x
|
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2016
or
|
o
|
Transition Report under Section 13 or 15(d) of the Exchange Act
|
Delaware
|
68-0678429
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
1010 Northern Blvd.,
Great Neck, NY
|
11021
|
|
(Address of principal executive offices)
|
(Zip Code)
|
(Former name, former address and former fiscal year, if changed since last report)
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
||
Non-accelerated filer
|
o
|
Smaller reporting company
|
x
|
Page
|
||||
PART I - FINANCIAL INFORMATION
|
||||
Item 1. | 1 | |||
1 | ||||
2 | ||||
Unaudited Consolidated Statements of Changes in Stockholders' Deficit | 3 | |||
Unaudited Consolidated Statements of Cash Flows | 4 | |||
Notes to the Consolidated Financial Statements (Unaudited) | 5 | |||
Item 2. | 19 | |||
Item 3. | 23 | |||
Item 4. | 23 | |||
PART II - OTHER INFORMATION
|
||||
Item 1. | 24 | |||
Item 1A. | 24 | |||
Item 2. | 24 | |||
Item 3. | 24 | |||
Item 4. | 24 | |||
Item 5. | 24 | |||
Item 6. | 24 | |||
25 |
March 31,
|
December 31,
|
|||||||
2016
|
2015
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 33,337 | $ | 441,189 | ||||
Inventory
|
75,124 | 80,142 | ||||||
Prepaid expenses and other current assets
|
32,546 | 6,643 | ||||||
Total current assets
|
141,007 | 527,974 | ||||||
Property and equipment, net
|
12,573 | 14,210 | ||||||
Security deposit
|
6,560 | 6,560 | ||||||
Total assets
|
$ | 160,140 | $ | 548,744 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
Current liabilities
|
||||||||
Accounts payable
|
$ | 184,653 | $ | 300,237 | ||||
Accrued expenses and taxes
|
452,597 | 362,353 | ||||||
Secured convertible notes payable (net of $334,371 and $756,837 discounts and debt issuance costs)
|
883,129 | 513,163 | ||||||
Due to officers/stockholders
|
179,075 | 289,075 | ||||||
Total current liabilities
|
1,699,454 | 1,464,828 | ||||||
Deferred rent
|
5,574 | 6,729 | ||||||
Derivative liability
|
1,647,585 | 2,232,586 | ||||||
Total liabilities
|
3,352,613 | 3,704,143 | ||||||
Stockholders' deficit
|
||||||||
Preferred stock, par value $0.0001 per share, 150,000,000 shares
|
||||||||
authorized. Issued and outstanding as of March 31, 2016 and December 31, 2015 as follows:
|
||||||||
Series A Convertible Preferred stock, 40,000,000 shares designated;
|
||||||||
11,664 shares issued and outstanding at March 31, 2016 and December 31, 2015
|
2 | 2 | ||||||
Series C Convertible Preferred stock, 26,666,667 shares designated;
|
||||||||
20,000 shares issued and outstanding at March 31, 2016 and December 31, 2015
|
2 | 2 | ||||||
Series D Convertible Preferred stock, 3,000,000 shares designated; 3,000 issued and
|
||||||||
outstanding at March 31, 2016 and December 31, 2015
|
- | - | ||||||
Common stock, par value $0.0001, per share, 3,000,000,000 shares
|
||||||||
authorized; 2,583,680 and 1,740,247 shares issued at March 31, 2016 and December 31, 2015
|
259 | 174 | ||||||
Additional paid-in capital
|
16,231,263 | 16,163,348 | ||||||
Accumulated deficit
|
(19,423,999 | ) | (19,318,925 | ) | ||||
Treasury stock at cost; 4 shares
|
- | - | ||||||
Total stockholders' deficit
|
(3,192,473 | ) | (3,155,399 | ) | ||||
Total liabilities and stockholders' deficit
|
$ | 160,140 | $ | 548,744 |
Three Months Ended March 31,
|
|||||||||
2016
|
2015
|
||||||||
Net Sales
|
$ | - | $ | (22,033 | ) | ||||
Cost of Goods
|
5,018 | 33,614 | |||||||
Gross Loss
|
(5,018 | ) | (55,647 | ) | |||||
Operating Expenses
|
|||||||||
Selling expenses
|
8,417 | 43,576 | |||||||
General and administrative
|
216,412 | 291,977 | |||||||
(Decrease) in fair value of derivative liability
|
(530,695 | ) | (517,585 | ) | |||||
Gain on settlement of secured convertible notes payable | (38,802 | ) | - | ||||||
Depreciation and amortization expense
|
1,637 | 1,671 | |||||||
Total operating expenses
|
(343,031 | ) | (180,361 | ) | |||||
Loss from operations before other income (expenses)
|
338,013 | 124,714 | |||||||
Other Income (Expenses)
|
|||||||||
Forgiveness of debt income
|
- | 25,555 | |||||||
Amortization of deferred financing costs and debt discount
|
(422,466 | ) | (350,793 | ) | |||||
Interest (expense) income, net
|
(20,621 | ) | (11,772 | ) | |||||
Total other income (expenses)
|
(443,087 | ) | (337,010 | ) | |||||
Net Loss
|
$ | (105,074 | ) | $ | (212,296 | ) | |||
Gain on extinguishment of Series B preferred stock
|
- | 3,420,804 | |||||||
Net (loss) income attributable to common stockholders
|
(105,074 | ) | 3,208,508 | ||||||
Net (loss) income per common share: |
Basic
|
$ | (0.04 | ) | $ | 7.52 | |||
Diluted | $ | (0.04 | ) | 5.37 | |||||
Weighted Average Shares Outstanding
|
|||||||||
Basic
|
2,480,407 | 426,476 | |||||||
Diluted
|
9,184,778 | 597,307 |
Common Stock |
Preferred
Series A Stock
|
Preferred
Series C Stock
|
Preferred
Series D Stock
|
Additional Paid-In | Accumulated | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||
Balance,
December 31, 2015
|
1,740,247 | $ | 174 | 11,664 | $ | 2 | 20,000 | $ | 2 | 3,000 | $ | - | $ | 16,163,348 | $ | (19,318,925 | ) | (4 | ) | $ | - | $ | (3,155,399 | ) | ||||||||||||||||||||||||||||
Shares issued for anti-dilution protection
|
668,433 | 67 | (67 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||
Shares issued on converted notes
|
175,000 | 18 | 67,982 | 68,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss)
|
- | - | - | - | - | - | - | - | - | (105,074 | ) | - | - | (105,074 | ) | |||||||||||||||||||||||||||||||||||||
Balance,
March 31, 2016
|
2,583,680 | $ | 259 | 11,664 | $ | 2 | 20,000 | $ | 2 | 3,000 | $ | - | $ | 16,231,263 | $ | (19,423,999 | ) | (4 | ) | $ | - | $ | (3,192,473 | ) |
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$ | (105,074 | ) | $ | (212,296 | ) | ||
Adjustments to reconcile net loss to net cash (used in) operating activities:
|
||||||||
Depreciation and amortization
|
1,637 | 1,671 | ||||||
Amortization of deferred financing costs and debt discount
|
422,466 | 350,793 | ||||||
Forgiveness of debt income
|
- | (25,555 | ) | |||||
Gain on settlement of secured convertible notes payable
|
(38,802 | ) | - | |||||
(Decrease) in fair value of derivative liability
|
(530,695 | ) | (517,585 | ) | ||||
Changes in assets and liabilities:
|
||||||||
Decrease in escrow account
|
- | 12,500 | ||||||
Decrease in accounts receivable
|
- | 36,234 | ||||||
Decrease in inventory
|
5,018 | 502 | ||||||
(Increase) in prepaid expenses and other current assets
|
(25,903 | ) | (16,108 | ) | ||||
(Decrease) increase in deferred rent
|
(1,155 | ) | (161 | ) | ||||
(Increase) in accounts payable and accrued expenses
|
(25,344 | ) | (35,857 | ) | ||||
Net cash (used in) operating activities
|
(297,852 | ) | (405,862 | ) | ||||
Cash flows from financing activities
|
||||||||
(Decrease) in due to officers/stockholders
|
(110,000 | ) | - | |||||
Net cash (used in) financing activities
|
(110,000 | ) | - | |||||
Net (decrease) in cash and cash equivalents
|
(407,852 | ) | (405,862 | ) | ||||
Cash and cash equivalents, beginning of year
|
441,189 | 504,358 | ||||||
Cash and cash equivalents, end of year
|
$ | 33,337 | $ | 98,496 | ||||
Supplemental cash flow disclosures:
|
||||||||
Interest paid
|
$ | - | $ | 655 | ||||
State minimum taxes and franchise fees paid
|
$ | 4,246 | $ | 2,144 | ||||
Conversion of notes payable
|
$ | 52,500 | $ | - |
Level 1 |
Unadjusted quoted prices in active markets that are accessible at measurement date for identical assets or liabilities.
