of Series B Preferred held by V3 Capital Partners, 700,000 shares issuable upon exercise of warrants held by V3 Capital Partners, 200,000 shares issuable upon conversion of 12,500 shares of Series B Preferred held by the Scot Jason Cohen Foundation and 58,334 shares issuable upon exercise of warrants held by the Scot Jason Cohen Foundation each of which are exercisable within 60 days of April 19, 2016.
Mr. Cohen is the Managing Partner of V3 Capital Partners and an officer of the Scot Jason Cohen Foundation, and has dispositive and/or voting power over these shares.
|
(4)
|
Comprised of 9,637,536 shares of Common Stock held of record and an aggregate total of 2,935,834 shares issuable pursuant to certain derivative securities (as described above) each of which are exercisable within 60 days of April 19, 2016.
|
(5)
|
Pursuant to Section 5 of the Third Amended and Restated Certificate of Designations, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock (the “Series C Certificate of Designation”), no holder of Series C Preferred may exercise the voting rights otherwise attributable to the Series C Preferred if such holder, together with any “affiliate” of such Holder (as such term is defined in Rule 144 under the Securities Act of 1933, as amended) or any person or entity deemed to be part of a “group” with such holder (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))) would control in excess of 50% of the total voting power of the outstanding shares of capital stock of the Company at the time of such vote (the “Voting Limitation”); provided, however, that any holder of shares of Series C Preferred may waive the Voting Limitation upon 60 days written notice to the Company.
Ownership percentages in this table were calculated in accordance with Section 13(d) of the Exchange Act, and do not reflect any adjustments due to the Voting Limitation.
|
(6)
|
Based on Company records and ownership information from Amendment No. 4 to Schedule 13D filed by Vincent C. Smith on December 14, 2015. Mr. Smith is the trustee for the Vincent C. Smith Annuity Trust 2015-1 (the “Smith Trust”) and manager of Red Beard Holdings, LLC (“Red Beard”). As such, Mr. Smith has dispositive power, and, subject to certain limitations in the Series C Certificate of Designation, voting power over, and may be deemed to be the beneficial owner of the securities held by each of these entities. In addition to the securities held by the Smith Trust and Red Beard, shares held by Mr. Smith include 17,500,000 shares issuable upon exercise of warrants, presently exercisable within 60 days of April 19, 2016, and 1,459,329 shares held by LB 2, LLC, an entity managed by Mr. Smith.
|
(7)
|
Based on Company records and ownership information from Amendment No. 4 to Schedule 13D filed by Vincent C. Smith on December 14, 2015. Includes 15,633,333 shares issuable upon exercise of warrants, which warrants are exercisable within 60 days of April 19, 2016.
Mr. Vincent C. Smith is the trustee of the Smith Trust, and has dispositive and/or voting power over the shares.
|
(8)
|
Based on ownership information from Amendment No. 4 to Schedule 13D filed by Vincent C. Smith on December 14, 2015. Includes 37,647,333 shares issuable upon conversion of 56,471 shares of Series C Preferred and 12,449,913 shares issuable upon exercise of warrants, each of which are exercisable within 60 days of April 19, 2016.
Mr. Vincent C. Smith is a manager of Red Beard Holdings, LLC, and has dispositive power, and, subject to certain limitations in the Series C Certificate of Designation, voting power over the shares.
|
(9)
|
Based on ownership information from Amendment No. 2 to Schedule 13D filed by Individual Retirement Accounts for the benefit of Ronald L. Chez, Ronald L. Chez Individually and the Chez Family Foundation on December 8, 2014. Includes 6,800,000 shares issuable upon conversion of 425,000 shares of Series B Preferred and 1,983,334 shares issuable upon exercise of warrants, each of which are exercisable within 60 days of April 19, 2016.
|
(10)
|
Comprised of 1,513,052 shares held of record, 5,245,333 shares issuable upon conversion of 7,868 shares of Series C Preferred, 720,000 shares issuable upon conversion of 45,000 shares of Series B Preferred and 2,045,648 shares issuable upon exercise of warrants, each of which are exercisable within 60 days of April 19, 2016.
|
●
|
the number of shares of our common stock beneficially owned by each Selling Stockholders prior to the offering for resale of any of the shares of our common stock being registered by the registration statement of which this prospectus is a part;
|
●
|
the number of shares of our common stock that may be offered for resale for the Selling Stockholders’ account under this prospectus; and
|
●
|
the number and percent of shares of our common stock to be held by the Selling Stockholders after the offering of the resale securities, assuming all of the resale shares of common stock are sold by the Selling Stockholders and that the Selling Stockholders do not acquire any other shares of our common stock prior to their assumed sale of all of the resale shares.
|
Shares Beneficially
Owned Prior
to Offering*
|
Maximum Number of Shares Being Offered Pursuant to this Prospectus
|
Shares Beneficially Owned
After Offering*
|
||||||||||||||||||
Name of Selling Security Holder (1)
|
Number
|
Percent
|
||||||||||||||||||
Red Beard Holdings, LLC (2)
|
83,430,580
|
47.23
|
%
|
23,097,245
|
60,333,335
|
27.77
|
%
|
|||||||||||||
Vincent C. Smith (3)(4)
|
163,711,354
|
71.61
|
%
|
17,500,000
|
123,114,109
|
52.87
|
%
|
|||||||||||||
Christopher Turoci (5)
|
9,524,033
|
7.93
|
%
|
2,382,981
|
7,141,052
|
4.39
|
%
|
|||||||||||||
Nadeem Ahmed (6)
|
2,532,533
|
2.21
|
%
|
1,588,432
|
944,101
|
**
|
||||||||||||||
Novelty Capital Group LLC (7)
|
294,737
|
**
|
294,737
|
–
|
**
|
*
|
Beneficial ownership assumes the exercise of all derivative securities held by the Selling Stockholder.
|
**
|
Less than 1%.
|
(1)
|
Information concerning other Selling Stockholders will be set forth in one or more prospectus supplements from time to time, if required.
|
(2)
|
See table titled “Security Ownership of Certain Beneficial Owners and Management” on p. 35 of this prospectus for information regarding securities held by Red Beard Holdings, LLC (“Red Beard”) prior to this offering.
Shares offered pursuant to this prospectus consist of 17,647,333 shares of common stock issuable upon conversion of 26,471 shares of Series C Preferred and 5,449,912 shares issuable upon exercise of Warrants issued to Red Beard pursuant to the Purchase Agreement and Purchase Agreement Amendment. Vincent C Smith, Manager of Red Beard, has dispositive power, and, subject to certain limitations in the Series C Certificate of Designation, voting power over the shares
|
(3)
|
See table titled “Security Ownership of Certain Beneficial Owners and Management” on p. 35 of this prospectus for information regarding securities held by Mr. Smith held prior to this offering.
Shares offered pursuant to this prospectus consist of 17,500,000 shares of Common Stock issuable upon exercise of the Personal Guaranty Warrant.
|
(4)
|
Due to Mr. Smith’s role as Manager of Red Beard, shares beneficially owned prior to, and after this offering include shares held by Red Beard.
|
(5)
|
See table titled “Security Ownership of Certain Beneficial Owners and Management” on p. 35 of this prospectus for information regarding securities held by Mr. Turoci held prior to this offering.
Shares offered pursuant to this prospectus include 1,765,333 shares of Common Stock issuable upon conversion of 2,648 shares of Series C Preferred and 617,648 shares issuable upon exercise of Warrants issued to Mr. Turoci in connection with the Note Exchange.
|
(6)
|
Shares beneficially owned prior to this offering include 699,334 shares of Common Stock issuable upon conversion of 1,049 shares of Series B Preferred and 244,767 shares issuable upon exercise of certain warrants issued to Mr. Ahmed.
Shares offered pursuant to this prospectus include 1,176,667 shares of Common Stock issuable upon conversion of 1,765 shares of Series C Preferred and 411,765 shares issuable upon exercise of Warrants issued to Mr. Ahmed in connection with the Note Exchange.
|
(7)
|
Shares offered pursuant to this prospectus consist of 294,737 shares of common stock issuable upon exercise of the Novelty Warrant.
Jonathon Skeels, Managing Member of Novelty, has voting and dispositive power over these shares.
|
·
|
on any national securities exchange, market or quotation service on which our common stock may be listed or quoted at the time of sale;
|
·
|
in transactions other than on these exchanges or systems or in the over-the-counter market;
|
·
|
in ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
·
|
in block trades in which the broker-dealer will attempt to sell the securities as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
|
·
|
in purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
·
|
in an exchange distribution in accordance with the rules of the applicable exchange;
|
·
|
in privately negotiated transactions;
|
·
|
in put or call option transactions;
|
·
|
in transactions involving short sales through broker-dealers;
|
·
|
in transactions wherein the Selling Stockholder sells securities short themselves and delivers the securities to close out short positions;
|
·
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
·
|
in transactions that may involve crosses or block transactions;
|
·
|
in transactions where broker-dealers may agree with the Selling Stockholders to sell a specified number of securities at a stipulated price per security;
|
·
|
a combination of any such methods of sale; or
|
·
|
in any other method permitted by applicable law.
