UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended April 30, 2016

 

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

 

For the transition period from ___________ to _____________

 

HIGH PERFORMANCE BEVERAGES COMPANY

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

 

Nevada   333-170393   27-3566307

(State or other jurisdiction of

incorporation or organization)

  (Commission file number)  

(IRS Employer

Identification Number)

  

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

(Address of principal executive office)

 

602.326.8290

(Issuer’s telephone number)

 

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

 

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

 

Large Accelerated Filer    ☐ Accelerated Filer    ☐ Non-Accelerated Filer    ☐ Smaller Reporting Company    ☒

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes  ☐   No  ☒ .

 

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: 1,564,595,954 shares of Common Stock as of July 11, 2016.

 

 

 

 

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

 

FORM 10-Q

 

April 30, 2016

 

INDEX

 

    Page
PART I - FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited) 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Mine Safety Disclosures 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
     
SIGNATURES 23

 

  2  

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial statements

 

HIGH PERFORMANCE BEVERAGES COMPANY

CONSOLIDATED BALANCE SHEETS

AS OF APRIL 30, 2016 AND JULY 31, 2015

(Unaudited)

 

    April 30,
2016 		    July 31,
2015 		 
ASSETS            
Current Assets            
Cash and cash equivalents   $ 1,645     $ 144,093  
Accounts receivable     268       -  
Inventory     19,464       -  
                 
Total Current Assets     21,377       144,093  
                 
Total Assets   $ 21,377     $ 144,093  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities                
Accounts payable and accrued expenses   $ 1,016,556     $ 759,190  
Note payable     6,900       6,900  
Convertible notes payable, net     3,397,532       3,356,418  
Derivative liabilities     2,384,833       1,203,607  
Total Current Liabilities     6,805,821       5,326,115  
                 
Stockholders’ Deficit                
Preferred stock: $0.001 par value; 1,000,000 shares authorized; 100,000 shares issued and outstanding     100       100  
Common stock: $0.001 par value; 5,000,000,000 shares authorized; 214,582,582 and 24,004,116 issued and outstanding at April 30, 2016 and July 31, 2015, respectively     214,585       24,004  
Stock payable
    226,401       148,066  
Additional paid-in capital     7,425,185       5,634,736  
Accumulated deficit     (14,650,715 )     (10,988,928 )
Total Stockholders’ Deficit     (6,784,444 )     (5,182,022 )
                 
Total Liabilities and Stockholders’ Deficit   $ 21,377     $ 144,093  

 

See accompanying notes to these unaudited financial statements.

 

  3  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2016 AND 2015

(Unaudited)

   

    Three months ended
April 30, 		    Nine months ended
April 30, 		 
    2016     2015     2016     2015  
                         
REVENUES   $ 5,808     $ -     $ 45,919     $ -  
COST OF GOODS SOLD     6,076       -       45,239       -  
                                 
GROSS PROFIT     (268 )     -       680       -  
                                 
OPERATING EXPENSES                                
General and administrative     126,337       91,872       399,519       644,097  
Marketing     27,553       9,407       55,482       145,036  
Product development     -       51,500       61,809       169,000  
Compensation     131,350       130,706       467,465       517,786  
                                 
TOTAL OPERATING EXPENSES     285,240       283,485       984,275       1,475,919  
                                 
OTHER (INCOME) EXPENSE                                
Interest income     -       (170 )     -       (170 )
Interest expense     331,345       108,963       1,053,648       360,761  
Gain on extinguishment of debt     (735,553 )     -       (968,225 )     -  
Change in fair value of derivative liabilities     (210,800 )     (537,868 )     2,592,769       1,588,933  
TOTAL OTHER (INCOME) EXPENSE     (615,008 )     (429,075 )     2,678,192       1,949,524  
NET INCOME (LOSS)   $ 329,500     $ 145,590     $ (3,661,787 )   $ (3,425,443 )
                                 
NET INCOME / (LOSS) PER COMMON SHARE: BASIC AND DILUTED   $ 0.01     $ 1.08     $ (0.07 )   $ (31.37 )
                                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED     78,446,527       134,582       53,040,779       109,290  

 

See accompanying notes to these unaudited financial statements.

 

  4  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED APRIL 30, 2016 AND 2015

(Unaudited)

 

    2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss   $ (3,661,787 )   $ (3,425,443 )
Adjustments to reconcile net loss to net cash used in operating activities                
Share-based compensation     261,475       75,588  
Amortization of debt discounts     507,113       73,426  
Change in fair value of derivative liabilities     1,624,544       1,584,017  
Penalty interest expense     108,701       -  
Changes in operating assets and liabilities                
Accounts receivable     (268 )     -  
Inventory     (19,464 )     -  
Prepaid expense     -       27,000  
Accounts payable and accrued expenses     274,907       192,560  
Cash Flows Used in Operating Activities     (904,779 )     (1,472,852 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sale of common stock     107,500       -  
Proceeds from issuances of convertible notes payable     654,831       1,770,377  
Cash Flows Provided by Financing Activities     762,331       1,770,377  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS     (142,448 )     297,525  
Cash and cash equivalents, beginning of period     144,093       10,485  
Cash and cash equivalents, end of period   $ 1,645     $ 308,010  
                 
SUPPLEMENTAL CASH FLOWS INFORMATION                
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
                 
NONCASH INVESTING AND FINANCING ACTIVITIES                
Debt discounts from fair value of derivative liabilities   $ 443,318     $ -  
Debt discounts on convertible notes payable   $ 516,674     $ -  
Common stock issued for exercise of warrants   $ 5,000     $ 113,345  
Conversion of convertible notes payable and interest payable to common stock   $ 729,173     $ 557,178  

 

See accompanying notes to these unaudited financial statements.