|
Level 2 |
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and less observable from objective sources. |
March 31,
2016
|
December 31,
2015 |
|||||||
Materials
|
$ | 20,253 | $ | 20,253 | ||||
Finished product
|
54,871 | 59,889 | ||||||
Total
|
$ | 75,124 | $ | 80,142 |
March 31,
2016
|
December 31,
2015
|
|||||||
Furniture and Fixtures
|
$ | 6,138 | $ | 6,138 | ||||
Website
|
18,000 | 18,000 | ||||||
Less: Accumulated depreciation
|
(11,565 | ) | (9,928 | ) | ||||
Balance
|
$ | 12,573 | $ | 14,210 |
2016
|
2015
|
|||||||
Common share equivalents of Series A Convertible Preferred Stock
|
11,664
|
11,664
|
||||||
Common share equivalents of Series C Convertible Preferred Stock
|
2,000,000
|
20,000
|
||||||
Common share equivalents of Series D Convertible Preferred Stock
|
3,000
|
1,000
|
||||||
Convertible Promissory Notes Payable
|
3,991,667
|
74,167
|
||||||
Due Diligence Payable
|
-
|
64,000
|
||||||
Warrants
|
5,039
|
-
|
||||||
Shares issuable under ratchet provisions
|
693,001
|
-
|
||||||
Total
|
6,704,371
|
170,831
|
2016
|
2015
|
|||||||
Market Price:
|
$ | 0.43 | $ | 0.55 | ||||
Exercise Price:
|
$ | 0.30 | $ | 0.30 | ||||
Volatility:
|
138 | % | 149 | % | ||||
Dividend Yield:
|
zero
|
zero
|
||||||
Term in years:
|
2.88 and 3.75
|
3.1 and 4.0
|
||||||
Risk Free Rate of Return:
|
1.21 | % | 1.76 | % |
2016
|
2015
|
|||||||
Market Price:
|
$ | 0.43 | $ | 0.55 | ||||
Exercise Price:
|
$ | 30.00 | $ | 30.00 | ||||
Volatility:
|
138 | % | 149 | % | ||||
Dividend Yield:
|
zero
|
zero
|
||||||
Term in years:
|
<1
|
<1
|
||||||
Risk Free Rate of Return:
|
0.87 | % | 1.31 | % |
Face Amount
|
Unamortized Discount
|
Debt Issuance Cost
|
Carrying Value
|
|||||||||||||
December 31, 2015
|
$ | 1,270,000 | $ | (660,712 | ) | $ | (96,125 | ) | $ | 513,163 | ||||||
2016 Amortization
|
- | 396,091 | 26,375 | 422,466 | ||||||||||||
Conversions
|
(52,500 | ) | - | - | (52,500 | ) | ||||||||||
March 31, 2016
|
$ | 1,217,500 | $ | (264,621 | ) | $ | (69,750 | ) | $ | 883,129 |
March 31
2016
|
December 31,
2015
|
|||||||
Trading price of common stock on measurement date | $ | 0.43 | $ | 0.550 | ||||
Conversion price | $ | 0.30 | $ | 0.300 | ||||
Risk free interest rate (1) | 0.49 | % | 0.15 | % | ||||
Conversion notes lives in years |
<1 year
|
<1 year
|
||||||
Expected volatility (2) |
255
|
% |
208
|
% | ||||
Expected dividend yield (3) | - | - |
March 31,
|
December 31,
|
|||||||
2016
|
2015
|
|||||||
Trading price of common stock on measurement date
|
$
|
0.43
|
$
|
0.55
|
||||
Conversion price
|
$
|
0.30
|
$
|
0.30
|
||||
Risk free interest rate (1)
|
0.39%-0.49
|
%
|
0.57%-0.65
|
%
|
||||
Conversion notes lives in years
|
<1 year
|
<1 year to 1 year
|
||||||
Expected volatility (2)
|
258%-255
|
%
|
208% - 224
|
%
|
||||
Expected dividend yield (3)
|
-
|
(1)
|
The risk-free interest rate was determined by management using the 6 and 9 months Treasury Bill as of the respective measurement date.
|
(2)
|
The volatility factor was estimated by using the historical volatilities of the Company’s trading history.
|
(3)
|
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
|
Balance, December 31, 2015
|
$ | 2,232,586 | ||
Conversion of notes payable
|
(54,306 | ) | ||
Change in fair value
|
(530,695 | ) | ||
Balance, March 31, 2016
|
1,647,585 |
Date of Grant
|
Number of Warrants
|
Expiration Date
|
Exercise Price
|
||||||
April 26, 2013
|
22,981
|
April 26, 2016
|
$
|
30.00
|
|||||
February 14, 2014
|
3,333
|
February 14, 2019
|
$
|
0.30
|
*
|
||||
December 31, 2014
|
13,333
|
December 31, 2019
|
$
|
0.30
|
|||||
Total
|
39,647
|
Date of Grant
|
Number of Warrants
|
Expiration Date
|
Exercise Price
|
||||||
January 9, 2013
|
3,903
|
January 9, 2016
|
$
|
30.00
|
|||||
April 26, 2013
|
22,981
|
April 26,2016
|
$
|
30.00
|
|||||
February 14, 2014
|
3,333
|
February 14, 2019
|
$
|
6.00
|
*
|
||||
December 31, 2014
|
13,333
|
December 31, 2019
|
$
|
6.00
|
|||||
Total
|
43,550
|
2016
|
2015
|
|||||||
Gross sales
|
$ | - | $ | 54,756 | ||||
Less:
|
||||||||
Sales discounts
|
- | 1,115 | ||||||
Trade spending
|
- | 674 | ||||||
Slotting fees
|
- | 75,000 | ||||||
Net sales
|
$ | - | $ | (22,033 | ) |
Exhibit No.
|
Title of Document
|
|
31.1 |
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2 |
Certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1 |
Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2 |
Certification of the Principal Financial and Accounting Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101.INS
|
XBRL Instance Document*
|
|
101.SCH
|
XBRL Schema Document*
|
|
101.CAL
|
XBRL Calculation Linkbase Document*
|
|
101.LAB
|
XBRL Label Linkbase Document*
|
|
101.PRE
|
XBRL Presentation Linkbase Document*
|
|
101.DEF
|
XBRL Definition Linkbase Document*
|
Be Active Holdings, Inc.
|
||
May 12, 2016
|
/s/ Joseph Rienzi | |
By: Joseph Rienzi
|
||
Its: President and Director (Principal Executive Officer)
|
||
May 12, 2016
|
/s/ David Wolfson | |
By: David Wolfson
|
||
Its: Chief Financial Officer (Principal Financial and Accounting Officer)
|
Dated: May 12, 2016 | By: |
/s/ Joseph Rienzi
Joseph Rienzi
President (Principal Executive Officer)
|
Dated: May 12, 2016 | By: |
/s/ David Wolfson
David Wolfson
(Principal Financial and Accounting Officer)
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: May 12, 2016
|
/s/ Joseph Rienzi
|
||
By: Joseph Rienzi
|
|||
Its: President (Principal Executive Officer)
|
|||
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: May 12, 2016
|
/s/ David Wolfson
|
||
By: David Wolfson
|
|||
Its: Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|||
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
May. 12, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | Be Active Holdings, Inc. | |
Entity Central Index Key | 0001514514 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2016 | |
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 Common Stock, Shares Outstanding | 2,683,680 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2016 | |
Trading Symbol | JALA |
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Secured Convertible notes payable | $ 334,371 | $ 756,837 |
Preferred stock, par value per share | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 150,000,000 | 150,000,000 |
Common stock, par value per share | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 3,000,000,000 | 3,000,000,000 |
Common stock, shares issued | 2,583,680 | 1,740,247 |
Treasury stock | 4 | 4 |
Preferred Series A Stock | ||
Preferred stock, shares authorized | 40,000,000 | 40,000,000 |
Preferred stock, shares issued | 11,664 | 11,664 |
Preferred stock, shares outstanding | 11,664 | 11,664 |
Preferred Series C Stock | ||
Preferred stock, shares authorized | 26,666,667 | 26,666,667 |
Preferred stock, shares issued | 20,000 | 20,000 |
Preferred stock, shares outstanding | 20,000 | 20,000 |
Preferred Series D Stock | ||
Preferred stock, shares authorized | 3,000,000 | 3,000,000 |
Preferred stock, shares issued | 3,000 | 3,000 |
Preferred stock, shares outstanding | 3,000 | 3,000 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited) - 3 months ended Mar. 31, 2016 - USD ($) |
Common Stock |
Preferred Series A Stock |
Preferred Series C Stock |
Preferred Series D Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Treasury Stock |
Total |
---|---|---|---|---|---|---|---|---|
Beginning Balance, Amount at Dec. 31, 2015 | $ 174 | $ 2 | $ 16,163,348 | $ (19,318,925) | $ 0 | $ (3,155,399) | ||
Beginning Balance, Shares at Dec. 31, 2015 | 1,740,247 | 11,664 | 20,000 | 3,000 | (4) | |||
Shares issued for anti-dilution protection, Amount | $ 67 | (67) | 0 | |||||
Shares issued for anti-dilution protection, Shares | 668,433 | |||||||
Shares issued on converted notes, Amount | $ 18 | 67,982 | 68,000 | |||||
Shares issued on converted notes, Shares | 175,000 | |||||||
Net (Loss) | $ 0 | $ 0 | $ 0 | $ 0 | 0 | (105,074) | $ 0 | (105,074) |
Ending Balance,Amount at Mar. 31, 2016 | $ 259 | $ 0 | $ 2 | $ 0 | $ 16,231,263 | $ (19,423,999) | $ 0 | $ (3,192,473) |
Ending Balance, Shares at Mar. 31, 2016 | 2,583,680 | 11,664 | 20,000 | 3,000 | (4) |
ORGANIZATION AND OPERATIONS |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Limited Liability Company or Limited Partnership, Business Organization and Operations [Abstract] | |
ORGANIZATION AND OPERATIONS | Business Operations
On January 9, 2013, the Company, Be Active Acquisition Corp., the Companys newly formed, wholly-owned Delaware subsidiary (Acquisition Sub) and Be Active Brands, Inc. (Brands), an entity incorporated in Delaware on March 10, 2009 and based in New York, entered into an Agreement of Merger and Plan of Reorganization (the Merger Agreement). Upon closing of the transaction under the Merger Agreement (the Merger), Acquisition Sub merged with and into Brands, with Brands as the surviving corporation, and became a wholly-owned subsidiary of the Company.