|
Page
|
||||
F-2 | ||||
F-3
|
||||
F-4
|
||||
F-5
|
||||
F-6
|
||||
F-7
|
|
|
2015
|
|
|
2014
|
|
||
ASSETS
|
|
|
|
|
|
|
||
Current Assets:
|
|
|
|
|
|
|
||
Cash
|
|
$
|
376,840
|
|
$
|
668,326
|
|
|
Accounts receivable, net
|
|
|
1,843,415
|
|
|
343,709
|
|
|
Inventory
|
|
|
1,558,719
|
|
|
1,363,443
|
|
|
Prepaid expenses and other current assets
|
|
|
75,923
|
|
|
628,675
|
|
|
Total Current Assets
|
|
|
3,854,897
|
|
|
3,004,153
|
|
|
|
|
|
|
|
|
|
||
Restricted Cash
|
|
|
209,360
|
|
|
133,198
|
|
|
Property and Equipment, net
|
|
|
4,530
|
|
|
4,587
|
|
|
Patents, net
|
|
|
1,070,588
|
|
|
1,211,765
|
|
|
Trademarks, net
|
|
|
-
|
|
|
6,849
|
|
|
Goodwill
|
|
|
3,474,502
|
|
|
3,474,502
|
|
|
Total Assets
|
|
$
|
8,613,877
|
|
$
|
7,835,054
|
|
|
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Current Liabilities:
|
|
|
|
|
|
|
||
Accounts payable and accrued expenses
|
|
$
|
1,623,046
|
|
$
|
1,922,285
|
|
|
Debt
|
|
|
1,336,819
|
|
|
4,263,002
|
|
|
Derivative liabilities
|
|
|
6,199,021
|
|
|
1,569,522
|
|
|
Total Current Liabilities
|
|
|
9,158,886
|
|
|
7,754,809
|
|
|
|
|
|
|
|
|
|
||
Commitments and Contingencies (Note 7)
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Stockholders’ (Deficit) Equity:
|
|
|
|
|
|
|
||
Common Stock, $0.001 par value, 300,000,000 and 120,000,000 shares authorized, 111,434,284 and 48,622,675 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively
|
|
|
111,434
|
|
|
48,623
|
|
|
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,750,000 shares authorized, 1,317,870 and 1,490,995 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively
|
|
|
1,318
|
|
|
1,491
|
|
|
Preferred Stock – Series C (liquidation preference $100 per share), $0.001 par value, 150,000 and 0 shares authorized, 48,853 and 0 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively
|
49
|
-
|
||||||
Additional paid in capital
|
|
|
29,690,834
|
|
|
18,388,212
|
|
|
Accumulated deficit
|
|
|
(30,348,644
|
)
|
|
|
(18,358,081
|
)
|
|
|
|
|
|
|
|
||
Total Stockholders’ (Deficit) Equity
|
|
|
(545,009
|
)
|
|
|
80,245
|
|
|
|
|
|
|
|
|
||
Total Liabilities and Stockholders’ (Deficit) Equity
|
|
$
|
8,613,877
|
|
$
|
7,835,054
|
|
|
|
|
2015
|
|
|
|
2014
|
|
Net Sales
|
|
$
|
6,121,097
|
|
$
|
4,693,414
|
|
|
|
|
|
|
|
|
|
||
Cost of Sales
|
|
|
6,282,087
|
|
|
4,401,702
|
|
|
|
|
|
|
|
|
|
||
Gross (Loss) Profit
|
|
|
(160,990
|
)
|
|
|
291,712
|
|
|
|
|
|
|
|
|
||
Operating Expenses
|
|
|
|
|
|
|
||
Selling and marketing
|
|
|
5,073,211
|
|
|
4,388,108
|
|
|
General and administrative
|
|
|
5,475,673
|
|
|
4,450,101
|
|
|
Total operating expenses
|
|
|
10,548,884
|
|
|
8,838,209
|
|
|
|
|
|
|
|
|
|
||
Operating Loss
|
|
|
(10,709,874
|
)
|
|
|
(8,546,497
|
)
|
|
|
|
|
|
|
|
||
Other Expense
|
|
|
|
|
|
|
||
Change in fair value of derivative liabilities
|
|
|
1,262,329
|
|
|
621,159
|
|
|
Interest expense
|
|
|
(257,389
|
)
|
|
|
(202,773
|
)
|
Other (expense) income
|
|
|
(2,285,629
|
)
|
|
|
11,508
|
|
|
|
|
(1,280,689
|
)
|
|
|
429,894
|
|
|
|
|
|
|
|
|
||
Net Loss
|
|
$
|
(11,990,563
|
)
|
|
$
|
(8,116,603
|
)
|
|
|
|
|
|
|
|
||
Dividends on Preferred Stock
|
|
$
|
271,838
|
|
$
|
434,096
|
|
|
|
|
|
|
|
|
|
||
Net loss attributable to common stockholders
|
|
$
|
(12,262,401
|
)
|
|
$
|
(8,550,699
|
)
|
|
|
|
|
|
|
|
||
Net loss per common share
|
|
|
|
|
|
|
||
Basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
||
Weighted average common shares
|
|
|
|
|
|
|
||
outstanding, basic and diluted
|
|
|
75,346,961
|
|
|
36,429,303
|
|
|
|
Common Stock
|
|
Preferred Stock (Series B and C)
|
|
|
Additional
Paid-In
Capital
|
|
Accumulated Deficit
|
|
|
Total
Stockholders'
(Deficit) Equity
|
|
||||||||||||
|
|
Shares
|
|
Amount
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
||||||||||
Balance –
December 31, 2013
|
|
|
27,885,587
|
|
$ |
27,886
|
|
|
1,776,923
|
|
|
$
|
1,777
|
|
|
$
|
14,751,170
|
|
$
|
(10,241,478
|
)
|
|
$
|
4,539,355
|
|
Conversion of Preferred Stock to Common Stock
|
|
|
16,021,632
|
|
16,022
|
|
|
(1,001,352
|
)
|
|
|
(1,001
|
)
|
|
|
(15,021
|
)
|
|
-
|
|
|
|
-
|
|
|
Issuance of Preferred Stock for debt conversions, net of warrants issued
|
|
|
-
|
|
-
|
|
|
204,732
|
|
|
|
205
|
|
|
|
619,154
|
|
|
-
|
|
|
|
619,359
|
|
|
Issuance of Common Stock for services
|
|
|
1,751,270
|
|
1,751
|
|
|
5,692
|
|
|
|
5
|
|
|
|
542,775
|
|
|
-
|
|
|
|
544,531
|
|
|
Issuance of Preferred Stock for cash, net of warrants issued
|
|
|
-
|
|
-
|
|
|
505,000
|
|
|
|
505
|
|
|
|
1,440,064
|
|
|
-
|
|
|
|
1,440,569
|
|
|
Issuance of Common Stock for settlement of debt
|
|
|
2,004,002
|
|
2,004
|
|
|
-
|
|
|
|
-
|
|
|
|
599,647
|
|
|
-
|
|
|
|
601,651
|
|
|
Cashless exercise of warrants
|
|
|
78,427
|
|
78
|
|
|
-
|
|
|
|
-
|
|
|
|
(78
|
)
|
|
-
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
497,271
|
|
|
-
|
|
|
|
497,271
|
|
|
Dividends declared on Preferred Stock
|
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
(434,096
|
)
|
|
-
|
|
|
|
(434,096
|
)
|
|
Reclassification of Derivative liability
|
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
44,751
|
|
|
-
|
|
|
|
44,751
|
|
|
Issuance of Common Stock for dividends on Preferred Stock
|
|
|
881,757
|
|
882
|
|
|
-
|
|
|
|
-
|
|
|
|
342,575
|
|
|
-
|
|
|
|
343,457
|
|
|
Net Loss
|
|
|
-
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(8,116,603
|
)
|
|
|
(8,116,603
|
)
|
|
Balance –
December 31, 2014
|
|
|
48,622,675
|
|
$ |
48,623
|
|
|
1,490,995
|
|
|
$
|
1,491
|
|
|
$
|
18,388,212
|
|
$
|
(18,358,081
|
)
|
|
$
|
80,245
|
|
Conversion of Preferred Stock to Common Stock
|
|
|
55,947,335
|
|
55,947
|
|
|
(252,891
|
)
|
|
|
(252
|
)
|
|
|
(55,695)
|
|
-
|
|
|
|
-
|
|||
Issuance of Preferred Stock for debt conversions, net of warrants issued
|
|
|
-
|
|
-
|
|
|
12,148
|
|
|
12
|
|
|
835,514
|
|
-
|
|
|
|
835,526
|
|||||
Issuance of Common Stock for services
|
|
|
2,413,811
|
|
2,414
|
|
|
-
|
|
|
-
|
|
|
485,412
|
|
-
|
|
|
|
487,826
|
|||||
Issuance of Preferred Stock Series C for cash, net of warrants issued
|
|
|
-
|
|
-
|
|
|
116,471
|
|
|
116
|
|
|
8,750,478
|
|
-
|
|
|
|
8,750,594
|
|||||
Stock-based compensation
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,055,448 |
|
-
|
|
|
|
1,055,448 | |||||
Dividends declared on Preferred Stock
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(271,838
|
)
|
|
-
|
|
|
|
(271,838
|
)
|
|||
Issuance of Common Stock for Employee Bonuses
|
|
|
2,187,818
|
|
2,188
|
|
|
-
|
|
|
|
-
|
|
|
216,594
|
|
-
|
|
|
|
218,782
|
||||
Issuance of Common Stock for dividends on Preferred Stock
|
|
|
1,512,645
|
|
1,512
|
|
|
-
|
|
|
-
|
|
|
287,459
|
|
-
|
|
|
|
288,971
|
|||||
Issuance of Restricted Stock to Employees
|
750,000
|
750
|
-
|
-
|
(750
|
)
|
-
|
-
|
|||||||||||||||||
Net Loss
|
-
|
-
|
-
|
-
|
-
|
(11,990,563
|
)
|
(11,990,563
|
)
|
||||||||||||||||
Balance – December 31, 2015
|
111,434,284
|
$ |
111,434
|
1,366,723
|
$
|
1,367
|
$
|
29,690,834
|
$
|
(30,348,644
|
)
|
$
|
(545,009
|
)
|
|
|
|
2015
|
|
|
2014
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,990,563
|
)
|
|
$
|
(8,116,603
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
||
Depreciation
|
|
|
3,087
|
|
|
6,161
|
|
|
Amortization
|
|
|
148,026
|
|
|
182,843
|
|
|
Provision for bad debt expense
|
|
|
(51,769
|
) |
|
(48,473
|
)
|
|
Change in estimated fair value of derivative liabilities
|
|
|
(1,262,329
|
)
|
|
|
(621,159
|
)
|
Fair value of warrants issued for guaranty
|
|
|
2,263,783
|
|
|
-
|
|
|
Fair value of stock issued for services
|
|
|
487,826
|
|
|
544,531
|
|
|
Fair value of stock issued for bonuses
|
218,782
|
-
|
||||||
Stock based compensation
|
|
|
1,055,448
|
|
|
497,271
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
||
Accounts receivable
|
|
|
(1,447,937
|
)
|
|
|
(120,168
|
)
|
Inventory
|
|
|
(195,276
|
)
|
|
|
(306,687
|
)
|
Prepaid expenses and other current assets
|
|
|
552,752
|
|
|
(37,241
|
)
|
|
Accounts payable and accrued expenses
|
|
|
(214,899
|
)
|
|
|
1,369,819
|
|
Net cash used in operating activities
|
|
|
(10,433,069
|
)
|
|
|
(6,649,706
|
)
|
|
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
||
Change in restricted cash
|
|
|
(76,162
|
)
|
|
|
(133
|
)
|
Purchase of property and equipment
|
|
|
(3,030
|
)
|
|
|
(2,349
|
)
|
Net cash used in investing activities
|
|
|
(79,192
|
)
|
|
|
(2,482
|
)
|
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
||
Proceeds from issuance of Series B Preferred Stock, net
|
|
|
-
|
|
|
1,857,413
|
|
|
Proceeds from issuance of Series C Preferred Stock, net
|
|
|
11,999,958
|
|
|
-
|
|
|
Proceeds from debt
|
|
|
1,103,817
|
|
|
4,263,002
|
|
|
Repayments on debt
|
|
|
(2,883,000
|
)
|
|
|
(1,936,667
|
)
|
Net cash provided by financing activities
|
|
|
10,220,775
|
|
|
4,183,748
|
|
|
|
|
|
|
|
|
|
||
NET DECREASE IN CASH
|
|
|
(291,486
|
)
|
|
|
(2,468,440
|
)
|
|
|
|
|
|
|
|
||
CASH – beginning of year
|
|
|
668,326
|
|
|
3,136,766
|
|
|
|
|
|
|
|
|
|
||
CASH – end of year
|
|
$
|
376,840
|
|
$
|
668,326
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
179,056
|
|
|
$
|
7,944
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock
|
|
$
|
55,695
|
|
|
$
|
15,021
|
|
Conversion of notes payable and accrued interest to common stock
|
|
$
|
-
|
|
|
$
|
818,926
|
|
Conversion of notes payable and accrued interest to Series C preferred stock
|
$
|
1,214,207
|
$
|
-
|
||||
Dividends paid in common stock
|
|
$
|
288,971
|
|
|
$
|
343,457
|
|
Dividends declared but unpaid
|
|
$
|
271,838
|
|
|
$
|
434,096
|
|
Reclassification of derivative liability
|
|
$
|
-
|
|
|
$
|
44,751
|
|
Warrants issued in connection with Series B offering
|
|
$
|
-
|
|
|
$
|
616,411
|
|
Warrants issued in connection with Series C offering
|
$
|
3,249,364
|
$
|
-
|
||||
Warrants issued in connection with debt conversions |
$
|
378,681 |
$
|
-
|
||||
Issuance of common stock for settlement of debt
|
|
$
|
-
|
|
|
$
|
601,651
|
|
Cashless exercise of warrants
|
|
$
|
-
|
|
|
$
|
78
|
|
|
December 31, 2015 |
December 31,
2014
|
||||||
Purchased materials
|
$ | 689,703 | $ | 796,609 | ||||
Finished goods
|
869,016 | 566,834 | ||||||
Total
|
$ | 1,558,719 | $ | 1,363,443 |
Warrants
Outstanding
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding, December 31, 2013
|
12,590,467
|
$
|
0.55
|
|||||
Granted
|
4,022,936
|
0.30
|
||||||
Exercised
|
(179,633
|
)
|
0.25
|
|||||
Expired
|
(58,500
|
)
|
25.09
|
|||||
Outstanding, December 31, 2014
|
16,375,270
|
$
|
0.40
|
|||||
Granted
|
50,543,837
|
0.16
|
||||||
Exercised
|
-
|
-
|
||||||
Expired
|
-
|
-
|
||||||
Outstanding, December 31, 2015
|
66,919,107
|
$ |
0.18
|
Warrants Outstanding
|
Weighted Average
Exercise Price Per Share
|
Weighted Average
Remaining Life (Yrs.)