 

  5  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 1 - ORGANIZATION

 

High Performance Beverages Company (formerly known as Dethrone Royalty Holdings, Inc. and Exclusive Building Services, Inc.) (the “Company”) was founded as an unincorporated DBA in February 1997 and was incorporated as a C corporation under the laws of the State of Nevada on October 11, 2010.

 

Effective February 29, 2016, the Company completed a 1 for 100 reverse stock split. All per share amounts have been adjusted to reflect the reverse stock split.

 

Currently, the Company is selling its beverage products online through Amazon.com.

  

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Interim financial statements

 

The accompanying interim unaudited financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission set forth in Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The interim unaudited financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Unaudited interim results are not necessarily indicative of the results for the full fiscal year.  These financial statements should be read in conjunction with the financial statements of the Company for the fiscal year ended July 31, 2015 and notes thereto contained in the Company’s Annual Report on Form 10-K.

 

Basis of Accounting

 

The Company’s consolidated financial statements are prepared using the accrual method of accounting.   These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Dethrone Beverage, Inc. All significant inter-company balances and transactions have been eliminated upon consolidation.

 

  6  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

 

Use of Estimates and Assumptions

 

Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.  

 

Inventory

 

Inventory is accounted for on a lower of cost or market basis. The inventory consists of completed bottled beverages.

 

Reclassifications

 

Certain comparative figures have been reclassified to conform to the current year presentation.

 

Loss per Common Share

 

Basic and diluted net income (loss) per common share has been calculated by dividing the net income (loss) for the period by the basic and diluted weighted average number of common shares. As of July 31, 2015, independent third parties held 14,439,441 warrants outstanding, respectively, which have a potentially dilutive effect. On February 26, 2016, these warrants were cancelled.

 

Subsequent Events

 

The Company evaluates subsequent events from the date of the balance sheet through the date when the financial statements are issued for disclosure consideration.  

 

Recently Issued Accounting Pronouncements

 

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

 

  7  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 3 - GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company had negative net working capital and a net stockholders’ deficit at April 30, 2016 and had no reliable source of ongoing debt or equity financing.

 

The Company is emphasizing a new product line involving the manufacture and sale of sports performance or energy drinks along with any other non-alcoholic beverage under the Trade Name, High Performance Beverages Company. However, there are uncertainties as to whether the Company will obtain sufficient financing to continue to their products or if there will be sufficient market demand for the products. It is management’s plan to raise additional funding by the issuances of debt and equity instruments.

 

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

  

NOTE 4 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

  April 30,     July 31,  
Description   2016     2015  
On November 15, 2012, the Company entered into a Senior Secured Promissory Note with an unaffiliated party under which the Company received a one-year loan with a principal balance of $100,000. This note bears interest at 20% per annum with interest payments due quarterly. In addition, the Company issued 2,500,000 shares of restricted common stock to the lender and Mr. Holley and McBride, the senior executives of the Company, pledged their 56,250 shares of the Company’s common stock as collateral and transferred 1,000,000 shares of free trading shares to the lender. If the Company goes into default of the provisions of the note, it becomes convertible into the Company’s common stock at a price of $0.001 per share (100 million shares).                
                 
On September 17, 2015, the Company and the lender entered into an exchange agreement and combined this note with two other notes held by the same lender and issued a new note to the lender.   $ -     $ 100,000  
                 
On February 27, 2013, the Company entered into a $335,000 convertible loan agreement. The agreement provides for a $35,000 original issue discount. The lender, at its discretion, may provide funds up to $300,000 to the Company. It provided $60,000 at the closing of the agreement on April 30, 2013. All loans under the agreement are payable in full one year after the funds are issued together with a prorated portion of the original issue discount. All amounts outstanding under the agreement become convertible, at the lender’s discretion, into shares of the Company’s common stock starting 180 days from the execution date of the agreement. The conversion rate per share is the lower of (i) $0.044 or (ii) 60% of the lowest trade price during the 25 trading days prior to a conversion notice. The lender has agreed that it will not execute any short trades and, at no time, will hold more than 4.9% of the Company’s outstanding common stock.                
                 
If the Company repays all amounts outstanding under the agreement within 90 days of the execution date, there will be no interest amounts due. If it does not pay all amounts due within 90 days of the execution date, it cannot make any other prepayments of the amounts outstanding without the consent of the lender. In addition, there will be a one-time interest charge of 12% of the amounts outstanding. The Company must also register all shares that are issuable under the agreement in any Registration Statement that it files with the SEC for any purpose. The Company has not filed a Registration Statement since this note was issued.                
                 