The Merger was accounted for as a reverse-merger and recapitalization with Brands as the acquirer for financial reporting purposes and the Company as the acquired company. Consequently, the assets and liabilities and the operations reflected in the historical financial statements prior to the Merger are those of Brands and are recorded at the historical cost basis of Brands and the consolidated financial statements after completion of the Merger include the assets and liabilities of the Company and Brands, and the historical operations of the Company and Brands from the closing date of the Merger.
The Company sells frozen yogurt and fudge bars to retailers with stores in New York, New Jersey, Connecticut, Massachusetts, Rhode Island and Vermont. The Company intends to expand its regional growth to a national level and global presence in sales of premium quality low-fat, low calorie, low-carbohydrate, vitamin and probiotic enriched frozen yogurt and products under the brand name Jala. |
GOING CONCERN |
3 Months Ended |
---|---|
Mar. 31, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
GOING CONCERN | The Companys financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established revenues sufficient to cover its operating costs and allow it to continue as a going concern. The Company has incurred significant net losses since inception and at March 31, 2016, has an accumulated deficit of ($19,423,999) and stockholders deficit of ($3,192,473). The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating expenses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Managements plan is to obtain such resources for the Company through sales of its products in combination with equity and/or debt financing. As indicated in Note 8, the Company obtained approximately $425,000, $250,000 and $500,000 of gross proceeds from the debt offerings on December 31, 2014, September 21, 2015 and December 31, 2015, respectively, and currently has limited working capital necessary for sales and production, accordingly there can be no assurance that the Company can continue as a going concern.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Accounting Policies [Abstract] | |||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation and Principles of Consolidation
The accompanying unaudited financial statements and related notes have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and with the applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for interim financial statements have been included. This Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015. Interim results are not necessarily indicative of the results for the fiscal year ending December 31, 2016.
The financial statements reflect a 1 per 1,000 reverse stock split of all outstanding common and preferred stock, which was effective immediately prior to the completion of the December 2015 Securities Purchase Agreement (see Note 8). All share and per share data reported and disclosed in the accompanying financial statements have been retroactively adjusted to give effect to the reverse stock split.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Some of the more significant estimates required to be made by management include the fair value of derivatives and other stockholders' equity based transactions.
Reclassification
Certain items in the 2015 financials have been reclassified to conform to the 2016 presentation.
Financial Instruments
The Company considers the carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses to approximate their fair values because of their relatively short maturities. The fair value of convertible notes payable approximate their face value.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
The Companys derivative liabilities (see Note 9) are valued at each reporting period using level 3 inputs.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash balances at one financial institution. The Company has not experienced any losses in such accounts. Federal legislation provides for FDIC insurance of up to $250,000.
Accounts Receivable
Accounts receivable consist of amounts due from customers. The Company records an allowance for doubtful receivables, if necessary, to allow for any amounts which may be unrecoverable. The allowance is based upon an analysis of the Companys prior collection experience, customer creditworthiness and current economic trends. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2016 and December 31, 2015, no allowance for doubtful accounts was required.
Inventory
Inventory consists primarily of packaging, raw materials and finished goods held for distribution. Inventory is stated at the lower of cost (first-in, first-out) or market. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand and the distribution channel, the estimated time to sell such inventory, remaining shelf life and the current expected market conditions. Adjustments to reduce inventory to its net realizable value are charged to cost of goods sold.
Shipping and Handling Costs
The Company classifies shipping and handling costs as part of selling expense. Shipping and handling costs were $0 and $3,230 for the three months ended March 31, 2016 and 2015, respectively.
Debt Issue Cost
Debt issue costs related to costs incurred in connection with the issuance of convertible notes, and are being amortized on the straight-line method (which approximates the effective interest method) over the term of the respective notes payable. At March 31, 2016 and December 31, 2015, debt issuance costs, net of accumulated amortization of $35,750 and $9,375 amounted to $69,750 and $96,125, respectively. Debt issuance costs are now shown on the accompanying balance sheet as a direct deduction from the carrying amount of the secured convertible notes payable (see Note 8).
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method.
Maintenance and repairs are charged to operating expenses as they are incurred. Improvements and betterments, which extend the lives of the assets, are capitalized. The cost and accumulated depreciation of assets retired or otherwise disposed of are removed from the appropriate accounts and any profit or loss on the sale or disposition of such assets is credited or charged to income.
Derivative Liabilities
The Companys derivative liabilities are related to the ratchet reset provisions of the Companys warrants and convertible debt. Such ratchet reset provisions prohibit the Company from concluding that the warrants are indexed to their own stock, and thus derivative accounting is appropriate. For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and is then re-valued at each reporting date, with changes in fair value recognized in operations for each reporting period. The Company uses the Black-Scholes Option-Pricing Model to value the derivative instruments of its outstanding stock warrants at inception and subsequent valuation dates and in accordance with Accounting Standards Codification (ASC) 815, and a binomial valuation model in connection with its convertible debt.
Revenue Recognition
Revenue is recognized, net of discounts, rebates, promotional adjustments, price adjustments, slotting fees and estimated returns, upon transfer of title and risk to the customer which occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payment awards made to employees, directors and others based on the estimated fair values on the date of the grant, as subsequently adjusted for certain contingently issuable shares. Common stock equivalents are valued using the Black-Scholes Option-Pricing Model using the known or equivalent market value of common stock on the date of valuation, an expected dividend yield of zero, the remaining period or maturity date of the common stock equivalent and the expected volatility of common stock.
Income Taxes
The Company provides for income taxes under ASC 740 Income Taxes, which requires the use of an assets and liabilities approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided when realization of deferred tax assets is not considered more likely than not.
The Companys policy is to classify income tax assessments, if any, for interest in interest expense and for penalties in general and administrative expenses.
As of March 31, 2016, management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company's consolidated financial statements.
The Companys income tax returns since 2012 are subject to examination by the tax authorities.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising was $853 and $0 for the three months ended March 31, 2016 and 2015, respectively.
Recent Accounting Pronouncements
In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is in the process of evaluating the impact of the new pronouncement on its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board ("FASB") issued accounting guidance, "Revenue from Contracts with Customers." The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The standard will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. Accordingly, the Company will adopt this standard in the first quarter of fiscal year 2018. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements-Going Concern". This ASU is intended to define management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures. It is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect it to have a material effect on the Company's consolidated financial condition, results of operations, and cash flows.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability. Also in August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, to clarify that the Securities and Exchange Commission staff would not object to deferring and presenting debt issuance costs as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-credit arrangement. This guidance is effective for interim and annual periods beginning after December 15, 2015. The guidance is required to be retrospectively applied to all prior periods. The Company adopted these ASUs in the first quarter of 2016. As a result, the Company now presents $69,750 and $96,125 of debt issuance costs as a reduction of secured convertible notes payable.
All other accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
INVENTORY |
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INVENTORY | Inventory consists of the following:
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PROPERTY AND EQUIPMENT |
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PROPERTY AND EQUIPMENT | Property and equipment consists of the following:
Depreciation and amortization expense for the three months ended March 31, 2016 and 2015 were $1,637 and $1,671, respectively. |
INCOME (LOSS) PER COMMON SHARE |
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Income (Loss) from Operations before Extraordinary Items, Per Basic and Diluted Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME (LOSS) PER COMMON SHARE | Basic income (loss) per share is computed by dividing the net income or loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted income (loss) per share is computed similar to basic income (loss) per share except that the denominator for fully diluted income per share is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued in order to present their dilutive effect unless the effect of such potential shares would be antidilutive. Potential common shares consist of incremental common shares issuable upon the exercise of warrants, convertible preferred shares and convertible notes payable. In addition, in computing net income (loss) per share on a fully diluted basis, the Company adjusts for the interest expense on convertible debt as if the debt had been converted for all periods presented.
As of March 31, 2016 and 2015, the number of potential dilutive common shares is comprised of the following:
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DUE TO OFFICERS/STOCKHOLDERS |
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Due to Related Parties [Abstract] | |
DUE TO OFFICERS/STOCKHOLDERS | On February 25, 2015, one stockholder agreed to release the Company from its $25,555 loan obligation to him which was recorded as forgiveness of debt income for the quarter ended March 31, 2015. During the quarter ended March 31,2016, the Company repaid approximately$110,000 of advances received in 2015. |
SECURED CONVERTIBLE NOTES PAYABLE |
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SECURED CONVERTIBLE NOTES PAYABLE | On December 31, 2014, the Company entered into a Securities Purchase Agreement (2014 Agreement) with certain accredited investors to sell to the Purchasers an aggregate of up to $500,000 of principal amount of notes due December 31, 2015 representing the Purchasers subscription amount. The 2014 Agreement defines certain covenants and provides for a purchase price reset for a period of three years, unless the securities have been assigned, whereby should the Company issue or sell any shares of common stock or any common stock equivalents at a price less than the Purchasers conversion price per share, the Company will be required to issue additional shares of common stock to the Purchasers for no additional consideration resulting in a share dilution adjustment, as defined. The 2014 Agreement also provides a Most Favored Nations Provision whereby if the Company issues or sells any common stock at terms more favorable within three years, then the Company will be required to amend the 2014 Agreement to provide such favorable terms to the Purchasers. The Company paid $33,000 in legal and escrow agent fees, a placement agency fee of $20,000 in the form of a note payable, substantially similar to the Purchasers notes and issued 64,000, shares of its common stock valued at $640,000 and $20,000 as due diligence fees, all of which have been recorded as debt issuance costs on the accompanying consolidated financial statements and is being charged to operations over the twelve months ended December 31, 2015. The Company recorded amortization expense of $0 and $178,250 on the debt issuance costs during the three months ended March 31, 2016 and 2015, respectively. At December 31, 2015 the maturity date of the notes were extended to December 31, 2016.