|
||||||||
61,453
|
$
|
30.00
|
0.06
|
|||||||
63,098,264
|
$
|
0.15
|
4.13
|
|||||||
1,120,479
|
$
|
0.25
|
1.74
|
|||||||
1,474,435
|
$
|
0.38
|
1.53
|
|||||||
1,164,476
|
$
|
0.19
|
4.76
|
|||||||
66,919,107
|
$
|
0.18
|
4.04
|
Options Outstanding
|
Weighted Average
Exercise Price
|
|||||||
Options outstanding at December 31, 2014
|
12,379,593
|
$
|
0.37
|
|||||
Exercised
|
-
|
-
|
||||||
Granted
|
-
|
-
|
||||||
Forfeited
|
(12,379,593
|
)
|
0.37
|
|||||
Expired
|
-
|
-
|
||||||
Options outstanding at December 31, 2015
|
-
|
$ |
-
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
||
Patents and trademarks
|
$
|
1,706,849
|
|
|
$
|
1,706,849
|
|
Accumulated amortization
|
|
(636,261
|
)
|
|
|
(488,235
|
)
|
|
$
|
1,070,588
|
|
|
$
|
1,218,614
|
|
|
|
Patent and Trademark Amortization
|
|
|
2016
|
|
$
|
141,177
|
|
2017
|
|
|
141,177
|
|
2018
|
|
|
141,177
|
|
2019
|
|
|
141,177
|
|
2020
|
|
|
141,177
|
|
2021 and thereafter
|
|
|
364,703
|
|
|
|
$
|
1,070,588
|
|
|
2015
|
2014
|
||||||
Deferred tax asset –NOL’s
|
$ | 11,040,000 | $ | 6,800,000 | ||||
Less valuation allowance
|
(11,040,000 | ) | (6,800,000 | ) | ||||
Net deferred tax asset
|
$ | - | $ | - |
|
|
Amount
|
|
|
Outstanding, December 31, 2013
|
|
$
|
2,596,667
|
|
Borrowings
|
|
|
4,263,002
|
|
Repayments
|
|
|
(1,936,667
|
)
|
Conversions to Common Stock
|
|
|
(660,000
|
)
|
Outstanding, December 31, 2014
|
|
$
|
4,263,002
|
|
Borrowings
|
|
|
1,103,817
|
|
Repayments
|
|
|
(2,883,000
|
)
|
Conversions to Series C Preferred Stock
|
|
|
(1,147,000
|
)
|
Outstanding, December 31, 2015
|
|
$
|
1,336,819
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
||||
|
|
Total carrying value
|
|
|
Quoted market prices in active markets
|
|
|
Internal Models with significant observable market parameters
|
|
|
Internal models with significant unobservable market parameters
|
|
||||
Derivative liabilities - December 31, 2015
|
|
$
|
6,199,021
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,199,021
|
|
Derivative liabilities - December 31, 2014 |
$
|
1,569,522 |
$
|
- |
$
|
- |
$
|
1,569,522 |
|
|
Recurring Fair Value Measurements
|
|
|||||||||
|
|
Changes in Fair Value
Included in Net Loss
|
|
|||||||||
|
|
Other Income
|
|
|
Other Expense
|
|
|
Total
|
|
|||
Derivative liabilities - December 31, 2015
|
|
$
|
1,262,329
|
|
|
$
|
-
|
|
|
$
|
1,262,329
|
|
Derivative liabilities - December 31, 2014 |
$
|
621,159 |
$
|
- |
$
|
621,159 |
|
|
December 31, 2014
|
|
|
Recorded new Derivative Liabilities
|
|
|
Reclassification of Derivative Liabilities
|
|
|
Change in Estimated Fair Value Recognized in Results of Operations
|
|
|
December 31, 2015
|
|
|||||
Derivative liabilities
|
|
$
|
1,569,522
|
|
|
$
|
5,891,828
|
|
|
$
|
-
|
|
|
$
|
(1,262,329
|
)
|
|
$
|
6,199,021
|
|
|
|
December 31, 2013
|
|
|
Recorded new Derivative Liabilities
|
|
|
Reclassification of Derivative Liabilities
|
|
|
Change in Estimated Fair Value Recognized in Results of Operations
|
|
|
December 31, 2014
|
|
|||||
Derivative liabilities
|
|
$
|
1,619,021
|
|
|
$
|
616,411
|
|
|
$
|
(44,751)
|
|
|
$
|
(621,159
|
)
|
|
$
|
1,569,522
|
|
SEC registration fee
|
$
|
759
|
||
Accounting fees and expenses
|
$
|
5,000
|
||
Legal fees and expenses
|
$
|
15,000
|
||
Miscellaneous fees and expenses
|
$
|
1,500
|
||
Total
|
$
|
22,259
|
TRUE DRINKS HOLDINGS, INC.
|
|||
|
By: /s/ Kevin Sherman
Kevin Sherman
Chief Executive Officer and Director
|
Signature
|
Title
|
Date
|
||
*
Kevin Sherman
|
Chief Executive Officer and Director (Principal Executive Officer)
|
April 22, 2016
|
||
*
Daniel Kerker
|
Chief Financial Officer and Secretary (Principal Accounting Officer)
|
April 22, 2016
|
||
*
Ramona Cappello
|
Chairman
|
April 22, 2016
|
||
*
Scot Cohen
|
Director
|
April 22, 2016
|
||
*
Neil LeVecke
|
Director
|
April 22, 2016
|
||
* By: Kevin Sherman | ||||
Attorney-in-fact |
Exhibit No
|
Description
|
|
2.1
|
Agreement and Plan of Merger among Bazi International, Inc., Bazi Acquisition Sub, Inc., GT Beverage Company, Inc. and MKM Capital Advisors, LLC dated as of June 7, 2012, incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed on June 21, 2012.
|
|
3.1
|
Articles of Incorporation, incorporated by reference from Exhibit 3.01 to Form SB-2 filed on February 27, 2001.
|
|
3.1.1
|
Certification of Amendment to the Articles of Incorporation incorporated by reference to Exhibit 3.1.1 filed with Form 10-QSB filed November 14, 2003.
|
|
3.2
|
Amended and Restated By-laws filed with Form 10-KSB on March 3, 2005, as Exhibit 3.2, and incorporated herein by reference.
|
|
3.3
|
Amendment to the Amended and Restated Bylaws of Bazi International, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on October 17, 2012.
|
|
3.3
|
Amended and Restated Articles of Incorporation filed with Form 8-K on August 2, 2010 as Exhibit 3.1, and incorporated herein by reference.
|
|
3.4
|
Certification of Amendment to the Article of Incorporation with Form 8-K on May 20, 2011 as Exhibit 3.1, and incorporated herein by reference.
|
|
3.5
|
Certificate of Amendment to the Articles of Incorporation, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed January 22, 2013.
|
|
3.6
|
Certificate of Amendment to the Articles of Incorporation of True Drinks Holdings, Inc., dated February 6, 2014, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed February 6, 2014.
|
|
3.7
|
Certificate of Amendment to the Articles of Incorporation of True Drinks Holdings, Inc., dated June 10, 2015, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed June 25, 2015.
|
|
3.8
|
Amended and Restated By-laws filed with Form 10-Q on August 13, 2015, as Exhibit 3.2, and incorporated herein by reference.
|
|
3.9
|
Certificate of Amendment to the Articles of Incorporation of True Drinks Holding, Inc. dated December 30, 2015, incorporated Exhibit 3.1 to the Current Report on Form 8-K, file January 7, 2016.
|
|
4.1
|
Certificate of Designation, Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Bazi International, Inc., incorporated by reference from Exhibit 4.2 to the Current Report on Form 8-K filed on October 17, 2012.
|
|
4.2
|
Certificate of Withdrawal of the Series A Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.3 to the Current Report on Form 8-K filed on February 23, 2015.
|
|
4.3
|
Certificate of Designation, Preferences, Rights, and Limitations of Series B Convertible Preferred Stock of True Drinks Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K, filed November 26, 2013.
|
|
4.4
|
First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K filed on February 23, 2015.
|
|
4.5
|
Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on February 23, 2015.
|
|
4.6
|
First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated March 26, 2015, incorporated by reference from Exhibit 4.1 to the Current Report on Form 8-K filed on April 1, 2015.
|
|
4.7
|
Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc., dated August 12, 2015, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed August 18, 2015
|
|
4.8
|
Amendment No. 1 to the Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated November 24, 2015, incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K filed December 1, 2015.
|
|
4.8
|
Third Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc., dated April 13, 2016, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed August 19, 2015.
|
|
5.1
|
Opinion of Disclosure Law Group *
|
|
10.1
|
Employment agreement with Lance Leonard, incorporated by reference to Exhibit 10.3 filed with the Annual Report on Form 10-K, filed April 5, 2013.
|
|
10.2
|
Employment agreement with Dan Kerker, incorporated by reference to Exhibit 10.4 filed with the Annual Report on Form 10-K, filed April 5, 2013.
|
10.3
|
Employment agreement with Kevin Sherman, incorporated by reference from Exhibit 10.3 filed with the Annual Report on Form 10-K, filed March 31, 2014.
|
|
10.4
|
Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed November 26, 2013.
|
|
10.5
|
Loan and Security Agreement, by and between the Company and Avidbank, dated November 29, 2013, incorporated by reference from Exhibit 10.1
|
10.6
|
2013 Stock Incentive Plan, incorporated by reference from Exhibit 10.17 to the Annual Report on Form 10-K, filed March 31, 2014.
|
10.7
|
Secured Promissory Note issued on September 12, 2014 by True Drinks Holdings, Inc. to Scot Cohen, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed October 2, 2014.
|
10.8
|
Form of Secured Promissory Note, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed October 2, 2014.
|
|
10.9
|
Form of Securities Purchase Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed February 23, 2015.
|
|
10.10
|
Form of Amendment No. 1 to Securities Purchase Agreement, dated March 27, 2015, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed on April 1, 2015.
|
|
10.11
|
Form of Common Stock Purchase Warrant, dated February 20, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed February 23, 2015.
|
|
10.12
|
Form of Registration Rights Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed February 23, 2015.
|
|
10.13
|
Form of Indemnification Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed February 23, 2015.
|
|
10.14
|
Form of Note Exchange Agreement, dated March 27, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed on April 1, 2015.
|
|
10.15
|
Form of Securities Purchase Agreement, dated August 13, 2015 incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed August 18, 2015.
|
|
10.16
|
Form of Common Stock Purchase Warrant, dated August 13, 2015 incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed August 18, 2015.
|
|
10.17
|
Form of Registration Rights Agreement, dated August 13, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed August 18, 2015.
|
|
10.18
|
Form of Senior Subordinated Secured Promissory Note, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed September 11, 2015.
|
|
10.19
|
Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed September 11, 2015.
|
|
10.20
|
Employment Agreement, by and between the Company and Robert Van Boerum, dated September 9, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed September 11, 2015.
|
|
10.21
|
Senior Secured Promissory Note, dated October 9, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed October 27, 2015.
|
|
10.22
|
Personal Guaranty Warrant, dated October 9, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed October 27, 2015.
|
|
10.23
|
Amendment No.1 to Securities Purchase Agreement, dated October 16, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed October 27, 2015.
|
|
10.24
|
Amendment No. 1 to Registration Rights Agreement, dated October 16, 2015, incorporated by reference from Exhibit 10.5 to the Current Report on Form 8-K, filed October 27, 2015.
|
|
10.25
|
Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed December 1, 2015.
|
|
10.26
|
Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed December 1, 2015.
|
|
10.27
|
Form of Registration Rights Agreement, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed December 1, 2015.
|
|
10.28
|
Employment Agreement, by and between True Drinks Holdings, Inc. and Kevin Sherman, dated November 25, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed December 1, 2015.