During the nine months ended April 30, 2016, the Company repaid $18,400 by issuing 1,840,000 shares of common stock. As of April 30, 2016, this note was in default.     17,320       35,720  

 

  8  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On April 30, 2013, the Company sold an 18% Senior Convertible Debenture in the principal amount of $60,000 (the “Debenture”). The Debenture matures on April 30, 2014 and has an interest rate of 18% per annum payable monthly and on each conversion date. The conversion price of the Debenture is 65% of the average of the lowest three closing bid prices of the Common Stock for the twenty trading days immediately prior to the conversion date.                
                 
Upon an Event of Default (as defined in the Debenture), the outstanding principal amount of the Debenture plus accrued but unpaid interest, liquidated damages and other amounts owing on the Debenture through the date of the acceleration shall become at the Debenture holder’s election immediately due and payable in cash at the Mandatory Default Amount (as defined in the Debenture). Commencing five days after the occurrence of an Event of Default that results in the eventual acceleration of the Debenture, the interest rate on the Debenture shall accrue at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law.                
                 
On September 17, 2015, the Company and the lender entered into an exchange agreement and combined this note with two other notes held by the same lender and issued a new note to the lender.     -       37,554  
                 
On October 10, 2013, the Company entered into a securities purchase agreement (the “SPA”) with an investor, pursuant to which the investor purchased a master promissory note (the “Master Note”) with a principal balance of $48,000 for a purchase price of $40,000 at an original issuance discount of $4,000. The Company also agreed to pay $4,000 worth of legal, accounting and due diligence costs to the investor.                
                 
Pursuant to the Master Note, the investor has the right, solely in the investor’s discretion, to subsequently purchase up to eight (8) additional promissory notes (each, an “Additional Note”, the Master Note and each Additional Note collectively, the “Notes”), at any time from the date of issuance of the Master Note until October 10, 2014.  Each Additional Note shall have a principal balance of $22,000 and shall have a purchase price of $20,000, at an original issue discount of $2,000.                
                 
Pursuant to the Master Note, if the Company repays the entire balance of each Note prior to the prepayment opportunity date (as defined in the Master Note), the Company shall pay an interest rate equal to 0% per annum.  If the Company does not repay the entire balance of each Note prior to the prepayment opportunity date each Note shall have a one-time interest charge equal to 12%, applied to the outstanding balance of each note.                
                 
Each note is convertible, at any time after the date nine months from the purchase price date (as defined in the Master Note), into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustments as further described in the Master Note.                
                 
On February 25, 2016, these notes, together with accrued interest and default penalties of $47,323, were combined and assigned to another investor in exchange for a $25,000 cash payment by the new investor. The original terms were not altered.                
                 
As of April 30, 2016, this note was in default.     157,323       72,027  

   

  9  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On January 8, 2014, the Company sold an Original Issue Discount Convertible Promissory Note in the principal amount of $75,000, for cash consideration of $50,000. This note matured on July 8, 2014 and all overdue principal entailed a late fee at the rate of 22% per annum. The Company had the option to prepay this note for $100,000 at any time prior to the maturity date.                
                 
This note may be converted into common stock of the Company at any time after the maturity date at a fixed price of $0.0001 per share. However, if the stock price of the Company loses the bid at any time before the maturity date, the conversion price shall be $0.00001 per share. This note shall not be converted to the extent that such conversion would result in beneficial ownership by the holder and its affiliates to own more than 4.99% of the issued and outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the noteholder upon not less than 61 days’ prior notice to the Company.                
                 
During the nine months ended April 30, 2016, the Company repaid $11,965 by issuing 119,660 shares of common stock. In addition, $43,671 in principal was sold to another investor on September 10, 2015.  As of April 30, 2016, this note was in default.     13,035       68,671  
                 
On March 25, 2014, the Company sold a note with a principal balance of $75,000 for a purchase price of $50,000 and an original issuance discount of $25,000. This note matured on September 25, 2014.                
                 
This note may be converted into common stock of the Company at any time after the maturity date at a fixed price of $0.0001 per share. However, if the stock price of the Company loses the bid, loses DTC eligibility, or gets “chilled for deposit” at any time before the maturity date, the conversion price shall be $0.00001 per share. This note shall not be converted to the extent that such conversion would result in beneficial ownership by the holder and its affiliates to own more than 4.99% of the issued and outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the noteholder upon with not less than 61 days’ prior notice to the Company.                
                 
As of April 30, 2016, this note was in default.     31,329       75,000  
                 
On March 31, 2014, the Company sold a note with a principal balance of $42,000 for a purchase price of $30,000.  This note matured on September 30, 2014.  Interest accrued at the rate of 15% per annum, compounding daily.  At any time from the date hereof until no payment and/or repayment of funds due to the holder of this note, all principal, accrued but unpaid interest and all other payments due under this note shall be convertible into shares of common stock of the Company, at a conversion price of $.0001 at the option of the holder, in whole at any time and from time to time.                
                 
On September 17, 2015, the Company and the lender entered into an exchange agreement and combined this note with two other notes held by the same lender and issued a new note to the lender.     -       6,496  

 

  10  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On June 3, 2014, the Company sold a note with a principal purchase price of $10,000.  This note matured on June 2, 2015.  Interest accrued at the rate of 8% per annum, compounding daily.  At any time from the date hereof until no payment and/or repayment of funds due to the holder of this note, all principal, accrued but unpaid interest and all other payments due under the note shall be convertible into shares of common stock of the Company, at a conversion price of $.0001 at the option of the noteholder, in whole at any time and from time to time.                
                 