Under the 2014 Agreement, the Company sold an aggregate of $425,000 in Secured Convertible Notes (Notes) and issued an additional $20,000 Note for placement fees. The Company fulfilled its obligations as defined by certain equity requirements; therefore, the Notes will be convertible into shares of the Companys common stock. Under certain conditions defined in the agreement, the Company has the option to convert the Notes into shares of the Company's common stock. Since the equity obligations were met during 2015 the Notes accrued interest at 10% per annum through June 30, 2015. The original conversion price on the Note was $6.00, and has subsequently reduced to $0.30 at December 31, 2015.
During the first quarter of 2016, the Company issued 175,000 shares of its common stock in connection with the conversion of $52,500 of Notes. In accordance with the accounting for debt extinguishment, the difference between the $52,500 carrying value of the Notes, plus the associated embedded derivative liability of $54,306 and the $68,000 fair value of 175,000 shares of common stock issued, resulting in a net gain of approximately $39,000.
Each Holder of the Notes has been granted a security interest in assets of the Company in accordance with a Security Agreement. The Security Agreement provides the Collateral Agent a security interest in all goods, machinery, equipment, contract rights and intangibles in the event of a default under the Agreement.
In connection with this 2014 Agreement, and under the anti-dilution provisions of the February 2014 private placement, on December 31, 2014, the Company issued an aggregate of 160,093 shares of common stock and 13,333 warrants to purchase common shares at $6.00 per share to existing stockholders holding securities purchased in that offering. This reflects the post-split adjustment to shares issued and price per share. The fair value of the 13,333 warrants issued in 2014 were valued at $122,807 using the Black-Scholes Pricing model and was reflected as a change in the derivative liability in the 2014 statement of operations.
In addition, the pricing of this 2014 Agreement triggered the pricing reset provision in the 3,333 warrants issued in the February 14, 2014 private placement. Such triggering resulted in the exercise price of the previously issued warrants resetting to $6.00 from $30.00 at December 31, 2014. The exercise price was further reduced to $0.30 as a result of additional financing in 2015. At March 31, 2016, using the Black-Scholes Pricing Model, the Company re-valued the remaining February 2014 warrants at $1,151 a decrease in fair value of $440 from December 31, 2015 and a decrease in fair value of $569,849 since inception.
At March 31, 2016, the 13,333 ratchet warrants granted at December 31, 2014 were re-valued using the Black-Scholes Pricing Model at $4,890, a decrease in fair value of $1,743 from December 31, 2015.
The significant assumptions utilized by the Company in the valuation of these warrants at March 31, 2016 and December 31, 2015 were as follows:
The outstanding warrants for 26,884 common shares at December 31, 2015, held by the January and April 2013 private placement investors do not have a cashless exercise and were not affected by the reset provision. During January 2016, 3,903 warrants expired. The Company re-valued the remaining warrants at March 31, 2016 using the Black-Scholes Pricing Model at $0: there was no change in fair value of $0 at December 31, 2015.
The significant assumptions utilized by the Company in the valuation of these warrants at March 31, 2016 and December 31, 2015 were as follows:
On September 21, 2015, the Company entered into a Securities Purchase Agreement (Sept 2015 Agreement) with certain accredited investors to sell to the Purchasers an aggregate of up to $250,000 of principal amount of notes due September 30, 2016, representing the Purchasers subscription amount. The new offering is substantially the same terms and conditions as the December 2014 Notes. In connection with the new offering, the Company issued allonges to the December 2014 Notes increasing the principal amount of the Notes ("Allonges") pursuant to the terms of the new offering with such Allonges having a maturity date of September 30, 2016 and a conversion price equal to $1.00 per share (subject to further reduction), at September 21, 2015. The conversion price was reduced to $0.30 at December 31, 2015 as a result of a subsequent financing.
The Sept 2015 Agreement defines certain covenants and provides for a purchase price reset for a period of three years, unless the securities have been assigned, whereby should the Company issue or sell any shares of common stock or any common stock equivalents at a price less than the Purchasers conversion price per share, the Company will be required to issue additional shares of common stock to the Purchasers for no additional consideration resulting in a share dilution adjustment, as defined. The Sept 2015 Agreement also provides a Most Favored Nations Provision whereby if the Company issues or sells any common stock at terms more favorable within three years, then the Company will be required to amend the Sept 2015 Agreement to provide such favorable terms to the Purchasers. The Company paid $12,500 in legal fees, a placement agency fee of $25,000 in the form of a note payable, substantially similar to the Purchasers notes, all of which was recorded as debt issuance costs on the accompanying consolidated financial statements and will be charged to operations over the twelve months ended September 30, 2016 or to the date of conversion, if earlier. The Company recorded amortization expense of $9,375 on the debt issuance costs during the three months ended March 31, 2016
Under the Sept 2015 Agreement, the Company sold an aggregate of $250,000 in Secured Convertible Notes and issued an additional $25,000 Note for placement fees. Once the Company has fulfilled its obligations as defined by certain equity requirements, the Notes will be convertible into shares of the Companys common stock at the option of the Company. Until the equity obligations are met, the Notes bear interest at 10%, per annum. Interest will be earned at a rate of 10% for the twelve months ending September 30, 2016 or to the date of conversion, whichever is earlier. The conversion price for the Note and accrued interest was equal to $1.00 per share at September 21, 2015 subject to adjustments as stock dividends and stock splits, as defined. At December 31, 2015, the conversion price was reduced to $0.30.
Each Holder of the Notes has been granted a security interest in assets of the Company in accordance with a Security Agreement. The Security Agreement provides the Collateral Agent a security interest in all goods, machinery, equipment, contract rights and intangibles in the event of a default under the Agreement.
On December 31, 2015, the Company entered into a Securities Purchase Agreement (Dec 2015 Agreement) with certain accredited investors to sell to the Purchasers an aggregate of up to $500,000 of principal amount of notes due December 31 2016, representing the Purchasers subscription amount. The new offering is substantially the same terms and conditions as the December 2014 Notes.
The Dec 2015 Agreement defines certain covenants and provides for a purchase price reset for a period of three years, unless the securities have been assigned, whereby should the Company issue or sell any shares of common stock or any common stock equivalents at a price less than the Purchasers conversion price per share, the Company will be required to issue additional shares of common stock to the Purchasers for no additional consideration resulting in a share dilution adjustment, as defined. The Dec 2015 Agreement also provides a Most Favored Nations Provision whereby if the Company issues or sells any common stock at terms more favorable within three years, then the Company will be required to amend the Dec 2015 Agreement to provide such favorable terms to the Purchasers. The Company paid $18,000 in legal fees and a placement agency fee of $50,000 in the form of a note payable, with substantially similar to the Purchasers notes, all of which was recorded as debt issuance costs on the accompanying consolidated financial statements and will be charged to operations over the twelve months ended December 31, 2016 or to the date of conversion, if earlier. The Company recorded amortization expense of $17,000 on the debt issuance costs during the three months ended March 31, 2016.
Under the Dec 2015 Agreement, the Company sold an aggregate of $500,000 in Secured Convertible Notes (Notes) and issued an additional $50,000 Note for placement fees. Once the Company has fulfilled its obligations as defined by certain equity requirements, the Notes will be convertible into shares of the Companys common stock at the option of the Company. Until the equity obligations are met, the Notes bear interest at 10%, per annum. Interest will be earned at a rate of 10% for the twelve months ending December 31, 2016 or to the date of conversion, whichever is earlier. The conversion price for the Note and accrued interest is equal to $0.30 per share, subject to adjustments as stock dividends and stock splits, as defined.
Each Holder of the Notes has been granted a security interest in assets of the Company in accordance with a Security Agreement. The Security Agreement provides the Collateral Agent a security interest in all goods, machinery, equipment, contract rights and intangibles in the event of a default under the Agreement.
A summary of the convertible notes at March 31, 2016 are as follows:
In connection with the Sept 2015 and Dec. 2015 Agreements, and under the anti-dilution provisions of the December 2014 private placement, the Company is required to issue an aggregate of 2,611,003 shares of common stock to existing stockholders holding securities purchased in that offering, of which 1,918,002 were issued as of March 31, 2016. |
Derivative Liabilities |
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Derivative Liability [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Liabilities | The Company has determined that the convertible notes issued on December 31, 2014, September 21, 2015 and December 31, 2015 contain provisions that protect holders from future issuances of the Companys common stock at prices below such convertible notes respective conversion price and these provisions result in modification of the conversion price to issue additional common shares based on a variable that is not an input to the fair value of a fixed-for-fixed option as defined under FASB ASC Topic No. 815 40 and the conversion feature represents an embedded derivative that requires bifurcation.