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10.29
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Form of Note Exchange Agreement, incorporated by reference from Exhibit 10.29 to the Annual Report on Form 10-K, filed March 24, 2016.
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10.30
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Form of Securities Purchase Agreement, dated April 13, 2016, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed April 19, 2016. | |
10.31
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Form of Common Stock Purchase Warrant, dated April 13, 2016, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed April 19, 2016.
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10.32
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Form of Amendment No. 1 to Registration Rights Agreement, dated April 13, 2016, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed April 19, 2016.
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14.1
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Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference.
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14.2
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Board Charter filed with Form 10-K on March 31, 2011 and incorporated herein by reference.
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21.1
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Subsidiaries of True Drinks Holdings, Inc., incorporated by reference from Exhibit 21.1 to the Annual Report on Form 10-K, filed April 2, 2015.
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23.1
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Consent of Disclosure Law Group*
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23.2
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Consent of Squar Milner LLP (formerly Squar, Milner, Peterson, Miranda & Williamson, LLP)
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24.1
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Power of Attorney, incorporated by reference to Exhibit 24.1, filed with the Registration Statement on Form S-1, filed February 17, 2016
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 22, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information | |||
Entity Registrant Name | True Drinks Holdings, Inc. | ||
Entity Central Index Key | 0001134765 | ||
Document Type | S-1 | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 9,065,000 | ||
Entity Common Stock, Shares Outstanding | 112,049,107 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2015 |
CONSOLIDATED BALANCE SHEET (Parenthetical) - $ / shares |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Common stock, par value | $ .001 | $ .001 |
Common stock, shares authorized | 300,000,000 | 120,000,000 |
Common stock, shares issued | 111,434,284 | 48,622,675 |
Common stock, shares outstanding | 111,434,284 | 48,622,675 |
Series B Preferred Stock | ||
Preferred stock liquidation preference | $ 4 | $ 4 |
Preferred stock, par value | $ .001 | $ .001 |
Preferred stock, shares authorized | 2,750,000 | 2,750,000 |
Preferred stock, shares issued | 1,317,870 | 1,490,995 |
Preferred stock, shares outstanding | 1,317,870 | 1,490,995 |
Series C Preferred Stock | ||
Preferred stock liquidation preference | $ 100 | $ 100 |
Preferred stock, par value | $ .001 | $ 0.001 |
Preferred stock, shares authorized | 150,000 | 0 |
Preferred stock, shares issued | 48,853 | 0 |
Preferred stock, shares outstanding | 48,853 | 0 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Statement [Abstract] | ||
Net sales | $ 6,121,097 | $ 4,693,414 |
Cost of Sales | 6,282,087 | 4,401,702 |
Gross (Loss) Profit | (160,990) | 291,712 |
Operating expenses | ||
Selling and marketing | 5,073,211 | 4,388,108 |
General and administrative | 5,475,673 | 4,450,101 |
Total operating expenses | 10,548,884 | 8,838,209 |
Operating Loss | (10,709,874) | (8,546,497) |
Other Expense | ||
Change in fair value of derivative liabilities | 1,262,329 | 621,159 |
Interest expense | (257,389) | (202,773) |
Other (expense) income | (2,285,629) | 11,508 |
Other expense | (1,280,689) | 429,894 |
Net loss | (11,990,563) | (8,116,603) |
Dividends on Preferred Stock | 271,838 | 434,096 |
Net loss attributable to common stockholders | $ (12,262,401) | $ (8,550,699) |
Net loss per share, Basic and diluted | $ (0.16) | $ (0.23) |
Weighted average shares of Common Stock outstanding, basic and diluted | 75,346,961 | 36,429,303 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||
Organization And Summary Of Significant Accounting Policies | |||||||||||||||||||||||||||||||||||||
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Overview
True Drinks Holdings, Inc. (the "Company", "us" or "we") was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (True Drinks), formed on January 19, 2012 in Delaware to create and commercialize all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute AquaBall nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores, club stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed through select retail channels, online, and through our existing database of customers.
Our principal place of business is 18662 MacArthur Boulevard, Suite 110, Irvine, California, 92612. Our telephone number is (949) 203-3500. Our corporate website address is http://www.truedrinks.com. Our Common Stock, par value $0.001 (Common Stock) is currently listed for quotation on the OTC Pink Marketplace under the symbol TRUU.
Recent Developments
Bottling Agreement with Niagara Bottling
On October 9, 2015, we entered into an agreement (the Niagara Agreement) with Niagara Bottling, LLC (Niagara), wherein Niagara will become the exclusive manufacturer of AquaBall Naturally Flavored Water for the next five years. With Niagara, we have produced an improved clean label formulation of AquaBall, which remains sugar and calorie free but has eliminated all preservatives. The Niagara Agreement requires the Company to deliver to Niagara its minimum volume requirements for the upcoming 12-month period on or before February 1st of each year (the Annual Commitment), which Annual Commitment may not be less than 3.2 million Cases (defined in the Niagara Agreement as a pack of 24 bottles of AquaBall Naturally Flavored Water). Subject to the terms and conditions of the Niagara Agreement, the Company will pay Niagara $6.35 per Case manufactured, for an annual financial liability of approximately $20.3 million per year. We expect to begin delivering Cases manufactured by Niagara in second quarter of fiscal 2016. Our largest shareholder, Mr. Vincent C. Smith, executed a personal guaranty of our obligations under the Niagara Agreement (the Personal Guaranty). In order to offset any financial obligation Mr. Smith may incur as a result of the Personal Guaranty, the Company issued to Red Beard Holdings, LLC, an entity affiliated with Mr. Smith (Red Beard), a senior secured promissory note (the Note) pursuant to which the Company will borrow any amounts paid to Niagara by Mr. Smith as a result of the Personal Guaranty. Any amounts borrowed under the Note will be secured by a continuing security interest in substantially all of the Companys assets, will accrue interest at 2.0%, plus the Maximum Rate (as such term is defined in the Note) and, subject to certain terms and conditions of the Note, will be due and payable within 10 years. As consideration for Mr. Smiths execution of the Personal Guaranty, the Company issued to Mr. Smith a five-year warrant (the Personal Guaranty Warrant), to purchase 17.5 million shares of the Companys Common Stock for $0.188 per share. The Personal Guaranty Warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature results in the Personal Guaranty Warrant being classified as a derivative liability and, as such, the value, totaling $2,263,783, was recorded to derivative liabilities during the year ended December 31, 2015.
Extension of Licensing Agreements
During the quarter ended September 30, 2015, we entered into renewed Licensing Agreements with both Marvel Characters B.V. (Marvel) and Disney Consumer Products, Inc. (Disney), pursuant to which we secured licenses to feature certain Marvel and Disney characters on bottles of AquaBall Naturally Flavored Water through 2017. Our agreement with Marvel expires on December 31, 2017, and requires payment of a 5% royalty rate on sales of AquaBall Naturally Flavored Water adorned with Marvel characters, paid quarterly, with a total guarantee of $200,000. Our agreement with Disney expires on March 31, 2017, and requires payment of a 5% royalty rate on sales of AquaBall Naturally Flavored Water adorned with Disney characters, paid quarterly, with a total guarantee of $450,870. We are also required to make an annual common marketing fund contribution equal to 1% of our sales, and must spend a total of $820,000 on advertising and promotional opportunities over the term of the agreement with Disney.
Increase of Authorized Common Stock.
On June 10, 2015, we filed a Certificate of Amendment to our Articles of Incorporation to increase the total authorized shares of Common Stock from 120.0 million shares to 200.0 million shares, and on January 4, 2016, we filed a second Certificate of Amendment to our Articles of Incorporation to increase the total authorized shares of Common Stock from 200.0 million to 300.0 million shares.
Creation of Series C Preferred and Amendments to Series C Certificate of Designation
On February 18, 2015, we filed the Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock (the Series C Certificate of Designation) with the Nevada Secretary of State, designating 50,000 shares of our preferred stock as Series C Convertible Preferred Stock (the Series C Preferred). We subsequently filed amendments to the Series C Certificate of Designation in August 2015 and November 2015 in order to increase the number of shares of preferred stock designated as Series C Preferred from to 115,000 and then 150,000 shares.
Financing Activity
Series C Offerings. During the year ended December 31, 2015, the Company and certain accredited investors entered into securities purchase agreements to purchase up to 117,648 shares of Series C Preferred Stock. The Company issued an aggregate total of 116,471 shares of Series C Preferred during 2015 for prices ranging from $100 per share to $113.33 per share for a total gross proceeds of approximately $12 million. As additional consideration for participating in this offering, the purchasers were issued five-year warrants to purchase an aggregate total of 26,449,913 shares of Common Stock, exercisable at $0.15 per share. Each warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all such warrants issued, totaling $3,249,364, was recorded to derivative liabilities during the year ended December 31, 2015.
March Note Exchange.
On March 27, 2015, holders of outstanding notes totaling $1,147,000 and accrued interest totaling $67,207 agreed to exchange all remaining principal and accrued interest into shares of Series C Preferred on substantially similar terms to those offered in the February 2015 offering of Series C Preferred (the March Note Exchange). As a result of the March Note Exchange, the Company issued an aggregate total of 12,148 shares of Series C Preferred and five-year warrants to purchase an aggregate total of 2,834,536 shares of Common Stock for $0.15 per share. Each warrant issued in connection with the March Note Exchange contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature results in the warrants being classified as a derivative liability and, as such, the value of all warrants issued in connection with the March Note Exchange, totaling $378,681, was recorded to derivative liabilities during the year ended December 31, 2015.
Note Financing. On September 9, 2015, the Company began a private offering, to certain accredited investors (the Note Investors), of: (i) senior subordinated secured promissory notes (the Secured Notes) in the aggregate principal amount of up to $2.5 million; and (ii) and five-year warrants to purchase that number of shares equal to 15% of the principal amount of the Secured Note purchased by each Note Investor (Note Warrants), divided by the ten-day average closing price of the Companys Common Stock (the Note Financing). Each Secured Note issued accrues interest at a rate of 12% per annum, and matures one year from the date of issuance. As of December 31, 2015, the Company had issued an aggregate total of 236,843 Note Warrants in connection with the issuance of the Secured Notes.
Consulting Agreement. During the year ended December 31, 2015, the Company issued 2,413,811 shares of Common Stock in connection with certain consulting agreements. The Company expensed the fair value of the Common Stock issued of $487,826 to consulting expense.
January Note Exchange. On January 20, 2016, the Company and Note Investors holding Secured Notes in the principal amount of $500,000 entered into Note Exchange Agreements pursuant to which the Note Investors agreed to convert the outstanding principal balance of their Secured Notes into an aggregate total of 4,413 shares of Series C Preferred and five-year warrants to purchase up to an aggregate total of 1,029,701 shares of Common Stock for $0.17 per share.