During the quarter ended October 31, 2015, the Company repaid $39,534 in interest and penalties by issuing 926,204 shares of common stock.     -       1,500  
                 
On June 6, 2014, the Company sold a note with a principal purchase price of $60,000.  This note matured on June 5, 2015. Interest accrues at the rate of 8% per annum, compounding daily.  At any time from the date hereof until no payment and/or repayment of funds due to the noteholder, all principal, accrued but unpaid interest and all other payments due under this note shall be convertible into shares of common stock of the Company, at a conversion price of $.0001 at the option of the noteholder, in whole at any time and from time to time.                
                 
During the quarter ended October 31, 2015, the Company repaid $39,756 by issuing 587,508 shares of common stock.     -       39,756  
                 
On June 4, 2014, a new lender assumed a $60,000 portion of existing debt.  Pursuant to the original agreement, if the Company does not repay the entire balance of the maturity date, June 15, 2014, the note shall accrue interest at 22% per annum.                
                 
The note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the original note.                
                 
As of April 30, 2016, the Company was in default on this note.     472,568       472,568  
                 
On June 6, 2014, the Company sold a note with a principal purchase price of $60,000.  This note matured on June 5, 2015.  Interest accrues at the rate of 8% per annum, compounding daily.  This note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the five (5) trading days immediately preceding the conversion, subject to certain adjustment as further described in the original note.                
                 
During the quarter ended October 31, 2015, the Company repaid $36,510 by issuing 543,404 shares of common stock.     -       36,510  
                 
On August 15, 2014, the Company sold a non interest bearing note with a principal purchase price of $66,000.  This note was due on August 15, 2015.  This note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 50% of the lowest trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the original note.                
                 
As of April 30, 2016, the Company was in default on this note.     68,000       68,000  

 

  11  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On August 26, 2014, a new investor purchased from an original noteholder, a convertible note with a face value of $48,000 dated October 8, 2013, with a present balance of $62,234, including accrued interest. The terms of the original note remain the same.                
                 
Pursuant to the Master Note, the Investor held the right, solely in the Investor’s discretion, to subsequently purchase up to eight (8) additional promissory notes (each, an “Additional Note”, the Master Note and each additional note collectively, the “Notes”), at any time from the date of issuance of the Master Note until October 10, 2014.  Each Additional Note had a principal balance of $22,000 and had a purchase price of $20,000, and an original issue discount of $2,000.                
                 
Pursuant to the Master Note, if the Company repays the entire balance of each of the Notes prior to the prepayment opportunity date (as defined in the Master Note), the Company shall pay an interest rate equal to 0% per annum.  If the Company does not repay the entire balance of each Note prior to the prepayment opportunity date each Note shall have a one-time interest charge equal to 12%, applied to the outstanding balance of each note.                
                 
Each of the notes is convertible, at any time after the date nine months from the Purchase Price Date (as defined in the Master Note), into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the Master Note.                
                 
During the nine months ended April 30, 2016, the note holder converted $9,960 in principal into 7,996,762 shares of the Company’s common stock.                
                 
As of April 30, 2016, this note was in default.     695,986       705,946  
                 
On August 27, 2014, the Company sold a 12% Convertible Redeemable Note in the principal amount of $160,000 pursuant to a Securities Purchase Agreement.   The Note matured on March 27, 2015.                
                 
The Note may be converted into common stock of the Company at any time beginning on the 1st day of the date of the Note at a price equal to the lesser of (i) $0.01 or (ii) 60% of the lowest intraday bid price of the common stock as reported on OTCQB, for the five prior trading days.                
                 
As of April 30, 2016, this note was in default.     233,707       233,707  
                 
On October 2, 2014, the Company sold a 12% Convertible Redeemable Note in the principal amount of $58,000 pursuant to a Securities Purchase Agreement. The Note matured on May 2, 2015.                
                 
This note is convertible into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 40% of the lowest bid price for the thirty (30) trading days immediately preceding the conversion, subject to certain adjustment as further described in the note agreement.                
                 
During the nine months ended April 30, 2016, the Company repaid $22,268 by issuing 6,433,892 shares of common stock. As of April 30, 2016, this note was in default.     3,462       25,730  

 

  12  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On October 17, 2014, the Company sold a 1% Convertible Redeemable Note in the principal amount of $500,000 pursuant to a Securities Purchase Agreement.                
                 
This note matured on April 17, 2015. This note may be converted into common stock of the Company at any time beginning on the 1st day of the date of this note at a price equal to 56% of the lowest intraday bid price of the common stock as reported on OTCQB, for the five prior trading days.                
                 
On April 26, 2016 and May 11, 2016, $50,000 and $25,000 in principal, respectively, were assigned to another investor.                
                 
As of April 30, 2016, this note was in default.     425,000       500,000  
                 
On November 28, 2014, the Company executed a convertible note payable in the amount of $800,000, which matured on May 28, 2015, bearing interest at 1% per annum. This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion.                
                 
On April 26, 2016, the noteholder assigned $50,000 in principal and $7,562 in principal, totaling $57,562 to another investor.                
                 