The fair values of the Convertible Notes Offering were recognized as derivative instruments at issuance and are measured at fair value at each reporting period. The embedded derivative on the 2014 Agreement was valued at $594,963 using a binomial valuation model at December 31, 2014. In addition during 2015 the Company recognized derivative liabilities aggregating $1,439,432 in connection with the Sept 2015 and Dec 2015 fund raising. At December 31, 2015, the embedded conversion derivative for all three debt financings was revalued to $2,224,362. At March 31, 2016, the embedded conversion derivative for all three debt financings was revalued to $1,641,548 The assumptions considered in the valuation model for the December 31, 2014 Notes at March 31, 2016 and December 31, 2015 were:
The assumptions considered in the valuation model for the Sept 2015 and Dec 2015 notes at March 31, 2016 and December 31, 2015 were:
A summary of the derivative liability at March 31, 2016 is summarized as follows:
The derivative liability at March 31, 2016 consists of debt conversion of $1,641,548 ($2,224,361 - 2015) and warrants of $6,037 ($8,224 - 2015).
Accounting for Convertible Debt
Under the initial accounting for the December 2014 Offering, the Company allocated the proceeds to the embedded conversion derivative liability, which exceeded the $445,000 face amount of the convertible debt at the issuance date. The proceeds allocated to the embedded conversion derivative liability were recognized as a discount to the convertible debt. As of December 31, 2014, the Company recorded aggregate debt discounts of $445,000 related to the conversion rights and recorded $149,963 of expense related to the excess value of the derivative over the face amount of the convertible debt.
Under the September 21, 2015 offering the Company allocated the proceeds to the embedded conversion derivative liability, which exceeded the $275,000 face amount of the additional convertible debt at the issuance date.
Under the December 31, 2015 offering the Company allocated the proceeds to the embedded conversion derivative liability, which exceeded the $550,000 face amount of the additional convertible debt at the issuance date.
As a result, upon issuance of the two 2015 debt offerings, the Company recorded a debt discount of $825,000 and recorded a loss of $614,432 related to the excess value of the $1,439,432 derivative over the $825,000 face amount of the convertible debt.
The debt discount is accreted to interest expense over the life of the convertible debentures using an effective interest method. For the three months ended March 31, 2016 and 2015, the Company amortized $396,091 and $172,543, respectively, of the debt discount. In addition, amortization of deferred debt issuance costs amounted to $26,375 and $178,250 for the three months ended March 31, 2016 and 2015, respectively. |
CAPITAL STOCK |
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CAPITAL STOCK | 2014 Financing
On February 14, 2014, the Company sold to certain accredited investors pursuant to a Subscription Agreement, an aggregate of 33,333 shares of its common stock, 26,667 shares of the Series C Preferred Stock and five year warrants to purchase up to an aggregate of 59,999 shares of the Companys common stock at an exercise price of $30, per share, for gross proceeds of $1,800,000. Until the earlier of (i) three years from the closing of the Offering or (ii) such time as no investor holds any shares of common stock underlying warrants or underlying the Series C Preferred Stock, in the event the Company issues or sells common stock at a per share price equal to less than $30.00 per share, as adjusted, the Company has agreed to issue additional securities such that the aggregate purchase price paid by the investor shall equal the lower price issuance, subject to certain exceptions, as defined. The Company recorded a derivative liability related to the reset feature on the exercise price of the warrants to purchase common stock issued by the Company.
In connection with the Offering, the Company granted the investors piggy-back registration rights and the investors are entitled to a right of participation in future financings conducted by the Company for a period of twenty-four months.
In 2014 the Company paid placement agent fees of $144,000 in cash, issued an aggregate of 600, shares of the Companys common stock and issued a five year warrant to purchase up to 5,399 shares of the Companys common stock at a price of $30 per share, as commission in connection with the sale of the shares and warrants. In addition, the Company permitted the conversion of an aggregate of $13,500 of unpaid fees owed to a consultant into 450 shares and warrants at the Offering price. In conjunction with the Offering, $100,000 was placed in an escrow account to be used for auditing and legal fees. As of December 31, 2015, the balance of the escrow account was $0 and $12,500 in 2014.
On February 14, 2014, as a component of the Subscription Agreement, the Company issued an aggregate of 66,333 warrants with a fair value of $11,361,278 determined using the Black-Scholes Pricing Model.
Pursuant to the subscription agreement in 2014, certain members of the Companys management agreed to invest an aggregate of $250,000 in exchange for 8,333 shares of the Companys common stock within 30 days of the closing, on the same terms of the agreement.
Series B Convertible Preferred Stock
In April 2013, the Companys Board of Directors authorized four (4) shares of preferred stock, par value $0.0001 per share as Series B Convertible Preferred Stock (the Series B Preferred Stock) and issued one share of Series B Preferred Stock to each of the Companys three senior members of management. Each share of Series B Preferred Stock is entitled such number of votes on all matters submitted to stockholders that is equal to (i) the product of (a) the number of shares of Series B Preferred Stock held by such holder, (b) the number of issued and outstanding shares of the Companys Common Stock (taking into account the effective outstanding voting rights of the Series B Preferred Stock), as of the record date for the vote and (c) 0.13334 less (ii) the number of shares of Common Stock beneficially held by such holder on such date. Additionally, on the six month anniversary date of issuance of the Series B Preferred Stock, each outstanding share of Series B Preferred Stock was to automatically, and without further action on the part of the holder, convert into such number of fully paid and non-assessable shares of Common Stock as would cause the holder to own, along with any other securities of the Companys beneficially owned on the conversion date by them 13.334% of the issued and outstanding Common Stock, calculated on the conversion date. On October 25, 2013, the Company amended and restated the Certificate of Designation for Series B Convertible Preferred Stock to extend the date on which the Series B Shares would automatically convert into such number of fully paid and non-assessable shares of common stock, from the date six months from the date of issuance (October 26, 2013) to the twelfth month anniversary of the date of issuance of the shares of Series B Preferred Stock (April 26, 2014) which on April 22, 2014, was further extended to an indefinite date. The Company previously recorded the three shares of Series B Convertible Preferred Stock as stock-based compensation using the then current estimate of the number of shares that would convert to shares of common stock of the Company based on the shares outstanding and current price per share at each balance sheet date. As of December 31, 2014, the Company recalculated the estimated shares issuable to be 216,670 and recorded stock-based compensation of $2,166,707 for the year then ended. The estimate is based on the current common shares outstanding at December 31, 2014, a stock price of $10.00 per share, and is subject to adjustment based on any additional common shares issued.
On March 2, 2015, the Series B Convertible Preferred Stock which was then outstanding was cancelled and as a result, the Companys obligation to issue any common shares in connection therewith ended. The Company has accounted for the cancellation of the Series B and issuance of the Series D Preferred Stock as an extinguishment. Accordingly, for the year ended December 31, 2015, the Company recorded an aggregate gain of $3,420,804 within stockholders deficit equal to the difference between the $667,664 fair value of the Series D preferred stock and the $4,088,468 carrying amount of the Series B preferred stock extinguished. The gain on extinguishment is reflected in the calculation of net income attributable to common stockholders in 2015.
Series C Convertible Preferred Stock
On February 12, 2014, the Company designated and authorized to issue 26,667 shares of Series C Convertible Preferred Stock (Series C Preferred Stock), par value $0.0001, per share. Each holder of Series C Preferred Stock shall be entitled to vote all matters submitted to shareholder vote and shall be entitled to the number of votes for each shares of Series C owned at the designated record date. Each holder of Series C Preferred Stock may convert any or all of such shares into fully paid and non-assessable shares of the Companys common stock in an amount equal to one share of the Companys common stock for each one shares of Series C Preferred Stock.
On September 21, 2015, in connection with the terms of a ratched provision for certain warrants issued in 2014, the Company revised the conversion right so that holders of Series C Preferred Stock may, from time to time, convert any or all of such holder's shares of Series C Preferred Stock into fully paid and non-assessable shares of common stock in an amount equal 100 shares of the Company's common stock (the "Common Stock") for each one (1) share of Series C Preferred stock surrendered.
As a result of this modification, the Company recorded a deemed dividend on Series C preferred stock in the amount of $1,089,000 at December 31, 2015.
Series D Convertible Preferred Stock
On, March 2, 2015, the Board of Directors of the Company designated and authorized to issue 3,000 shares of the Companys authorized Preferred Stock, par value $0.0001 per share, as Series D Convertible Preferred Stock. Each holder of the Series D Preferred Stock (Series D) shall have the number of votes on all matters submitted to the stockholders that is equal to the greater of one hundred votes for each one share of Series D and such number of votes per share of Series D that when added to the votes per shares of all other shares of Series D shall equal 50.1% of the outstanding voting record. The Series D are convertible into common stock in an amount equal to one share of the Companys common stock for each one share of Series D. On March 9, 2015, the Company issued 1,000 shares of the Series D to each of three officers of the Company.
Common Stock
On February 4, 2014, the holders representing a majority of the then outstanding shares of capital stock of the Company voted and approved and permitted the Company to increase the number of authorized shares of the Companys common stock from 400,000,000 to 525,000,000. On March 12, 2015, the holders representing a majority of the then outstanding shares of capital stock of the Company voted and approved and permitted the Company to increase the number of authorized shares of the Companys common stock from 525,000,000 to 750,000,000.
On September 21, 2015, the holders representing a majority of the then outstanding shares of capital stock of the Company voted and approved and permitted the Company to increase the number of authorized shares of the Companys common stock from 750,000,000 to 3,000,000,000, which was effective upon filing an amended Certificate of Incorporation with the State of Delaware representing the amendment.
On April 10, 2014, the Company issued 500 shares of its common stock as a charitable donation to a not-for-profit organization valued at $65,000, ($130.00 per share), the price of the Companys common stock on the day of grant.