Basis of Presentation and Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. For the year ended December 31, 2015, the Company incurred a net loss of $11,990,563. At December 31, 2015, the Company has negative working capital of $5,303,989 and an accumulated deficit of $30,348,644. A significant amount of additional capital will be necessary to advance the marketability of the Company's products to the point at which the Company can sustain operations. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans are to continue to raise capital through equity and debt offerings, and to expand sales as rapidly as economically viable. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries True Drinks, Inc., Bazi, Inc. and GT Beverage Company, LLC. All inter-company accounts and transactions have been eliminated in the preparation of these consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include, among others, provision for losses on accounts receivable, allowances for obsolete and slow moving inventory, stock compensation, deferred tax asset valuation allowances, derivative liabilities, and the realization of long-lived and intangible assets, including goodwill. Actual results could differ from those estimates.
Revenue Recognition
In accordance with Staff Accounting Bulletin ("SAB") No. 104 Revenue Recognition in Financial Statements, revenue is recognized at the point of shipment, at which time title is passed. Net sales include sales of products, slotting fees, discounts and freight and handling charges. With approved credit, we provide wholesale customers payment terms of up to net 30 days. Amounts received for unshipped merchandise are recorded as customer deposits and are included in accrued expenses.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less, to be cash equivalents. The Company maintains cash with high credit quality financial institutions. At certain times, such amounts may exceed Federal Deposit Insurance Corporation (FDIC) insurance limits. The Company has not experienced any losses on these amounts. At December 31, 2015 and 2014, the Company had no cash equivalents.
Restricted Cash
At December 31, 2015, the Company had $209,360 in restricted cash with a financial institution securing a letter of credit. The letter of credit matures in August 2017 and was issued as part of the contractual obligations related to the Disney Agreement, as described above in Note 1, under the heading Recent Developments. The Company made an initial deposit of $209,000 during the quarter ended September 30, 2015 to secure the new letter of credit in connection with the Disney Agreement.
Accounts Receivable
We maintain an allowance for doubtful accounts, which is analyzed on a periodic basis to ensure that it is adequate to the best of managements knowledge. Management develops an estimate of the allowance for doubtful accounts receivable based on the perceived likelihood of ultimate payment. Although the Company expects to collect amounts due, actual collections may differ from these estimated amounts. The allowance for doubtful accounts was approximately $110,000 and $162,000 at December 31, 2015 and December 31, 2014, respectively.
Concentrations
The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with two financial institutions. There are funds in excess of the federally insured amount, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.
We utilized a variety of suppliers to purchase raw materials for the AquaBall Naturally Flavored Water during the year ended December 31, 2015. We anticipate that beginning in May 2016, all production of AquaBallTM will be completed by Niagara Bottling, LLC pursuant to the terms and conditions of our 5-year bottling agreement. Niagara will handle all aspects of production, including the procurement of all raw materials necessary to produce AquaBallTM.
During 2015, we relied significantly on one supplier for 100% of our purchases of certain raw materials for Bazi®. Bazi, Inc. has sourced these raw materials from this supplier since 2007 and does not anticipate any issues with the supply of these raw materials.
One customer represented 79% of the Companys accounts receivable and 47% of sales during the year ended December 31, 2015, while one customer represented 37% of the Companys sales and three customers represented 44% of accounts receivable during the year ended December 31, 2014. No other customers exceeded 10% of the Companys sales or accounts receivable during the year ended December 31, 2015 or 2014.
A significant portion of our revenue comes from sales of the AquaBall Naturally Flavored Water. For the year ended December 31, 2015 and 2014, sales of AquaBall accounted for 97% and 90% of the Companys total revenue, respectively.
Fair Value Matters
The Company does not have any assets or liabilities carried at fair value on a recurring or non-recurring basis, except for derivative liabilities.
The Companys financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, and notes payable. Management believes that the carrying amount of these financial instruments approximates their fair values, due to their relatively short-term nature.
Inventory
Inventory is stated at the lower of cost or market on a FIFO (first-in first-out) basis. Provision is made to reduce excess or obsolete inventory to the estimated net realizable value. The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.
Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve. Inventory reserves were not significant as of December 31, 2015 or 2014.
Inventory is comprised of the following:
Property and Equipment
Property and equipment are stated at cost. The Company provides for depreciation of property and equipment using the straight-line method based on estimated useful lives of between three and ten years. Property and equipment is not significant to the consolidated financial statements as of or for the years ended December 31, 2015 and 2014.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. An impairment was not deemed necessary in 2015 or 2014.
Intangible Assets
Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Companys products, customer list, and the estimated value of GT Beverage Company, LLCs interlocking spherical bottle patent acquired on March 31, 2012. The Companys intangible assets are amortized over their estimated remaining useful lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary as of December 31, 2015 or December 31, 2014.
Goodwill
Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually.
Income Taxes
The Company accounts for income taxes in accordance with FASB Accounting Standards Codification 740 (ASC Topic 740). Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Stock-Based Compensation
Total stock-based compensation expense, for all of the Companys stock-based awards recognized for the year ended December 31, 2015 and 2014 was $1,055,448 and $497,271, respectively.
The Company uses a Black-Scholes option-pricing model (the Black-Scholes Model) to estimate the fair value of the stock option and warrants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Companys stock price over the contractual term of the option. The expected life is based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. Currently it is based on the simplified approach provided by SAB 107. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant (see Note 3 below).
Shares, warrants and options issued to non-employees for services are accounted for at fair value, based on the fair value of instrument issued or the fair value of the services received, whichever is more readily determinable.
Derivative Instruments
A derivative is an instrument whose value is derived from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (embedded derivatives) and for hedging activities. As a matter of policy, the Company does not invest in financial derivatives or engage in hedging transactions. However, the Company has entered into complex financing transactions that involve financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. The Company may engage in other similar complex debt transactions in the future, but not with the intention to enter into derivative instruments. Derivatives and embedded derivatives, if applicable, are measured at fair value using the binomial lattice- (Binomial Lattice) pricing model and marked to market and reflected on our consolidated statement of operations as other (income) expense at each reporting period. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security.
Net Loss Per Share
Earnings per share require presentation of both basic earnings per common share and diluted earnings per common share. Since the Company has a net loss for all periods presented, Common Stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive. At December 31, 2015 and 2014, the Company had 120,573,694 and 52,577,964 shares of Common Stock equivalents outstanding, respectively.
Research and Development
Research and development costs are expensed as incurred.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This accounting standard is effective for the Company for the year ending December 31, 2017 including interim reporting periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows.
On February 25, 2016, the FASB issued ASU 2016-2, "Leases" (Topic 842), which is intended to improve financial reporting for lease transactions. This ASU will require organizations that lease assets, such as real estate, airplanes and manufacturing equipment, to recognize on their balance sheet the assets and liabilities for the rights to use those assets for the lease term and obligations to make lease payments created by those leases that have terms of greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as finance or operating lease. This ASU will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures will include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The ASU is effective for the Company for the year ending December 31, 2019 and interim reporting periods within that year, and early adoption is permitted. Management has not yet determined the effect of this ASU on the Company's financial statements. |
STOCKHOLDERS EQUITY |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Stockholders Equity | |
STOCKHOLDERS EQUITY | Securities
Common Stock. The holders of Common Stock are entitled to receive, when and as declared by the Board of Directors, dividends payable either in cash, in property or in shares of Common Stock of the Company. Dividends have no cumulative rights and dividends will not accumulate if the Board of Directors does not declare such dividends.
Series A Preferred. On January 18, 2013, upon the filing of the Amendment to the Articles of Incorporation, the Company converted 1,544,565 shares of Series A Preferred issued to former True Drinks shareholders into 25,304,017 shares of the Companys Common Stock. In February 2015, the Company filed a Certificate of Elimination with the State of Nevada to eliminate the Series A Preferred Stock.
Series B Preferred. Each share of the Companys Series B Preferred Convertible Stock (Series B Preferred) has a stated value of $4.00 per share (Stated Value) and accrued annual dividends equal to 5% of the Stated Value, payable by the Company in quarterly installments, in either cash or shares of Common Stock. Each share of Series B Preferred was convertible, at the option of the holder, into that number of shares of Common Stock equal to the Stated Value, divided by $0.25 per share (the Series B Conversion Shares). The Company also has the option to require the conversion of the Series B Preferred into Series B Conversion Shares in the event: (i) there were sufficient authorized shares of Common Stock reserved as Series B Conversion Shares; (ii) the Series B Conversion Shares were registered under the Securities Act, or the Series B Conversion Shares were freely tradable, without restriction, under Rule 144 of the Securities Act; (iii) the daily trading volume of the Company's Common Stock, multiplied with the closing price, equaled at least $250,000 for 20 consecutive trading days; and (iv) the average closing price of the Company's Common Stock was at least $0.62 per share for 10 consecutive trading days.
During the year ended December 31, 2015, the Company declared $271,838 in dividends on outstanding shares of its Series B Preferred. The Company issued a total of 1,512,645 shares of Common Stock to pay $288,971 of cumulative unpaid dividends. As of December 31, 2015, there remained $271,838 in cumulative unpaid dividends on the Series B Preferred.
Series C Preferred. Each share of Series C Preferred has a stated value of $100 per share, and is convertible, at the option of each respective holder, into that number of shares of Common Stock equal to $100, divided by $0.15 per share (the Series C Conversion Shares). The Company also has the option to require conversion of the Series C Preferred into Series C Conversion Shares in the event: (i) there are sufficient authorized shares of Common Stock reserved as Series C Conversion Shares; (ii) the Series C Conversion Shares are registered under the Securities Act of 1933, or the Series C Conversion Shares are freely tradable, without restriction, under Rule 144 of the Securities Act; and (iii) the average closing price of the Company's Common Stock is at least $0.62 per share for 10 consecutive trading days.
Issuances
Between January and February 2014, the Company issued 505,000 shares of its Series B Preferred to certain accredited investors pursuant to subscription agreements in exchange for total net proceeds of $1,857,413. The investors also received five-year warrants to purchase 2,356,667 shares of the Companys Common Stock for $0.30 per share. The Company also issued 667,467 warrants to its capital advisors in connection with the investment. Each warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all warrants issued totaling $416,844, was recorded to derivative liabilities during the year ended December 31, 2014.
During 2014, holders of 1,001,352 shares of the Series B Preferred Stock converted those shares into 16,021,632 shares of Common Stock.
In May and July 2014, the Company issued 69,138 and 9,289 shares of Common Stock, respectively, pursuant to a cashless exercise of a total of 179,633 outstanding warrants.
During 2014, holders of $818,926 in outstanding principal, lenders fees and interest on certain convertible notes payable exchanged this total for 204,732 shares of Series B Preferred and warrants to purchase 921,596 shares of Common Stock for $0.30 per share. Each warrant issued contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all warrants issued totaling $199,567, was recorded to derivative liabilities. The total value of all such warrants, $199,567, was recorded against Additional Paid In Capital.
During 2014, the Company issued 1,751,270 shares of Common Stock and 5,692 shares of Series B Preferred in connection with various consulting agreements. The Company expensed the fair value of the Common Stock issued of $544,531 to consulting expense.
During 2014, the Company issued 2,004,002 shares of Common Stock in consideration for the settlement of lawsuits and related legal payments.
During 2015, the Company and certain accredited investors entered into securities purchase agreements to purchase up to 117,648 shares of Series C Preferred Stock. The Company issued an aggregate total of 116,471 shares of Series C Preferred during 2015 for prices ranging from $100 per share to $113.33 per share for a total gross proceeds of approximately $12 million. As additional consideration for participating in this offering, the purchasers were issued five-year warrants to purchase an aggregate total of 26,449,913 shares of Common Stock, exercisable at $0.15 per share. Each warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all such warrants issued, totaling $3,249,364, was recorded to derivative liabilities during the year ended December 31, 2015.