As of April 30, 2016, this note was in default.     750,000       800,000  
                 
On March 11, 2015, the Company executed a convertible note payable in the amount of $100,000 payable on September 5, 2015 bearing interest at 1% per annum. This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion.                
                 
As of April 30, 2016, this note was in default.     100,000       100,000  
                 
On September 17, 2015, the Company entered into a Settlement Agreement with a lender. In accordance with the Settlement Agreement, the Company agreed to issue to the lender a convertible promissory note in the principal amount of $240,500, in exchange for the return and cancellation of certain outstanding debt held by the lender. The debt was comprised of an aggregate of $240,500 of principal and interest on i) a convertible debenture in the original principal amount of $60,000 issued to the lender on April 30, 2013, ii) a senior secured convertible promissory note with an original principal balance of $100,000, which the lender had assumed from an individual on June 17, 2013, and iii) a convertible note with an original principal amount of $42,000 issued to the lender on March 31, 2014.                
                 
The note is convertible into shares of the Company’s common stock at a price per share equal to fifty percent (50%) of the lowest closing bid price or closing sale price for a share of common stock during the ten (10) consecutive trading days immediately preceding the date of conversion.  No effect shall be given to conversions that would result in the lender holding an aggregate of more than 4.99% of the Company’s outstanding Common Stock.  If at any time after September 17, 2015 the Company issues or sells any shares of Common Stock for consideration per share lower than the conversion price the conversion price in effect shall be reduced to the new issuance price.                
                 
On November 20, 2015, the Company entered into a settlement agreement with the lender whereby the note, which had a balance of $170,500, was sold an investor for a purchase price of $227,500 and the original note was discharged.     -       -  

 

  13  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On October 27, 2015, the Company executed a convertible note payable in the amount of $25,000 payable on April 26, 2016 bearing interest at 1% per annum. This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion. As of April 30, 2016, this note was in default.     25,000       -  
                 
On September 10, 2015, an investor acquired a note with a principal balance of $43,671 from the original investor. In accordance with the terms of the original note, this note may be converted into common stock of the Company at any time after the maturity date at a fixed price of $0.0001 per share. However, if the stock price of the Company loses the bid at any time before the maturity date, the conversion price shall be $0.00001 per share. This note shall not be converted to the extent that such conversion would result in beneficial ownership by the holder and its affiliates to own more than 4.99% of the issued and outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the noteholder upon not less than 61 days’ prior notice to the Company.                
                 
During the nine months ended April 30, 2016, the Company repaid the note by issuing 87,456,860 shares of common stock.     -       -  
                 
On December 4, 2015, the Company executed a convertible note payable in the amount of $74,250 payable on June 4, 2016 bearing interest at 12% per annum. This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion. The note was issued with an original issue discount of $6,750.  This note is convertible into the Company’s common stock at a variable conversion price equal to 60% of the market value at the time of conversion, but no less than $0.00005 per share.     74,250       -  
                 
On December 7, 2015, an investor purchased a portion of a note and the related accrued interest, totaling $89,915. In accordance with the original terms of the note, the note shall have a one-time interest charge equal to 12%, applied to the outstanding balance of each note.                
                 
Each note is convertible, at any time after the date nine months from the purchase price date (as defined in the Master Note), into shares of the Company’s common stock at an exercise price equal to (i) the outstanding balance divided by (ii) 60% of the lowest intra-day trade price in the twenty-five (25) trading days immediately preceding the conversion, subject to certain adjustment as further described in the note. During the nine months ended April 30, 2016, the Company repaid $89,915 in principal by issuing 52,028,292 shares of the Company’s common stock.     -       -  
                 
On December 31, 2015, the Company executed a convertible note payable in the amount of $82,500, payable on September 31, 2016, bearing interest at 12% per annum. The note was issued with an original issue discount of $7,500.  This note is convertible into the Company’s common stock at a variable conversion price equal to 60% of the market value at the time of conversion, but no less than $0.00005 per share.     82,500       -  
                 
On November 20, 2015, the Company entered into an Assignment and Settlement Agreement (the November 2015 Settlement Agreement) with the noteholder and an investor whereby the investor sold a note and related accrued interest $190,722 for $227,500.  The Company issued a new note to the investor with a face value of $250,500, which includes an original issue discount of $22,750, dated November 20, 2015, bearing interest at 12% per annum, payable on August 26, 2016.  The note is convertible into the Company’s common stock at a variable conversion price equal to 60% of the market value at the time of conversion, but no less than $0.00005 per share.     250,250       -  
                 
On March 1, 2016, the Company executed a convertible note payable in the amount of $77,000, payable on December 1, 2016, bearing interest at 12% per annum.  The note was issued with an original issue discount of $7,000.  This note is convertible into the Company’s common stock at a variable conversion price equal to 60% of the market value at the time of conversion, but no less than $0.00005 per share.     77,000       -  

 

  14  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 4 - CONVERTIBLE NOTES PAYABLE (cont'd)

 

On March 15, 2016, the Company executed a convertible note payable in the amount of $55,000, payable on December 15, 2016, bearing interest at 12% per annum.  The note was issued with an original issue discount of $5,000.  This note is convertible into the Company’s common stock at a variable conversion price equal to 60% of the market value at the time of conversion, but no less than $0.00005 per share.     55,000       -  
                 
On April 11, 2016, the Company executed a convertible note payable in the amount of $29,700, payable on April 11, 2017, bearing interest at 10% per annum.  The note was issued with an original issue discount of $2,700.  This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the lowest trading volume weighted average price during the 5 days prior to the date of conversion.     29,700       -  
                 
On April 11, 2016, an investor purchased a portion of a note, totaling $25,000.  The original date of the note was October 17, 2014 and it bears interest at 1% per annum.                
                 