In August 2014, 6,667 shares of the Companys Series C Convertible Preferred Stock were converted to 6,667 shares of common stock of the Company.
Through December 31, 2014, an aggregate of 91,333 warrants to purchase common stock were exercised in a cashless conversions to an aggregate of 74,131 shares of the Companys common stock.
Through December 31, 2014, an aggregate of 27,778 shares of the Companys Series A Convertible Preferred Stock was converted to 27,778 shares of common stock of the Company.
As discussed in Note 8, the warrants issued related to these capital raises were deemed to be derivative liabilities and required additional measurement at fair value. Accordingly, the proceeds from these equity financings were first allocated to such fair value instruments (the warrants), with the residual proceeds, if any, being allocated to the instruments not subsequently marked to fair value.
On November 25, 2015 the Board and the majority stockholders authorized a reverse split of the issued and outstanding shares of common and preferred stock on the basis of 1 post consolidation share for each 1,000 pre-consolidation shares (the "Reverse Split") to be effective on December 24, 2015.
Treasury Stock
In March 2, 2013, concurrent with the resignation of the Companys then chief executive officer, the Company agreed to purchase from the former executive 4 shares of the Companys common stock for $0.10 per share. These shares are reported at cost as treasury shares.
Warrants
As of March 31, 2016, the Company had warrants to purchase common shares outstanding as follows:
*Cashless exercise permitted.
As of March 31, 2015, the Company had warrants to purchase common shares outstanding as follows:
*Cashless exercise permitted. |
CONCENTRATIONS |
3 Months Ended |
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Mar. 31, 2016 | |
Concentration Risks, Types, No Concentration Percentage [Abstract] | |
CONCENTRATIONS | Credit is granted to most customers. The Company performs periodic credit evaluations of customers financial condition and generally does not require collateral.
The Company had no sales during the three months ended March 31, 2016. Sales to one customer of the Company accounted for 100% of sales for the three months ended March 31, 2015 and represented 17% of accounts receivable for the three months ended March 31, 2015. |
RECONCILIATION OF NET SALES |
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Segment Reconciliation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RECONCILIATION OF NET SALES | In accordance with FASB ASC 605-50, the Company classifies the following allowances as reductions of sales for the three months ended March 31:
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RELATED PARTY TRANSACTIONS |
3 Months Ended |
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Mar. 31, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | An officer and Director of the Company was a partner of a public accounting firm providing non-audit accounting services to the Company through October 30, 2014. Subsequent to October 2014, all non-audit accounting services were performed by the officer/director of the Company in conjunction with an independent consultant.
The Company subleases a portion of its office space to an entity owned by a Company officer. Rents received totaled approximately $4,910 and $5,400 were recorded as an offset to rent expense for the three months ended March 31, 2016 and 2015, respectively. |
2013 EQUITY INCENTIVE PLAN |
3 Months Ended |
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Mar. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
2013 EQUITY INCENTIVE PLAN | Effective January 9, 2013, the Company adopted a Stock Option Plan (Plan) to provide an incentive to attract, retain and reward persons performing services, including employees, consultants, directors and other persons determined by the Board, through equity awards. The Plan shall continue in effect until its termination by the Board provided that all awards are granted within ten years, as defined.
As of December 31, 2015 and 2014, no awards have been granted under the Plan. |
COMMITMENTS |
3 Months Ended |
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Mar. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS | Employment Agreements
Effective January 9, 2013, extended and revised October 1, 2014, the Company entered into an employment agreement with its chief financial officer for a term of three years, to be automatically renewed for successive one year periods thereafter unless either party provides written notice of intention not to renew the agreement. The agreement provides for a base annual salary of $135,000, paid in periodic installments in accordance with the Companys regular payroll practices and includes other Company benefits. The Agreement entitles the officer to future grants under the Companys 2013 Equity Incentive Plan. In addition, the Company has awarded the Officer a bonus of 6,385 shares of the Companys common stock at December 31, 2014 which vested immediately and were purchased by the Officer at par value. These shares were issued on January 9, 2015. Total compensation for these shares recorded at December 31, 2014 was $63,216 based on the traded price of the Companys common stock on that date. There were no bonuses awarded the officer in 2015. Costs incurred pursuant to this agreement for the three months ended March 31, 2016 and 2015 were $33,750 and $43,231 respectively.
Effective January 9, 2013, extended and revised October 1, 2014, the Company entered into an employment agreement with its former President for a term of three years, to be automatically renewed for successive one year periods thereafter unless either party provides written notice of intention not to renew the agreement. The agreement provides for a base annual salary of $150,000, paid in periodic installments in accordance with the Companys regular payroll practices and an annual bonus, subject to clawback provisions, based on reaching certain financial targets as defined and includes other Company benefits. The Agreement entitles the officer to future grants under the Companys 2013 Equity Incentive Plan. In addition, the Company had awarded the Officer a bonus of 5,000 shares of the Companys common stock at December 31, 2014 which vested immediately and were purchased by the Officer at par value. These shares were issued on January 9, 2015. Total compensation for these shares recorded at December 31, 2014 was $49,500 based on the traded price of the Companys common stock on that date. There were no bonuses awarded the officer in 2015. On June 19, 2015, the Company re-appointed the former President as a member of the Board of Directors and Vice-President. Costs incurred pursuant to the Officers employment agreements for three months ended March 31, 2016 and 2015 was $33,750 and $49,423, respectively.
Effective January 9, 2013, extended and revised October 1, 2014, the Company entered into an employment agreement with its secretary and current Interim President for a term of three years, to be automatically renewed for successive one year periods thereafter unless either party provides written notice of intention not to renew the agreement. The agreement provides for a base annual salary of $135,000, paid in periodic installments in accordance with the Companys regular payroll practices and an annual bonus, subject to clawback provisions, based on reaching certain financial targets as defined and include other Company benefits. The Agreement entitles the officer to future grants under the Companys 2013 Equity Incentive Plan. In addition, the Company awarded the Officer a bonus of 5,000 shares of the Companys common stock at December 31, 2014 which vested immediately and were purchased by the Officer at par value. These shares were issued on January 9, 2015. Total compensation for these shares recorded at December 31, 2014 was $49,500 based on the traded price of the Companys common stock on that date. There were no bonuses awarded the officer in 2015. Costs incurred pursuant to the Officers employment agreements for three months ended March 31, 2016 and 2015 was $33,750 and $45,731, respectively.
Lease
On January 1, 2013, the Company entered into a five year and one month lease for space in Great Neck, New York, effective February 17, 2013, with base rent at $39,260, per year, subject to certain increases as defined. The lease agreement requires two months annual rent as a security deposit and the personal guaranty of the President of the Company. The rent is due in monthly installments commencing April 1, 2013; rent expense is being recorded on a straight line basis over the term of the lease. The difference between the rent payments made and straight line basis has been recorded as deferred rent. Rent expense, net of sublease, for the three months ended March 31, 2016 and 2015 was $1,845 and $6,105, respectively.
Investor Relations Consulting Agreement
In August 2013, the Company entered into an Investor Relations Consulting Agreement (Agreement) with an investor relations firm to provide consulting services regarding financial markets and exchanges, competitors, business acquisitions and other aspects of or concerning the Companys business. The Agreement is for a term of twelve months commencing August 16, 2013, with a one month cancellation option for either party. The Agreement called for a monthly consulting and services fee of $2,000. In addition, the Company agreed to grant to the consultant an aggregate of 3,500 shares of the Companys restricted stock, valued at $70,000, ($20.00 per share), the price of the stock, reflective of the post split calculation, at the time of the Agreement. $52,500 of the consulting fee was recognized in 2013, with the remaining $17,500 recognized in 2014.
On September 1, 2014, the Agreement was renewed and amended for a term of twelve months with the monthly service fee reduced to $1,500. During the three months ended March 31, 2016 and 2015, $3,500 and $4,500 in fees was incurred under this agreement.
Merchandising Agreement
On May 5, 2014, the Company entered into an agreement to participate in a merchandising relationship which can be terminated by either party with forty-five days written notification to the other party. In consideration of its participation, the Company agreed to pay a monthly fee to the merchandiser of 4.0% of gross sales of the Companys product. In accordance with the agreement, all slotting fees are waived on all new items and the merchandiser will review all new items brought into the warehouse six months from the initial distribution date to determine whether the item is selling at an appropriate rate. The Company will provide the merchandising group with competitive promotional allowances as defined. During the the three months ended March 31, 2016 and 2015 $ 0 and $2,190 in fees was incurred under this agreement, respectively.
Sales Representative Contract
Effective June 30, 2014, the Company entered into a contract with a sales representative to increase the demand for and promote the products of the Company and to provide marketing services as defined. In exchange for these services, the sales representative is entitled to a commission of 3.0% of net sales, as defined. There is no minimum monthly commission for the initial twelve months and the representative will also be entitled to an additional performance bonus, as defined. The contract is on a month to month basis and may be terminated by either party with thirty days written notice to the other party. For the three months ended March 31, 2016 and 2015, no fees were incurred under this agreement.
Social Media Agreement
In August 2014, the Company entered into an agreement with a contractor to provide social media management services. The agreement continues through completion of the project and is subject to early cancellation with fifteen days notice prior to the date of cancellation. Fees for the services are $3,179, per month. For the three months ended March 31, 2016 and 2015, the Company incurred expense of $3,844 and $9,459 under the agreement.