On March 27, 2015, holders of outstanding notes totaling $1,147,000 and accrued interest totaling $67,207 agreed to exchange all remaining principal and accrued interest into shares of Series C Preferred on substantially similar terms to those offered in the February 2015 offering of Series C Preferred. As a result of the execution of certain Exchange Agreements and the consummation of March Note Exchange, the Company issued an aggregate total of 12,148 shares of Series C Preferred and five-year warrants to purchase an aggregate total of 2,834,536 shares of Common Stock for $0.15 per share. Each warrant issued in connection with the March Note Exchange contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature results in the warrants being classified as a derivative liability and, as such, the value of all warrants issued in connection with the March Note Exchange, totaling $378,681, was recorded to derivative liabilities during the year ended December 31, 2015.
On October 9, 2015 the Company issued to Vincent C. Smith a five-year warrant to purchase 17,500,000 shares of Common Stock for $0.188 per share as consideration for the execution of a personal guaranty of True Drinks obligations under the Niagara Agreement. The warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of the warrant issued totaling $2,263,783, was recorded to derivative liabilities and is included in other expense in the accompanying consolidated statements of operations as of December 31, 2015.
During the year ended December 31, 2015, the Company issued 2,413,811 shares of Common Stock in connection with certain consulting agreements. The Company expensed the fair value of the Common Stock issued of $487,826.
On April 22, 2015, the Company cancelled 2,593,912 options to certain former Directors of the Company. The Company replaced these stock options with 2,594,914 warrants, 1,120,478 of these warrants had an exercise price of $0.25 per share, and 1,474,436 of the warrants had an exercise price of $0.38 per share. The expiration date of 1,120,478 of the warrants is November 12, 2016, and the expiration date on 1,474,436 of the warrants is March 9, 2018.
On October 9, 2015, the Company issued five-year warrants for 884,209 shares at an exercise price of $0.19 per share in exchange for services. The warrants vest over a 12-month period. As of December 31, 2015, 221,053 warrant shares had vested and $19,895 was expensed accordingly. |
STOCK OPTIONS AND WARRANTS |
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STOCK OPTIONS AND WARRANTS | Warrants
A summary of the Companys warrant activity for the years ended December 31, 2015 and 2014 is presented below:
As of December 31, 2015, the Company had the following outstanding warrants to purchase shares of its Common Stock:
Non-Qualified Stock Options
No options were granted during the year ended December 31, 2015 and the Company and holders of all options to purchase shares of the Companys Common Stock agreed to cancel or forfeit their options.
Stock option activity during the year ended December 31, 2015 is summarized as follows:
Cancellation of Stock Options and Issuance of Restricted Stock. Between June and July 2015, the Company and each of the holders of all outstanding options to purchase shares of the Companys Common Stock agreed to cancel or forfeit their options, such that, as of July 10, 2015, no options to purchase shares of the Companys Common Stock were outstanding.
On August 6, 2015, the Companys board of directors authorized an issuance of an aggregate total of 19,491,375 shares of restricted Common Stock pursuant to the terms and conditions of the Companys 2013 Stock Incentive Plan to certain employees, including those that agreed to cancel previously issued stock options. In December 2015, the Company issued 750,000 shares of restricted stock under the plan.
The cancellation of the stock options and issuance of restricted stock was accounted for as a modification in accordance with the provisions of ASC Topic 718 Compensation Stock Compensation. The Company recorded approximately $1,055,000 of stock based compensation in connection with the transaction. |
INTANGIBLE ASSETS |
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Intangible Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | The Company has incurred costs to trademark eight of its current products and marketing nomenclatures. During 2015, the Company purchased a patent in relation to the purchase of GT Beverage, and also assumed the trademarks of Bazi Intl. Patents and trademarks are being amortized over the lesser of their remaining life or 15 years.
Intangible assets are:
Amortization expense for the year ended December 31, 2015 and 2014 was $148,768 and $182,843, respectively. For these assets, amortization expense over the next five years and thereafter is expected to be as follows:
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INCOME TAXES |
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INCOME TAXES | The Company does not have significant income tax expense or benefit for the years ended December 31, 2015 or 2014. Tax net operating loss carryforwards have resulted in a net deferred tax asset with a 100% valuation allowance applied against such asset at December 31, 2015 and 2014. Such tax net operating loss carryforwards (NOL) approximated $27.6 million at December 31, 2015. Some or all of such NOL may be limited by Section 382 of the Internal Revenue Code and will begin to expire in the year 2034.
The income tax effect of temporary differences between financial and tax reporting and net operating loss carryforwards gives rise to a deferred tax asset at December 31, 2015 and 2014 as follows:
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the history of the Company and projections for future taxable income over the periods in which the deferred tax assets are realizable, management believes it is not more likely than not that the Company will realize the benefits of these deductible differences and therefore a full valuation allowance against the deferred tax assets has been established.
As a result of the Merger with Bazi Intl. on October 15, 2012, the Company may have access to utilize a portion of the net operating loss carryforwards of Bazi Intl., which, in total, were approximately $25 million at the time of the Merger. The Company is uncertain as to the portion of the Bazi net operating loss carryforwards that may be limited by Section 382 of the Internal Revenue Code.
The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a change of ownership as described in Section 382 of the Internal Revenue Code. Such an analysis has not been performed by the Company to determine the impact of these provisions on the Companys net operating losses, though management believes the impact would be minimal, if any. A limitation under these provisions would reduce the amount of losses available to offset future taxable income of the Company.
ASC 740 prescribes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken on income tax returns. ASC Topic 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions.
Based on managements assessment of ASC Topic 740, management concluded that the Company does not have any uncertain tax positions as of December 31, 2015. There have been no income tax related interest or penalties assessed or recorded and if interest and penalties were to be assessed, the Company would charge interest and penalties to income tax expense. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date. The Company and its subsidiaries have several years of past due income tax returns. Until returns are filed and the related statute of limitations are met (generally 3 years for federal and 4 years for state), such past due returns remain open to examination by applicable authorities. |
DEBT |
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DEBT | A summary of convertible notes payable as of December 31, 2015 is as follows:
In March 2015, the Company paid off approximately $2.7 million of the Companys $3.8 million in outstanding promissory notes. Following these payments, the Company and each of the holders of the remaining notes entered into Exchange Agreements, wherein the holders agreed to exchange the remaining principal of $1,147,000 and accrued interest of any such notes into shares of Series C Preferred on substantially similar terms to those offered in connection with the issuance of shares of Series C Preferred and warrants consummated in February 2015.
As described under Note 2, Shareholders Equity above, in September 2015, the Company began a private offering to certain accredited investors of: (i) Secured Notes in the aggregate principal amount of up to $2.5 million; and (ii) and Note Warrants to purchase that number of shares equal to 15% of the principal amount of the Secured Note purchased by each investor, divided by the ten-day average closing price of the Companys Common Stock. Each Secured Note accrues interest at a rate of 12% per annum, and will mature one year from the date of issuance. As of December 31, 2015, the Company had issued Secured Notes in the aggregate principal amount of $855,000 and Note Warrants to purchase an aggregate total of 280,265 shares of Common Stock. Subsequent to December 31, 2015, Secured Notes in the aggregate principal amount of $500,000 were exchanged for shares of Series C Preferred and warrants. See Note 10 Subsequent Events below.
In September 2015, the Company issued promissory notes to certain related parties in the aggregate principal amount of $100,000. The notes expired on October 31, 2015 and were repaid. Upon repayment, the Company paid a lender's fee to the related parties equal to 10% of the principal amount.
Line-of-Credit Facility
The Company entered into a line-of-credit agreement with a financial institution on June 30, 2014. The terms of the agreement allow the Company to borrow up to the lesser of $1.5 million or 85% of the sum of eligible accounts receivables. At December 31, 2015, the total outstanding on the line-of-credit approximated $482,000 and the Company did not have any availability to borrow. The line-of-credit bears interest at Prime rate (3.5% as of December 31, 2015) plus 4.5% per annum, as well as a monthly fee of 0.50% on the average amount outstanding on the line, and is secured by the accounts receivables that are funded against. The line-of-credit matures on July 31, 2016. |
COMMITMENTS AND CONTINGENCIES |
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Commitments And Contingencies | |
COMMITMENTS AND CONTINGENCIES | The Company has entered in a number of agreements with various consultants. Termination of any of these agreements could result in termination fees.
The Company leases its corporate office in Irvine, California on a one-year term. The Company recently moved into a new office and extended its lease from an expiration date of July 31, 2016 to December 31, 2016. Total rent expense related to the Company's operating lease for the year ended December 31, 2015 was $55,640. Total remaining payments on the lease through December 31, 2016 are $42,687.
The Company maintains employment agreements with certain key members of management. The agreements provide for minimum base salaries, eligibility for stock options, performance bonuses and severance payments.
The Company has entered in a number of agreements with various consultants. Termination of any of these agreements could result in termination fees.
Legal Proceedings
From time to time, claims are made against the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Companys financial position or results of operations.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. |
FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value. FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys market assumptions. These two types of inputs create the following fair value hierarchy:
- Level 1: Observable inputs such as quoted prices in active markets;
- Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
- Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value.
The Company assesses its recurring fair value measurements as defined by FASB ASC 810. Liabilities measured at estimated fair value on a recurring basis include derivative liabilities. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial liabilities among the levels occur at the beginning of the reporting period. There were no transfers between Level 1, Level 2 and/or Level 3 during the year ended December 31, 2015. The Company had no Level 1 or 2 fair value measurements during 2015 or 2014.
The following table presents the estimated fair value of financial liabilities measured at estimated fair value on a recurring basis included in the Companys financial statements as of December 31, 2015 and 2014:
The following table presents the changes in recurring fair value measurements included in net loss for the years ended December 31, 2015 and 2014:
The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the year ended December 31, 2015 and 2014:
The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the year ended December 31, 2014:
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LICENSING AGREEMENTS |
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Licensing Agreements | |
LICENSING AGREEMENTS | We originally entered into a three-year licensing agreement with Disney Consumer Products, Inc. and an 18-month licensing agreement with Marvel Characters, B.V. (collectively, the Licensing Agreements) in 2012. Each Licensing Agreement allows us to feature popular Disney and Marvel characters on AquaBall Naturally Flavored Water, allowing AquaBall to stand out among other beverages marketed towards children. Under the terms and conditions of the Licensing Agreements, we work with the Disney and Marvel teams to create colorful, eye-catching labels that surround the entire spherical shape of each AquaBall. Once the label designs are approved, we work with Disney and Marvel to set retail calendars, rotating the placement of different AquaBall designs over the course of the year.
In 2015, the Company and Disney entered into a renewed Licensing Agreement, which extended the Companys license with Disney through March 31, 2017 (the Disney Agreement). The terms of the Disney Agreement entitle Disney to receive a royalty rate of 5% on sales of AquaBall Naturally Flavored Water adorned with Disney characters, paid quarterly, with a total guarantee of $450,870 over the period from April 1, 2015 through March 31, 2017. In addition, the Company is required to make a common marketing fund contribution equal to 1% of sales due annually during the agreement. The Company is required to spend a total of $820,000 on advertising and promotional opportunities over the term of the Disney Agreement.
The former Marvel Licensing Agreement (Marvel Agreement) stipulated a royalty rate of 5% on sales of AquaBall Naturally Flavored Water adorned with Marvel characters, paid quarterly. The total royalty guarantee paid during the period from July 1, 2015 through December 31, 2015 was $37,500.
On August 22, 2015, the Company and Marvel entered into a renewed Licensing Agreement to extend the Company's license to feature certain Marvel characters on bottles of AquaBall Naturally Flavored Water through December 31, 2017. The Marvel Agreement requires the Company to pay to Marvel a 5% royalty rate on sales of AquaBall Naturally Flavored Water adorned with Marvel characters, paid quarterly, through December 31, 2017, with a total guarantee of $200,000.