 This note matured on April 17, 2015. This note may be converted into common stock of the Company at any time beginning on the 1st day of the date of this note at a price equal to 56% of the lowest intraday bid price of the common stock as reported on OTCQB, for the five prior trading days.  During the nine months ended April 30, 2016, the Company repaid $17,735 in principal by issuing 34,780,030 shares of the Company’s common stock.     7,265       -  
                 
On April 26, 2016, an investor purchased a portion of a note, including principal of $50,000 and accrued interest of $7,562 totaling $57,562.  The original date of the note was October 17, 2014 and it bears interest at 1% per annum.  This note is convertible into the Company’s common stock at a variable conversion price equal to 56% of the market value at the time of conversion.  During the nine months ended April 30, 2016, the Company repaid $1,438 in principal by issuing 19,565,217 shares of the Company’s common stock.     56,123       -  
                 
Total     3,624,818       3,379,185  
Less: debt discounts     (734,399 )     (1,652,229 )
Plus: amortization of discounts     507,113       1,629,462  
Total convertible notes payable - current   $ 3,397,532     $ 3,356,418  

 

  15  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 5 - DERIVATIVE LIABILITY

 

The convertible notes payable issued by the Company contain a variable conversion feature (the Variable Conversion Feature) that gives rise to a derivative liability. The Company has measured its derivative liability at fair value and recognized the derivative value as a current liability and recorded the derivative value on its consolidated balance sheet. The derivative is valued primarily using models based on unobservable inputs that are supported by little to no market activity. These inputs represent management’s best estimate of what market participants would use in pricing the liability at the measurement date and thus are classified as Level 3. Changes in the fair values of the derivative are recognized as earnings or losses in the current period.

 

The fair values of derivative liabilities related to the Variable Conversion Features as of July 31, 2015, for derivative instruments issued during the nine months ended April 30, 2016 and as of April 30, 2016 were estimated on the transaction dates and balance sheet dates under the following assumptions:

 

    July 31,
2015 		    Issuances /
changes 		    April 30,
2016 		 
Shares of common stock issuable upon exercise of debt     110,297,625       5,241,027,916       5,351,326,541  
Estimated market value of common stock on measurement date   $ 0.03     $ 0.01     $ 0.0005  
Exercise price   $ 0.07     $ 0.023     $ 0.001  
Risk free interest rate     0.33 %      0.01% to 0.12 %     0.19 %
Expected dividend yield     0.00 %     0.00 %     0.00 %
Expected volatility     384.93 %      118.60% to 693.3 %     366.28 %
Expected exercise term in years     0.8333       0.00       .948  

 

The changes in fair values of the derivative liabilities related to the convertible notes payable for the nine months ended April 30, 2016 are summarized as follows:

 

Fair value of derivative liabilities at July 31, 2015   $ 1,203,607  
Conversion of derivative liabilities     (565,131 )
Change in fair value of derivative liabilities     1,746,358  
Fair value of derivative liabilities at April 30, 2016   $ 2,384,833  

   

NOTE 6 - EQUITY

 

The Company is authorized to issue 5,000,000,000 shares of common stock and 1,000,000 shares of preferred stock.

 

On September 1, 2015, the Company issued 100,000 shares of common stock to a consultant for services rendered. The fair market value of these common stock is $25,000.

 

On September 1, 2015, the Company issued 10,000 shares of common stock to a consultant for services rendered. The fair market value of these common stock is $2,500.

 

On September 15, 2015, the Company settled a lawsuit by issuing 1,000,000 shares of common stock. These shares have a fair value of $220,000 on the date of issuance.

  

On September 22, 2015, the Company issued 50,000 shares of common stock to an athlete in exchange for an endorsement of its products. 10,000 shares had been recorded as a common stock to be issued as of July 31, 2015. The balance, 40,000 shares of common stock, was a bonus. The fair value of the additional 40,000 shares was $5,600 on the date of issuance.

 

During the nine-month period ended April 30, 2016, the Company issued 5,000,000 shares of common stock upon the exercise of 221,159 warrants.

 

During the nine-month period ended April 30, 2016 the Company issued 143,718,186 shares of common stock related to conversions of $498,225 in convertible debt, related accrued interest and fees during the period.

 

  16  

 

 

HIGH PERFORMANCE BEVERAGES COMPANY

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 6 – EQUITY (cont'd)

 

On February 29, 2016, the Company completed a 1 for 100 reverse stock split. All per share amounts in the financial statements have been restated to reflect the reverse stock split.

 

On March 7, 2016, the Company issued 265 shares to the Depository Trust Company in order to effect the rounding provisions of the reverse split that became effective on February 29, 2016.