Food Broker Agreement
In September 2014, the Company entered into an agreement appointing a food broker as its sole and exclusive representative for one year terms to provide services related to negotiating the sale of the Companys products within a defined territory. The food broker will receive a guaranteed monthly income of $3,500 for the first seven months of the agreement and a commission of 5% on each sale to be computed on the net invoice price as defined. Until such time as the commissions reach $3,500 per month, the Company will continue to pay the $3,500 monthly income. The agreement will be in effect from year to year and may be terminated by either party with ninety days written notice. All commissions earned will be paid during the ninety day transition period and will continue for an additional ninety days after the termination date. For the three months ended March 31, 2016 and 2015, the Company incurred expense of $0 and $10,500 under the agreement.
Public Relations Agreement
Effective September 1, 2014, the Company entered into an agreement with a consultant to provide public relations services for a monthly retainer of $4,000 and 240 shares of the Companys common stock to be issued equally in installments that vest over a twelve month period. The agreement may be terminated in writing with two months notice. For the three months ended March 31, 2016 and 2015, the Company incurred expense of $0 and $12,000 under the agreement.
Common Stock to be Issued
Management has estimated that an additional 693,001 shares of common stock (see Note 8) are required to be issued under various ratchet provisions. However, the actual amount of shares to be issued could be greater than the amount estimated by management.
Litigation
On May 2, 2014, an action was commenced against the Company and two of its officers in the Supreme Court of the State of New York, County of Nassau. The action relates to restricted shares of the Company acquired by the plaintiff which the plaintiff allegedly sought to sell. The complaint asserts claims under various theories, including conversion, breach of contract, breach of fiduciary duty, fraudulent misrepresentation and unjust enrichment, and seeks damages in excess of five million dollars.
The Company filed its Motion to Dismiss on or about June 30, 2014, plaintiff filed its opposition to the Companys motion on or about July 29, 2014. On September 2, 2014 the Motion to Dismiss was denied. On October 6, 2014, the Company submitted a verified Answer to the Complaint. On February 25, 2015, the Company attended a mediation session and subsequently settled the claim. The confidential settlement from the above action will be covered by the Companys directors and officers insurance policy. In connection with the settlement, a loan which was due to the plaintiff for $25,555 was settled and recorded as forgiveness of debt on the accompanying consolidated financial statements. |
SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2016 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | On April 20, 2016 the Company issued 100,000 common shares to its investor relations company per the agreement at a price of $0.30 per share. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Mar. 31, 2016 | |||||||
Accounting Policies [Abstract] | |||||||
Basis of Presentation | The accompanying unaudited financial statements and related notes have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and with the applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for interim financial statements have been included. This Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015. Interim results are not necessarily indicative of the results for the fiscal year ending December 31, 2016.
The financial statements reflect a 1 per 1,000 reverse stock split of all outstanding common and preferred stock, which was effective immediately prior to the completion of the December 2015 Securities Purchase Agreement (see Note 8). All share and per share data reported and disclosed in the accompanying financial statements have been retroactively adjusted to give effect to the reverse stock split. |
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Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Some of the more significant estimates required to be made by management include the fair value of derivatives and other stockholders' equity based transactions. |
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Reclassification | Certain items in the 2015 financials have been reclassified to conform to the 2016 presentation. |
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Financial Instruments | The Company considers the carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses to approximate their fair values because of their relatively short maturities. The fair value of convertible notes payable approximate their face value.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
The Companys derivative liabilities (see Note 9) are valued at each reporting period using level 3 inputs. |
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Cash and Cash Equivalents | The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains cash balances at one financial institution. The Company has not experienced any losses in such accounts. Federal legislation provides for FDIC insurance of up to $250,000. |
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Accounts Receivable | Accounts receivable consist of amounts due from customers. The Company records an allowance for doubtful receivables, if necessary, to allow for any amounts which may be unrecoverable. The allowance is based upon an analysis of the Companys prior collection experience, customer creditworthiness and current economic trends. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2016 and December 31, 2015, no allowance for doubtful accounts was required. |
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Inventory | Inventory consists primarily of packaging, raw materials and finished goods held for distribution. Inventory is stated at the lower of cost (first-in, first-out) or market. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand and the distribution channel, the estimated time to sell such inventory, remaining shelf life and the current expected market conditions. Adjustments to reduce inventory to its net realizable value are charged to cost of goods sold. |
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Shipping and Handling Costs | The Company classifies shipping and handling costs as part of selling expense. Shipping and handling costs were $0 and $3,230 for the three months ended March 31, 2016 and 2015, respectively. |
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Debt Issue Cost | Debt issue costs related to costs incurred in connection with the issuance of convertible notes, and are being amortized on the straight-line method (which approximates the effective interest method) over the term of the respective notes payable. At March 31, 2016 and December 31, 2015, debt issuance costs, net of accumulated amortization of $35,750 and $9,375 amounted to $69,750 and $96,125, respectively. Debt issuance costs are now shown on the accompanying balance sheet as a direct deduction from the carrying amount of the secured convertible notes payable (see Note 8). |
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Property and Equipment | Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method.
Maintenance and repairs are charged to operating expenses as they are incurred. Improvements and betterments, which extend the lives of the assets, are capitalized. The cost and accumulated depreciation of assets retired or otherwise disposed of are removed from the appropriate accounts and any profit or loss on the sale or disposition of such assets is credited or charged to income. |
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Derivative Liabilities | The Companys derivative liabilities are related to the ratchet reset provisions of the Companys warrants and convertible debt. Such ratchet reset provisions prohibit the Company from concluding that the warrants are indexed to their own stock, and thus derivative accounting is appropriate. For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and is then re-valued at each reporting date, with changes in fair value recognized in operations for each reporting period. The Company uses the Black-Scholes Option-Pricing Model to value the derivative instruments of its outstanding stock warrants at inception and subsequent valuation dates and in accordance with Accounting Standards Codification (ASC) 815, and a binomial valuation model in connection with its convertible debt. |
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Revenue Recognition | Revenue is recognized, net of discounts, rebates, promotional adjustments, price adjustments, slotting fees and estimated returns, upon transfer of title and risk to the customer which occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations. |
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Share-Based Compensation | The Company recognizes compensation expense for all share-based payment awards made to employees, directors and others based on the estimated fair values on the date of the grant, as subsequently adjusted for certain contingently issuable shares. Common stock equivalents are valued using the Black-Scholes Option-Pricing Model using the known or equivalent market value of common stock on the date of valuation, an expected dividend yield of zero, the remaining period or maturity date of the common stock equivalent and the expected volatility of common stock. |
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Income Taxes | The Company provides for income taxes under ASC 740 Income Taxes, which requires the use of an assets and liabilities approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided when realization of deferred tax assets is not considered more likely than not.
The Companys policy is to classify income tax assessments, if any, for interest in interest expense and for penalties in general and administrative expenses.
As of March 31, 2016, management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company's consolidated financial statements.
The Companys income tax returns since 2012 are subject to examination by the tax authorities. |
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Advertising Costs | Advertising costs are expensed as incurred. Total advertising was $853 and $0 for the three months ended March 31, 2016 and 2015, respectively. |
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Recent Accounting Pronouncements | In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is in the process of evaluating the impact of the new pronouncement on its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board ("FASB") issued accounting guidance, "Revenue from Contracts with Customers." The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The standard will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. Accordingly, the Company will adopt this standard in the first quarter of fiscal year 2018. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements-Going Concern". This ASU is intended to define management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures. It is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect it to have a material effect on the Company's consolidated financial condition, results of operations, and cash flows.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability. Also in August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, to clarify that the Securities and Exchange Commission staff would not object to deferring and presenting debt issuance costs as an asset and subsequently amortizing deferred debt issuance costs ratably over the term of the line-of-credit arrangement. This guidance is effective for interim and annual periods beginning after December 15, 2015. The guidance is required to be retrospectively applied to all prior periods. The Company adopted these ASUs in the first quarter of 2016. As a result, the Company now presents $69,750 and $96,125 of debt issuance costs as a reduction of secured convertible notes payable.
All other accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
INVENTORY (Tables) |
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Inventory, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventory |
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PROPERTY AND EQUIPMENTt (Tables) |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property and Equipment |
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INCOME (LOSS) PER COMMON SHARE (Tables) |
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Income (Loss) from Operations before Extraordinary Items, Per Basic and Diluted Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of shares used to compute fully diluted earnings per share |
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SECURED CONVERTIBLE NOTES PAYABLE (Tables) |
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Convertible Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Assumptions used |
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Summary of Convertible Notes |
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Derivative Liabilities (Tables) |
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Derivative Liability [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assumptions used derivative liabilities | The assumptions considered in the valuation model for the December 31, 2014 Notes at March 31, 2016 and December 31, 2015 were:
The assumptions considered in the valuation model for the Sept 2015 and Dec 2015 notes at March 31, 2016 and December 31, 2015 were:
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Summary of derivative liability | A summary of the derivative liability at March 31, 2016 is summarized as follows:
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CAPITAL STOCK (Tables) |
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Capital [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Warrants | As of March 31, 2016, the Company had warrants to purchase common shares outstanding as follows:
*Cashless exercise permitted.