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SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued. Subsequent to December 31, 2015, the following events occurred:
January Note Exchange. On January 20, 2016, the Company and Note Investors holding Secured Notes in the principal amount of $500,000 entered into Note Exchange Agreements pursuant to which the Note Investors agreed to convert the outstanding principal balance of their Secured Notes into an aggregate total of 4,413 shares of Series C Preferred and five-year warrants to purchase up to an agate total of 1,029,413 shares of Common Stock for $0.17 per share. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Organization And Summary Of Significant Accounting Policies Policies | |||||||||||||||||||||||||||||||||||||
Organization and Business | True Drinks Holdings, Inc. (the "Company", "us" or "we") was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (True Drinks), formed on January 19, 2012 in Delaware to create and commercialize all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute AquaBall nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores, club stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed through select retail channels, online, and through our existing database of customers.
Our principal place of business is 18662 MacArthur Boulevard, Suite 110, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our Common Stock, par value $0.001 (Common Stock) is currently listed for quotation on the OTC Pink Marketplace under the symbol TRUU. |
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Recent Development | Bottling Agreement with Niagara Bottling
On October 9, 2015, we entered into an agreement (the Niagara Agreement) with Niagara Bottling, LLC (Niagara), wherein Niagara will become the exclusive manufacturer of AquaBall Naturally Flavored Water for the next five years. With Niagara, we have produced an improved clean label formulation of AquaBall, which remains sugar and calorie free but has eliminated all preservatives.
The Niagara Agreement requires the Company to deliver to Niagara its minimum volume requirements for the upcoming 12-month period on or before February 1st of each year (the Annual Commitment), which Annual Commitment may not be less than 3.2 million Cases (defined in the Niagara Agreement as a pack of 24 bottles of AquaBall Naturally Flavored Water). Subject to the terms and conditions of the Niagara Agreement, the Company will pay Niagara $6.35 per Case manufactured, for an annual financial liability of approximately $20.3 million per year. We expect to begin delivering Cases manufactured by Niagara in second quarter of fiscal 2016.
Our largest shareholder, Mr. Vincent C. Smith, executed a personal guaranty of our obligations under the Niagara Agreement (the Personal Guaranty). In order to offset any financial obligation Mr. Smith may incur as a result of the Personal Guaranty, the Company issued to Red Beard Holdings, LLC, an entity affiliated with Mr. Smith (Red Beard), a senior secured promissory note (the Note) pursuant to which the Company will borrow any amounts paid to Niagara by Mr. Smith as a result of the Personal Guaranty. Any amounts borrowed under the Note will be secured by a continuing security interest in substantially all of the Companys assets, will accrue interest at 2.0%, plus the Maximum Rate (as such term is defined in the Note) and, subject to certain terms and conditions of the Note, will be due and payable within 10 years. As consideration for Mr. Smiths execution of the Personal Guaranty, the Company issued to Mr. Smith a five-year warrant (the Personal Guaranty Warrant), to purchase 17.5 million shares of the Companys Common Stock for $0.188 per share. The Personal Guaranty Warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature results in the Personal Guaranty Warrant being classified as a derivative liability and, as such, the value, totaling $2,263,783, was recorded to derivative liabilities during the year ended December 31, 2015.
Extension of Licensing Agreements
During the quarter ended September 30, 2015, we entered into renewed Licensing Agreements with both Marvel Characters B.V. (Marvel) and Disney Consumer Products, Inc. (Disney), pursuant to which we secured licenses to feature certain Marvel and Disney characters on bottles of AquaBall Naturally Flavored Water through 2017. Our agreement with Marvel expires on December 31, 2017, and requires payment of a 5% royalty rate on sales of AquaBall Naturally Flavored Water adorned with Marvel characters, paid quarterly, with a total guarantee of $200,000. Our agreement with Disney expires on March 31, 2017, and requires payment of a 5% royalty rate on sales of AquaBall Naturally Flavored Water adorned with Disney characters, paid quarterly, with a total guarantee of $450,870. We are also required to make an annual common marketing fund contribution equal to 1% of our sales, and must spend a total of $820,000 on advertising and promotional opportunities over the term of the agreement with Disney.
Increase of Authorized Common Stock.
On June 10, 2015, we filed a Certificate of Amendment to ourArticles of Incorporation to increase the total authorized shares of Common Stock from 120.0 million shares to 200.0 million shares, and on January 4, 2016, we filed a second Certificate of Amendment to our Articles of Incorporation to increase the total authorized shares of Common Stock from 200.0 million to 300.0 million shares.
Creation of Series C Preferred and Amendments to Series C Certificate of Designation
On February 18, 2015, we filed the Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock (the Series C Certificate of Designation) with the Nevada Secretary of State, designating 50,000 shares of our preferred stock as Series C Convertible Preferred Stock (the Series C Preferred). We subsequently filed amendments to the Series C Certificate of Designation in August 2015 and November 2015 in order to increase the number of shares of preferred stock designated as Series C Preferred from to 115,000 and then 150,000 shares.
Financing Activity
Series C Offerings. During the year ended December 31, 2015, the Company and certain accredited investors entered into securities purchase agreements to purchase up to 117,648 shares of Series C Preferred Stock. The Company issued an aggregate total of 116,471 shares of Series C Preferred during 2015 for prices ranging from $100 per share to $113.33 per share for a total gross proceeds of approximately $12 million. As additional consideration for participating in this offering, the purchasers were issued five-year warrants to purchase an aggregate total of 26,449,913 shares of Common Stock, exercisable at $0.15 per share. Each warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all such warrants issued, totaling $3,249,364, was recorded to derivative liabilities during the year ended December 31, 2015.
March Note Exchange. On March 27, 2015, holders of outstanding notes totaling $1,147,000 and accrued interest totaling $67,207 agreed to exchange all remaining principal and accrued interest into shares of Series C Preferred on substantially similar terms to those offered in the February 2015 offering of Series C Preferred (the March Note Exchange). As a result of the March Note Exchange, the Company issued an aggregate total of 12,148 shares of Series C Preferred and five-year warrants to purchase an aggregate total of 2,834,536 shares of Common Stock for $0.15 per share. Each warrant issued in connection with the March Note Exchange contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature results in the warrants being classified as a derivative liability and, as such, the value of all warrants issued in connection with the March Note Exchange, totaling $378,681, was recorded to derivative liabilities during the year ended December 31, 2015.
Note Financing. On September 9, 2015, the Company began a private offering, to certain accredited investors (the Note Investors), of: (i) senior subordinated secured promissory notes (the Secured Notes) in the aggregate principal amount of up to $2.5 million; and (ii) and five-year warrants to purchase that number of shares equal to 15% of the principal amount of the Secured Note purchased by each Note Investor (Note Warrants), divided by the ten-day average closing price of the Companys Common Stock (the Note Financing). Each Secured Note issued accrues interest at a rate of 12% per annum, and matures one year from the date of issuance. As of December 31, 2015, the Company had issued an aggregate total of 236,843 Note Warrants in connection with the issuance of the Secured Notes.
Consulting Agreement. During the year ended December 31, 2015, the Company issued 2,413,811 shares of Common Stock in connection with certain consulting agreements. The Company expensed the fair value of the Common Stock issued of $487,826 to consulting expense.
January Note Exchange. On January 20, 2016, the Company and Note Investors holding Secured Notes in the principal amount of $500,000 entered into Note Exchange Agreements pursuant to which the Note Investors agreed to convert the outstanding principal balance of their Secured Notes into an aggregate total of 4,413 shares of Series C Preferred and five-year warrants to purchase up to an aggregate total of 1,029,701 shares of Common Stock for $0.17 per share.
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Basis of Presentation and Going Concern | The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. For the year ended December 31, 2015, the Company incurred a net loss of $11,990,563. At December 31, 2015, the Company has negative working capital of $5,303,989 and an accumulated deficit of $30,348,644. A significant amount of additional capital will be necessary to advance the marketability of the Company's products to the point at which the Company can sustain operations. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans are to continue to raise capital through equity and debt offerings, and to expand sales as rapidly as economically viable. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
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Principles of Consolidation | The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries True Drinks, Inc., Bazi, Inc. and GT Beverage Company, LLC. All inter-company accounts and transactions have been eliminated in the preparation of these consolidated financial statements. |
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Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include, among others, provision for losses on accounts receivable, allowances for obsolete and slow moving inventory, stock compensation, deferred tax asset valuation allowances, derivative liabilities, and the realization of long-lived and intangible assets, including goodwill. Actual results could differ from those estimates. |
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Revenue Recognition | In accordance with Staff Accounting Bulletin ("SAB") No. 104 Revenue Recognition in Financial Statements, revenue is recognized at the point of shipment, at which time title is passed. Net sales include sales of products, slotting fees, discounts and freight and handling charges. With approved credit, we provide wholesale customers payment terms of up to net 30 days. Amounts received for unshipped merchandise are recorded as customer deposits and are included in accrued expenses. |
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Cash and Cash Equivalents | The Company considers all highly liquid investments with original maturities of three months or less, to be cash equivalents. The Company maintains cash with high credit quality financial institutions. At certain times, such amounts may exceed Federal Deposit Insurance Corporation (FDIC) insurance limits. The Company has not experienced any losses on these amounts. At December 31, 2015 and 2014, the Company had no cash equivalents. |
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Restricted Cash | At December 31, 2015, the Company had $209,360 in restricted cash with a financial institution securing a letter of credit. The letter of credit matures in August 2017 and was issued as part of the contractual obligations related to the Disney Agreement, as described above in Note 1, under the heading Recent Developments. The Company made an initial deposit of $209,000 during the quarter ended September 30, 2015 to secure the new letter of credit in connection with the Disney Agreement. |
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Accounts Receivable | We maintain an allowance for doubtful accounts, which is analyzed on a periodic basis to ensure that it is adequate to the best of managements knowledge. Management develops an estimate of the allowance for doubtful accounts receivable based on the perceived likelihood of ultimate payment. Although the Company expects to collect amounts due, actual collections may differ from these estimated amounts. The allowance for doubtful accounts was approximately $110,000 and $162,000 at December 31, 2015 and December 31, 2014, respectively. |
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Concentrations | The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with two financial institutions. There are funds in excess of the federally insured amount, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.
We utilized a variety of suppliers to purchase raw materials for the AquaBall Naturally Flavored Water during the year ended December 31, 2015. We anticipate that beginning in May 2016, all production of AquaBallTM will be completed by Niagara Bottling, LLC pursuant to the terms and conditions of our 5-year bottling agreement. Niagara will handle all aspects of production, including the procurement of all raw materials necessary to produce AquaBallTM.
During 2015, we relied significantly on one supplier for 100% of our purchases of certain raw materials for Bazi®. Bazi, Inc. has sourced these raw materials from this supplier since 2007 and does not anticipate any issues with the supply of these raw materials.
One customer represented 79% of the Companys accounts receivable and 47% of sales during the year ended December 31, 2015, while one customer represented 37% of the Companys sales and three customers represented 44% of accounts receivable during the year ended December 31, 2014. No other customers exceeded 10% of the Companys sales or accounts receivable during the year ended December 31, 2015 or 2014.
A significant portion of our revenue comes from sales of the AquaBall Naturally Flavored Water. For the year ended December 31, 2015 and 2014, sales of AquaBall accounted for 97% and 90% of the Companys total revenue, respectively.
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Fair Value Matters | The Company does not have any assets or liabilities carried at fair value on a recurring or non-recurring basis, except for derivative liabilities.
The Companys financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, and notes payable. Management believes that the carrying amount of these financial instruments approximates their fair values, due to their relatively short-term nature. |
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Inventory | Inventory is stated at the lower of cost or market on a FIFO (first-in first-out) basis. Provision is made to reduce excess or obsolete inventory to the estimated net realizable value. The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.
Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve. Inventory reserves were not significant as of December 31, 2015 or 2014.
Inventory is comprised of the following:
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Property and Equipment | Property and equipment are stated at cost. The Company provides for depreciation of property and equipment using the straight-line method based on estimated useful lives of between three and ten years. Property and equipment is not significant to the consolidated financial statements as of or for the years ended December 31, 2015 and 2014. |
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Long-Lived Assets | The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. An impairment was not deemed necessary in 2015 or 2014. |
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Intangible assets | Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Companys products, customer list, and the estimated value of GT Beverage Company, LLCs interlocking spherical bottle patent acquired on March 31, 2012. The Companys intangible assets are amortized over their estimated remaining useful lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary as of December 31, 2015 or December 31, 2014. |
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Goodwill | Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually. |
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Income Taxes | The Company accounts for income taxes in accordance with FASB Accounting Standards Codification 740 (ASC Topic 740). Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. |
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Stock-Based Compensation | Total stock-based compensation expense, for all of the Companys stock-based awards recognized for the year ended December 31, 2015 and 2014 was $1,055,448 and $497,271, respectively.
The Company uses a Black-Scholes option-pricing model (the Black-Scholes Model) to estimate the fair value of the stock option and warrants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Companys stock price over the contractual term of the option. The expected life is based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. Currently it is based on the simplified approach provided by SAB 107. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant (see Note 3 below).
Shares, warrants and options issued to non-employees for services are accounted for at fair value, based on the fair value of instrument issued or the fair value of the services received, whichever is more readily determinable. |
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Derivative Instruments | A derivative is an instrument whose value is derived from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (embedded derivatives) and for hedging activities. As a matter of policy, the Company does not invest in financial derivatives or engage in hedging transactions. However, the Company has entered into complex financing transactions that involve financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. The Company may engage in other similar complex debt transactions in the future, but not with the intention to enter into derivative instruments. Derivatives and embedded derivatives, if applicable, are measured at fair value using the binomial lattice- (Binomial Lattice) pricing model and marked to market and reflected on our consolidated statement of operations as other (income) expense at each reporting period. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security. |
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Net Loss Per Share | Earnings per share require presentation of both basic earnings per common share and diluted earnings per common share. Since the Company has a net loss for all periods presented, Common Stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive. At December 31, 2015 and 2014, the Company had 120,573,694 and 52,577,964 shares of Common Stock equivalents outstanding, respectively. |
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Research and Development | Research and development costs are expensed as incurred. |
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Recent Accounting Pronouncements | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This accounting standard is effective the Company for the year ending December 31, 2017, including interim reporting periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows.
On February 25, 2016, the FASB issued ASU 2016-2, "Leases" (Topic 842), which is intended to improve financial reporting for lease transactions. This ASU will require organizations that lease assets, such as real estate, airplanes and manufacturing equipment, to recognize on their balance sheet the assets and liabilities for the rights to use those assets for the lease term and obligations to make lease payments created by those leases that have terms of greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as finance or operating lease. This ASU will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures will include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The ASU is effective for the Company for the year ending December 31, 2019 and interim reporting periods within that year, and early adoption is permitted. Management has not yet determined the effect of this ASU on the Company's financial statements. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||
Organization And Summary Of Significant Accounting Policies Tables | |||||||||||||||||||||||||||||||||||||
Inventory | Inventory is comprised of the following:
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STOCK OPTIONS AND WARRANTS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to founders, Shares | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary warrant activity | A summary of the Companys warrant activity for the years ended December 31, 2015 and 2014 is presented below:
As of December 31, 2015, t |
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Outstanding warrants to purchase its common stock | As of December 31, 2015, the Company had the following outstanding warrants to purchase shares of its Common Stock:
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Stock option activity | Stock option activity during the year ended December 31, 2015 is summarized as follows:
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INTANGIBLE ASSETS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||
Intangible Assets Tables | |||||||||||||||||||||||||||||||||||||||||
Intangible assets | Intangible assets are:
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Future amortization expense | For these assets, amortization expense over the next five years and thereafter is expected to be as follows:
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INCOME TAXES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||
Income Taxes Tables | |||||||||||||||||||||||||||||||||||||
Deferred tax asset | The income tax effect of temporary differences between financial and tax reporting and net operating loss carryforwards gives rise to a deferred tax asset at December 31, 2015 and 2014 as follows:
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DEBT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible notes payable | A summary of convertible notes payable as of December 31, 2015 is as follows:
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FAIR VALUE MEASUREMENTS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of financial liabilities on a recurring basis | The following table presents the estimated fair value of financial liabilities measured at estimated fair value on a recurring basis included in the Companys financial statements as of December 31, 2015 and 2014:
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Changes in recurring fair value measurements included in net loss | The following table presents the changes in recurring fair value measurements included in net loss for the years ended December 31, 2015 and 2014:
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Summary of changes in the fair value of our Level 3 financial liabilities | The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the year ended December 31, 2015:
The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the year ended December 31, 2014:
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Inventory | ||
Purchased materials | $ 689,703 | $ 796,609 |
Finished goods | 869,016 | 566,834 |
Total | $ 1,558,719 | $ 1,363,443 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
State of incorporation | Nevada | |
Date of incorporation | Jan. 01, 2001 | |
Net Loss | $ (11,990,563) | $ (8,116,603) |
Negative working capital | 5,303,989 | |
Accumulated deficit | 30,348,644 | 18,358,081 |
Restricted cash | 209,360 | 133,198 |
Accounts receivable allowance for doubtful accounts | $ 110,000 | $ 162,000 |
Concentration risk | 97.00% | 90.00% |
Stock based compensation expense | $ 1,055,448 | $ 497,271 |
Antidilutive shares | 120,573,694 | 52,577,964 |
Accounts Receivable [Member] | ||
Concentration risk | 79.00% | 44.00% |
Sales [Member] | ||
Concentration risk | 47.00% | 37.00% |
STOCK OPTIONS AND WARRANTS (Details) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Warrant Outstanding | ||
Outstanding, beginning of period | 16,375,270 | 12,590,467 |
Granted | 50,543,837 | 4,022,936 |
Exercised | 0 | (179,633) |
Expired | 0 | (58,500) |
Outstanding, end of period | 66,919,107 | 16,375,270 |
Weighted average exercise price | ||
Outstanding Weighted Average Exercise Prices, beginning of period | $ .40 | $ .55 |
Granted | .16 | .30 |
Exercised | 0.00 | .25 |
Expired | $ 0.00 | 25.09 |
Outstanding Weighted Average Exercise Prices, end of period | $ .40 |
STOCK OPTIONS AND WARRANTS (Details 2) |
12 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
shares
| |
Options Outstanding | |
Outstanding | shares | 12,379,593 |
Exercised | shares | 0 |
Granted | shares | 0 |
Forfeited | shares | (12,379,593) |
Expired | shares | 0 |
Outstanding | shares | 0 |
Weighted average exercise price | |
Outstanding Weighted Average Exercise Prices | $ / shares | $ .37 |
Exercised | $ / shares | 0.00 |
Granted | $ / shares | 0.00 |
Forfeited | $ / shares | .37 |
Expired | $ / shares | 0.00 |
Outstanding Weighted Average Exercise Prices | $ / shares | $ 0.00 |
STOCK OPTIONS AND WARRANTS (Details Narrative) |
12 Months Ended |
---|---|
Dec. 31, 2015
shares
| |
Stock Options And Warrants Details Narrative | |
Authorized issuance of restricted Common Stock | 19,491,375 |
Issuance of restricted Common Stock | 750,000 |
INTANGIBLE ASSETS (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Intangible Assets Details | ||
Patents and trademarks | $ 1,706,849 | $ 1,706,849 |
Accumulated amortization | (636,261) | (488,235) |
Total intangible assets | $ 1,070,588 | $ 1,218,614 |
INTANGIBLE ASSETS (Details 1) |
Dec. 31, 2015
USD ($)
|
---|---|
Patents and Trademark Amortization Future Expense | |
2016 | $ 141,177 |
2017 | 141,177 |
2018 | 141,177 |
2019 | 141,177 |
2020 | 141,177 |
2021 and thereafter | 364,703 |
Total | $ 1,070,588 |
INTANGIBLE ASSETS (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Intangible Assets Details Narrative | ||
Amortization expense | $ 148,768 | $ 182,843 |
INCOME TAXES (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Income Taxes Details | ||
Deferred tax asset - NOL's | $ 11,040,000 | $ 6,800,000 |
Less valuation allowance | $ (11,040,000) | $ (6,800,000) |
Net deferred tax asset |
INCOME TAXES (Details Narrative) - USD ($) |
Dec. 31, 2015 |
Oct. 25, 2012 |
---|---|---|
Net operating loss carryforwards (NOLs) | ||
Net operating loss available to offset future taxable income | ||
Bazi [Member] | ||
Net operating loss carryforwards of Bazi | $ 25,000,000 |
DEBT (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Debt Details | ||
Outstanding, beginning of period | $ 4,263,002 | $ 2,596,667 |
Borrowings | 1,103,817 | 4,263,002 |
Repayments | (2,883,000) | (1,936,667) |
Conversions to Series C preferred stock | (1,147,000) | (660,000) |
Outstanding, end of period | $ 1,336,819 | $ 4,263,002 |
DEBT (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Repayment of notes payable | $ 2,700,000 | |
Line of credit, amount outstanding | 482,000 | |
Line of credit, maximum borrowing capacity | 1,500,000 | |
Secured notes issued | 1,103,817 | $ 4,263,002 |
Secured Note 1 [Member] | ||
Secured notes issued | $ 855,000 | |
Secured note interest rate | 12.00% |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2016 |
|
Commitments And Contingencies Details Narrative | ||
Total rent expense related to operating leases | $ 55,640 | |
Remaining lease payments | $ 42,687 |
FAIR VALUE MEASUREMENTS (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
---|---|---|---|
Derivative liabilities | $ (6,199,021) | $ (1,569,522) | $ (1,619,021) |
Fair Value, Inputs, Level 1 [Member] | |||
Derivative liabilities | |||
Fair Value, Inputs, Level 2 [Member] | |||
Derivative liabilities | |||
Fair Value, Inputs, Level 3 [Member] | |||
Derivative liabilities | $ (6,199,021) | $ (1,569,522) |
FAIR VALUE MEASUREMENTS (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Change in Estimated Fair Value Recognized in Results of Operations | $ 1,262,329 | $ 621,159 |
Revenue [Member] | ||
Change in Estimated Fair Value Recognized in Results of Operations | $ 1,262,329 | $ 621,159 |
Expenses [Member] | ||
Change in Estimated Fair Value Recognized in Results of Operations |
FAIR VALUE MEASUREMENTS (Details 2) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Level 3 Financial Liabilities | ||
Derivative liabilities, beginning balance | $ 1,569,522 | $ 1,619,021 |
Recorded new derivative liabilities | $ 5,891,828 | 616,411 |
Reclassification of Derivative Liabilities | (44,751) | |
Change in Estimated Fair Value Recognized in Results of Operations | $ (1,262,329) | (621,159) |
Derivative liabilities | $ 6,199,021 | $ 1,569,522 |
LICENSING AGREEMENTS (Details Narrative) - USD ($) |
12 Months Ended | 24 Months Ended | |
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2017 |
Mar. 31, 2017 |
|
DisneyMember | |||
Agreeement term | 3 years | ||
Royalty rate | 5.00% | ||
Royalty guarantee | $ 450,870 | ||
Common marketing fund contributions requirement, per agreement | $ 820,000 | ||
MarvelMember | |||
Agreeement term | 18 months | ||
Royalty rate | 5.00% | 5.00% | |
Royalty guarantee | $ 37,500 | $ 200,000 |
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