 

In March 2016, the Company issued 40,700,000 shares to athletes in accordance with their endorsement contracts. The fair market value of the shares on the date of issuance was $98,100.

  

NOTE 7 - RELATED PARTY TRANSACTIONS

 

The Company neither owns nor leases any real or personal property. The Company's office is provided to it by an officer who incurs no incremental costs as a result of the Company using the space. Therefore, he does not charge for its use. There is no written lease agreement, and no obligation for him to continue this arrangement.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

Pending and Threatened Litigation

 

On or about January 29, 2015, Alpha Capital Anstalt (“Alpha”) filed a complaint against the Company for damages in connection with a note that they alleged was in default by the Company, which was answered on or about April 3, 2015. See Case 1:15-cv-00639-CM filed in the United States District Court, Southern District. On June 26, 2016, the parties reached a settlement whereby the Company will issue 410,000,000 shares of its common stock to Alpha. The settlement has been submitted to the court for approval. The fair market value of the settlement was $82,000 on the settlement date and has been recorded as interest expense as of April 30, 2016.

 

NOTE 9 - SUBSEQUENT EVENTS

 

On May 17, 2016, the Company issued 5,000,000 shares to a consultant for services rendered. The fair market value of the shares was $1,500 on the date of issuances.

 

Between May 1, 2016 and the date of this report, the Company issued 354,980,320 shares for the repayment of $73,760 in principal and accrued interest.

 

Through the date of this filing, the Company has determined that no additional events are required to be reported, other than the above, including Note 8.

 

  17  

 

 

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

  ●  our future operating results;        
     
  ● our business prospects;        
     
  ● any contractual arrangements and relationships with third parties;        
     
  ● the dependence of our future success on the general economy;        
     
  ● any possible financings; and        
     
  ● the adequacy of our cash resources and working capital.

 

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

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

In October 2013, the Dethrone License Agreement was terminated and the Company entered into a license agreement with Throwdown Industries Holdings, LLC, a Delaware limited liability company (“Throwdown Licensor”), pursuant to which the Licensor granted an exclusive, non-sublicenseable and non-assignable right to the Company to use its trademarks and other intellectual properties (“Throwdown Trademarks”) solely in connection with the development, manufacture, distribution, marketing and sale of sports performance drinks within the United States and Canada (the “Throwdown License”) as well as a one-time right of first refusal to license other types of beverages.

 

Effective November 14, 2013, the Company changed its name to High Performance Beverages Company in order to better reflect the direction and business of the Company.

 

On July 23, 2014, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to increase the number of authorized shares of common stock from 500,000,000 to 2,500,000,000 shares, effective immediately.

 

On August 27, 2015, the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to increase the number of authorized shares of common stock from 2,500,000,000 to 5,000,000,000 shares, effective immediately.

 

On February 29, 2016, the Company completed a 1 for 100 reverse stock split.

 

  18  

 

 

Current Status

 

We began distribution of our product in September 2015 through Amazon.com. Currently we have one flavor of our beverage, High Performance Punch, for sale on Amazon. It is sold in a pack of 12, 16oz bottles. We have sold 112 and 931 packs during the three and nine months ended April 30, 2016, respectively. Our initial production run was approximately 5,000 cases. These units are stored in a warehouse and shipped to Amazon on a periodic basis in order to keep sufficient product on hand in Amazon’s warehouses to meet customer demand.

 

We promote our product through social media and with athlete endorsements. We have entered into contracts with several professional sports personalities (Jonathan Quick, Aldon Smith, Haloti Nagata, Taj Gibson, Matt Moulson, Brian Braham, Kenneth Draun, and Andrew Depaula) to represent us by endorsing our products. All contracts cover three years and require us to issue an aggregate of 199,634,091 restricted shares of common stock over the lives of the contracts. During the three and nine months ended April 30, 2016, we have recorded an aggregate marketing expense of $0 and $21,119, respectively, relating to the shares that are issuable.

 

Three months ended April 30, 2016 compared with three months ended April 30, 2015

 

We had sales of $5,808 during the quarter ended April 30, 2016, which represents an increase of $5,808 over the quarter ended April 30, 2105, when we had no sales. Our products are sold and fulfilled by Amazon.

 

We incurred cost of goods sold related to the sale of our product during the quarter ending April 30, 2016 of $6,076. This represents an increase of $6,076 from the prior year, when there were no sales or related cost of goods sold. Cost of goods sold represents 105% of revenue due to the costs associated with establishing an inventory position with Amazon.com, the associated fees, and the relatively high cost of manufacturing our product in small lots.

 

General and administrative expenses increased by $34,465, from $91,872 during the three months ended April 30, 2015 to $126,337 during the three months ended April 30, 2016. The increase was due to higher professional fees for legal and accounting services.

 

Marketing expense increased by $18,146, from $9,407 during the three months ended April 30, 2015 to $27,533 during the three months ended April 30, 2016. The increase was due to increased marketing activities during the three months ended April 30, 2016 in order to establish the product in the market.

 

Product development expense decreased by $51,500, from $51,500 during the three months ended April 30, 2015 to $0 during the three months ended April 30, 2016. The decrease was due to the cost of developing the current products that was conducted during the quarter ending April 30, 2015.