As of March 31, 2015, the Company had warrants to purchase common shares outstanding as follows:
*Cashless exercise permitted. |
RECONCILIATION OF NET SALES (Tables) |
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reconciliation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Reconciliation of Net Sales |
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GOING CONCERN (Details Narrative) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Going Concern Details Narrative | ||
Accumulated deficit | $ (19,423,999) | $ (19,318,925) |
Stockholders' deficit | $ (3,192,473) |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
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Accounting Policies [Abstract] | |||
Shipping and handling costs | $ 0 | $ 3,230 | |
Debt issue costs, net of accumulated amortization | 69,750 | $ 96,125 | |
Advertising costs | 853 | $ 0 | |
FDIC insurance limit | $ 250,000 |
INVENTORY (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Inventory, Net [Abstract] | ||
Materials | $ 20,253 | $ 20,253 |
Finished product | 54,871 | 59,889 |
Total | $ 75,124 | $ 80,142 |
PROPERTY AND EQUIPMENT (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Furniture and Fixtures | $ 6,138 | $ 6,138 |
Website | 18,000 | 18,000 |
Less: Accumulated depreciation | (11,565) | (9,928) |
Balance | $ 12,573 | $ 14,210 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Property, Plant and Equipment [Abstract] | ||
Depreciation and amortization expense | $ 1,637 | $ 1,671 |
INCOME (LOSS) PER COMMON SHARE (Details) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Potential dilutive common shares | 6,704,371 | 170,831 |
Preferred Series A Stock | ||
Potential dilutive common shares | 11,664 | 11,664 |
Preferred Series C Stock | ||
Potential dilutive common shares | 2,000,000 | 20,000 |
Preferred Series D Stock | ||
Potential dilutive common shares | 3,000 | 1,000 |
Convertible Promissory Notes Payable [Member] | ||
Potential dilutive common shares | 3,991,667 | 74,167 |
Due Diligence Payable [Member] | ||
Potential dilutive common shares | 0 | 64,000 |
Warrants [Member] | ||
Potential dilutive common shares | 5,039 | 0 |
Shares Issuable Under Ratchet Provisions [Member] | ||
Potential dilutive common shares | 693,001 | 0 |
DUE TO OFFICERS/STOCKHOLDERS (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Due to Related Parties [Abstract] | ||
Forgiveness of debt income to stockholder | $ 0 | $ 25,555 |
Payment of advances received | $ 110,000 |
SECURED CONVERTIBLE NOTES PAYABLE (Details) - $ / shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Private Placement [Member] | ||
Market Price: | $ 0.43 | $ 0.55 |
Exercise Price: | $ 30.00 | $ 30.00 |
Volatility: | 138.00% | 149.00% |
Dividend Yield: | 0.00% | 0.00% |
Term in years: | 1 year | 1 year |
Risk Free Rate of Return: | 0.87% | 1.31% |
Ratchet Warrant [Member] | ||
Market Price: | $ 0.43 | $ 0.55 |
Exercise Price: | $ 0.30 | $ 0.30 |
Volatility: | 138.00% | 149.00% |
Dividend Yield: | 0.00% | 0.00% |
Risk Free Rate of Return: | 1.21% | 1.76% |
Ratchet Warrant [Member] | Minimum [Member] | ||
Term in years: | 2 years 10 months 17 days | 3 years 1 month 6 days |
Ratchet Warrant [Member] | Maximum [Member] | ||
Term in years: | 3 years 9 months | 4 years |
SECURED CONVERTIBLE NOTES PAYABLE (Details 1) |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
| |
Convertible notes, Face amount | $ 1,217,500 |
Convertible notes, Unamortized discount | (264,621) |
Convertible notes. Debt Issuance Cost | (69,750) |
Convertible notes, Carrying Value | 883,129 |
December 31, 2015 Agreement [Member] | |
Convertible notes, Face amount | 1,270,000 |
Convertible notes, Unamortized discount | (660,712) |
Convertible notes. Debt Issuance Cost | (96,125) |
Convertible notes, Carrying Value | 513,163 |
2016 Amortization | |
Convertible notes, Face amount | 0 |
Convertible notes, Unamortized discount | 396,091 |
Convertible notes. Debt Issuance Cost | 26,375 |
Convertible notes, Carrying Value | 422,466 |
Conversions | |
Convertible notes, Face amount | (52,500) |
Convertible notes, Unamortized discount | 0 |
Convertible notes. Debt Issuance Cost | 0 |
Convertible notes, Carrying Value | $ (52,500) |
SECURED CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Debt issuance costs amortization expense recorded | $ 69,750 | $ 96,125 |
Issuance of common stock | 2,583,680 | 1,740,247 |
Sept 2015 and Dec 2015 Notes [Member] | ||
Issuance of common stock | 1,918,002 | |
December 31, 2015 Agreement [Member] | ||
Remaining value of warrants | $ 0 | |
Decrease in fair value | $ 0 | |
Debt issuance costs amortization expense recorded | $ 17,000 | |
Sept 2015 Agreement [Member] | ||
Debt issuance costs amortization expense recorded | 9,375 | |
February 2014 Warrants [Member] | ||
Remaining value of warrants | 1,151 | |
Decrease in fair value | 440 | |
Ratchet Warrant [Member] | ||
Remaining value of warrants | 4,890 | |
Decrease in fair value | $ 1,743 |
Derivative Liabilities (Details) - $ / shares |
3 Months Ended | 12 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
||||||||
Trading price of common stock on measurement date | $ 0.43 | $ 0.550 | |||||||
Conversion price | $ 0.30 | $ 0.300 | |||||||
Risk free interest rate (1) | [1] | 0.15% | 0.15% | ||||||
Conversion notes lives in years | 1 year | 1 year | |||||||
Expected volatility (2) | [2] | 255.00% | 208.00% | ||||||
Expected dividend yield (3) | [3] | 0.00% | 0.00% | ||||||
Sept 2015 and Dec 2015 Notes [Member] | |||||||||
Trading price of common stock on measurement date | $ 0.43 | $ 0.55 | |||||||
Conversion price | $ 0.30 | $ 0.30 | |||||||
Risk free interest rate (1) | [1] | 0.15% | |||||||
Risk free interest rate (1), minimum | [1] | 0.57% | |||||||
Risk free interest rate (1), maximum | [1] | 0.65% | |||||||
Conversion notes lives in years | 1 year | 1 year | |||||||
Expected volatility (2) | [2] | 255.00% | |||||||
Expected volatility (2), minimum | [2] | 208.00% | |||||||
Expected volatility (2), maximum | [2] | 224.00% | |||||||
Expected dividend yield (3) | [3] | 0.00% | 0.00% | ||||||
|
Derivative Liabilities (Details 1) |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
| |
Derivative Liability [Abstract] | |
Derivative liability, beginning | $ 2,232,586 |
Conversion of notes payable | (54,306) |
Change in fair value | (530,695) |
Derivative liability, ending | $ 1,647,585 |
Derivative Liabilities (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Derivative Liability [Abstract] | |||
Ebedded conversion derivative debt financings | $ 2,224,362 | $ 1,641,548 | |
Derivative liability | 1,641,548 | $ 2,224,361 | |
Derivative liability warrants | 6,037 | 8,224 | |
Amortized debt discount | 396,091 | 172,543 | |
Amortization of deferred debt issuance costs | $ 26,375 | $ 178,250 |
CAPITAL STOCK (Details) - $ / shares |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|||
Warrants | 39,647 | 43,550 | ||
Warrant 1 [Member] | ||||
Warrants | 3,903 | |||
Expiration Date | Jan. 09, 2016 | |||
Exercise Price | $ 30.00 | |||
Warrant 2 [Member] | ||||
Warrants | 22,981 | 22,981 | ||
Expiration Date | Apr. 26, 2016 | Apr. 26, 2016 | ||
Exercise Price | $ 30.00 | $ 30.00 | ||
Warrant 3 [Member] | ||||
Warrants | 3,333 | 3,333 | ||
Expiration Date | Feb. 14, 2019 | Feb. 14, 2019 | ||
Exercise Price | [1] | $ 0.30 | $ 6.00 | |
Warrant 4 [Member] | ||||
Warrants | 13,333 | 13,333 | ||
Expiration Date | Dec. 31, 2019 | Dec. 31, 2019 | ||
Exercise Price | $ 0.30 | $ 6.00 | ||
|
CONCENTRATIONS (Details Narrative) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Sales Revenue Net [Member] | ||
Customer revenue concentration | 0.00% | 100.00% |
Accounts Receivable [Member] | ||
Customer revenue concentration | 17.00% |
RECONCILIATION OF NET SALES (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Segment Reconciliation [Abstract] | ||
Gross sales | $ 0 | $ 54,756 |
Less: | ||
Sales discounts | 0 | 1,115 |
Trade spending | 0 | 674 |
Slotting fees | 0 | 75,000 |
Net sales | $ 0 | $ (22,033) |
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Related Party Transactions [Abstract] | ||
Rents received | $ 4,910 | $ 5,400 |
COMMITMENTS (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Rent expense | $ 1,845 | $ 6,105 |
Former President [Member] | ||
Consulting Agreement Services expense | 33,750 | 49,423 |
Officer [Member] | ||
Consulting Agreement Services expense | 33,750 | 45,731 |
Employment Agreements [Member] | ||
Consulting Agreement Services expense | 33,750 | 43,231 |
Investor Relations Consulting Agreement [Member] | ||
Consulting Agreement Services expense | 3,500 | 4,500 |
Merchandising Agreement [Member] | ||
Consulting Agreement Services expense | 0 | 2,190 |
Social Media Agreement [Member] | ||
Consulting Agreement Services expense | 3,844 | 9,459 |
Food Broker Agreement [Member] | ||
Consulting Agreement Services expense | 0 | 10,500 |
Public Relations Agreement [Member] | ||
Consulting Agreement Services expense | $ 0 | $ 12,000 |
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