 

Compensation expense was substantially the same, as it increased by $644, from $130,706 during the three months ended April 30, 2015 to $131,350 during the three months ended April 30, 2016.

 

Other (income) / expense increased $185,933 from $(429,075) during the three months ended April 30, 2015 compared to $(615,008) during the three months ended April 30, 2016. The increase is due to a decrease in interest income of $170, an increase in interest expense of $222,382, and a decrease in the change in the fair value of derivative liabilities of $327,068 and an increase in the gain on debt extinguishment of $735,553.

 

Net income / (loss) for the three months ended April 30, 2016 increased by $183,910, from net income of $145,590 during the three months ended April 30, 2015 to a net income of $411,500 during the three months ended April 30, 2016, primarily due to the change in other income.

 

  19  

 

 

Nine months ended April 30, 2016 compared with nine months ended April 30, 2015

 

We had sales of $45,919 during the nine months ended April 30, 2016, compared to $0 during the nine months ended April 30, 2015, which represents an increase of $45,919 over the nine months ended April 30, 2105. The increase is due to the initiation of product sales in September 2015. Our products are sold and fulfilled by Amazon.

 

We incurred cost of goods sold related to the sale of our product during the nine months ending April 30, 2016 of $45,239. This represents an increase of $45,239 from the prior year, when we had no sales or cost of goods sold. Cost of goods sold represents 99% of revenue due to the costs associated with establishing an inventory position with Amazon.com, the associated Amazon fees, and the relatively high cost of manufacturing our product in small lots.

 

General and administrative expenses decreased by $244,578, from $644,097 during the nine months ended April 30, 2015 to $399,519 during the nine months ended April 30, 2016. The decrease was due to a decrease in professional fees for legal and accounting services of $292,136.

 

Marketing expense decreased by $89,554, from $145,036 during the nine months ended April 30, 2015 to $55,482 during the nine months ended April 30, 2016. The decrease was due to decreased web design and sponsorships during the nine months ended April 30, 2016.

 

Product development expense decreased by $107,191, from $169,000 during the nine months ended April 30, 2015 to $61,809 during the nine months ended April 30, 2016. The decrease was due to the cost of developing the current products that was conducted during the nine months ending April 30, 2015.

 

Compensation decreased by $50,321, from $517,786 during the nine months ended April 30, 2015 to $467,465 during the nine months ended April 30, 2016. The decrease was primarily due to a reduction in share based compensation expense.

 

Other expense increased $728,668 from $1,949,524 during the nine months ended April 30, 2015 compared to $2,678,192 during the nine months ended April 30, 2016. The increase is due to an increase in interest expense of $692,887, and an increase in the change in the fair value of derivative liabilities of $1,003,836 and an increase in the gain on debt extinguishment of $968,225.

 

Net loss for the nine months ended April 30, 2016 increased by $236,344, from $3,425,443 during the nine months ended April 30, 2015 to $3,661,787 during the nine months ended April 30, 2016, primarily due to lower operating expenses and the change in fair value of derivative liabilities.

   

Liquidity

 

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

 

During the nine months ended April 30, 2016, we obtained $654,831 from borrowing on notes payable.

 

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

 

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

 

Recent Accounting Pronouncements

 

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

 

  20  

 

  

Critical Accounting Policies

 

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

 

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

 

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

 

Seasonality

 

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

 

Off-Balance Sheet Arrangements

 

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

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

Item 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

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

 

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

 

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

 

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

 

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

 

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

 

As of April 30, 2016, our management conducted an assessment of the effectiveness of the Company's internal control over financial reporting.  In making this assessment, management followed an approach based on the framework set forth in Internal Control-Integrated Framework   issued by the Committee of Sponsoring Organizations of the Treadway Commission (known as “COSO”).  Based on this assessment, management determined that the Company's internal control over financial reporting was not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.

 

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

 

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

 

  21  

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Pending and Threatened Litigation

 

On or about January 29, 2015, Alpha Capital Anstalt (“Alpha”) filed a complaint against the Company for damages in connection with a note that they alleged was in default by the Company, which was answered on or about April 3, 2015. See Case 1:15-cv-00639-CM filed in the United States District Court, Southern District. It is still pending, discovery is complete, and Alpha has filed and served a motion for summary judgment. The Company plans to file an opposition, and the case will likely be settled in the meantime.

  

Item 1A. Risk Factors

 

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

 

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

 

In March 2016, the Company issued 40,700,000 shares to athletes in accordance with their endorsement contracts. The fair market value of the shares on the date of issuance was $98,100. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

During the three-month period ended April 30, 2016, the Company issued 124,952,690 shares of common stock related to conversions of $95,935 in convertible debt and related accrued interest. The Company claims an exemption from the registration requirements of the Act for the private placement of the securities referenced herein pursuant to Section 4(2) of the Securities Act of 1933 since, among other things, the transaction did not involve a public offering.

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

None

 

Item 6. Exhibits and Reports of Form 8-K

 

(a)   Exhibits

 

31.1   Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002
     
32.1   Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Link base Document.
101.DEF   XBRL Taxonomy Extension Definition Link base Document.
101.LAB   XBRL Taxonomy Extension Label Link base Document.
101.PRE   XBRL Taxonomy Extension Presentation Link base Document.

  22  

 

 

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

 

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

 

July 13, 2016

 

 

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